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Public Offering Registration - P F CHANGS CHINA BISTRO INC - 7-24-1998

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Public Offering Registration - P F CHANGS CHINA BISTRO INC - 7-24-1998 Powered By Docstoc
					AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998 REGISTRATION NO. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

P.F. CHANG'S CHINA BISTRO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 5812 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) 86-0815086 (I.R.S. EMPLOYER IDENTIFICATION NO.)

5090 NORTH 40TH STREET, SUITE 160 PHOENIX, AZ 85018 (602) 957-8986 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ROBERT T. VIVIAN CHIEF FINANCIAL OFFICER P.F. CHANG'S CHINA BISTRO, INC. 5090 NORTH 40TH STREET, SUITE 160 PHOENIX, AZ 85018 (602) 957-8986 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO:
CAMERON JAY RAINS, ESQ. SCOTT M. STANTON, ESQ. CHRISTIAN WAAGE, ESQ. GRAY CARY WARE & FREIDENRICH LLP 4365 EXECUTIVE DRIVE, SUITE 1600 SAN DIEGO, CA 92121 (619) 677-1400 CECIL SCHENKER, P.C. J. PATRICK RYAN, ESQ. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. 300 CONVENT STREET, SUITE 1500 SAN ANTONIO, TX 78205 (210) 281-7000

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, please 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 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 AMOUNT TO BE AMOUNT OF BE REGISTERED REGISTERED(1) REGISTRATION FEE --------------------------------------------------------------------------------------------------------------------Common Stock, $0.001 par value..................... $57,500,000 $16,962.50 -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purposes of computing the registration fee in accordance with Rule 457(o). 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JULY 24, 1998 PROSPECTUS , 1998 SHARES [P.F. CHANG'S LOGO] P.F. CHANG'S CHINA BISTRO, INC. COMMON STOCK Of the shares of common stock offered hereby (the "Common Stock"), shares are being offered by P.F. Chang's China Bistro, Inc. ("P.F. Chang's" or the "Company") and shares are being offered by the Selling Stockholders. See "Principal and Selling Stockholders." The Company will not receive any of the proceeds from the sale of the shares by the Selling Stockholders. Prior to this offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. Application has been made for the Common Stock to be approved for quotation on the Nasdaq National Market under the symbol "PFCB." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------------------------------------------------------------PRICE UNDERWRITING PROCEEDS PROCEEDS TO TO THE DISCOUNTS AND TO THE THE SELLING PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS ------------------------------------------------------------------------------------------------------------------------Per Share............................ $ $ $ $ Total(3)............................. $ $ $ $ -------------------------------------------------------------------------------------------------------------------------

(1) The Company and Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $550,000. (3) The Company and the Selling Stockholders have granted to the Underwriters an option, exercisable within 30 days after the date hereof to purchase up to additional shares of Common Stock on the same terms and conditions set forth above solely to cover over-allotments, if any. If such option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions, Proceeds to the Company and Proceeds to the Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the several Underwriters subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to certain prior conditions including the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the certificates representing the shares of Common Stock will be made in New York, New York on or about , 1998. DONALDSON, LUFKIN & JENRETTE

NATIONSBANC MONTGOMERY SECURITIES LLC DAIN RAUSCHER WESSELS a division of Dain Rauscher Incorporated

[INSIDE FRONT COVER] The Company has registered the servicemark "P.F. Chang's China Bistro." All other brand names and trademarks appearing in this Prospectus are the property of their respective holders. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2

PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus. As used in this Prospectus, unless the context otherwise requires, the terms "Company" and "P.F. Chang's" include P.F. Chang's China Bistro, Inc. and all of its subsidiaries and affiliates and their respective predecessors. Except as otherwise noted, all information in this Prospectus assumes (i) no exercise of the Underwriters' over-allotment option, (ii) no exercise of options or warrants to purchase shares of Common Stock and (iii) the conversion into shares of Common Stock upon the closing of this offering of all outstanding shares of Convertible Redeemable Preferred Stock and the deferred purchase price liability representing the balance of the purchase price from the acquisition of minority interests in three of the four original restaurants (the "Deferred Purchase Price Liability"). Information in this Prospectus also gives effect to a one-for-two reverse stock split to be effected prior to consummation of this offering. See "Description of Capital Stock" and "Underwriting." THE COMPANY P.F. Chang's owns and operates 15 full service restaurants that feature a unique blend of high quality, authentic Chinese cuisine and American hospitality in a sophisticated, contemporary bistro setting. The Company's restaurants offer intensely flavored, highly memorable culinary creations, prepared from fresh ingredients, including premium herbs and spices imported directly from China. The menu is focused on select dishes created to capture the distinct flavors and styles of the five major culinary regions of China: Canton, Hunan, Mongolia, Shanghai and Szechwan. By adhering to the Chinese culinary precepts of fan and t'sai, a balancing of rice, noodles and grains with meat, seafood and vegetables, the P.F. Chang's menu offers an array of taste, texture, color and aroma. The menu is highlighted by signature dishes such as Chang's Spicy Chicken, Orange Peel Beef, Peking Ravioli, Chicken in Soothing Lettuce Wrap, Szechwan-Style Long Beans and Dan Dan Noodles. The authentic cuisine is complemented by a full service bar offering an extensive selection of wines, specialty drinks, Asian beers, cappuccino and espresso. The average check per customer, including beverage, is approximately $17.00. The Company offers superior customer service in a high energy atmosphere featuring a display kitchen, exhibition wok cooking and a decor that includes wood and slate floors, mounted life-size terra cotta replicas of Xi'an warriors and narrative murals depicting 12th century China. The Company was formed in early 1996 with the acquisition of the four original P.F. Chang's restaurants and the hiring of an experienced management team, led by Richard Federico and Robert Vivian, the Company's Chief Executive Officer and Chief Financial Officer, respectively, to support the Company's founder, Paul Fleming. P.F. Chang's opened three additional restaurants in 1996, six in 1997 and expects to open ten restaurants in 1998 (two of which are open) and 13 in 1999. Key to the Company's expansion strategy and success at the restaurant level is the Company's management philosophy utilizing Market, Operating and Culinary Partners. The Company has demonstrated the viability of the P.F. Chang's concept in a wide variety of markets across the United States, including the Southwest, southern California, Texas and southern Florida. The P.F. Chang's concept was developed in 1993 by Paul Fleming, a highly successful Phoenix-based restaurateur, in collaboration with Philip Chiang, the owner of the acclaimed Mandarin restaurant in Beverly Hills, California. The Company's objectives are to (i) develop and operate a nationwide system of restaurants that offer guests a unique, sophisticated dining experience, (ii) create a loyal customer base that generates a high level of repeat business and (iii) provide superior returns to its investors. To achieve its objectives, the Company strives to offer high quality Chinese cuisine in a memorable atmosphere while delivering superior customer service and an excellent dining value. The Company intends to pursue an accelerated, disciplined expansion program by leveraging its innovative partnership management philosophy in order to build on its exceptional restaurant economics. The Company was incorporated in January 1996 as a Delaware corporation in connection with the acquisition of the four original P.F. Chang's restaurants. The Company's principal executive office is located at 5090 North 40th Street, Suite 160, Phoenix, Arizona 85018. The Company's telephone number is (602) 957- 8986, and its facsimile number is (602) 957-8998. 3

THE OFFERING
Common Stock offered by the Company........... Common Stock offered by the Selling Stockholders.................................. Common Stock to be outstanding after the offering...................................... Use of proceeds............................... shares shares shares(1) Development of new restaurants,

repayment of certain indebtedness and general corporate purposes including working capital. See "Use of Proceeds." Proposed Nasdaq National Market symbol........ PFCB (1) Based on shares outstanding at June 28, 1998, which includes (i) 3,475,854 shares issuable on conversion of outstanding shares of Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") and outstanding shares of Series B Convertible Redeemable Preferred Stock (the "Series B Preferred Stock" and together with the Series A Preferred Stock, the "Preferred Stock"), (ii) 82,130 shares of Common Stock issuable as paid-in-kind dividends to holders of Series A Preferred Stock of the Company prior to consummation of the offering and (iii) shares issuable upon consummation of this offering upon conversion of the Deferred Purchase Price Liability, assuming an initial public offering price of $ . Excludes (i) 1,009,635 shares reserved as of such date for issuance upon the exercise of outstanding stock options at a weighted average exercise price of $3.87 per share, (ii) an aggregate of 680,000 shares reserved for future grant under the Company's stock option and stock purchase plans and (iii) 62,190 shares reserved for issuance upon the exercise of outstanding warrants at an exercise price of $4.00 per share. See "Management--Benefit Plans" and "Description of Capital Stock." SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA(1)
SIX MONTHS ENDED -------------------FISCAL YEAR TOTAL YEAR FISCAL YEAR JUNE 29, JUNE 28, 1995(2) 1996(3) 1997 1997 1998 (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) $10,465 8,891 660 $ 647 ----25.1% $81,122 25.2% 4 13.0% $81,976 34.4% 7 13.8% $90,383 34.9% 13 12.6% $91,250 -8 11.7% $93,839 -14 $ $18,445 15,835 9 $(1,145) --$ $39,768 32,470 (2) $(1,696) $ (1.03) 2,500 $ $17,703 14,334 696 $ (241) $ (0.25) 2,500 $ $32,937 26,296 1,658 $ 847 $ 0.13 6,655

STATEMENTS OF OPERATIONS DATA: Revenues..................................... Total restaurant operating costs............. Income (loss) from operations................ Net income (loss)............................ Diluted net income (loss) per share.......... Shares used in calculation of diluted net income (loss) per share(4)................. PRO FORMA DATA:(5) Pro forma diluted net income (loss) per share...................................... Shares used in calculation of pro forma diluted net income (loss) per share........ OPERATING DATA: Comparable restaurant sales increase(6)...... Average weekly restaurant sales.............. Return on investment(7)...................... Restaurants open at end of period............

CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... Total assets................................................ Deferred Purchase Price Liability........................... Short- and long-term debt................................... Convertible Redeemable Preferred Stock...................... Common stockholders' equity (deficit).......................

JUNE 28, 1998 ------------------------ACTUAL AS ADJUSTED(8) $ 1,802 34,265 2,426 11,600 18,285 (4,076) $ -2,600 --

4

(1) The Company's fiscal quarters typically consist of thirteen week periods ending on the Sunday closest to the last day of the calendar quarter, and its fiscal year ends on the Sunday closest to December 31 in each year. (2) Fiscal year 1995 information reflects the combined results of operations of the Predecessors. Accordingly, net income (loss) per share for fiscal year 1995 is not presented because it is not meaningful. See "Certain Transactions" and Note 1 of Notes to Consolidated Financial Statements. (3) Prior to February 29, 1996, the Company's business was conducted by four business entities controlled by Paul Fleming: Fleming Chinese Restaurants, Inc. (Scottsdale), P.F. Chang's II, Inc. (Newport Beach), P.F. Chang's III, L.L.C. (La Jolla) and P.F. Chang's IV, L.L.C. (Irvine) (collectively, the "Predecessors"). Total year 1996 information reflects the combined results of the Predecessors for the period beginning January 1, 1996 and ending February 28, 1996 and the results of the Company for the period beginning February 29, 1996 and ending December 29, 1996. Accordingly, net income (loss) per share for total year 1996 is not presented because it is not meaningful. The allocation of the purchase price in connection with the purchase of minority interests resulted in no material adjustment to the historical recorded basis in the assets and liabilities except for goodwill. Therefore, the effect to the statement of operations is primarily amortization of goodwill subsequent to the date of acquisition. See "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Certain Transactions" and Note 1 of Notes to Consolidated Financial Statements. (4) See Notes 2, 6 and 8 of Notes to Consolidated Financial Statements. (5) Pro forma information gives effect as of the beginning of each period to (i) the purchase of substantially all of the minority interests in the Predecessors, (ii) the repayment of the Company's revolving line of credit through the application of the net proceeds from the sale of a sufficient number of shares of Common Stock at the assumed initial public offering price of $ per share, and (iii) the conversion into Common Stock of the Preferred Stock and the Deferred Purchase Price Liability, assuming an initial public offering price of $ per share. (6) A new restaurant is included in the calculation of the change in comparable restaurant sales in the eighteenth month of that restaurant's operation. (7) Return on investment for each restaurant is determined as the quotient of earnings of such restaurant before interest, taxes and rent divided by the Company's total investment in restaurant assets. The information presented in the table is the aggregate return on investment for all restaurants open during the respective periods. See "Business--Unit Economics." (8) Adjusted to give effect as of June 28, 1998 to (i) the receipt by the Company of the estimated net proceeds of $ from the sale of shares of Common Stock offered hereby by the Company at an assumed initial public offering price of $ per share, (ii) application of a portion of the net proceeds of this offering to repay the Company's revolving line of credit, and (iii) the conversion into Common Stock of the Preferred Stock and the Deferred Purchase Price Liability, assuming an initial public offering price of $ per share. 5

RISK FACTORS In addition to the other information in this Prospectus, prospective investors should carefully consider the following risk factors in evaluating an investment in the Company before purchasing any shares of Common Stock offered hereby. This Prospectus contains forward-looking statements which involve risks and uncertainties. Such forward-looking statements may be deemed to include anticipated restaurant openings, anticipated costs and sizes of future restaurants and the adequacy of anticipated sources of cash, including the proceeds from this offering, to fund the Company's future capital requirements. Words such as "believes," "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Prospective investors are cautioned that actual events or results may differ materially from those discussed in the forward-looking statements. Factors that might cause actual events or results to differ materially from those indicated by such forward- looking statements may include the matters set forth below and elsewhere in this Prospectus. UNCERTAINTIES ASSOCIATED WITH EXPANDING OPERATIONS Because the Company currently operates only 15 restaurants, several of which have been opened within the last twelve months, the results achieved to date by the Company's relatively small number of restaurants may not be indicative of those restaurants' long-term performance or the potential market acceptance of restaurants in other locations. Further, there can be no assurance that any new restaurant which the Company opens will obtain similar operating results to those of prior restaurants. The Company anticipates that its new restaurants will commonly take several months to reach planned operating levels due to certain inefficiencies typically associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors. A critical factor in the Company's future success is its ability to successfully expand its operations. The Company expanded from seven restaurants at the end of 1996 to 15 restaurants as of June 1998. The Company expects to open a total of ten restaurants during 1998 (two of which are open) and an additional 13 in 1999. The Company's ability to expand successfully will depend on a number of factors, including the identification and availability of suitable locations, competition for restaurant sites, the negotiation of favorable lease arrangements, timely development in certain cases of commercial, residential, street or highway construction near the Company's restaurants, management of the costs of construction and development of new restaurants, securing required governmental approvals and permits, recruitment of qualified operating personnel (particularly managers and chefs), the competition in new markets, general economic conditions and other factors, some of which are beyond the control of the Company. The opening of additional restaurants in the future will depend in part upon the Company's ability to generate sufficient funds from operations or to obtain sufficient equity or debt financing on favorable terms to support such expansion. There can be no assurance that the Company will be successful in addressing these risks, that the Company will be able to open its planned new operations on a timely basis, if at all, or, if opened, that those operations will be operated profitably. The Company has experienced, and expects to continue to experience, delays in restaurant openings from time to time. Delays or failures in opening planned new restaurants could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company's growth strategy may strain the Company's management, financial and other resources. To manage its growth effectively, the Company must maintain a high level of quality and service at its existing and future restaurants, continue to enhance its operational, financial and management capabilities and locate, hire, train and retain experienced and dedicated operating personnel, particularly managers and chefs. There can be no assurance that the Company will be able to effectively manage these and other factors necessary to permit it to achieve its expansion objectives, and any failure to do so could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. 6

DEVELOPMENT AND CONSTRUCTION RISKS Because each P.F. Chang's restaurant is distinctively designed to accommodate particular characteristics of each location and to blend local or regional design themes with the Company's principal trade dress and other common design elements, each location presents its own development and construction risks. Many factors may affect the costs associated with the development and construction of the Company's restaurants, including labor disputes, shortages of materials and skilled labor, weather interference, unforeseen engineering problems, environmental problems, construction or zoning problems, local government regulations, modifications in design to the size and scope of the projects and other unanticipated increases in costs, any of which could give rise to delays or cost overruns. There can be no assurance that the Company will be able to develop additional P.F. Chang's restaurants within anticipated budgets or time periods, and any such failure could materially adversely affect the Company's business, financial condition, results of operations or cash flows. DEPENDENCE ON KEY PERSONNEL The success of the Company's business will continue to be highly dependent on its key operating officers and employees, including Richard Federico, the Company's Chief Executive Officer and President, and Robert Vivian, the Company's Chief Financial Officer. The Company's success in the future will be dependent on its ability to attract, retain and motivate a sufficient number of qualified management and operating personnel, including Market Partners, Operating Partners and chefs, to keep pace with an aggressive expansion schedule. Such qualified individuals are historically in short supply and any inability of the Company to attract and retain such key employees may limit its ability to effectively penetrate new market areas. Additionally, the ability of these key personnel to maintain consistency in the quality and atmosphere of the Company's restaurants in various markets is a critical factor in the Company's success. Any failure to do so may harm the Company's reputation and could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. See "Business--Operations" and "Management." RESTAURANT INDUSTRY AND COMPETITION The restaurant industry is intensely competitive with respect to food quality, price-value relationships, ambiance, service and location, and many restaurants compete with the Company at each of its locations. The Company's competitors include mid-price, full-service casual dining restaurants and locally owned and operated Chinese restaurants. There are many well-established competitors with substantially greater financial, marketing, personnel and other resources than the Company, and many of the Company's competitors are well established in the markets where the Company's operations are, or in which they may be, located. Additionally, other companies may develop restaurants that operate with similar concepts. The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, consumer confidence in the economy, discretionary spending priorities, weather conditions, tourist travel, traffic patterns and the type, number and location of competing restaurants. Changes in these factors could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. In the future, changes in consumer tastes may require the Company to modify or refine elements of its restaurant system to evolve its concept in order to compete with popular new restaurant formats or concepts that develop from time to time, and there can be no assurance that the Company will be successful in implementing such modifications. See "Business--Competition." FLUCTUATIONS IN OPERATING RESULTS The Company's operating results may fluctuate significantly as a result of a variety of factors, including general economic conditions, consumer confidence in the economy, changes in consumer preferences, competitive factors, weather conditions, the timing of new restaurant openings and related expenses, revenues contributed by new restaurants and increases or decreases in comparable restaurant revenues. Historically, the Company has experienced variability in the amount and percentage of revenues attributable to preopening expenses. The Company typically incurs the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. 7

In addition, the Company's experience to date has been that labor and operating costs associated with a newly opened restaurant for the first several months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had and is expected to have a meaningful impact on preopening expenses and labor and operating costs until such time as a larger base of restaurants in operation mitigates such impact. Due to the foregoing factors, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year, and, from time to time in the future, the Company's results of operations may be below the expectations of public market analysts and investors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." CHANGES IN FOOD COSTS The Company's profitability is dependent in part on its ability to anticipate and react to changes in food costs. Other than for produce, which is purchased locally by each restaurant, the Company relies on the Distributors Marketing Alliance as the primary distributor of its food. Although the Company believes that alternative distribution sources are available, any increase in distribution prices or failure to perform by the Distributors Marketing Alliance could cause the Company's food costs to fluctuate. Further, various factors beyond the Company's control, including adverse weather conditions and governmental regulation, may affect the Company's food costs. There can be no assurance that the Company will be able to anticipate and react to changing food costs through its purchasing practices and menu price adjustments in the future, and failure to do so could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. LITIGATION The Company is from time to time the subject of complaints or litigation from guests alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are valid or whether the Company is liable. The Company also is the subject of complaints or allegations from former or prospective employees from time to time. A lawsuit or claim could result in an adverse decision against the Company that could materially adversely affect the Company or its business. GOVERNMENTAL REGULATION; MINIMUM WAGE The Company's operations are subject to regulation by federal agencies and to licensing and regulation by state and local health, environmental, labor relations, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants and retail establishments. The Company's activities are also subject to the federal Americans With Disabilities Act and related regulations, which prohibit discrimination on the basis of disability in public accommodations and employment. The Company is also subject to state "dram-shop" laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcoholic beverages to such person. Given the location of many of the Company's restaurants, even if the Company's operation of those restaurants is in strict compliance with the requirements of the Immigration and Naturalization Service (the "INS"), the Company's employees may not all meet federal citizenship or residency requirements, which could lead to disruptions in its work force. Changes in any or all of these laws or regulations, such as government-imposed paid leaves of absence or mandated health benefits, or increased tax reporting and tax payment requirements for employees who receive gratuities, could have a material adverse effect on the Company's business, financial condition and results of operations. Delays or failures in obtaining or maintaining required construction and operating licenses, permits or approvals could delay or prevent the opening of new restaurants or could materially and adversely affect the operation of existing restaurants. In addition, there can be no assurance that the Company will be able to obtain necessary variance or amendments to required licenses, permits or other approvals on a cost-effective and timely basis in order to construct and develop restaurants in the future. See "Business--Governmental Regulation." 8

A number of the Company's employees are subject to various minimum wage requirements. Many of the Company's employees work in restaurants located in California and receive salaries equal to the California minimum wage. The minimum wage in California rose from $5.00 per hour effective March 1, 1997 to $5.75 per hour effective March 1, 1998. There can be no assurance that similar increases will not be implemented in other jurisdictions in which the Company operates or seeks to operate. In addition, the federal minimum wage increased to $5.15 per hour effective September 1, 1997. There can be no assurance that the Company will be able to pass additional increases in labor costs through to its guests in the form of menu price adjustments and, accordingly, such minimum wage increases could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT Following the closing of this offering, the Company's directors, officers and their affiliates will beneficially own approximately % of the outstanding Common Stock. As a result of such Common Stock ownership, the Company's directors, officers and their affiliates, if they voted together, would be able to elect all members of the Company's Board of Directors and control corporate actions requiring stockholder approval. See "Principal and Selling Stockholders." CERTAIN ANTI-TAKEOVER MEASURES The Company's Amended and Restated Certificate of Incorporation (the "Charter") authorizes the Board of Directors to issue up to 10,000,000 shares of preferred stock and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations and restrictions of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The Charter and By-laws, among other things, require that stockholder actions occur at duly called meetings of the stockholders, limit who may call special meetings of stockholders, do not permit cumulative voting in the election of directors and require advance notice of stockholder proposals and director nominations. Also, Section 203 of the Delaware General Corporation Law (the "DGCL") restricts certain business combinations with any "interested stockholder" as defined by such statute. These and other provisions could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company, discourage a hostile bid or delay, prevent or deter a merger, acquisition or tender offer in which the Company's stockholders could receive a premium for their shares, or a proxy contest for control of the Company or other change in the Company's management. See "Management" and "Description of Capital Stock." ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock. There can be no assurance that an active trading market will develop or, if one develops, that it will be maintained. The initial public offering price of the Common Stock will be established by negotiation among the Company, the Selling Stockholders and the Underwriters. See "Underwriting" for a discussion of factors to be considered in determining the initial public offering price. The market price of the Common Stock could be subject to significant fluctuations in response to the Company's operating results and other factors, including general economic and market conditions. In addition, the stock market in recent years has experienced and continues to experience significant price and volume fluctuations, which have affected the market price of the stock of many companies and which have often been unrelated or disproportionate to the operating performance of these companies. These fluctuations, as well as a shortfall in sales or earnings compared to securities analysts' expectations, changes in analysts' recommendations or projections or general economic and market conditions, may adversely affect the market price of the Common Stock. In the past, securities class action litigation has often been instituted following periods of volatility in the market price for a company's securities. Such litigation could result in substantial costs and a diversion of management attention and resources, which could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. 9

ADDITIONAL SHARES ELIGIBLE FOR FUTURE SALE IN THE PUBLIC MARKET The sale of a substantial number of shares of Common Stock in the public market following this offering could adversely affect the market price of the Common Stock. Upon the closing of this offering, the Company will have outstanding an aggregate of shares of Common Stock (including shares issuable upon conversion of the Deferred Purchase Price Liability, assuming an initial public offering price of $ per share), assuming no exercise of outstanding options, warrants or the Underwriters' over-allotment option. The shares of Common Stock sold in this offering (and any shares sold upon exercise of the Underwriters' over-allotment option) will be freely tradable without restriction under the Securities Act of 1933, as amended (the "Securities Act"). The remaining shares of Common Stock are "restricted shares" within the meaning of Rule 144 promulgated under the Securities Act and are subject to restrictions under the Securities Act. Of these restricted shares, are subject to lock-up agreements under which the holders have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). In its sole discretion and at any time without notice, DLJ may release all or any portion of the shares subject to the lock-up agreements. All of the restricted shares subject to lock-up agreements will become available for sale in the public market immediately following expiration of the 180-day lock-up period, subject (to the extent applicable) to the volume and other limitations of Rule 144 or Rule 701 promulgated under the Securities Act. In addition, beginning 90 days after the date of this Prospectus, restricted shares not subject to lock-up agreements or contractual restrictions will become available for sale in the public market, subject to the volume and other limitations of Rule 144 or Rule 701. In addition, after expiration of the lock-up period, certain securityholders of the Company have the contractual right to require the Company to register certain of their shares of Common Stock for future sale. The Company is unable to predict the effect that future sales made pursuant to any such registration rights, under Rule 144 or otherwise, may have on the prevailing market price of the Common Stock. See "Description of Capital Stock--Registration Rights" and "Shares Eligible for Future Sale." DILUTION The price to the public in this offering is substantially higher than the net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in this offering will therefore incur immediate and substantial dilution. See "Dilution." 10

USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock being offered by the Company hereby are estimated to be approximately $ ($ if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per

share and after deducting estimated underwriting discounts and commissions and other estimated offering expenses. The Company intends to use a portion of the net proceeds to repay certain indebtedness incurred for the development of restaurants. Upon consummation of this offering, the Company is required to repay all amounts outstanding under its revolving line of credit ($9.0 million at June 28, 1998), which bears interest at LIBOR plus 3.5% (9.16% at June 28, 1998) and expires July 1, 1999. The Company intends to use the balance of the net proceeds for development of new restaurants and for general corporate purposes, including working capital. Pending such uses, the Company intends to invest the net proceeds in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY The Company has not declared or paid any cash dividends on its Common Stock in the past and does not anticipate paying dividends in the foreseeable future. In addition, the Company's current credit agreements prohibit the payment of cash dividends. The Company currently intends to retain its earnings for the operation and development of its business. Any future payment of dividends is within the discretion of the Company's Board of Directors and will depend, among other factors, upon the capital requirements, operating results and financial condition of the Company from time to time and restrictions under credit agreements existing from time to time. 11

CAPITALIZATION The following table sets forth the consolidated cash and cash equivalents, short-term debt and capitalization of the Company as of June 28, 1998, and as adjusted to reflect (i) the sale of the shares of Common Stock offered by the Company hereby, (ii) the conversion into Common Stock of the Preferred Stock and the Deferred Purchase Price Liability, assuming an initial public offering price of $ per share and (iii) the application of the net proceeds from the offering. This table should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. See "Use of Proceeds."
JUNE 28, 1998 ------------------------ACTUAL AS ADJUSTED(1) (IN THOUSANDS) $ 1,802 $ ======= ======= $ 9,441 ======= $ 2,426 2,159 $ 441 ======= $ --

Cash and cash equivalents................................... Revolving line of credit and current portion of long-term debt...................................................... Deferred Purchase Price Liability(2)........................ Long-term debt, less current portion........................ Convertible Redeemable Preferred Stock; $0.001 par value; 10,000,000 shares authorized; 3,475,854 shares issued and outstanding, actual; no shares issued and outstanding, as adjusted.................................................. Common stockholders' equity (deficit): Common stock; $0.001 par value; 20,000,000 shares authorized; 2,500,000 shares issued and outstanding, actual; shares issued and outstanding, as adjusted(3)............................................ Additional paid-in capital............................. Accumulated deficit.................................... Total common stockholders' equity (deficit).......... Total capitalization.................................

18,285

--

3 2 (4,081) ------(4,076) ------$18,794 =======

(4,081) ------------$ =======

(1) Adjusted to give effect as of June 28, 1998 to (i) the receipt by the Company of the estimated net proceeds of $ from the sale of shares of Common Stock offered hereby by the Company, assuming an initial public offering price of $ per share, (ii) application of a portion of the net proceeds of this offering to repay the Company's revolving line of credit and (iii) the conversion into Common Stock of the Preferred Stock and the Deferred Purchase Price Liability, assuming an initial public offering price of $ per share. (2) See Note 1 of Notes to Consolidated Financial Statements. (3) Based on shares outstanding at June 28, 1998, which includes (i) 3,475,854 shares issuable on conversion of outstanding Preferred Stock, (ii) 82,130 shares of Common Stock issuable as paid-in-kind dividends to holders of Series A Preferred Stock of the Company prior to consummation of the offering and (iii) shares issuable upon consummation of this offering upon conversion of the Deferred Purchase Price Liability, assuming an initial public offering price of $ . Excludes (i) 1,009,635 shares reserved as of such date for issuance upon the exercise of outstanding stock options at a weighted average price of $3.87 per share, (ii) an aggregate of 680,000 shares reserved for future grant under the Company's stock option and stock purchase plans and (iii) 62,190 shares reserved for issuance upon the exercise of outstanding warrants at an exercise price of $4.00 per share. See "Management -- Benefit Plans" and "Description of Capital Stock." 12

DILUTION At June 28, 1998, the Company had a net tangible book value of $8.5 million, or $ per share of Common Stock. "Net tangible book value" per share represents the amount of total tangible assets of the Company reduced by the amount of its total liabilities and divided by the total number of outstanding shares of Common Stock, giving effect to the conversion into Common Stock of the Preferred Stock and the Deferred Purchase Price Liability, assuming an initial public offering price of $ per share. The pro forma net tangible book value of the Company as of June 28, 1998, giving effect to the sale by the Company of the shares offered hereby, assuming an initial public offering price of $ per share, would have been approximately $ , or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share............. Net tangible book value per share before the offering..... Increase attributable to new investors.................... Pro forma net tangible book value per share after the offering.................................................. Dilution per share to new investors......................... $ ---------------$ ====== $ ------

The following table summarizes, on a pro forma basis as of June 28, 1998, the differences between the existing stockholders (including persons who will receive Common Stock upon conversion of the Deferred Purchase Price Liability) and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid by existing stockholders and new investors:
SHARES PURCHASED ------------------NUMBER PERCENT Existing stockholders(1)....... New investors(1)............... Total................ % -------======== ----100.0% ===== TOTAL CONSIDERATION ------------------------AMOUNT PERCENT (IN THOUSANDS) $ % ---$ ==== ----100.0% ===== AVERAGE PRICE PER SHARE $

(1) Sales by Selling Stockholders in this offering will reduce the number of shares held by existing stockholders to , or % of the total number of shares of Common Stock outstanding, and will increase the number of shares held by new investors to , or % of the total number of shares of Common Stock outstanding after the offering. 13

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The selected statements of operations data set forth below for the fiscal year ended December 31, 1995, the period from January 1, 1996 to February 28, 1996, the period from February 29, 1996 to December 29, 1996 and the fiscal year ended December 28, 1997 and the consolidated balance sheet data set forth below as of December 29, 1996 and December 28, 1997 have been derived from the financial statements of the Company and the Predecessors audited by Ernst & Young LLP, independent auditors, which are included elsewhere in this Prospectus. The selected combined statements of operations data for the fiscal years ended December 31, 1993 and December 31, 1994 and the combined balance sheet data set forth below as of December 31, 1993, December 31, 1994 and December 31, 1995 are derived from the unaudited combined financial statements of the Predecessors. The selected consolidated financial data as of June 28, 1998 and for the six months ended June 28, 1998 and June 29, 1997 has been derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus. In the opinion of management, all adjustments, consisting of only normal recurring accruals, considered necessary for a fair presentation have been made. The results of operations for the six months ended June 28, 1998 are not necessarily indicative of the results to be expected for the entire fiscal year. The following table is qualified by reference to and should be read in conjunction with the consolidated financial statements, related notes thereto and other financial data included elsewhere herein. The Company's fiscal quarters typically consist of thirteen week periods ending on the Sunday closest to the last day of the calendar quarter, and its fiscal year ends on the Sunday closest to December 31 in each year.
PREDECESSORS(1) COMPANY ---------------------------------------------------------------------------------------PERIOD PERIOD SIX MONTHS ENDED FISCAL FISCAL FISCAL FROM FROM TOTAL FISCAL ------------------YEAR YEAR YEAR 1/1/96 TO 2/29/96 TO YEAR YEAR JUNE 29, JUNE 28, 1993 1994 1995 2/28/96 12/29/96 1996(2) 1997 1997 1998 (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) $1,478 368 516 243 134 -----1,261 7 26 204 -----(20) (1) -----(21) ------$5,348 1,422 1,728 917 454 -----4,521 57 70 249 -----451 (10) -----441 ------$10,465 2,957 3,347 1,528 1,059 ------8,891 192 322 400 ------660 (13) ------647 -------$2,815 772 918 527 205 -----2,422 17 82 17 -----277 (4) -----273 ------$15,630 4,454 4,736 2,944 1,279 ------13,413 1,368 352 765 ------(268) (127) ------(395) (720) ------(1,115) (30) ------(1,145) (504) ------$(1,649) ======= $ (0.66) ======= $ (0.66) ======= 2,500 ======= 2,500 ======= $18,445 5,226 5,654 3,471 1,484 ------15,835 1,385 434 782 ------9 (131) ------(122) (993) ------(1,115) (30) ------(1,145) (504) ------$(1,649) ======= $39,768 11,317 11,683 6,727 2,743 ------32,470 4,276 1,102 1,922 ------(2) (317) ------(319) (1,308) ------(1,627) (69) ------(1,696) (876) ------$(2,572) ======= $ (1.03) ======= $ (1.03) ======= 2,500 ======= 2,500 ======= $17,703 5,029 5,228 2,871 1,206 ------14,334 1,823 451 399 ------696 (127) ------569 (758) ------(189) (52) ------(241) (396) ------$ (637) ======= $ (0.25) ======= $ (0.25) ======= 2,500 ======= 2,500 ======= $32,937 9,099 9,400 5,440 2,357 ------26,296 2,753 1,013 1,217 ------1,658 (455) ------1,203 (345) ------858 (11) ------847 (477) ------$ 370 ======= $ 0.15 ======= $ 0.13 ======= 2,500 ======= 6,655 =======

STATEMENTS OF OPERATIONS DATA: Revenues........................ Costs and expenses: Restaurant operating costs: Cost of sales............. Labor..................... Operating................. Occupancy................. Total restaurant operating costs...... General and administrative............ Depreciation and amortization.............. Preopening.................. Income (loss) from operations... Interest income (expense), net........................... Income (loss) before elimination of minority interests and provision for income taxes.... Elimination of minority interests..................... Income (loss) before provision for income taxes.............. Provision for income taxes......

(21) 441 647 273 -------------------------Net income (loss)............... $ (21) $ 441 $ 647 $ 273 ====== ====== ======= ====== Convertible Redeemable Preferred Stock accretion....................... Net income (loss) available to common stockholders..................... Basic net income (loss) per share...................................... Diluted net income (loss) per share.................................... Shares used in calculation of basic net income (loss) per share(3)..... Shares used in calculation of diluted net income (loss) per share(3)...

14

PRO FORMA DATA:(4) Pro forma diluted net income (loss) per share.............. Shares used in calculation of pro forma diluted net income (loss) per share......................................... OPERATING DATA: Comparable restaurant sales increase(5).................... Average weekly restaurant sales............................ Return on investment(6).................................... Restaurants open at end of period..........................

FISCAL YEAR 1995(1) --25.1% $81,122 25.2% 4

FISCAL YEAR 1996(2) $

FISCAL YEAR 1997 $

SIX MONTHS ENDED ------------------JUNE 29, JUNE 28, 1997 1998 $ $

13.0% $81,976 34.4% 7

13.8% $90,383 34.9% 13

12.6% $91,250 -8

11.7% $93,839 -14

BALANCE SHEET DATA: Cash and cash equivalents............. Total assets.......................... Short- and long-term debt............. Deferred Purchase Price Liability..... Convertible Redeemable Preferred Stock............................... Common stockholders' and members' equity (deficit)....................

PREDECESSORS -----------------------------------------AS OF -----------------------------------------DECEMBER 31, DECEMBER 31, DECEMBER 31, 1993 1994 1995 $153 716 33 --500 $ 347 1,692 222 --1,217 $ 480 2,997 350 --1,295

COMPANY -------------------------------------AS OF -------------------------------------DECEMBER 29, DECEMBER 28, JUNE 28, 1996 1997 1998 $ 1,877 13,044 1,763 -10,517 (1,874) $ 2,739 28,489 8,372 2,426 17,808 (4,446) $ 1,802 34,265 11,600 2,426 18,285 (4,076)

(1) Information for fiscal years 1993, 1994 and 1995 and the period beginning January 1, 1996 and ending February 28, 1996 as well as information as of December 31, 1993, December 31, 1994 and December 31, 1995 relate to the Predecessors. See "Certain Transactions" and Note 1 of Notes to Consolidated Financial Statements. (2) Total fiscal year 1996 information reflects the combined results of the Predecessors for the period beginning January 1, 1996 and ending February 28, 1996 and of the Company for the period beginning February 29, 1996 and ending December 29, 1996. See "Certain Transactions" and Note 1 of Notes to Consolidated Financial Statements. (3) See Notes 2, 6 and 8 of Notes to Consolidated Financial Statements. (4) Pro forma information gives effect as of the beginning of each period to (i) the purchase of substantially all of the minority interests in the Predecessors, (ii) the repayment of the Company's revolving line of credit through the application of the net proceeds from the sale of a sufficient number of shares of Common Stock, assuming an initial public offering price of $ per share and (iii) the conversion into Common Stock of the Preferred Stock and the Deferred Purchase Price Liability, assuming an initial public offering price of $ per share. (5) A new restaurant is included in the calculation of the change in comparable restaurant sales in the eighteenth month of that restaurant's operation. (6) Return on investment for each restaurant is determined as the quotient of earnings of such restaurant before interest, taxes and rent divided by the Company's total investment in restaurant assets. The information presented in the table is the aggregate return on investment for all restaurants open during the respective periods. See "Business--Unit Economics." 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW P.F. Chang's owns and operates 15 full service restaurants that feature a unique blend of high quality, authentic Chinese cuisine and American hospitality in a sophisticated, contemporary bistro setting. The Company was formed in early 1996 with the acquisition of the four original P.F. Chang's restaurants and the hiring of an experienced management team, led by Richard Federico and Robert Vivian, the Company's Chief Executive Officer and Chief Financial Officer, respectively, to support the Company's founder, Paul Fleming. Utilizing a partnership management philosophy, the Company embarked on a strategic expansion of the concept targeted at major metropolitan areas throughout the United States and opened three additional restaurants in 1996 and six in 1997. The Company intends to open ten new restaurants in 1998 (two of which are open and eight of which are under development) and 13 restaurants in 1999. The 23 units that the Company intends to develop in 1998 and 1999 will be situated in approximately 15 new cities across the United States. The Company has signed lease agreements for six of the 13 units planned for 1999 and has signed letters of intent for all of the remaining planned restaurants. The Company intends to continue to develop restaurants that typically range in size from 6,000 square feet to 7,000 square feet, and that require, on average, a total cash investment of between $1.5 million and $2.0 million and a total capitalized investment of between $2.5 million and $3.0 million per restaurant. This total investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. See "Risk Factors--Development and Construction Risks." Prior to February 29, 1996, the Company's business was conducted by four business entities controlled by Paul Fleming: Fleming Chinese Restaurants, Inc. (Scottsdale), P.F. Chang's II, Inc. (Newport Beach), P.F. Chang's III, L.L.C. (La Jolla) and P.F. Chang's IV, L.L.C. (Irvine)(collectively, the "Predecessors"). In February 1996, the Company acquired from Paul Fleming and certain other investors in the Predecessors approximately 70% of the Scottsdale restaurant, 43% of the Newport Beach restaurant, 50% of the La Jolla restaurant and 54% of the Irvine restaurant. In May 1996, the Company acquired the remaining minority interests in the Irvine restaurant, and in October 1997, the Company acquired all of the outstanding minority interests in the Scottsdale and Newport Beach restaurants and all but 2.5% of the La Jolla restaurant. As a result of the ownership structure in place from February 29, 1996 to October 1997, historical financial results for that period reflect a reduction in the Company's net income attributable to those ownership interests which is reflected in the elimination of minority interests. The acquisitions of minority interests in February 1996 and October 1997 were accounted for using the purchase method of accounting and resulted in goodwill of $4.1 million and $4.6 million, respectively, which is being amortized over 20 years on a straight-line basis. See "Certain Transactions." In addition, elimination of minority interests for all periods subsequent to 1996 includes the effect of the Company's partnership management structure. The Company has entered into a series of partnership agreements with each of its regional managers ("Market Partners") and certain of its general managers ("Operating Partners") and certain of its executive chefs ("Culinary Partners"). These partnership agreements typically provide that the Market Partner is entitled to a specified percentage of the cash flows from the restaurants that partner has developed and oversees as the regional manager. Similarly, the Operating Partners and Culinary Partners receive a percentage of the cash flows from the restaurant in which they work. See "Business--Operations." 16

RESULTS OF OPERATIONS The operating results of the Company for fiscal years 1995, 1996 and 1997 and for the six months ended June 29, 1997 and June 28, 1998 expressed as a percentage of revenues were as follows:
SIX MONTHS ENDED -------------------JUNE 29, JUNE 28, 1997 1998 100.0% 28.4 29.5 16.2 6.8 ----80.9 10.3 2.6 2.3 ----3.9 (0.7) (4.3) ----(1.1) (0.3) ----(1.4)% ===== 100.0% 27.6 28.5 16.5 7.2 ----79.8 8.4 3.1 3.7 ----5.0 (1.4) (1.0) ----2.6 -----2.6% =====

STATEMENTS OF OPERATIONS DATA: Revenues............................... Costs and expenses: Restaurant operating costs: Cost of sales................... Labor........................... Operating....................... Occupancy....................... Total restaurant operating costs...................... General and administrative........ Depreciation and amortization..... Preopening........................ Income (loss) from operations.......... Interest income (expense), net......... Elimination of minority interests...... Income (loss) before provision for income taxes......................... Provision for income taxes............. Net income (loss)......................

FISCAL YEAR 1995 100.0% 28.3 32.0 14.6 10.1 ----85.0 1.8 3.1 3.8 ----6.3 (0.1) -----6.2 -----6.2% =====

TOTAL YEAR 1996(1) 100.0% 28.3 30.7 18.8 8.0 ----85.8 7.5 2.4 4.3 -----(0.7) (5.3) ----(6.0) (0.2) ----(6.2)% =====

FISCAL YEAR 1997 100.0% 28.4 29.4 16.9 6.9 ----81.6 10.8 2.8 4.8 -----(0.8) (3.3) ----(4.1) (0.2) ----(4.3)% =====

(1) Total fiscal year 1996 information reflects the combined results of the Predecessors and the Company. See "Selected Consolidated Financial and Operating Data." SIX MONTHS ENDED JUNE 28, 1998 COMPARED TO SIX MONTHS ENDED JUNE 29, 1997 REVENUES The Company's revenues are derived entirely from food and beverage sales. Revenues increased by $15.2 million, or 86.1%, to $32.9 million in the six months ended June 28, 1998 from $17.7 million in the six months ended June 29, 1997. The increase was primarily attributable to revenues of $12.2 million generated by new restaurants opened in the second half of 1997 and the first half of 1998. Increased customer visits produced comparable restaurant sales gains of 11.7% in the first half of 1998. The Company did not implement any meaningful price increases in the first six months of 1998. COSTS AND EXPENSES Cost of sales. Cost of sales is composed of the cost of food and beverages. Cost of sales decreased as a percentage of revenues to 27.6% in the six months ended June 28, 1998 from 28.4% in the six months ended June 29, 1997, primarily as a result of favorable commodity costs and purchasing efficiencies. Labor. Labor expenses consist of restaurant management salaries, front of the house and back of the house payroll costs and other payroll-related items. Labor expenses as a percentage of revenues decreased to 28.5% in the six months ended June 28, 1998 from 29.5% in the six months ended June 29, 1997. The decrease in labor expenses was primarily due to increased labor efficiency in the restaurants that opened in 1996. These improved efficiencies more than offset the increase in hourly wages mandated by the federal government and the State of California. The Company expects that the increase in minimum wage will continue to exert 17

upward pressure on its labor costs on a year-over-year basis for the remainder of 1998 and the first quarter of 1999. Operating. Operating expenses consist primarily of various restaurant-level costs, which are generally variable and are expected to fluctuate directly with revenues. Operating expenses increased as a percentage of revenues to 16.5% in the six months ended June 28, 1998 from 16.2% in the six months ended June 29, 1997, due primarily to increases in restaurant supplies costs, facility costs and restaurant administration costs. Occupancy. Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property insurance and property taxes. Occupancy costs increased as a percentage of revenues to 7.2% in the six months ended June 28, 1998 from 6.8% in the six months ended June 29, 1997, due primarily to the increase in common area maintenance charges in some of the Company's mall locations and a general increase in property tax levels. General and administrative. General and administrative expenses are composed of expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth, including management and staff salaries, employee benefits, travel, legal and professional fees, technology and market research. General and administrative expenses increased to $2.8 million (8.4% of revenues) in the six months ended June 28, 1998 from $1.8 million (10.3% of revenues) in the six months ended June 29, 1997, due primarily to the addition of corporate management personnel as well as additional costs to support a larger restaurant base. The decrease as a percentage of revenues was due primarily to the Company's expanding revenue base and its ability to leverage the duties and responsibilities of its Market Partners. Depreciation and amortization. Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of goodwill costs associated with the acquisition of the ownership interests in the original restaurants. Depreciation and amortization increased to $1.0 million in the six months ended June 28, 1998 from $451,000 in the six months ended June 29, 1997. This increase was primarily due to depreciation on new restaurants and amortization of the goodwill associated with the acquisition in October 1997 of the remaining minority interests in three of the four original restaurants. Preopening. Preopening costs, which are expensed as incurred, consist of expenses incurred prior to opening a new restaurant and are comprised principally of manager salaries and relocation, advertising and employee payroll and related training costs. Preopening expenses in the six months ended June 28, 1998 increased to $1.2 million from $399,000 in the six months ended June 29, 1997 due to the greater number of restaurants opened or under development during the 1998 period. Interest income (expense), net. Net interest expense increased to $455,000 in the six months ended June 28, 1998 from $127,000 in the six months ended June 29, 1997 principally due to borrowings under the Company's line of credit. ELIMINATION OF MINORITY INTERESTS Elimination of minority interests for the six months ended June 29, 1997 includes approximately $717,000 attributable to the minority interests in the Scottsdale, Newport Beach and La Jolla restaurants. As a result of the acquisition of substantially all of these minority interests in October 1997, elimination of minority interests for the six months ended June 28, 1998 declined to $345,000. Approximately $41,000 and $332,000 was attributable to the collective minority interests of Market Partners, Operating Partners and Culinary Partners in the six months ended June 29, 1997 and June 28, 1998, respectively. 18

PROVISION FOR INCOME TAXES The provision for income taxes for the six months ended June 28, 1998 and June 29, 1997 represents certain minimum state taxes based on taxable factors other than earnings. The Company did not record a tax benefit for the losses generated for the six months ended June 29, 1997 as utilization of such losses in future periods was deemed uncertain. The income tax provision for the six months ended June 28, 1998 differs from the expected provision for income taxes derived by applying the statutory income tax rate as a result of a reduction in the previously provided deferred income tax asset valuation allowance. YEAR ENDED DECEMBER 28, 1997 COMPARED TO YEAR ENDED DECEMBER 29, 1996 The following discussion of the Company's results of operations for the year ended December 29, 1996 relates to the combined operating results of the Company and the Predecessors. The Company has not presented separate analyses regarding the two month period ended February 28, 1996 relating to the Predecessors or the ten month period ended December 29, 1996 relating to the Company because the Company believes that such discussion would not be meaningful. REVENUES Revenues increased by $21.3 million, or 115.6%, to $39.8 million in 1997 from $18.4 million in 1996. The increase was primarily attributable to $19.0 million of additional revenues generated by new restaurants opened in 1997 and the increase in revenues in 1997 for restaurants opened in 1996. Comparable restaurant sales, driven by increased customer visits, increased 13.8% in 1997. The Company did not implement any meaningful price increases in 1997. COSTS AND EXPENSES Cost of sales. Cost of sales increased nominally as a percentage of revenues to 28.4% in 1997 from 28.3% in 1996. Labor. Labor costs decreased as a percentage of revenues to 29.4% in 1997 from 30.7% in 1996. This decrease was primarily the result of labor efficiencies in new and existing restaurants. Operating. Operating expenses decreased as a percentage of revenues to 16.9% in 1997 from 18.8% in 1996, due primarily to the expanded revenue base in 1997. Occupancy. Occupancy costs decreased as a percentage of revenues to 6.9% in 1997 from 8.0% in 1996. This decrease was primarily the result of the increase in revenues and more favorable lease terms associated with the new restaurants opened in 1997. General and administrative. General and administrative expenses increased in 1997 to $4.3 million, or 10.8% of revenues, from $1.4 million, or 7.5% of revenues in 1996. This increase was primarily the result of the addition of corporate management personnel in 1996 and 1997 as well as the increased cost of supporting a larger restaurant base. Depreciation and amortization. Depreciation and amortization increased to $1.1 million in 1997 from $434,000 in 1996. This increase was primarily the result of depreciation recognized on capital expenditures for new restaurants and amortization of goodwill associated with the purchase of minority interests in October 1997. Preopening. Preopening expenses in 1997 increased to $1.9 million from $782,000 in 1996 due to a greater number of restaurants which were developed in 1997 compared to 1996. Interest income (expense), net. Net interest expense increased to $317,000 in 1997 from $131,000 in 1996 due to borrowings on the Company's line of credit and an increase in long-term debt. 19

ELIMINATION OF MINORITY INTERESTS Elimination of minority interests increased to $1.3 million in 1997 from $993,000 in 1996 primarily due to the increased income generated by the Scottsdale, Newport Beach and La Jolla restaurants. Elimination of minority interests in 1997 was also higher due to approximately $110,000 attributable in 1997 to the collective minority interests of Market Partners, Operating Partners and Culinary Partners; such partnership arrangements were not in place in 1996. These increases were offset in part by the repurchase in October 1997 of the minority interests in the Scottsdale, Newport Beach and La Jolla restaurants. PROVISION FOR INCOME TAXES The provision for income taxes for 1997 and 1996 represents certain minimum state taxes based on taxable factors other than earnings. The Company did not record a tax benefit for the losses generated for fiscal years 1997 and 1996 as utilization of such losses in future periods was deemed uncertain. At December 28, 1997, the Company had a net operating loss carryforward of approximately $1.9 million which will expire for federal tax purposes in 2011 and for state tax purposes in 2001. The expected income tax benefit derived by applying the statutory income tax rate has been eliminated as a result of an increase in the deferred income tax asset valuation allowance. YEAR ENDED DECEMBER 29, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 The following discussion of the Company's results of operations for the year ended December 29, 1996 relates to the combined operating results of the Company and the Predecessors. The Company has not presented separate analyses regarding the two month period ended February 28, 1996 relating to the Predecessors or the ten month period ended December 29, 1996 relating to the Company because the Company believes that such discussion would not be meaningful. REVENUES Revenues increased by $8.0 million, or 76.3%, to $18.4 million in 1996 from $10.5 million in 1995. The increase was primarily attributable to revenues of $6.9 million generated by new restaurants opened in 1996 and the increase in revenues in 1996 for restaurants opened in 1995. Increased customer visits generated comparable restaurant sales gains of 13.0% in 1996. The Company did not implement any meaningful price increases in 1996. COSTS AND EXPENSES Cost of sales. Cost of sales remained constant as a percentage of revenues at 28.3% in both 1996 and 1995. Labor. Labor costs decreased as a percentage of revenues to 30.7% in 1996 from 32.0% in 1995. This decrease was primarily the result of labor efficiencies in new and existing restaurants. Operating. Operating costs increased as a percentage of revenues to 18.8% in 1996 from 14.6% in 1995. This increase was primarily the result of new restaurant openings in the last quarter of 1996. Occupancy. Occupancy costs decreased as a percentage of revenues to 8.0% in 1996 from 10.1% in 1995. This decrease was primarily the result of the increased revenue base and more favorable lease terms associated with the new restaurants opened in 1996. General and administrative. General and administrative expenses increased in 1996 to $1.4 million, or 7.5% of revenues, from $192,000, or 1.8% of revenues, in 1995. This increase was primarily attributable to the initial formation of the Company, including the addition of management personnel. Depreciation and amortization. Depreciation and amortization expenses increased to $434,000 in 1996 from $322,000 in 1995. This increase was principally the result of depreciation recognized on capital expenditures on new restaurants opened in 1996 and the amortization of goodwill associated with the February 1996 acquisition. See "Certain Transactions." 20

Preopening. Preopening expenses increased to $782,000 in 1996 from $400,000 in 1995, due to a greater number of restaurants under development in 1996. Interest income (expense), net. Net interest expense increased to $131,000 in 1996 from $13,000 in 1995 due to interest expense incurred on notes payable to minority stockholders in connection with the February 1996 acquisition. See "Certain Transactions." ELIMINATION OF MINORITY INTERESTS The elimination of minority interests of $993,000 in 1996 was the result of the formation of the Company in February 1996 and the related acquisition of the majority of the interests in the original restaurants. In 1995, because the operating results of the Predecessors are presented on a combined basis, there were no minority interests. PROVISION FOR INCOME TAXES The provision for income taxes in 1996 represents certain minimum state taxes based on taxable factors other than earnings. The Company did not record a tax benefit for the losses generated for fiscal year 1996 as utilization of such losses in future periods was deemed uncertain. The expected income tax benefit derived by applying the statutory income tax rate has been eliminated as a result of a deferred income tax asset valuation allowance. The Company's taxable income for the year ended December 31, 1995 was allocated and taxed directly to the stockholders and members of the Predecessors resulting in no tax provision. 21

QUARTERLY RESULTS The following tables set forth certain unaudited quarterly information for each of the eight fiscal quarters in the two year period ended June 28, 1998. This quarterly information has been prepared on a consistent basis with the audited financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. The Company's quarterly operating results may fluctuate significantly as a result of a variety of factors, and operating results for any quarter are not necessarily indicative of results for a full fiscal year. See "Risk Factors--Fluctuations in Operating Results."
FISCAL 1996 ----------------THIRD FOURTH QUARTER QUARTER Revenues........................ Costs and expenses: Restaurant operating costs: Cost of sales............. Labor..................... Operating................. Occupancy................. Total restaurant operating costs...... General and administrative.... Depreciation and amortization................ Preopening.................... Income (loss) from operations... Interest income (expense), net........................... Income (loss) before elimination of minority interests and provision for income taxes.... Elimination of minority interests..................... Income (loss) before provision for income taxes.............. Provision for income taxes...... Net income (loss)............... Restaurants open at end of period........................ $4,363 1,239 1,290 850 348 -----3,727 416 147 268 -----(195) (10) -----(205) (319) -----(524) (4) -----$ (528) ====== 4 $5,458 1,575 1,713 1,063 491 -----4,842 642 159 467 -----(652) (72) -----(724) (103) -----(827) (1) -----$ (828) ====== 7 FISCAL 1997 ------------------------------------FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER (DOLLARS IN THOUSANDS) $8,175 $9,528 $9,935 $12,130 2,324 2,384 1,284 564 -----6,556 760 209 146 -----504 (81) -----423 (383) -----40 (32) -----$ 8 ====== 7 2,705 2,844 1,587 642 -----7,778 1,063 242 253 -----192 (46) -----146 (375) -----(229) (20) -----$ (249) ====== 8 2,798 2,885 1,705 681 -----8,069 1,162 262 683 -----(241) (38) -----(279) (335) -----(614) (10) -----$ (624) ====== 9 3,490 3,570 2,151 856 ------10,067 1,291 389 840 ------(457) (152) ------(609) (215) ------(824) (7) ------$ (831) ======= 13 FISCAL 1998 ----------------FIRST SECOND QUARTER QUARTER $15,728 4,394 4,556 2,579 1,103 ------12,632 1,348 489 432 ------827 (210) ------617 (156) ------461 (4) ------$ 457 ======= 13 $17,209 4,705 4,844 2,861 1,254 ------13,664 1,405 524 785 ------831 (245) ------586 (189) ------397 (7) ------$ 390 ======= 14

22

The operating results of the Company for such eight fiscal quarters expressed as a percentage of revenues were as follows:
FISCAL 1996 ----------------THIRD FOURTH QUARTER QUARTER 100.0% 100.0% 28.4 29.5 19.5 8.0 ----85.4 9.5 3.4 6.1 ----(4.4) (0.3) ----(4.7) (7.3) ----(12.0) (0.1) ----(12.1)% ===== 28.8 31.4 19.5 9.0 ----88.7 11.8 2.9 8.6 ----(12.0) (1.3) ----(13.3) (1.9) ----(15.2) -----(15.2)% ===== FISCAL 1997 ------------------------------------FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 100.0% 100.0% 100.0% 100.0% 28.4 29.2 15.7 6.9 ----80.2 9.3 2.5 1.8 ----6.2 (1.0) ----5.2 (4.7) ----0.5 (0.4) ----0.1% ===== 28.4 29.8 16.7 6.7 ----81.6 11.2 2.5 2.7 ----2.0 (0.5) ----1.5 (3.9) ----(2.4) (0.2) ----(2.6)% ===== 28.2 29.0 17.1 6.9 ----81.2 11.7 2.6 6.9 ----(2.4) (0.4) ----(2.8) (3.4) ----(6.2) (0.1) ----(6.3)% ===== 28.8 29.4 17.7 7.1 ----83.0 10.6 3.2 6.9 ----(3.7) (1.3) ----(5.0) (1.8) ----(6.8) (0.1) ----(6.9)% ===== FISCAL 1998 ----------------FIRST SECOND QUARTER QUARTER 100.0% 100.0% 27.9 29.0 16.4 7.0 ----80.3 8.6 3.1 2.7 ----5.3 (1.4) ----3.9 (1.0) ----2.9 -----2.9% ===== 27.4 28.1 16.6 7.3 ----79.4 8.2 3.0 4.6 ----4.8 (1.4) ----3.4 (1.1) ----2.3 -----2.3% =====

Revenues.............................. Costs and expenses: Restaurant operating costs: Cost of sales................... Labor........................... Operating....................... Occupancy....................... Total restaurant operating costs...................... General and administrative.......... Depreciation and amortization....... Preopening.......................... Income (loss) from operations......... Interest income (expense), net........ Income (loss) before elimination of minority interests and provision for income taxes........................ Elimination of minority interests..... Income (loss) before provision for income taxes........................ Provision for income taxes............ Net income (loss).....................

Historically, the Company has experienced variability in the amount and percentage of revenues attributable to preopening expenses. The Company typically incurs the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. In addition, the Company's experience to date has been that labor and operating costs associated with a newly opened restaurant (for approximately its first four to six months of operation) are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had and is expected to have a meaningful impact on preopening expenses, labor and operating costs until such time as a larger base of restaurants in operation mitigates such impact. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its capital requirements since its inception through private sales of equity securities, debt financing, sale-leaseback arrangements and cash flow from operations. Net cash provided by operating activities was $625,000, $139,000 and $4.6 million for total year 1996, fiscal year 1997 and the six months ended June 28, 1998, respectively. Net cash provided by operating activities exceeded the net losses for the periods due principally to the effect of minority interests and depreciation. The Company uses cash primarily to fund the development and construction of new restaurants. Net cash used in investing activities in total year 1996, fiscal year 1997 and the six months ended June 28, 1998 was $8.2 million, $11.5 million and $8.5 million, respectively, which included payments of $4.2 million and $2.5 million in total year 1996 and fiscal year 1997, respectively, made in connection with the acquisition of minority interests. Capital expenditures were $4.0 million, $8.7 million and $8.6 million in total year 1996, fiscal year 1997 and the six months ended June 28, 1998, respectively. The Company intends to open ten restaurants in 1998 (two of which are open) and 13 in 1999. Total capital expenditures are expected to be approximately $21 million in 1998. The Company expects that its planned future restaurants will require, on average, a total cash investment per restaurant, exclusive of landlord contributions, of approximately $1.5 million to $2.0 million. 23

Net cash provided by financing activities in 1996, 1997 and the six months ended June 28, 1998 was $9.0 million, $12.2 million, and $3.0 million, respectively. Financing activities in 1996 and 1997 consisted principally of sales of Preferred Stock. The Company has a line of credit agreement which permits borrowings of up to $20 million and bears interest at LIBOR plus 3.5% (9.16% at June 28, 1998). As of June 28, 1998, the Company had $9.0 million outstanding under this facility. Pursuant to its terms, all borrowings under the credit agreement must be repaid upon the consummation of this offering; however, the Company will continue to be eligible to borrow funds under such line of credit after repayment. The Company's future capital requirements and the adequacy of its available funds will depend on many factors, including the pace of expansion, real estate markets, site locations and the nature of the arrangements negotiated with landlords. Although no assurance can be given, the Company believes that anticipated cash flow from operations together with the proceeds from this offering will be sufficient to fund the majority of its capital requirements through 1999. In the event that additional capital is required, the Company may seek to raise such capital through public or private equity or debt financings. Future capital funding transactions may result in dilution to purchasers in this offering. There can be no assurance that such capital will be available on favorable terms, if at all. The Company leases restaurant and office facilities and equipment and certain real property under operating leases expiring between 2000 and 2019. Future minimum lease payments under operating leases, including restaurant facilities currently under construction or yet to be constructed as of June 28, 1998 were as follows: remainder of 1998 - $1.9 million; 1999 - $5.2 million; 2000 - $5.4 million; 2001 - $5.4 million; 2002 - $5.4 million; and thereafter - $53.5 million. PREFERRED STOCK AND ACCRETION In February 1996 and September 1996, the Company issued a total of 2,677,135 shares of its Series A Preferred Stock at $4.00 per share, and in May 1997, the Company issued 758,566 shares of its Series B Preferred Stock at $8.70 per share. The Series A Preferred Stock has an annual six percent dividend payable quarterly on March 31, June 30, September 30, and December 31 in shares of Series A Preferred Stock on a cumulative basis beginning January 1, 1998. The Series B Preferred Stock has an annual six percent dividend payable quarterly on March 31, June 30, September 30, and December 31 in shares of Series B Preferred Stock on a cumulative basis beginning April 1, 1999. Dividend accretion on the Series A and Series B Preferred Stock was approximately $504,000 for the year ended December 29, 1996, $876,000 for the year ended December 28, 1997, and $477,000 for the six month ended June 28, 1998, respectively. At June 28, 1998, the carrying basis of the Preferred Stock was $18.3 million. As a result of this offering, all shares of Series A Preferred Stock and Series B Preferred Stock will be automatically converted into shares of Common Stock. INFLATION The primary inflationary factors affecting the Company's operations are food and labor costs. A large number of the Company's restaurant personnel are paid at rates based on the applicable minimum wage, and increases in the minimum wage directly affect the Company's labor costs. To date, inflation has not had a material impact on the Company's results of operations. See "Risk Factors--Changes in Food Costs." YEAR 2000 COMPLIANCE The Company is aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. The "year 2000 problem" is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit year value to "00". This issue is whether computer systems will properly recognize date-sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company is in the process of working with its software vendors to ensure that the Company is prepared for the year 2000 problem. The Company believes that it will not be required to make any material expenditure to address the year 2000 problem. However, uncertainty exists concerning the potential costs and effects associated with any year 2000 compliance. Any year 2000 compliance problem of either the Company or its vendors could materially adversely affect the Company's business, financial condition or operating results. 24

BUSINESS P.F. Chang's owns and operates 15 full service restaurants that feature a unique blend of high quality, authentic Chinese cuisine and American hospitality in a sophisticated, contemporary bistro setting. The Company's restaurants offer intensely flavored, highly memorable culinary creations, prepared from fresh ingredients, including premium herbs and spices imported directly from China. The menu is focused on select dishes created to capture the distinct flavors and styles of the five major culinary regions of China: Canton, Hunan, Mongolia, Shanghai and Szechwan. By adhering to the Chinese culinary precepts of fan and t'sai, a balancing of rice, noodles and grains with meat, seafood and vegetables, the P.F. Chang's menu offers an array of taste, texture, color and aroma. The menu is highlighted by signature dishes such as Chang's Spicy Chicken, Orange Peel Beef, Peking Ravioli, Chicken in Soothing Lettuce Wrap, Szechwan-Style Long Beans and Dan Dan Noodles. The authentic cuisine is complemented by a full service bar offering an extensive selection of wines, specialty drinks, Asian beers, cappuccino and espresso. The average check per customer, including beverage, is approximately $17.00. The Company offers superior customer service in a high energy atmosphere featuring a display kitchen, exhibition wok cooking and a decor that includes wood and slate floors, mounted life-size terra cotta replicas of Xi'an warriors and narrative murals depicting 12th century China. The Company was formed in early 1996 with the acquisition of the four original P.F. Chang's restaurants and the hiring of an experienced management team led by Richard Federico and Robert Vivian, the Company's Chief Executive Officer and Chief Financial Officer, respectively, to support the Company's founder, Paul Fleming. P.F. Chang's opened three additional restaurants in 1996, six in 1997 and expects to open ten restaurants in 1998 (two of which are open) and 13 in 1999. Key to the Company's expansion strategy and success at the restaurant level is the P.F. Chang's management philosophy utilizing Market, Operating and Culinary Partners. The Company has demonstrated the viability of the P.F. Chang's concept in a wide variety of markets across the United States, including the Southwest, southern California, Texas and southern Florida. P.F. CHANG'S CHINA BISTRO CONCEPT AND STRATEGY The P.F. Chang's concept was developed in 1993 by Paul Fleming, a highly successful Phoenix-based restaurateur, in collaboration with Philip Chiang, the owner of the acclaimed Mandarin restaurant in Beverly Hills, California. The Company's objectives are to (i) develop and operate a nationwide system of restaurants that offer guests a unique, sophisticated dining experience, (ii) create a loyal customer base that generates a high level of repeat business and (iii) provide superior returns to its investors. To achieve its objectives, the Company has developed the following strategies: Offer High Quality Chinese Cuisine. P.F. Chang's seeks to differentiate itself from other Chinese restaurants by offering only premium products made from scratch upon order, from original regional Chinese recipes. The Company utilizes traditional Hong Kong preparation techniques, which combine high temperature wok cooking, fresh ingredients and reduced oil to produce dishes with a distinct, outstanding and highly memorable flavor. A core menu is served at both lunch and dinner featuring a variety of freshly prepared wok-fired creations, roasted duck and chicken, fresh seafood, homemade soups, signature salads and desserts. All products are served family-style allowing the guests to build a meal of complementary flavors, colors and aromas. Create a Memorable Atmosphere. The Company seeks to design a unique atmosphere for each restaurant that it operates. Common design elements of the restaurants include natural wood and slate floors, custom millwork, special light fixtures, hand-painted murals depicting ancient Chinese history and life-size terra cotta soldiers, all of which create a warm and elegant ambiance. Exhibition-style kitchens, featuring the Company's classically trained wok chefs, reinforce the perceptions of quality, freshness, authenticity and cleanliness and add flash and fire to the energy of the restaurant. Deliver Superior Customer Service. Significant time and resources are spent in the development and implementation of a comprehensive service system at each restaurant. The Company offers guests prompt, friendly and efficient service, keeping waitstaff-to-table ratios high, and staffing each restaurant with an 25

experienced management team to ensure consistent and attentive customer service. The Company employs food runners to ensure prompt delivery of fresh food at the appropriate temperature, allowing the waitstaff to focus on overall customer satisfaction. All service personnel are thoroughly trained in the subtle flavors of each dish. Using a thorough knowledge and understanding of the Company's menu, the waitperson assists guests in selecting a meal that balances the principles of fan and t'sai foods to attain a harmony of taste, texture, color and aroma. Provide Excellent Dining Value. The Company believes it provides its guests with an exceptional value by serving high quality Chinese cuisine in a memorable atmosphere with superior customer service, all for an average check of approximately $17.00. This price-value relationship helps create the long-term bond between P.F. Chang's and its guests. Because of the superior level of customer satisfaction it delivers, the Company believes it enjoys a high level of repeat business, which serves as a solid foundation from which to grow incremental sales. In 1997 and the first six months of 1998, the Company generated comparable restaurant sales growth of approximately 13.8% and 11.7%, respectively. Achieve Exceptional Restaurant Economics. In the first six months of 1998, the Company's restaurants produced average weekly sales of $93,839 and restaurant operating income of 20.2% of sales. In addition, for the 12 month period ended June 28, 1998, the Company's restaurants have achieved restaurant pre-tax return on investment of 38.2%. The Company believes that it has been able to achieve these results due to the broad appeal of the P.F. Chang's concept, careful site selection and consistent application of its management and training concepts. Pursue Accelerated, Disciplined Restaurant Expansion. The Company plans to develop restaurants in both existing and new markets nationwide where the Company believes it can generate attractive unit-level economics. The Company targets high traffic, high visibility locations in affluent urban and suburban markets. The flexibility of the P.F. Chang's concept enables the Company to open successful restaurants in a wide variety of locations, including residential neighborhoods, shopping centers, office buildings and hotels. The Company expects to open ten new restaurants in 1998 (two of which are open) and 13 in 1999. The Company intends to continue to develop restaurants that typically range in size from 6,000 square feet to 7,000 square feet, and that require, on average, a total cash investment of approximately $1.5 million to $2.0 million and a total capitalized investment of between $2.5 million and $3.0 million per restaurant. This total investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. Leverage P.F. Chang's Partnership Management Philosophy. The Company believes that economic participation by management at the operating level is a key to the long-term success of its restaurants. The Company has developed a partnership management philosophy based on a three person team at each restaurant: the Market Partner (regional manager), Operating Partner (restaurant manager) and Culinary Partner (chef). Each of these partners is provided an opportunity to invest in and to participate in the cash flows of the restaurants for which they are responsible. As a result of this structure, the Company believes it is able to (i) attract and retain highly experienced and motivated managers with powerful incentives to execute the Company's strategy and maximize stockholder value, (ii) provide stable restaurant management which reduces staff turnover and increases customer satisfaction and (iii) leverage the specific market knowledge of its partners to facilitate the rapid expansion of the concept. 26

UNIT ECONOMICS The following table depicts the pre-tax return on investment for the fiscal years 1995, 1996 and 1997, as well as the 12 months ended June 28, 1998. Return on investment is calculated as the quotient of restaurant income (loss) before interest, taxes and rent divided by the total restaurant investment. RETURN ON INVESTMENT (DOLLARS IN THOUSANDS, EXCEPT AVERAGE WEEKLY SALES)
FISCAL 1995 129 $81,122 10,465 585 13 656 ------$ 1,254 ======= $ 1,522 3,461 ------$ 4,983 ======= 25.2% $ FISCAL 1996 225 $81,976 18,445 $ 1,502 67 1,297 ------$ 2,866 ======= $ 2,448 5,891 ------$ 8,339 ======= 34.4% FISCAL 1997 440 $90,383 39,768 $ 4,482 214 2,124 ------$ 6,820 ======= $ 8,243 11,272 ------$19,515 ======= 34.9% 12 MONTHS ENDED JUNE 28, 1998 $ $ 597 92,133 55,003

TOTAL RESTAURANTS Sales weeks................................... Average weekly sales.......................... Sales......................................... Restaurant income (loss) before income taxes(1).................................... Interest expense.............................. Rent expense(2)............................... Restaurant EBIT + rent(a)..................... Average restaurant assets employed (net)(3)... Present value of remaining lease obligations(4).............................. Total restaurant investment(b)................

7,175 230 2,944 ---------$ 10,349 ========== $ 11,794 15,283 ---------$ 27,077 ========== 38.2% 13 108,392 1,409 $ (231) -96 ---------$ (135) ========== $ 307 476 ---------$ 783 ========== (17.2)% $ 220 77,381 17,024 $ 54 -881 ---------$ 935 ========== $ 5,787 5,795 ---------$ 11,582 ========== 8.1% $

Return on investment(a)/(b)................... RESTAURANTS OPENED IN 1998 Sales weeks.................................................................. Average weekly sales......................................................... Sales........................................................................ Restaurant income (loss) before income taxes(1).............................. Interest expense............................................................. Rent expense(2).............................................................. Restaurant EBIT + rent(a).................................................... Average restaurant assets employed (net)(3).................................. Present value of remaining lease obligations(4).............................. Total restaurant investment(b)...............................................

Return on investment(a)/(b).................................................. RESTAURANTS OPENED IN 1997 Sales weeks....................................................... 76 Average weekly sales.............................................. $73,675 Sales............................................................. 5,599 Restaurant income (loss) before income taxes(1)................... $(1,727) Interest expense.................................................. -Rent expense(2)................................................... 282 ------Restaurant EBIT + rent(a)......................................... $(1,445) ======= Average restaurant assets employed (net)(3)....................... $ 2,230 Present value of remaining lease obligations(4)................... 2,068 ------Total restaurant investment(b).................................... $ 4,298 ======= Return on investment(a)/(b)....................................... (33.6)%

27

RESTAURANTS OPENED IN 1996 Sales weeks............................................ Average weekly sales................................... Sales.................................................. Restaurant income (loss) before income taxes(1)........ Interest expense....................................... Rent expense(2)........................................ Restaurant EBIT + rent(a).............................. Average restaurant assets employed (net)(3)............ Present value of remaining lease obligations(4)........ Total restaurant investment (b)........................ Return on investment (a)/(b)........................... RESTAURANTS OPENED PRIOR TO 1996 Sales weeks................................... 129 Average weekly sales.......................... $81,122 Sales......................................... 10,465 Restaurant income (loss) before income taxes(1).................................... $ 585 Interest expense.............................. 13 Rent expense(2)............................... 656 ------Restaurant EBIT + rent(a)..................... $ 1,254 ======= Average restaurant assets employed (net)(3)... $ 1,522 Present value of remaining lease obligations(4).............................. 3,461 ------Total restaurant investment(b)................ $ 4,983 ======= Return on investment(a)/(b)................... 25.2%

FISCAL 1995

FISCAL 1996 17 $63,527 1,080 $ (850) 10 65 ------$ (775) ======= $ 402 704 ------$ 1,106 ======= (70.1)% 208 $83,484 17,365 $ 2,352 57 1,232 ------$ 3,641 ======= $ 2,046 5,187 ------$ 7,233 ======= 50.3%

FISCAL 1997 156 $92,930 14,497 $ 1,866 193 717 ------$ 2,776 ======= $ 4,060 4,294 ------$ 8,354 ======= 33.2% 208 $94,578 19,672 $ 4,343 21 1,125 ------$ 5,489 ======= $ 1,953 4,910 ------$ 6,863 ======= 80.0%

12 MONTHS ENDED JUNE 28, 1998 156 101,974 15,908 $ 2,744 213 787 ---------$ 3,744 ========== $ 3,849 4,267 ---------$ 8,116 ========== 46.1% $ $ $ 208 99,339 20,663

4,608 17 1,180 ---------$ 5,805 ========== $ 1,851 4,745 ---------$ 6,596 ========== 88.0%

(1) Restaurant income (loss) before income taxes represents restaurant revenues less all restaurant-specific operating costs, depreciation, preopening costs, and interest expense. Preopening costs are aggregated in the month in which a restaurant opens. General and administrative expenses, interest expense on general corporate debt, depreciation on general corporate assets, and amortization of goodwill are excluded from the calculation. (2) Rent expense consists of minimum contractual rents plus contingent rents. (3) Average restaurant assets employed (net) represents the 12 month average of all restaurant-specific long-term assets, net of any accumulated depreciation, determined on a prorated basis for restaurants opened within the period. (4) Present value of remaining lease obligations represents the 12 month average discounted present value of restaurant lease payments to the date of lease expiration using a 10% discount rate, determined on a prorated basis for restaurants opened within the period. 28

LOCATIONS The following table depicts existing restaurants and restaurants expected to open in 1998:
EXISTING LOCATIONS -----------------Scottsdale, AZ (Fashion Square) Newport Beach, CA (Fashion Island) La Jolla, CA (UTC) Irvine, CA (Spectrum Center) Las Vegas, NV (Paradise & Flamingo) Houston, TX (Highland Village) Littleton, CO (Park Meadows) Metarie, LA (Lakeside) Miami, FL (The Falls) Charlotte, NC (Phillips Place) N. Miami, FL (Aventura) Tempe, AZ (Centerpoint) McLean, VA (Tysons Corner) Dallas, TX (North Tollway) El Segundo, CA (Manhattan Beach) PLANNED LOCATIONS --------------------------------------------Austin, TX (Jollyville Road) Dallas, TX (NorthPark) Atlanta, GA (Ashwood & Perimeter) Birmingham, AL (The Summit) Denver, CO (Lodo) Northbrook, IL (Northbrook Court) Troy, MI (Somerset) Los Angeles, CA (Beverly Center) APPROXIMATE SQUARE OPENING DATE FOOTAGE ----------------------------July 1993 6,050 June 1994 5,050 August 1995 7,400 November 1995 7,000 October 1996 7,000 December 1996 6,500 December 1996 7,600 April 1997 5,850 September 1997 5,800 October 1997 6,900 October 1997 7,000 December 1997 6,600 December 1997 6,500 March 1998 6,900 June 1998 6,950 ANTICIPATED OPENING DATE ------------------------------------------Third Quarter 1998 Third Quarter 1998 Fourth Quarter 1998 Fourth Quarter 1998 Fourth Quarter 1998 Fourth Quarter 1998 Fourth Quarter 1998 Fourth Quarter 1998 INTERIOR SEATING* -------177 155 257 208 220 182 245 201 206 211 244 228 204 192 220

* Many of the Company's restaurants have outdoor seating in addition to interior seating. In 1999, the Company intends to open 13 new restaurants in approximately seven new markets, including New York, Boston, Orlando, San Francisco, Salt Lake City, Raleigh and Cincinnati. EXPANSION STRATEGY AND SITE SELECTION The Company is actively developing restaurants in both new and existing markets and has planned an expansion strategy targeted at major metropolitan areas throughout the United States. Within each targeted metropolitan area, the Company identifies specific trade areas with high traffic patterns and suitable demographic characteristics, including population density, consumer attitudes and affluence. Within an appropriate trade area, the Company evaluates specific sites that provide visibility, accessibility and exposure to traffic volume. The Company's site criteria are flexible, as is evidenced by the variety of environments and facilities in which the Company currently operates. These facilities include freestanding buildings, regional malls and entertainment centers. Each restaurant is designed to convey a unique expression of local styles incorporated into the P.F. Chang's decor that maximizes the value and visibility of the site. The Company intends to continue to develop restaurants that typically range in size from 6,000 square feet to 7,000 square feet, and that require, on average, a total capitalized investment of between $2.5 million and $3.0 million per restaurant. This total investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. The Company expects that its planned future restaurants will require, on average, a total cash investment per restaurant, exclusive of landlord contributions, 29

of approximately $1.5 million to $2.0 million. The Company currently leases the sites for all of its restaurants and does not intend to purchase real estate for its sites in the future. MENU The P. F. Chang's menu offers a harmony of taste, texture, color and aroma by balancing the principles of fan and t'sai foods. Fan foods include rice, noodles, grains and dumplings, while vegetables, meat, poultry and seafood are t'sai foods. The Company's chefs are trained to produce distinctive Chinese cuisine with traditional recipes from the five major culinary regions of China: Canton, Hunan, Mongolia, Shanghai and Szechwan. The intense heat of Mandarin-style wok cooking sears in the clarity and distinct flavor of fresh ingredients. Slow roasted Cantonese-style ducklings, chickens, BBQ spare ribs and BBQ pork are prepared in vertical ovens, while handmade shrimp, pork and vegetable dumplings, as well as flavorful fish and vegetables, are prepared in custom-made steamer cabinets. MSG is not added or used in any P.F. Chang's menu items. In addition to the core menu, P.F. Chang's also offers special lunch and dinner selections. These menus offer specials developed by the Company's Culinary Partners around the country and are changed two to three times a year. Individual items that are received well by guests migrate to the core menu. The fresh produce, seafood, meat, poultry and specialty items that are specific to a certain region of the United States or to a specific season are featured on a daily basis. Extensive research and development, including annual trips to China by the P.F. Chang's corporate executive chef, continually reinforce the Company's commitment to training the P.F. Chang's chefs and enhancing the menu offerings. The Company's entrees range in price from $8.00 to $13.00, and its appetizers range in price from $4.00 to $7.00. The Company's average check per guest, including alcoholic beverages, is approximately $17.00. Sales of alcoholic beverages, featuring an extensive selection of wines, all of which are offered by the glass, constitute approximately 20% of revenues. Lunch and dinner contribute roughly 30% and 70% of revenues, respectively. DECOR AND ATMOSPHERE The Company believes that ambiance plays a critical role in the dining experience. By combining the influences of Chinese and American cultures, each restaurant is uniquely designed to create a warm, sophisticated environment that is intended to be suitable for a variety of occasions. Each restaurant incorporates certain elements of local styles and common design elements, including hand-painted murals depicting 12th century China, sculptures of Xi'an warriors, hardwood and slate flooring, decorative lighting and custom millwork, all of which provide continuity of the brand. Seating is a comfortable combination of tables, booths and banquettes. Bistro-style counter seating is also available, frequently with a view of the exhibition-style kitchen in order to accommodate peak-period demand and the preferences of single or time-pressed diners. OPERATIONS In order to provide incentive to key management personnel, the Company has entered into a series of partnership agreements with its regional managers ("Market Partners") and certain of its general managers ("Operating Partners") and certain of its executive chefs ("Culinary Partners"). These partnership agreements entitle the Market Partner to a specified percentage of the cash flows from the restaurants that partner has developed and oversees as the regional manager. Similarly, the general manager and the executive chef at most of the Company's restaurants are offered the opportunity to become Operating Partners and Culinary Partners, respectively, and to receive a percentage of the cash flows from the restaurant in which they work. At the time an individual becomes a Market Partner, Operating Partner or Culinary Partner, that person is required to make an equity investment in the partnership and to enter into a five year employment agreement with the Company. The Company has the right, in its sole discretion, to terminate the employment of any Market Partner, Operating Partner or Culinary Partner, and, upon such termination, to repurchase that partner's interest in the partnership at such partner's then-current basis in the partnership. If an individual continues to serve as Market Partner, Operating Partner or Culinary Partner for five years, then the Company has the right to repurchase that person's interest in the partnership for a value which is determined by 30

reference to trailing cash flows. The Company has implemented this partnership structure to facilitate the development and operation of its restaurants. By requiring this level of commitment and by providing the Market, Operating and Culinary Partners with a significant stake in the success of the restaurant, the Company believes that it is able to attract and retain experienced and highly motivated managers. Each of the Company's seven Market Partners oversees a territory that can support seven to ten restaurants. The Market Partner's role is to ensure that each restaurant within his or her territory achieves a competitive return on investment through the successful execution of the concept. The typical Market Partner is an individual who has achieved a leadership position (such as Director of Operations) at a multi-unit, full-service restaurant company. The Company anticipates adding six to eight Market Partners over the next five years for its domestic development. The Company strives to create a sophisticated dining experience through the careful selection, training and supervision of personnel. The staff of a typical restaurant consists of an Operating Partner, two or three managers, a Culinary Partner, one or two sous chefs and approximately 125 hourly employees, many of whom work part-time. The Operating Partner of each restaurant is responsible for the day-to-day operation of that restaurant, including hiring, training and development of personnel, as well as operating results. The Culinary Partner is responsible for product quality, purchasing, food costs and kitchen labor costs. The Company requires its Operating Partners and Culinary Partners to have significant experience in the full-service restaurant industry. The Company has a comprehensive 12 week management development program. This program consists of six weeks of culinary training including both culinary job functions and culinary management. The remaining six weeks focus on service strategies, guest relations, office management and shift management. All management and culinary personal are required to successfully complete all sections of this program. The training program is comprised of a series of projects and skill assessments. Each trainee is formally evaluated at the end of each week in writing by the Operating Partner and Culinary Partner. This feedback is forwarded to the program's administrators, the Director of Training and the Director of Culinary Development. Upon the completion of each six week section each trainee must successfully complete a comprehensive certification administered by the Market Partner, Director of Culinary Development or the Director of Training. A trainee cannot advance or complete the program without being certified. The Operating Partners and Culinary Partners are responsible for selecting employees for their restaurants. The Partners are accountable for administering the Company's staff training programs that are developed by the training and culinary departments. The employee development program lasts between one and two weeks and focuses on both technical and cultural knowledge. MARKETING The Company focuses its business strategy on providing high quality, traditional Chinese cuisine served by an attentive staff in a distinctive environment at an affordable price. By focusing on the food, service and ambiance of the restaurant, the Company has created an environment that fosters repeat patronage and encourages word-of-mouth recommendations. The Company believes that word-of-mouth advertising is a key component in driving guest trial and usage. To attract new customers, the Company has also implemented a local, regional and national marketing strategy through paid advertising, public relations efforts and community involvement to maintain and build awareness throughout each community in which it operates. In order to increase local awareness of its restaurants, the Company builds relationships with local radio personalities who provide testimonials to their listening audiences. The partnered stations are consistently among the highest rated stations in their markets. Likewise, the radio personalities are very well recognized in their communities, not only on their station, but also in the market as a whole. In most cases, the commercials are endorsed, live reads that are typically longer than a normal 60 second commercial. The Company also undertakes specialty programs such as concierge and accommodation programs targeted to build relationships with the local hotel concierges, who offer personal recommendations to the 31

guests of their establishments. Community involvement with local organizations, participation in non-profit benefits and auctions, chef demonstrations and cooking classes also increase consumer awareness. A national advertising campaign comprised of advertisements in inflight magazines of Southwest Airlines and America West Airlines, which carry a high level of traffic in the Company's markets, is designed to make frequent travelers aware of P.F. Chang's locations across the country. MANAGEMENT INFORMATION SYSTEMS The Company utilizes an integrated information system to manage the flow of information within each restaurant and between the restaurants and the corporate office. This system includes a point-of-sales ("POS") local area network that helps facilitate the operations of the restaurant by recording sales transactions and printing orders in the appropriate locations within the restaurant. Additionally, the POS system is utilized to authorize, batch and transmit credit card transactions, to record employee time clock information, to schedule labor and to produce a variety of management reports. Select information that is captured from the POS system is transmitted to the corporate office on a daily basis, which enables senior management to continually monitor operating results. The Company believes that its current POS system will be an adequate platform to support its planned expansion. The Company uses software and hardware developed by reputable vendors and commonly used in the restaurant industry. These systems are integrated to provide senior management with daily and weekly sales and cost analysis, monthly detailed profit statements and comparisons between actual and budgeted operating results. PURCHASING The Company's purchasing programs provide its restaurants with high quality ingredients at competitive prices from reliable sources. Consistent menu specifications as well as purchasing and receiving guidelines ensure freshness and quality. Because the Company utilizes only fresh ingredients in all of its menu offerings, inventory is maintained at a modest level. The Company negotiates short-term and long-term contracts depending on demand for its products. These contracts range in duration from two to twelve months. With the exception of produce, which is purchased locally, the Company utilizes the Distributors Marketing Alliance as the primary distributor of product to all of its restaurants. The Company believes that competitively priced alternative distribution sources are available should such channels be necessary. Chinese-specific ingredients are usually sourced directly from Hong Kong, China and Taiwan. The Company has developed an extensive network of importers in order to maintain an adequate supply of items that conform to the Company's brand and product specifications. COMPETITION The restaurant business is intensely competitive with respect to food quality, price-value relationships, ambiance, service and location, and many existing restaurants compete with the Company at each of its locations. Key competitive factors in the industry include the quality and value of the food, quality of service, price, dining experience, restaurant location and the ambiance of the facilities. The Company's primary competitors include mid-price, full service casual dining restaurants and locally-owned and operated Chinese restaurants. There are many well-established competitors with substantially greater financial, marketing, personnel and other resources than the Company. In addition, many of the Company's competitors are well established in the markets where the Company's operations are, or in which they may be, located. While the Company believes that its restaurants are distinctive in design and operating concept, other companies may develop restaurants that operate with similar concepts. PROPERTIES All of the Company's restaurants are located in leased facilities. Current restaurant leases have expiration dates ranging from 2002 to 2019, with the majority of the leases providing for five-year options to renew for at least one additional term. All of the Company's leases provide for a minimum annual rent, and most leases 32

require additional percentage rent based on sales volume in excess of minimum levels at the particular location. Most of the leases require the Company to pay the costs of insurance, taxes, and a portion of the lessor's operating costs. The Company does not anticipate any difficulties renewing existing leases as they expire. The Company's executive offices are located in approximately 4,400 square feet of leased space in Phoenix, Arizona. EMPLOYEES At June 28, 1998, the Company employed approximately 1,900 persons, 30 of whom were executive office personnel, 144 of whom were unit management personnel and the remainder of whom were hourly restaurant personnel. The Company's employees are not covered by a collective bargaining agreement. The Company considers its employee relations to be good. GOVERNMENTAL REGULATION The Company's restaurants are subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to environmental, building construction, zoning requirements and the preparation and sale of food and alcoholic beverages. The Company's facilities are licensed and subject to regulation under state and local fire, health and safety codes. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. There can be no assurance that the Company will be able to obtain necessary licenses or other approvals on a cost-effective and timely basis in order to construct and develop restaurants in the future. Various federal and state labor laws govern the Company's operations and its relationship with its employees, including minimum wage, overtime, working conditions, fringe benefit and citizenship requirements. In particular, the Company is subject to the regulations of the INS. Given the location of many of the Company's restaurants, even if the Company's operation of those restaurants is in strict compliance with INS requirements, the Company's employees may not all meet federal citizenship or residency requirements, which could lead to disruptions in its work force. Approximately 20% of the Company's revenues are attributable to the sale of alcoholic beverages. The Company is required to comply with the alcohol licensing requirements of the federal government, states and municipalities where its restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. Failure to comply with federal, state or local regulations could cause the Company's licenses to be revoked or force it to terminate the sale of alcoholic beverages at one or more of its restaurants. The Company is subject to state "dram shop" laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcoholic beverages to such person. While the Company carries liquor liability coverage as part of its existing comprehensive general liability insurance, there can be no assurance that it will not be subject to a judgment in excess of such insurance coverage or that it will be able to obtain or continue to maintain such insurance coverage at reasonable costs, or at all. The federal Americans With Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. The Company is required to comply with the Americans With Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities. 33

MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information as of June 28, 1998 concerning each of the Company's directors and executive officers:
NAME Richard L. Federico....................... Robert T. Vivian.......................... Frank Ziska............................... Paul M. Fleming........................... J. Michael Chu(2)......................... Gerald R. Gallagher(1).................... R. Michael Welborn(1)(2).................. James G. Shennan.......................... Yves Sisteron............................. AGE 44 40 51 44 40 57 47 57 43 POSITION Chief Executive Officer, President and Director Chief Financial Officer and Secretary Chief Development Officer Director and Founder Director Director Director Director Director

(1) Compensation Committee Member. (2) Audit Committee Member. Richard L. Federico joined the Company as President and a director in February 1996 and in September 1997 succeeded Paul M. Fleming as Chief Executive Officer. From February 1989 to January 1996 Mr. Federico served as President of the Italian Concepts division of Brinker International, Inc. where he was responsible for concept development and operations. Under his direction, this division grew from one unit in 1989 to more than 70 units by 1996. Robert T. Vivian has served as Chief Financial Officer and Secretary since April 1996. From January 1991 to April 1996 Mr. Vivian served in a variety of positions at Brinker International, Inc., the most recent of which was Vice President of Investor Relations. In this capacity, Mr. Vivian was responsible for dissemination of financial information and corporate communications to Brinker's stockholders. Frank Ziska has served as Chief Development Officer since June 1998. Prior to joining the Company, from 1994 to June 1998, Mr. Ziska served as Managing Director of United States and Canadian Operations for Cushman & Wakefield Worldwide, a real estate brokerage firm. Prior to that time, beginning in 1989, Mr. Ziska served as Managing Director and Branch Manager of Arizona Operations for Cushman & Wakefield of Arizona, Inc. Paul M. Fleming founded the Company in January 1996 and has served as a director of the Company since that time. Mr. Fleming also served as Chief Executive Officer of the Company from January 1996 to September 1997. From November 1992 to February 1996, Mr. Fleming served as President of Fleming Chinese Restaurants, Inc., the entity which opened, developed and managed the first four P.F. Chang's restaurants, each of which were owned by separate entities and were located in Scottsdale, Arizona and Irvine, Newport Beach and La Jolla, California. In addition, from 1983 to 1997, Mr. Fleming was also a franchisee of Ruth's Chris Steakhouse, Inc. J. Michael Chu has served as a director of the Company since February 1996. Mr. Chu has been President and Managing Director of Catterton-Simon Partners, a venture capital firm, since 1990. Mr. Chu also serves on the boards of directors of Halston, Inc., Fine Host Corp and several private companies. Gerald R. Gallagher has served as a director of the Company since February 1996. He has been a General Partner of Oak Investment Partners, a venture capital firm, since May 1987. Mr. Gallagher also serves on the boards of directors of several private companies. 34

R. Michael Welborn has served as a director of the Company since August 1996. Mr. Welborn has served as the Chairman of Bank One, Arizona, N.A., a commercial bank, since January 1996. From September 1993 to December 1995 he served as Managing Director of The Venture West Group, a merchant bank. From May 1988 to September 1993 Mr. Welborn served as Chairman of Citibank of Arizona. Mr. Welborn also serves on the boards of directors of Bank One, Arizona, N.A. and a private company. James G. Shennan, Jr. has served as a director of the Company since May 1997. He has been a principal of Trinity Ventures, a venture capital firm, since June 1989. Mr. Shennan also serves on the boards of directors of Starbuck's Corporation and a number of privately-held, consumer-oriented companies in which Trinity Ventures is an investor. Yves Sisteron has served as a director of the Company since May 1997. Mr. Sisteron has been a Principal of Global Retail Partners, L.P. since January 1996 and a Manager, U.S. Investments of Carrefour S.A. since March 1993. Mr. Sisteron has a J.D. and an L.L.M. from Lyon Law School and an L.L.M. in Comparative Law from New York University School of Law. Mr. Sisteron also serves on the boards of directors of CitySearch, Inc., InterWorld Technology Ventures, Inc. and several private companies. Currently, all directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the Company's Board of Directors. There are no family relationships among the directors or officers of the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS The Compensation Committee of the Company's Board of Directors is comprised of Michael Welborn and Gerald Gallagher. Neither of these individuals was at any time during the 1997 fiscal year or at any other time an officer or employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity which has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. LIMITATION OF LIABILITY AND INDEMNIFICATION Pursuant to provisions of the Delaware General Corporation Law ("DGCL"), the Company has adopted provisions in its Charter, which provide that directors of the Company shall not be personally liable for monetary damages to the Company or its stockholders for a breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL relating to improper dividends or distributions; or (iv) for any transaction from which the director derived an improper personal benefit. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. The Certificate also authorizes the Company to indemnify its current and former officers, directors, employees or agents against certain liabilities that may arise by reason of their status or service as directors, officers, employees or agents of the Company (other than liabilities arising from acts or omissions not in good faith or willful misconduct). The Company's By-laws authorize the Company to indemnify its officers, directors, employees and agents to the extent permitted by the DGCL. Pursuant to Section 145 of the DGCL, which empowers the Company to enter into indemnification agreements with its officers, directors, employees and agents, the Company has entered into separate indemnification agreements with its directors and executive officers which may, in some cases, be broader than the specific indemnification provisions contained in the DGCL. The indemnification agreements may require the Company, among other things, to indemnify such executive officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from acts or omissions not in good faith or willful misconduct) and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. At present, there is no pending litigation or proceeding involving a director, officer, employee or agent of the Company where indemnification will be required or permitted and the Company is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. 35

EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information concerning the compensation paid to each person who served as the Company's Chief Executive Officer during the fiscal year ended December 28, 1997 and each other executive officer whose combined salary and bonus for the fiscal year ended December 28, 1997 exceeded $100,000 for services rendered in all capacities to the Company and its subsidiaries for that fiscal year. The executive officers named below are referred to herein as the "Named Executive Officers." SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION/ AWARDS -----------------SHARES OF COMMON STOCK UNDERLYING OPTIONS -----------------50,000 7,500 --

NAME AND PRINCIPAL POSITION(S) -----------------------------Richard L. Federico.................................. Chief Executive Officer and President Robert T. Vivian..................................... Chief Financial Officer and Secretary Paul M. Fleming...................................... Founder and former Chief Executive Officer

ANNUAL COMPENSATION -------------------SALARY BONUS --------------$270,000 $115,000 106,000 167,000 23,000 50,000

OPTION GRANTS The following table sets forth certain information concerning the grant of options to purchase the Company's Common Stock made during the fiscal year ended December 28, 1997 to each of the Named Executive Officers: OPTION GRANTS IN FISCAL YEAR 1997
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM(3) -------------------5% 10% --------------$188,688 $478,123 28,300 -71,718 --

NAME AND PRINCIPAL POSITION(S) -----------------------------Richard L. Federico........ Chief Executive Officer and President Robert T. Vivian........... Chief Financial Officer and Secretary Paul M. Fleming............ Founder and former Chief Executive Officer

NUMBER OF SHARES OF COMMON STOCK UNDERLYING OPTIONS GRANTED(1) ---------------50,000 7,500 --

PERCENT OF TOTAL OPTIONS GRANTED TO EMPLOYEES IN FISCAL YEAR 1997(2) ---------------29.4% 4.4 --

EXERCISE OR BASE PRICE ($/SH) -------$6.00 6.00 --

EXPIRATION DATE ---------08/14/07 11/25/07 --

(1) Options generally vest over a period of five years with 20% of the options vesting one year after the date of grant and the balance vesting in equal monthly installments. (2) In 1997, the Company granted options to purchase an aggregate of 170,000 shares. (3) Potential Realizable Value is based on certain assumed rates of appreciation pursuant to rules prescribed by the Securities and Exchange Commission ("SEC"). Actual gains, if any, on stock option exercises are dependent upon future performance of the Company and related Common Stock price levels during the terms of the options. There can be no assurance that the amounts reflected in this table will be achieved. 36

FISCAL YEAR-END VALUES OF STOCK OPTIONS The following table sets forth certain information concerning the 1997 fiscal year-end value of unexercised options held by the Named Executive Officers. None of the Named Executive Officers exercised any options during fiscal 1997. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT 12/28/97 ------------------------------EXERCISABLE(1) UNEXERCISABLE -------------------------393,965 0 93,490 0 286,640 0 VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT 12/28/97(2) ------------------------------EXERCISABLE(1) UNEXERCISABLE -------------------------$2,814,134 -653,524 -1,719,840 --

NAME ---Richard L. Federico................... Robert T. Vivian...................... Paul M. Fleming.......................

(1) All options issued to the Named Executive Officers are immediately exercisable. However, unvested shares are subject to a right of repurchase on behalf of the Company in the event of the Named Executive Officer's termination of service with the Company. (2) Calculated by determining the difference between the fair market value of the securities underlying the option at December 28, 1997 ($10.00 as determined by the Company's Board of Directors) and the exercise price of the Named Executive Officer's options. BENEFIT PLANS 1998 Stock Option Plan. A total of 280,000 shares of the Company's Common Stock (the "Share Reserve") have been reserved for issuance under the Company's 1998 Stock Option Plan (the "1998 Option Plan"). In addition, the Share Reserve will be increased if any outstanding options issued under the 1997 Restaurant Management Plan and the 1996 Employee Stock Option Plan (collectively, the "Prior Plans") expire or are canceled, or if the Company exercises its right to repurchase unvested shares of stock which were acquired upon exercise of options granted under the Prior Plans. As of June 28, 1998, no shares of Common Stock have been issued upon exercise of options and an aggregate of 1,009,635 shares were subject to outstanding options under the Prior Plans. The 1998 Option Plan provides for discretionary grants of incentive stock options and nonqualified stock options to the Company's employees, officers, directors, consultants, advisors, and/or other independent contractors. The option price per share for an incentive stock option may not be less than 100% of the fair market value of a share of Common Stock on the grant date. The option price per share for a nonstatutory stock option may not be less than 85% of the fair market value of a share of Common Stock on the grant date. The option price per share for an incentive stock option granted to a person owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or a parent or subsidiary) may not be less than 110% of the fair market value of a share of Common Stock on the grant date. The Company's Compensation Committee has the authority to, among other things, determine the vesting schedule for each option granted. All options expire within ten years. The 1998 Option Plan includes an automatic grant program for outside directors. Pursuant to this program, each outside director will be granted an option to purchase 10,000 shares of Common Stock at the time he or she is first elected or appointed a director of the Company. In addition, Michael Welborn and each outside director elected after the consummation of this offering remaining in office on the day following each annual meeting of stockholders will be granted an option to purchase 2,500 shares. With respect to the other outside directors in office prior to consummation of this offering (Messrs. Chu, Gallagher and Sisteron), each such director remaining in office 18 months after the consummation of this offering shall be granted an option to purchase 2,500 shares on the day following each annual meeting of stockholders thereafter. 1997 Restaurant Management Stock Option Plan. As of June 28, 1998, 56,875 shares were authorized under the Company's 1997 Restaurant Management Plan (the "Restaurant Management Plan"). All of such shares were subject to outstanding options and were exercisable as of such date. The Company will not issue additional options under the Restaurant Management Plan. The Restaurant Management Plan provides for 37

grants of incentive stock options and nonqualified stock options to employees of the Company who hold the position of general manager or assistant manager or a position of similar importance to the Company. The option price per share for an incentive stock option may not be less than 100% of the fair market value of a share of Common Stock on the grant date. The option price per share for nonqualified stock option may not be less than 85% of the fair market value of a share of Common Stock on the grant date. The option price per share for an option granted to a person owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or a parent or subsidiary) or 10% of the total combined value of all such classes of stock may not be less than 110% of the fair market value of a share of Common Stock on the grant date. Generally, options vest over five years with 20% of the options vesting one year after the grant date and the balance vesting in equal monthly installments over the remaining term of the options. Options expire within ten years. 1996 Employee Stock Option Plan. As of June 28, 1998, 952,760 shares were authorized under the Company's 1996 Employee Stock Option Plan (the "Employee Plan"). All of such shares were subject to outstanding options and were exercisable as of such date. The Company will not issue any additional options under the Employee Plan. The Employee Plan provides for grants of incentive stock options and nonqualified stock options to the Company's employees (including officers), directors, consultants, advisors, and/or other independent contractors. The option price per share for an incentive stock option may not be less than 100% of the fair market value of a share of Common Stock on the grant date. The option price per share for a nonqualified stock option may not be less than 85% of the fair market value of a share of Common Stock on the grant date. The option price per share for an option granted to a person owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or a parent or subsidiary) or 10% of the total combined value of all such classes of stock may not be less than 110% of the fair market value of a share of Common Stock on the grant date. Generally, options vest over five years with 20% of the options vesting one year after the grant date and the balance vesting in equal monthly installments over the remaining term of the options. Options expire within ten years. 1998 Employee Stock Purchase Plan. A total of 400,000 shares of the Company's Common Stock have been reserved for issuance under the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"), none of which have been issued. The Purchase Plan permits eligible employees to purchase Common Stock at a discount, but only through payroll deductions, during concurrent 24 month offering periods. Each offering period will be divided into four consecutive six month purchase periods. The price at which stock is purchased under the Purchase Plan is equal to 85% of the lower of the fair market value of the Common Stock on the first day of the offering period and the fair market value of the Common Stock on the last day of the purchase period. The initial offering period will commence on the effective date of this offering. EMPLOYMENT AGREEMENT The Company entered into an employment agreement with Paul M. Fleming on January 31, 1996. Pursuant to the terms of the agreement, Mr. Fleming served as Chief Executive Officer of the Company from January 1996 until September 1997 and is currently serving as a director and an employee of the Company for a term which expires January 31, 1999. The term of Mr. Fleming's employment will be automatically renewed for successive one year terms unless either Mr. Fleming or the Company provides notice of an intention not to renew the agreement. In the event that Mr. Fleming's employment is terminated by the Company without cause or by Mr. Fleming for good reason (as defined in the agreement), Mr. Fleming is entitled to receive as severance compensation (i) his base salary until the earlier of (a) one year from the date of termination or (b) the expiration of the initial term of the agreement, (ii) a lump sum payment of the average annual bonuses paid over the term of the agreement and (iii) the right to exercise in full all unvested stock options granted to him in accordance with the terms of the Employee Plan under the agreement. In addition to his base salary, Mr. Fleming is eligible to receive discretionary bonuses, when and if declared by the Board of Directors. The agreement prohibits Mr. Fleming from competing with the Company during the term of the agreement and for two years after the termination thereof. 38

CERTAIN TRANSACTIONS Since December 31, 1995, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company or its Predecessors was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer or beneficial holder of more than 5% of any class of voting securities of the Company or members of such person's immediate family had or will have a direct or indirect material interest other than the transactions described below. Formation and Series A Preferred Financing. The Company was formed on January 31, 1996, through the issuance of 500 shares of Common Stock to Paul Fleming for a purchase price of $100. In February 1996, the Company sold 2,487,500 shares of Series A Preferred Stock at a price of $4.00 per share and related warrants for an aggregate purchase price of $9,950,000. Contemporaneously, the Company acquired Paul and Kelly Fleming's 52% interest in Fleming Chinese Restaurants, Inc., which operated the first P.F. Chang's restaurant in Scottsdale, Arizona, for $1,037,000 in cash and $954,000 in notes payable. The Company also acquired from the Flemings (i) a 43% interest in P.F. Chang's II, Inc., which operated a P.F. Chang's restaurant in Newport Beach, California, (ii) a 50% ownership in P.F. Chang's III, L.L.C., which operated a P.F. Chang's restaurant in La Jolla, California and (iii) a 54% ownership interest in P.F. Chang's IV, L.L.C., which operated a P.F. Chang's restaurant in Irvine, California, all for an aggregate purchase price of $2,006,000 in cash and 2,499,500 shares of Common Stock of the Company. In September 1996, the Company issued an additional 189,635 shares of Series A Preferred Stock at a price of $4.00 per share for an aggregate purchase price of $758,540. Pursuant to the terms of the Company's Charter, on March 31, 1998 and June 30, 1998 the Company issued, and upon the consummation of this offering will issue, paid-in-kind dividends ("PIK Dividends") to the stockholders of the Company who hold Series A Preferred Stock. PIK Dividends are cumulative and are equal to 6% of the number of shares of Series A Preferred Stock owned by each stockholder payable in quarterly installments. Upon completion of this offering, all shares of the Series A Preferred Stock will convert into shares of Common Stock. The following executive officers, directors and beneficial holders of more than 5% of a class of the Company's capital stock purchased shares of the Series A Preferred Stock having an aggregate purchase price of at least $60,000.
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS(1) ---------------------------------------------------Oak Investment Partners VI, Limited Partnership(2).......... Catterton-Simon Partners, L.P.(2)........................... Trinity Ventures V, L.P.(2)................................. Silver Creek Investments Limited(2)......................... Global Retail Partners, L.P.(2)............................. Richard L. Federico(3)...................................... SHARES PURCHASED(4) -----------906,085 625,000 475,000 437,500 40,450 50,000

(1) See notes to "Principal and Selling Stockholders" for information relating to the beneficial ownership of shares and identification of affiliated stockholders. (2) A beneficial owner of more than 5% of a class of the Company's capital stock. Gerald R. Gallagher, J. Michael Chu, James G. Shennan and Yves Sisteron, each a director of the Company, are affiliated with Oak Investment Partners VI, Limited Partnership, Catterton-Simon Partners, L.P., Trinity Ventures V, L.P. and Global Retail Partners, L.P., respectively. (3) An officer and director of the Company. (4) Excludes shares issued and issuable as PIK Dividends. 39

Series B Preferred Financing. In May 1997, the Company issued 758,565 shares of Series B Preferred Stock at a price of $8.70 per share, for an aggregate purchase price of $6,599,519. The following executive officers, directors and beneficial holders of more than 5% of a class of the Company's capital stock purchased shares of Series B Preferred Stock having an aggregate purchase price of at least $60,000.
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS(1) ---------------------------------------------------Global Retail Partners, L.P.(2)............................. Oak Investment Partners VI, Limited Partnerships(2)......... Catterton-Simon Partners, L.P.(2)........................... Trinity Ventures V, L.P.(2)................................. Silver Creek Investments Limited(2)......................... SHARES PURCHASED --------322,018 114,942 114,942 114,942 54,959

(1) See notes to table of beneficial ownership in "Principal and Selling Stockholders" for information relating to the beneficial ownership of shares and identification of affiliated stockholders. (2) A beneficial owner of more than 5% of a class of the Company's Capital Stock. Gerald R. Gallagher, J. Michael Chu, James G. Shennan and Yves Sisteron, each a director of the Company, are affiliated with Oak Investment Partners VI, Limited Partnership, Catterton-Simon Partners, L.P., Trinity Ventures V, L.P. and Global Retail Partners, L.P., respectively. Purchase of Remaining Minority Interests. During 1997, the Company purchased substantially all the remaining outstanding minority interests in the Scottsdale, La Jolla and Newport Beach restaurants for approximately $2,520,000 in cash and $2,426,000 in Common Stock of the Company to be issued upon consummation of this offering upon conversion of the Deferred Purchase Price Liability. The number of shares of Common Stock to be issued will be determined by dividing $2,426,000 by the initial offering per share price. In the event the offering is not completed by October 23, 1998, the Company will be obligated (upon demand of the individual holders) to pay the minority interest holders an aggregate amount of $2,426,000 in cash. Promissory Notes. Prior to the formation of the Company, Paul Fleming, the founder and a director of the Company, personally guaranteed several promissory notes entered into by the Predecessors to pay for improvements to the Scottsdale, La Jolla and Newport Beach restaurants. The aggregate original principal amount of the notes was $472,000. In connection with the Company's acquisition of the interests in the Predecessors, the Company assumed the promissory notes. Mr. Fleming remains a guarantor of the notes. As of June 28, 1998, the aggregate outstanding principal amount of the notes was approximately $120,000. 40

PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information concerning the beneficial ownership of the Company's Common Stock as of June 28, 1998, and as adjusted to reflect the sale of the shares offered hereby, assuming no exercise of the Underwriters' over-allotment option, by (i) each person who is known by the Company to be the beneficial owner of more than 5% of the Company's Common Stock; (ii) each of the Named Executive Officers; (iii) each director of the Company; (iv) all executive officers and directors of the Company as a group; and (v) each of the Selling Stockholders. Except pursuant to applicable community property laws or as indicated in the footnotes to this table, the Company believes that each stockholder identified in the table possesses sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such stockholder. The address of the individuals listed below is the address of the Company appearing on the cover of this registration statement.
SHARES BENEFICIALLY OWNED PRIOR TO THE OFFERING(1) ------------------------NUMBER PERCENT(2) 1,062,415 SHARES BENEFICIALLY OWNED AFTER THE OFFERING(1) ----------------------NUMBER PERCENT(2)

Oak Investment Partners VI, Limited Partnership(3)...................... Gerald R. Gallagher 4550 Norwest Center Minneapolis, MN 55402 Catterton-Simon Partners, L.P.(4)..... J. Michael Chu 9 Greenwich Office Park Greenwich, CT 06830 Trinity Ventures V, L.P.(5)........... James G. Shennan, Jr. 3000 Sand Hill Road Building 1, Suite 240 Menlo Park, CA 94025 Global Retail Partners, L.P.(6)....... Yves Sisteron 2121 Avenue of the Stars, Suite 1600 Los Angeles, CA 90067 Silver Creek Investments Limited(7)... 61 Purchase Street, Suite #2R Rye, NY 10580 Paul M. Fleming(8).................... R. Michael Welborn(9)................. Richard L. Federico(10)............... Robert T. Vivian(11).................. All officers and directors as a group (9 persons)(12).....................

SHARES BEING OFFERED

768,491

611,639

364,316

512,443 2,774,170 30,172 446,249 93,490 6,150,912

* Less than one percent. (1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person has beneficial ownership of any securities over which such person directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power, or as to which such person has the right to acquire such voting and/or investment power within 60 days. (2) Percentage ownership is based on: (i) before the offering, shares of Common Stock (which includes (a) shares outstanding on June 28, 1998, (b) 82,130 shares issuable as PIK Dividends 41

to holders of Series A Preferred Stock prior to consummation of the offering, and (c) shares issuable upon completion of this offering upon conversion of the Deferred Purchase Price Liability (assuming an initial public offering price of $ per share)); and (ii) after the offering, shares of Common Stock outstanding (assuming no exercise of the Underwriter's over-allotment option). Percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of shares as to which such person has the right to acquire voting and/or investment power within 60 days of such date. (3) Includes 27,797 shares issuable as PIK Dividends to the named stockholder and its affiliates who hold Series A Preferred Stock prior to consummation of the offering. Includes 1,038,191 shares held by Oak Investment Partners VI, Limited Partnership and 24,224 shares held by Oak VI Affiliates Fund, Limited Partnership. Gerald Gallagher, a director of the Company, is a partner of Oak Investment Partners with certain voting and investment power over such shares. Although Mr. Gallagher may be deemed to be a beneficial owner of such shares, he disclaims all such beneficial ownership except to the extent of any pecuniary interest therein which he may have. (4) Includes 19,174 shares issuable as PIK Dividends to the named stockholder and its affiliates who hold Series A Preferred Stock prior to consummation of the offering. Includes 457,484 shares held by Catterton-Simon Partners, L.P., 224,800 shares held by Catterton-PFC, L.L.C. and 86,207 shares held by Catterton-PFC Partners II, L.L.C. Michael Chu, a director of the Company, is President and Managing Director of Catterton-Simon Partners with certain voting and investment power over such shares. Although Mr. Chu may be deemed to be a beneficial owner of such shares, he disclaims all such beneficial ownership except to the extent of any pecuniary interest therein which he may have. (5) Includes 14,572 shares issuable as PIK Dividends to the named stockholder and its affiliates who hold Series A Preferred Stock prior to consummation of the offering. Includes 575,993 shares held by Trinity Ventures V, L.P. and 35,645 shares held by Trinity Ventures V Side-by-Side Fund, L.P. James G. Shennan, Jr., a director of the Company, is a partner of Trinity Ventures with certain voting and investment power over such shares. Although Mr. Shennan may be deemed to be a beneficial owner of such shares, he disclaims all such beneficial ownership except to the extent of any pecuniary interest therein which he may have. (6) Includes 1,242 shares issuable as PIK Dividends to the named stockholder and its affiliates who hold Series A Preferred Stock prior to consummation of the offering. Includes 8,047 shares held by Mr. Sisteron, 199,490 shares held by Global Retail Partners, L.P., 14,607 shares held by Global Retail Partners Funding, Inc., 15,664 shares held by GRP Partners, L.P., 82,678 shares held by DLJ Diversified Partners, L.P., 3,652 shares held by DLJ First ESC, L.P., and 40,177 shares held by certain individuals affiliated with DLJ. Each of such persons is affiliated with Global Retail Partners, L.P. and Global Retail Partners, L.P. and such affiliates are each affiliates of DLJ. Yves Sisteron, a director of the Company, is a Principal of Global Retail Partners L.P. with certain voting and investment power over such shares. Although Mr. Sisteron may be deemed to be a beneficial owner of such shares, he disclaims all such beneficial ownership except to the extent of any pecuniary interest therein which he may have. (7) Includes 13,422 shares issuable as PIK Dividends to the named stockholder who holds Series A Preferred Stock prior to consummation of the offering. (8) Includes 286,640 shares subject to options which are exercisable within 60 days of September 30, 1998. (9) Includes 25,000 shares subject to options which are exercisable within 60 days of September 30, 1998. (10) Includes 1,534 shares issuable as PIK Dividends to the named stockholder who holds Series A Preferred Stock prior to consummation of the offering. Includes 393,965 shares subject to options which are exercisable within 60 days of September 30, 1998. (11) Includes 93,490 shares subject to options which are exercisable within 60 days of September 30, 1998. (12) Includes 799,095 shares subject to options which are exercisable within 60 days of September 30, 1998 and 64,319 shares issuable as PIK Dividends. 42

DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of the Company and certain provisions of the Company's Charter and By-laws is a summary and is qualified in its entirety by the provisions of the Charter and By-laws, which have been filed as exhibits to the Company's Registration Statement, of which this Prospectus is a part. Upon the closing of the offering, the authorized capital stock of the Company will consist of 20,000,000 shares of Common Stock, $0.001 par value, and 10,000,000 shares of Preferred Stock, $0.001 par value. COMMON STOCK As of June 28, 1998, there were shares of Common Stock (after giving effect to the conversion into Common Stock of the Preferred Stock and the Deferred Purchase Price Liability upon the closing of this offering) outstanding held of record by fifty-nine (59) stockholders. Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available thereof. In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of preferred stock, if any, then outstanding. The Common Stock has no preemptive or conversion rights or other subscriptive rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and non-assessable, and the shares of Common Stock to be outstanding upon completion of the offering contemplated by this Prospectus will be fully paid and non-assessable. The Charter does not provide for cumulative voting, and accordingly, the holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. PREFERRED STOCK Upon consummation of the offering there will be no outstanding shares of preferred stock of the Company. The Board of Directors has the authority, without action by the stockholders, to designate and issue preferred stock in one or more series and to designate the dividend rate, voting rights and other rights, preferences and restrictions of each series, any or all of which may be greater than the rights of the Common Stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the Common Stock until the Board of Directors determines the specific rights of the holders of such preferred stock. However, the effects might include, among other things, restricting dividends on the Common Stock, diluting the voting power of the Common Stock, impairing the liquidation rights of the Common Stock and delaying or preventing a change in control of the Company without further action by the stockholders. The Company has no present plans to issue any shares of preferred stock. REGISTRATION RIGHTS Pursuant to the Amended and Restated Registration Rights Agreement dated May 1, 1997, between the Company and certain stockholders, certain investors holding an aggregate of 3,557,984 shares (the "Registrable Securities") will have certain "demand" rights to register those shares under the Securities Act. Beginning 180 days after the date of this Prospectus, if requested by holders of more than 50% of the Registrable Securities then outstanding and assuming a reasonably anticipated aggregate price to the public of at least $5 million, then, subject to certain limitations, the Company must file a registration statement under the Securities Act covering all Registrable Securities requested to be included by holders of Registrable Securities. The Company is required to effect up to three such "demand" registrations. The Company has the right to delay any such registration for up to 90 days under certain circumstances. All fees, costs and expenses of such registrations other than underwriting discounts and commissions, will be borne by the Company. In addition, holders of Registrable Securities have certain "piggyback" registration rights. If the Company proposes to register any of its securities under the Securities Act other than in connection with the 43

Company's employee benefit plans or a corporate reorganization, then, subject to certain limitations, the holders of Registrable Securities may require the Company to include all or a portion of their shares in such registration, although the managing underwriter of any such offering has certain rights to limit the number of shares in such registration. Subject to certain limitations, expenses incurred in connection with the above registrations (other than underwriters' and brokers' discounts and commissions) will be borne by the Company. DEFERRED PURCHASE PRICE LIABILITY In connection with the repurchase by the Company of minority interests in the Scottsdale, La Jolla and Newport Beach restaurants, certain of the former minority interest holders have the right to receive a number of shares of restricted Common Stock of the Company upon completion of the offering determined by dividing $2,426,000 by the initial public offering price per share. In the event the offering is not completed by October 23, 1998, the Company will be obligated (upon demand of the individual holders) to pay the holders of such rights the aggregate amount of $2,426,000 in cash. LIMITATION OF LIABILITY AND INDEMNIFICATION Section 102(b)(7) of the DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for a breach of a director's fiduciary duty of care. Although Section 102(b)(7) does not change a director's duty of care, it enables corporations to limit available relief to equitable remedies such as injunction or rescission. The Company's Charter limits the liability of directors to the Company and its stockholders. Specifically, directors of the Company are not personally liable for monetary damages to the Company or its stockholders for a breach of fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which the director derived an improper personal benefit. ANTI-TAKEOVER PROVISIONS General. Certain provisions of the DGCL and the Company's Charter and By-laws may discourage or make it more difficult for a third-party to acquire control of the Company. Such provisions may limit the price that certain investors are willing to pay in the future for shares of the Company's Common Stock. These certain provisions may also have the effect of discouraging or preventing certain types of transactions involving an actual or threatened change of control of the Company (including unsolicited takeover attempts), even though such a transaction may offer the Company's stockholders the opportunity to sell their stock at a price above the prevailing market price. The Charter allows the Company to issue preferred stock with rights senior to those of the Common Stock and other rights that could adversely affect the interests of holders of shares of Common Stock without any further vote or action by the stockholders. The issuance of preferred stock, for example, could decrease the amount of earnings or assets available for distribution to the holders of shares of Common Stock or could adversely affect the rights and powers, including voting rights, of the holders of shares of Common Stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the Common Stock, as well as having the anti-takeover effects discussed above. Delaware Takeover Statute. The Company is subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in a "business combination" with certain persons ("Interested Stockholders") for three years following the time any such person becomes an Interested Stockholder. Interested Stockholders generally include (i) persons who are the beneficial owners of 15% or more of the outstanding voting stock of the corporation, and (ii) persons who are affiliates or associates of the corporation and who hold 15% or more of the corporation's outstanding voting stock at any time within three years before the date on which such person's status as an Interested Stockholder is determined. Subject to certain exceptions, a business combination includes, among other things, (i) mergers or consolidations, (ii) the sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets having an aggregate market value equal to 44

10% or more of either the aggregate market value of all assets of the corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation, (iii) transactions that result in, among other things, the issuance or transfer by the corporation of any stock of the corporation to the Interested Stockholder, except pursuant to a transaction that effects a pro rata distribution to all stockholders of the corporation, (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation that is owned directly or indirectly by the Interested Stockholder, or (v) any receipt by the Interested Stockholder of the benefit (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. Section 203 does not apply to a business combination if (i) before a person becomes an Interested Stockholder, the board of directors of the corporation approved either the business combination or the transaction which resulted in the Interested Stockholder becoming an Interested Stockholder, (ii) upon consummation of the transaction which resulted in the stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, other than certain excluded shares, or (iii) at or subsequent to such time the business combination is (a) approved by the board of directors of the corporation and (b) authorized at a regular or special meeting of stockholders, and not by written consent, by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of the corporation not owned by the Interested Stockholder. CHARTER AND BY-LAWS The Company's By-laws provide that special meetings of the stockholders of the Company may be called only by the President of the Company, and shall be called by the President or Secretary of the Company upon the written request of a majority of the Board of Directors or by any person or persons holding shares representing a majority of the outstanding capital stock entitled to vote. The Company's Bylaws also require advance written notice of a special meeting to each stockholder of the Company entitled to vote at such meeting not less than 10, nor more than 60, days prior to the meeting. The Company's Charter does not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority stockholder holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative voting may have the effect of limiting the ability of minority stockholders to effect changes in the Board of Directors and, as a result, may have the effect of deterring a hostile takeover or delaying or preventing changes in control or management of the Company. The Company's By-laws provide that the authorized number of directors may be changed by an amendment to the By-laws adopted by the Board of Directors or by the stockholders. Vacancies in the Board of Directors may be filled either by holders of a majority of the Company's directors then in office, though less than a quorum, or by a sole remaining director, or if there are no directors in office, in the manner provided by statute. If the directors then in office constitute less than a majority of the whole board, any stockholder or stockholders holding at least ten percent (10%) of the outstanding capital stock entitled to vote may apply to the Court of Chancery to order an election. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is . 45

SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock. Future sales of substantial amounts of Common Stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, since only a limited number of shares will be available for sale shortly after the offering because of certain contractual and legal restrictions on resale (as described below), sales of substantial amounts of Common Stock in the public market after such restrictions lapse could adversely affect the prevailing market price at such time and the ability of the Company to raise equity capital in the future. Upon completion of this offering, the Company will have outstanding an aggregate of shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options or warrants to purchase Common Stock. Of these shares, the shares of Common Stock to be sold in this Offering will be freely tradable without restriction or further registration under the Securities Act, unless such shares are held by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining shares held by existing stockholders of the Company were sold by the Company in reliance on exemptions from the registration requirements of the Securities Act and are "restricted" securities within the meaning of Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. As a result of the contractual restrictions described below and the provisions of Rule 144 Rule and 701, the Restricted Shares will be available for sale in the public market as follows (based on the number of shares outstanding as of June 28, 1998): (i) Restricted Shares will be eligible for sale 90 days after the date of this Prospectus; and (ii) all Restricted Shares will be eligible for sale upon expiration of the lock-up agreements 180 days after the date of this Prospectus. All officers and directors, and certain stockholders and option holders of the Company have agreed not to sell, make any short sale of, grant any option for the purchase of, or otherwise transfer or dispose of, any shares of Common Stock or any securities convertible into or exercisable for Common Stock held by such persons for a period of 180 days after the date of this Prospectus, without the prior written consent of DLJ. When determining whether or not to release shares from the lock-up agreements, DLJ will consider, among other factors, the stockholder's reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an Affiliate, who has beneficially owned shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this Prospectus, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately shares immediately after the offering) or (ii) the average weekly trading volume of the Common Stock on the Nasdaq National Market during the four calendar weeks preceding such sale, subject to the filing of a Form 144 with respect to such sale. Sales under rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. In addition, a person who is not deemed to have been an Affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately following completion of the offering. In general, under Rule 701 of the Securities Act as currently in effect, any employee, consultant or advisor of the Company who purchased shares from the Company in connection with a compensatory stock or option plan or written employment agreement is eligible to resell such shares 90 days after the effective date of the offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period conditions, contained in Rule 144. Within 90 days of the date of this Prospectus, the Company intends to file a registration statement under the Securities Act to register shares of Common Stock reserved for issuance under its equity incentive plans, thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act. Such registration statements will become effective immediately upon filing. As of June 28, 1998, 1,009,635 options to purchase shares of Common Stock were outstanding under the Company's stock option plans and agreements, all of which are subject to the lock-up agreements described above. 46

UNDERWRITING Subject to the terms and conditions of an Underwriting Agreement dated , 1998 (the "Underwriting Agreement"), the Underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), NationsBanc Montgomery Securities LLC ("NationsBanc Montgomery") and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain Rauscher Wessels") (the "Representatives"), have severally agreed to purchase from the Company and the Selling Stockholders the respective number of shares of Common Stock set forth opposite their names below.
UNDERWRITERS -----------Donaldson, Lufkin & Jenrette Securities Corporation......... NationsBanc Montgomery Securities LLC....................... Dain Rauscher Wessels....................................... Total............................................. NUMBER OF SHARES -----------

----------===========

The Underwriting Agreement provides that the obligations of the several Underwriters to purchase and accept delivery of the shares of Common Stock offered hereby are subject to approval by their counsel of certain legal matters and to certain other conditions. The Underwriters are obligated to purchase and accept delivery of all the shares of Common Stock offered hereby (other than those shares covered by the over-allotment option described below) if any are purchased. The Underwriters initially propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain dealers (including the Underwriters) at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may re-allow, to certain other dealers a concession not in excess of $ per share. After the initial offering of the Common Stock, the public offering price and other selling terms may be changed by the Representatives at any time without notice. The Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. The Company and the Selling Stockholders have granted to the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of additional shares of Common Stock at the initial public offering price less underwriting discounts and commissions. The Underwriters may exercise such option solely to cover over-allotments, if any, made in connection with the offering. To the extent that the Underwriters exercise such option, each Underwriter will become obligated, subject to certain conditions, to purchase its pro rata portion of such additional shares based on such Underwriter's percentage underwriting commitment as indicated in the preceding table. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. Each of the Company, its executive officers and directors and certain stockholders of the Company (including the Selling Stockholders) has agreed, subject to certain exceptions, not to (i) 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 or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Stock (regardless of whether any of the transactions described in clause (i) or (ii) is to be settled by the delivery of Common Stock, or such other securities, in cash or otherwise) for a period of 180 days after the date of this Prospectus without the prior written consent of DLJ. In addition, during such period, the Company has also agreed not to file any registration statement with respect to, and each of its executive officers, directors and certain stockholders of the Company (including the Selling Stockholders) has agreed not to make any demand for, or exercise any right with respect to, the 47

registration of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock other than registrations relating to equity compensation plans without DLJ's prior written consent. Prior to the offering, there has been no established trading market for the Common Stock. The initial public offering price for the shares of Common Stock offered hereby will be determined by negotiation among the Company, representatives of the Selling Stockholders and the Representatives. The factors to be considered in determining the initial public offering price include the history of and the prospects for the industry in which the Company competes, the past and present operations of the Company, the historical results of operations of the Company, the prospects for future earnings of the Company, the recent market prices of securities of generally comparable companies and the general condition of the securities markets at the time of the offering. Global Retail Partners, L.P. ("GRP") and its affiliates (together, the "GRP Related Entities"), each an affiliate of DLJ, Yves Sisteron, a Principal of GRP, and two other individual affiliates of DLJ (collectively, the "DLJ Affiliates") are stockholders of the Company. Mr. Sisteron, a director of the Company has been elected to the Board of Directors pursuant to the provisions of a stockholder agreement which entitles Global Retail Partners, L.P., as a holder of Series B Preferred Stock and so long as it continues to hold at least a specified percentage of the Series B Preferred Stock, to elect one of the seven directors of the Company. Such stockholder agreement will terminate upon consummation of this offering. See "Management," "Certain Transactions" and "Principal and Selling Stockholders." In May 1997, Global Retail Partners, L.P. and certain other DLJ affiliates, including Mr. Sisteron, acquired an aggregate of 322,018 shares of the Company's Series B Preferred Stock. Previously, in February 1996, Mr. Sisteron and two other individual affiliates of DLJ, acquired an aggregate of 40,450 shares of the Company's Series A Preferred Stock and have since received and will receive scheduled PIK Dividends thereon. In addition, certain individuals who are associated with NationsBanc Montgomery acquired an aggregate of 90,762 shares of Series A Preferred Stock in February 1996, and such individuals and one other individual associated with NationsBanc Montgomery acquired an aggregate of 24,404 shares of Series B Preferred Stock in May 1997. In February 1996, NationsBanc Montgomery also received a five-year warrant to purchase up to 62,190 shares of Series A Preferred Stock at an exercise price of $4.00 per share in connection with placement agent and other services it performed for the Company. Other than in the United States, no action has been taken by the Company, the Selling Stockholders or the Underwriters that would permit a public offering of the shares of Common Stock offered hereby in any jurisdiction where action for that purpose is required. The shares of Common Stock offered hereby may not be offered or sold, directly or indirectly, nor may this Prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares of Common Stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of such jurisdiction. Persons into whose possession this Prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering of the Common Stock and the distribution of this Prospectus. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of Common Stock offered hereby in any jurisdiction in which such an offer or a solicitation is unlawful. In connection with the offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may over-allot the offering, creating a syndicate short position. The Underwriters may bid for and purchase shares of Common Stock in the open market to cover such syndicate short position or to stabilize the price of the Common Stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members and selected dealers if they repurchase previously distributed Common Stock in syndicate covering transactions, in stabilizing transactions or otherwise. These activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. 48

LEGAL MATTERS The validity of the securities offered hereby has been and general corporate legal matters will be passed upon for the Company by Gray Cary Ware & Freidenrich LLP, San Diego, California. Certain legal matters will be passed upon for the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P., San Antonio, Texas. EXPERTS The consolidated financial statements of P.F. Chang's China Bistro, Inc. at December 28, 1997 and December 29, 1996 and for the year ended December 28, 1997, the period from February 29, 1996 to December 29, 1996, the combined results of operations of its Predecessors for the period from January 1, 1996 to February 28, 1996 and the year ended December 31, 1995 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission a Registration Statement (which term shall include any amendments thereto) on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement. As used herein, the term "Registration Statement" means the initial Registration Statement (including the exhibits, schedules, financial statements and notes filed as part thereof) and any and all amendments thereto. This Prospectus omits certain information contained in the Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement. Statements herein concerning the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed with the Commission as an exhibit to the Registration Statement, each such statement being qualified by and subject to such reference in all respects. With respect to each such document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved. As a result of this offering, the Company will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, will file reports and other information with the Commission. Reports, registration statements, proxy statements, and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's Regional Offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. The Company intends to furnish holders of the Common Stock with annual reports containing, among other information, audited financial statements certified by an independent audited accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. The Company intends to furnish such other reports as it may determine or as may be required by law. 49

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
P.F. CHANG'S CHINA BISTRO, INC. Report of Independent Auditors.............................. Consolidated Financial Statements: Consolidated Balance Sheets at December 29, 1996, December 28, 1997, and June 28, 1998 (unaudited)................ Consolidated Statements of Operations for the Year Ended December 31, 1995, the Period from January 1, 1996 to February 28, 1996, the Period from February 29, 1996 to December 29, 1996, the Year Ended December 28, 1997, and the Six Months Ended June 29, 1997 and June 28, 1998 (unaudited)....................................... Consolidated Statements of Convertible Redeemable Preferred Stock and Common Stockholders' and Members' Equity (Deficit) for the Year Ended December 31, 1995, the Period from January 1, 1996 to February 28, 1996, the Period from February 29, 1996 to December 29, 1996, the Year Ended December 28, 1997, and the Six Months Ended June 28, 1998 (unaudited)........................ Consolidated Statements of Cash Flows for the Year Ended December 31, 1995, the Period from January 1, 1996 to February 28, 1996, the Period from February 29, 1996 to December 29, 1996, the Year Ended December 28, 1997, and the Six Months Ended June 29, 1997 and June 28, 1998 (unaudited)....................................... Notes to Consolidated Financial Statements................ PAGE F-2 F-3

F-4

F-5

F-6 F-7

F-1

REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders P.F. Chang's China Bistro, Inc. We have audited the accompanying consolidated balance sheets of P.F. Chang's China Bistro, Inc. (Company) as of December 29, 1996 and December 28, 1997, and the related consolidated statements of operations, convertible redeemable preferred stock and common stockholders' and members' equity (deficit), and cash flows for the period from February 29, 1996 to December 29, 1996 and for the year ended December 28, 1997. We have also audited the combined statements of operations, stockholders' and members' equity (deficit), and cash flows of the corporations and limited liability companies listed in Note 2 for the year ended December 31, 1995 and for the period from January 1, 1996 to February 28, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 that 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 consolidated financial position of P.F. Chang's China Bistro, Inc. at December 29, 1996 and December 28, 1997 and the results of its operations and its cash flows for the period from February 29, 1996 to December 29, 1996 and for the year ended December 28, 1997, and the combined results of operations and cash flows of the corporations and limited liability companies listed in Note 2 for the year ended December 31, 1995 and for the period from January 1, 1996 to February 28, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Phoenix, Arizona January 26, 1998, except for Note 11 as to which the date is , 1998 The foregoing report is in the form that will be signed upon completion of the one-for-two reverse stock split described in Note 11 to the consolidated financial statements.
/s/ ERNST & YOUNG LLP Phoenix, Arizona July 22, 1998

F-2

P.F. CHANG'S CHINA BISTRO, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1996 -----------ASSETS Current assets: Cash and cash equivalents......................... Receivables....................................... Inventories....................................... Current portion of notes receivable from related parties......................................... Prepaids and other current assets................. Total current assets................................ Construction-in-progress............................ Property and equipment, net......................... Goodwill, net of accumulated amortization of $154,000, $398,000 and $616,000 in 1996, 1997 and 1998, respectively................................ Notes receivable from related parties, less current portion........................................... Other assets........................................ Total assets........................................ LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Revolving line of credit.......................... Accounts payable.................................. Accrued payroll................................... Other accrued expenses............................ Unearned revenue.................................. Current portion of long-term debt................. Deferred purchase price........................... Accrued minority members' distributions........... Total current liabilities........................... Long-term debt...................................... Interests of minority members and partners in consolidated limited liability companies and partnerships...................................... Commitments and contingencies....................... Convertible redeemable preferred stock, $0.001 par value, 10,000,000 shares authorized: Series A--2,677,135 shares issued and outstanding at December 29, 1996 and December 28, 1997 and 2,717,289 shares issued and outstanding at June 28, 1998, liquidation preference of $10,709,000 at December 29, 1996 and December 28, 1997 and $10,869,000 at June 28, 1998.................... Series B--758,565 shares issued and outstanding, liquidation preference of $6,600,000 at December 28, 1997 and June 28, 1998...................... Common stockholders' equity (deficit): Common stock, $0.001 par value, 20,000,000 shares authorized: 2,500,000 shares issued and outstanding..................................... Additional paid-in capital........................ Accumulated deficit............................... Total common stockholders' equity (deficit)......... Total liabilities, convertible redeemable preferred stock and common stockholders' equity (deficit)... DECEMBER 28, 1997 -----------PRO FORMA JUNE 28, JUNE 28, 1998 1998 ---------------(UNAUDITED) (IN THOUSANDS) $ 1,802 825 362 69 766 ------3,824 7,522 14,234 8,089 187 409 ------$34,265 ======= $ 1,802 825 362 69 766 ------3,824 7,522 14,234 8,089 187 409 ------$34,265 =======

$ 1,877 659 194 -79 ------2,809 3,202 2,954 3,971 -108 ------$13,044 =======

$ 2,739 2,062 363 130 417 ------5,711 3,787 10,207 8,307 162 315 ------$28,489 =======

$

-1,049 624 536 133 432 -281 ------3,055 1,331 15

$ 5,500 1,658 1,214 988 305 481 2,426 -------12,572 2,391 164

$ 9,000 2,789 1,266 1,470 269 441 2,426 -------17,661 2,159 236

$ 9,000 2,789 1,266 1,470 269 441 --------15,235 2,159 236

10,517 --

11,175 6,633

11,432 6,853

---

3 2 (1,879) ------(1,874) ------$13,044 =======

3 2 (4,451) ------(4,446) ------$28,489 =======

3 2 (4,081) ------(4,076) ------$34,265 =======

6 20,710 (4,081) ------16,635 ------$34,265 =======

See accompanying notes. F-3

P.F. CHANG'S CHINA BISTRO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSORS -----------------------------PERIOD FROM JANUARY 1, 1996 YEAR ENDED TO DECEMBER 31, FEBRUARY 28, 1995 1996 -------------------------Revenues.......................... Costs and expenses: Restaurant operating costs: Cost of sales................. Labor......................... Operating..................... Occupancy..................... Total restaurant operating costs........ General and administrative...... Depreciation and amortization... Preopening...................... Income (loss) from operations..... Interest income (expense): Interest expense................ Interest income................. Income (loss) before elimination of minority members' and partners' interests and provision for income taxes...... Elimination of minority members' and partners' interests......... Income (loss) before provision for income taxes.................... Provision for income taxes........ Net income (loss)................. Redeemable preferred stock accretion....................... Net income (loss) available to common stockholders............. Net income (loss) per share: Basic........................... Diluted......................... Weighted average shares used in computation: Basic........................... Diluted......................... Pro forma data (unaudited): Net income (loss) per share: Basic......................... Diluted....................... Weighted average shares used in computation: Basic......................... Diluted....................... $10,465 2,957 3,347 1,528 1,059 ------8,891 192 322 400 ------660 (13) ------COMPANY ------------------------------------------------PERIOD FROM FEBRUARY 29, SIX MONTHS ENDED 1996 TO YEAR ENDED ------------------DECEMBER 29, DECEMBER 28, JUNE 29, JUNE 28, 1996 1997 1997 1998 ------------------------------------(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) $2,815 $15,630 $39,768 $17,703 $32,937 772 918 527 205 -----2,422 17 82 17 -----277 (4) -----4,454 4,736 2,944 1,279 ------13,413 1,368 352 765 ------(268) (163) 36 ------11,317 11,683 6,727 2,743 ------32,470 4,276 1,102 1,922 ------(2) (380) 63 ------5,029 5,228 2,871 1,206 ------14,334 1,823 451 399 ------696 (150) 23 ------9,099 9,400 5,440 2,357 ------26,296 2,753 1,013 1,217 ------1,658 (520) 65 -------

647 ------647 ------$ 647 =======

273 -----273 -----$ 273 ======

(395) (720) ------(1,115) (30) ------(1,145) (504) ------$(1,649) ======= $ (0.66) ======= $ (0.66) ======= 2,500 ======= 2,500 =======

(319) (1,308) ------(1,627) (69) ------(1,696) (876) ------$(2,572) ======= $ (1.03) ======= $ (1.03) ======= 2,500 ======= 2,500 ======= $ (0.30) ======= $ (0.30) ======= 5,706 ======= 5,706 =======

569 (758) ------(189) (52) ------(241) (396) ------$ (637) ======= $ (0.25) ======= $ (0.25) ======= 2,500 ======= 2,500 =======

1,203 (345) ------858 (11) ------847 (477) ------$ 370 ======= $ 0.15 ======= $ 0.13 ======= 2,500 ======= 6,655 ======= $ 0.14 ======= $ 0.13 ======= 6,099 ======= 6,798 =======

See accompanying notes. F-4

P.F. CHANG'S CHINA BISTRO, INC. CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
CONVERTIBLE REDEEMABLE PREFERRED STOCK ----------------------------------------SERIES A SERIES B -----------------------------------SHARES AMOUNT SHARES AMOUNT -------------------------(IN THOUSANDS) --------------------2,677 ------2,677 -------2,677 40 ------2,717 ===== ------------------------10,013 504 -------10,517 -658 -------11,175 -257 -------$11,432 ======= $ ---------------------759 ----759 -----759 === $ ------------------------------6,415 218 ------6,633 -220 ------$6,853 ======

PREDECESSORS Balances, January 1, 1995......................... Members' contributions............................ Distributions..................................... Net income (loss)................................. Balances, December 31, 1995....................... Distributions..................................... Net income (loss)................................. Balances, February 28, 1996....................... COMPANY Conversion of S corporations to limited liability companies....................................... Purchase of members' interests.................... Reclassification to minority interest upon consolidation in connection with acquisition of interests....................................... Issuance of common stock.......................... Issuance of Series A preferred stock, net of issuance costs of $695,000...................... Redeemable preferred stock accretion.............. Net loss.......................................... Balances, December 29, 1996....................... Issuance of Series B preferred stock, net of issuance costs of $184,000...................... Redeemable preferred stock accretion.............. Net loss.......................................... Balances, December 28, 1997....................... Series A preferred stock dividend paid (unaudited)..................................... Redeemable preferred stock accretion (unaudited)..................................... Net income (unaudited)............................ Balances, June 28, 1998 (unaudited)...............

PREDECESSORS Balances, January 1, 1995......................... Members' contributions............................ Distributions..................................... Net income (loss)................................. Balances, December 31, 1995....................... Distributions..................................... Net income (loss)................................. Balances, February 28, 1996....................... COMPANY Conversion of S corporations to limited liability companies....................................... Purchase of members' interests.................... Reclassification to minority interest upon consolidation in connection with acquisition of interests....................................... Issuance of common stock.......................... Issuance of Series A preferred stock, net of issuance costs of $695,000...................... Redeemable preferred stock accretion.............. Net loss.......................................... Balances, December 29, 1996....................... Issuance of Series B preferred stock, net of issuance costs of $184,000...................... Redeemable preferred stock accretion.............. Net loss.......................................... Balances, December 28, 1997....................... Series A preferred stock dividend paid (unaudited)..................................... Redeemable preferred stock accretion (unaudited)..................................... Net income (unaudited)............................ Balances, June 28, 1998 (unaudited)...............

COMMON STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT) -------------------------------------------------------------------COMMON STOCK ADDITIONAL ---------------PAID-IN MEMBERS' ACCUMULATED SHARES AMOUNT CAPITAL CAPITAL DEFICIT TOTAL ------------------------------------------(IN THOUSANDS) 20 -------20 ------20 (20) --2,500 -------2,500 -------2,500 -------2,500 ===== $-------------3 ----3 ----3 ----$3 == $1,419 -(706) ------713 (112) ------601 (601) --2 --------2 --------2 --------$ 2 ====== $ -710 (50) (18) ------642 -(12) ------630 601 (1,231) -------------------------------$ -======= (202) -(523) 665 ------(60) (228) 285 ------(3) --(227) --(504) (1,145) ------(1,879) -(876) (1,696) ------(4,451) -(477) 847 ------$(4,081) ======= $ $ 1,217 710 (1,279) 647 ------1,295 (340) 273 ------1,228 -(1,231) (227) 5 -(504) (1,145) ------(1,874) -(876) (1,696) ------(4,446) -(477) 847 ------$(4,076) =======

See accompanying notes.

F-5

P.F. CHANG'S CHINA BISTRO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSORS -----------------------------PERIOD FROM YEAR ENDED JANUARY 1, 1996 DECEMBER 31, TO FEBRUARY 28, 1995 1996 -------------------------OPERATING ACTIVITIES: Net income (loss)....................... Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation.......................... Amortization.......................... Minority members' and partners' interests........................... Change in operating assets and liabilities: Receivables......................... Inventories......................... Prepaids and other current assets... Other assets........................ Accounts payable.................... Accrued payroll..................... Other accrued expenses.............. Unearned revenue.................... Accrued minority members' distributions..................... Net cash provided by operating activities............................ INVESTING ACTIVITIES: Capital expenditures.................... Decrease (increase) in notes receivable from related parties.................. Payment for members' interests.......... Net cash used in investing activities... FINANCING ACTIVITIES: Net proceeds from revolving line of credit................................ Proceeds from issuance of long-term debt.................................. Repayments of long-term debt............ Proceeds from issuance of common stock................................. Proceeds from issuance of redeemable preferred stock, net of issuance costs................................. Proceeds from minority partners' contributions......................... Proceeds from members' contributions.... Distributions to members and stockholders.......................... Distributions to minority members and partners.............................. Net cash provided by (used in) financing activities............................ Net increase (decrease) in cash and cash equivalents........................... Cash and cash equivalents at the beginning of the period............... Cash and cash equivalents at the end of the period............................ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest.................. Cash paid for income taxes.............. Purchase of members' interests through issuance of long-term debt............ Purchase of property and equipment through issuance of long-term debt.... Purchase of members' and partners' interest through deferred purchase price................................. COMPANY -----------------------------------------------------PERIOD FROM SIX MONTHS ENDED FEBRUARY 29, 1996 YEAR ENDED ------------------TO DECEMBER 29, DECEMBER 28, JUNE 29, JUNE 28, 1996 1997 1997 1998 -----------------------------------------(UNAUDITED) (IN THOUSANDS) $(1,145) $(1,696) $ (241) $ 847

$

647

$ 273

322 --(127) (54) (56) (40) 489 50 299 67 -------1,597 (824) --------(824) --(71) ---710 (1,279) -------(640) ------133 347 ------$ 480 ======= $ 13 --200 --

82 --134 (5) (6) 8 (65) 80 (143) (13) -----345 ----------(7) ----(340) -----(347) ----(2) 480 ----$ 478 ===== $ 4 -----

198 154 720 (658) (75) 17 (63) 395 385 289 63 -------280 (4,008) -(4,175) ------(8,183) --(267) 5 10,013 ---(449) ------9,302 ------1,399 478 ------$ 1,877 ======= $ 108 30 1,266 421 --

858 244 1,308 (1,403) (169) (338) (207) 609 590 452 172 (281) ------139 (8,696) (292) (2,520) ------(11,508) 5,500 1,600 (491) -6,415 441 --(1,234) ------12,231 ------862 1,877 ------$ 2,739 ======= $ 319 69 --2,426

348 103 758 659 (10) (310) 3 (331) (433) 214 (3) (281) ------476 (2,769) (119) -------(2,888) -1,600 (246) -6,415 183 --(321) ------7,631 ------5,219 1,877 ------$ 7,096 ======= $ 112 52 ----

795 218 345 1,237 1 (349) (94) 1,131 52 482 (36) -------4,629 (8,557) 36 -------(8,521) 3,500 -(272) --92 --(365) ------2,955 ------(937) 2,739 ------$ 1,802 ======= $ 494 11 ----

See accompanying notes. F-6

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 28, 1997 AND JUNE 28, 1998 (THE INFORMATION AS OF JUNE 28, 1998 AND FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND JUNE 28, 1998 IS UNAUDITED) 1. BASIS OF PRESENTATION P.F. Chang's China Bistro, Inc. (Company) operates restaurants in Arizona, California, Colorado, Texas, Nevada, Florida, North Carolina, Louisiana, and Virginia under the name of "P.F. Chang's China Bistro." The Company was formed in January, 1996 through the issuance of 500 shares of common stock to Mr. Paul Fleming for $100 in cash. In February 1996, the Company sold 2,487,500 shares of Series A convertible preferred stock and warrants for $9,950,000 in cash. Contemporaneously, the Company acquired Mr. Fleming's 52 percent interest in Fleming Chinese Restaurants, Inc., which operates a restaurant in Scottsdale, Arizona (Scottsdale), for $1,037,000 in cash and $954,000 in notes payable. The Company also acquired Mr. Fleming's 43 percent interest in P.F. Chang's II, Inc., which operates a restaurant in Newport Beach, California (Newport Beach); 49.85 percent ownership in P.F. Chang's III, L.L.C., which operates a restaurant in La Jolla, California (La Jolla); and 54.2 percent ownership interest in P.F. Chang's IV, L.L.C., which operates a restaurant in Irvine, California (Irvine), for $2,006,000 in cash and 2,499,500 shares of common stock of the Company. In addition, in 1996 the Company acquired an additional 18 percent ownership in Scottsdale and the remaining 45.8 percent ownership of Irvine in various transactions for an aggregate of $1,132,000 in cash and $312,000 in notes payable. The acquisition of the ownership interests in the various entities during 1996 have been accounted for under the purchase method of accounting for business combinations. Accordingly, the purchase price was allocated to the proportional assets acquired and liabilities assumed based on their relative fair values, with $4,125,000 allocated to goodwill. As a result of the start-up nature of the operations of the Company, the significant prior claims of the preferred stockholders of the Company, and the minority interests in Scottsdale, Newport Beach and La Jolla, no significant value was assigned to the common stock issued in the acquisitions. During 1997, the Company purchased substantially all the remaining outstanding minority interests in the Scottsdale, La Jolla and Newport Beach restaurants for approximately $2,520,000 in cash and $2,426,000 in common stock of the Company to be issued in connection with a contemplated initial public offering (IPO). Upon consummation of an IPO, the number of common shares to be issued will be the fixed purchase price of $2,426,000 divided by the price per share of the common stock sold in the IPO. Should the IPO not be completed by a stipulated date as defined, the Company will be obligated (upon demand of the individual holders) to pay the minority interest holders the $2,426,000 in cash. The acquisition of the ownership interests in the various entities during 1997 has been accounted for under the purchase method of accounting for business combinations. Accordingly, the purchase price was allocated to the proportional assets acquired and liabilities assumed based on their relative fair values, with $4,581,000 allocated to goodwill. Two of the predecessor entities, Fleming Chinese Restaurants, Inc. and P.F. Chang's II, Inc. were dissolved and their operations transferred to two new entities, PFCCB Scottsdale, L.L.C. and PFCCB Newport Beach, L.L.C. Accordingly, at December 29, 1996, each of the existing restaurants was structured as a limited liability corporation, and the Company's ownership of these restaurants is through its membership in each limited liability corporation. The Company's new restaurants are generally organized as partnerships with the Company as general partner. The operations of the predecessor entities which operated the restaurants have been presented in the accompanying combined financial statements for 1995 and through the date of acquisition at historical cost due to the common ownership. The allocation of the purchase price resulted in no material adjustment to the historical recorded basis in the assets and liabilities except for goodwill. Therefore, the effect to the statement of operations is primarily amortization subsequent to the date of acquisition. F-7

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has incurred successive losses and has negative working capital at December 28, 1997, and its capital requirements, including start-up costs, related to the opening of additional restaurants have been, and will continue to be significant. The Company has experienced positive operating cash flows since its inception. To date, the Company has been substantially dependent upon loans from lending institutions and private equity funding to develop its restaurants. The Company will be required to seek significant amounts of additional debt and/or equity capital in order to fund its planned development activities. Although there is no assurance that the Company will be able to obtain adequate financing for its future development, management believes that such capital will be available to the Company. In the event the Company is unsuccessful in obtaining additional funds for development, management may need to take steps to continue to operate within the available cash flow. Such steps may include, among others, the postponement of planned future development. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The 1996 and 1997 consolidated financial statements include the accounts and operations of the Company and its subsidiaries or partnerships in which it owns more than a 50 percent interest. All material balances and transactions between the consolidated entities have been eliminated. The 1995 combined statements of operations and cash flows includes the accounts of Fleming Chinese Restaurants, Inc., P.F. Chang's II, Inc., P.F. Chang's III, L.L.C., and P.F. Chang's IV, L.L.C. All material balances and transactions between the combined entities have been eliminated. INTERIM FINANCIAL INFORMATION The consolidated financial statements for the six months ended June 29, 1997 and June 28, 1998 are unaudited and have been prepared on the same basis as the audited consolidated financial statements included herein. In the opinion of management, such unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations. The results of operation for such interim periods are not necessarily indicative of the results that may be expected for any future periods. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents. RECEIVABLES Receivables consist primarily of amounts due from landlords or other parties for the reimbursement of leasehold improvements paid by the Company. INVENTORIES Inventories consist of food and beverages and are stated at the lower of cost or market using the first-in, first-out method. NOTES RECEIVABLE FROM RELATED PARTIES Notes receivable from related parties represent amounts due the Company from limited partners of affiliated partnerships. Payments of principal and interest of 11.0 percent amortized over a five year period are due monthly with a balloon payment for the outstanding principal and interest due at the end of two years. F-8

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSTRUCTION-IN-PROGRESS The Company capitalizes all direct costs in the construction of new restaurants. Upon opening, these costs are depreciated over their useful lives based upon the property classifications. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Furniture, fixtures, and equipment are depreciated on a straight line basis over the estimated useful service lives of the related assets which approximate seven years. Leasehold improvements are amortized over the shorter of the useful life of the asset or the length of the related lease term. China and smallwares are depreciated over two years up to 50 percent of their original cost, after which subsequent additions are expensed as purchased. GOODWILL Goodwill represents the excess of cost over net assets acquired in the purchase of interests in various restaurants (see Note 1) and is being amortized over 20 years on a straight-line basis. The Company assesses the recoverability of goodwill based upon expected future undiscounted cash flows resulting from the acquired interests in the restaurants. UNEARNED REVENUE Unearned revenue represents gift certificates sold but not yet redeemed. Revenues are recognized upon redemption of the gift certificates. ADVERTISING The Company expenses advertising as incurred. Advertising expense during the year ended December 31, 1995, the period from January 1, 1996 to February 28, 1996, the period from February 29, 1996 to December 29, 1996, and for the year ended December 28, 1997 was approximately $328,000, $10,000, $232,000, and $901,000, respectively. During the six months ended June 29, 1997 and June 28, 1998, advertising expense was approximately $432,000 and $550,000, respectively. PREOPENING Preopening expenses, consisting primarily of manager salaries and relocation, advertising, and employee payroll and related training costs incurred prior to the opening of a restaurant, are expensed as incurred. INCOME TAXES The Company utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods. Minority members' and partners' interests in income or loss of limited liability corporations and partnerships includes no provision for income taxes as any tax liability related thereto is the responsibility of the individual minority members. The predecessor entities are S corporations and limited liability corporations under the Internal Revenue Code. Accordingly, the taxable income and losses are allocated and taxed directly to the stockholders and F-9

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) members resulting in no tax provision for the year ended December 31, 1995 or the period from January 1, 1996 to February 28, 1996. STOCK BASED COMPENSATION The Company grants stock options for a fixed number of shares to certain employees with an exercise price equal to or greater than the fair value of the shares at the date of grant. The Company accounts for stock option grants to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and, accordingly, recognizes no compensation expense for the stock option grants. NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Pro forma basic and diluted net income per share has been computed giving effect to the conversion of all the outstanding shares of convertible redeemable preferred stock and deferred purchase price liability into common stock upon closing of the Company's IPO (determined using the if-converted method). PRO FORMA BALANCE SHEET (UNAUDITED) As discussed in Notes 1 and 6, the convertible redeemable preferred stock and deferred purchase price liability will be automatically converted upon the closing of the public offering contemplated herein. The accompanying pro forma balance sheet gives effect to this conversion as if such event occurred on June 28, 1998. FISCAL YEAR The Company's fiscal year ends on the Sunday closest to the end of December and includes 52 weeks in 1995, 1996 and 1997. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, receivables, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is determined using current applicable rates for similar instruments and collateral as of the balance sheet date and approximates the carrying value of such debt. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash investments and receivables. The Company maintains cash and cash equivalents, restricted funds on deposit and certain other financial instruments with financial institutions that are considered in the Company's investment strategy. Concentrations of credit risk with respect to receivables are limited as the Company's receivables are primarily with its landlords for the reimbursement of tenant improvements. F-10

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RECLASSIFICATIONS Certain amounts shown in the prior period combined and consolidated financial statements have been reclassified to conform with the current year consolidated financial statements presentation. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 29, 1996 -----------Leasehold improvements........................ Furniture, fixtures and equipment............. China and smallwares.......................... Less accumulated depreciation................. $1,551 1,946 142 -----3,639 685 -----$2,954 ====== DECEMBER 28, 1997 -----------(IN THOUSANDS) $ 6,904 4,386 423 ------11,713 1,506 ------$10,207 ======= JUNE 28, 1998 ----------(UNAUDITED) $10,380 5,576 575 ------16,531 2,297 ------$14,234 =======

4. REVOLVING LINE OF CREDIT On October 24, 1997, the Company entered into a $10,000,000 revolving line of credit agreement with a finance corporation. The line of credit bears interest at LIBOR plus 4.0 percent, payable monthly, and expires on November 1, 1998. At December 28, 1997, amounts available under the line of credit were approximately $4,500,000. In June 1998, the Company amended its revolving line of credit to provide for a $20,000,000 line with interest at LIBOR plus 3.5 percent and expires on July 1, 1999. At June 28, 1998, amounts available under the line of credit were $11,000,000. The weighted average interest rate under the line of credit was 9.5 percent in 1997 and 1998, respectively. The line of credit requires the Company to maintain a net worth of at least $10,000,000 including convertible redeemable preferred stock. The line of credit agreement also contains covenants which place various restrictions on sales of properties, transactions with affiliates, creation of additional debt, and other nonfinancial covenants, as defined. The line of credit agreement is collateralized by the Company's interests in certain affiliated partnerships. F-11

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 29, 1996 -----------$1,100,000 promissory note, collateralized by leasehold improvements, payable in monthly installments of $11,354 including interest at 11.0 percent, until March 1, 2017, when all remaining principal and interest is due and payable. Additional payments may be required under the promissory note based on a percentage of gross sales. ............... $500,000 promissory note, collateralized by equipment, payable in monthly installments of $8,561 including interest at 11.0 percent until March 1, 2004 when all remaining principal and interest is due and payable. ................................... $1,266,000 unsecured promissory notes to related parties, payable in quarterly installments of $96,967 including interest at 10.0 percent, until March 1, 2000, when all remaining principal and interest is due and payable. ............................... $421,000 equipment loan, collateralized by furniture, fixtures and equipment, payable in monthly installments of $7,202 including interest at 11.0 percent, until January 1, 2004, when all remaining principal and interest is due and payable. ............... $200,000 unsecured promissory note, payable in monthly installments of $3,333 plus interest at prime plus one percent, until April 2001, when all remaining principal and interest is due and payable. The note is guaranteed by a stockholder of the Company. ................ Other......................................... Less current portion.......................... DECEMBER 28, 1997 -----------(IN THOUSANDS) JUNE 28, 1998 -----------(UNAUDITED)

$

--

$1,088

$1,080

--

463

436

1,065

762

606

421

382

358

173 104 -----1,763 432 -----$1,331 ======

133 44 -----2,872 481 -----$2,391 ======

114 6 -----2,600 441 -----$2,159 ======

The aggregate annual payments of long-term debt outstanding at December 28, 1997, for the next five years and thereafter, are summarized as follows: 1998--$481,000; 1999--$523,000; 2000--$281,000; 2001--$178,000; 2002--$184,000; and thereafter--$1,225,000. F-12

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY PREFERRED STOCK In February 1996, the Company issued 2,487,500 shares of Series A convertible redeemable preferred stock (Series A preferred stock), and warrants exercisable for 621,875 shares of Series A preferred stock, for an aggregate purchase price of approximately $9,950,000, less issuance costs of $695,000. In September 1996, the Company issued an additional 189,635 shares of Series A preferred stock for $758,000 in order to purchase the remaining minority interests in the Irvine restaurant. The Series A preferred stock has a $0.001 par value and an annual six percent dividend payable quarterly on March 31, June 30, September 30, and December 31 in shares of such Series A preferred stock on a cumulative basis beginning January 1, 1998. The Company may also declare, upon unanimous consent of the Non-Investor Directors as defined, a cash dividend equal to ten percent of the liquidation price of the Series A preferred stock in lieu of the Series A preferred stock dividend. In May 1997, the Company issued 758,565 shares of Series B convertible redeemable preferred stock (Series B preferred stock) for an aggregate purchase price of $6,599,000, less issuance costs of approximately $184,000. The Series B preferred stock has a $0.001 par value and an annual six percent dividend payable quarterly on March 31, June 30, September 30, and December 31 in shares of such Series B preferred stock on a cumulative basis beginning April 1, 1999. The Company may also declare, upon unanimous consent of the Non-Investor Directors as defined, a cash dividend equal to ten percent of the liquidation price of the Series B preferred stock in lieu of the Series B preferred stock dividend. Each share of Series A and Series B preferred stock is convertible at any time into one share of common stock, subject to dilution adjustments as defined, at the option of the holder and is automatically converted into common stock at the date of a qualified IPO. The Series A preferred stock is mandatorily redeemable at a minimum of 50 percent of the shares outstanding in May 2003 with the remaining outstanding shares becoming mandatorily redeemable in May 2004 at $4.00 per share plus accrued and unpaid dividends. The Series A preferred stock has a liquidation preference equal to the greater of $4.00 per share or such amount per share as would have been payable had each share of Series A preferred stock been converted into common stock. The Series B preferred stock is mandatorily redeemable at a minimum of 50 percent of the shares outstanding in May 2003 with the remaining in May 2004 at $8.70 per share plus accrued and unpaid dividends. The Series B preferred stock has a liquidation preference equal to the greater of $8.70 per share or such amount per share as would have been payable had each share of Series B preferred stock been converted into common stock. Upon voluntary or involuntary liquidation, the holders of the Series A and Series B preferred stock shall be entitled to be paid out of the assets of the Company with the common stockholders being entitled to all remaining assets of the Company to be distributed. The holders of the Series A and Series B preferred stock have the right to vote based on the number of shares of common stock into which each share of Series A and Series B preferred stock would thus be converted. The difference between the redemption amount and the carrying amount of the Series A and Series B preferred stock and dividends thereon calculated on a straight-line basis beginning with the date of issuance is being recorded through periodic accretions charged to accumulated deficit. Effective April 30, 1997, 1,116,990 and 233,578 shares of Series A and Series B preferred stock, respectively, have been reserved for issuance upon the exercise of warrants previously issued and upon issuance of "payment-in-kind" dividends of Series A and Series B preferred stock. The 621,875 warrants issued during 1996 were cancelable by the Company should the Irvine restaurant achieve certain operating goals. During 1997, the Irvine restaurant achieved such goals, and the warrants were consequently canceled. In connection with the original capitalization of the Company, an additional 62,190 warrants were issued to an investment bank to purchase Series A preferred stock at $4.00 per share. The warrants expire February 28, 2001. F-13

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SHAREHOLDERS' AGREEMENT The Company's common and preferred stock is subject to a shareholders' agreement which provides to the stockholders a right of first refusal to purchase the other stockholders' interests. Before any such shares of common and preferred stock may be sold, assigned, transferred, pledged, encumbered, or disposed in any way, such shares shall first be offered to the Company and other stockholders party to the shareholders' agreement. In addition, such stockholders have certain bring-along and tag-along rights with respect to sales of common stock by certain other stockholders. Upon a qualified IPO, all rights and obligations under the shareholders' agreement terminate. PARTNERSHIP AGREEMENTS The Company has entered into a series of partnership agreements with each of its regional managers (Market Partners), certain of its general managers (Operating Partners) and certain of its executive chefs (Culinary Partners). These partnership agreements entitle the Market Partner to a specified percentage of the cash flows from the restaurants that partner has developed and oversees as the regional manager. Similarly, the general manager and the executive chef at most of the Company's restaurants are offered the opportunity to become Operating Partners and Culinary Partners, respectively, and to receive a percentage of the cash flows from the restaurant in which they work. At the time an individual becomes a Market Partner, Operating Partner or Culinary Partner, that person is required to make an equity investment in the partnership and to enter into a five year employment agreement with the Company. The Company has the right, in its sole discretion, to terminate the employment of any Market Partner, Operating Partner or Culinary Partner, and, upon such termination, to repurchase that partner's interest in the partnership at such partners then-current basis in the partnership. If an individual continues to serve as Market Partner, Operating Partner or Culinary Partner for five years, then the Company has the right to repurchase that person's interest in the partnership for a value, which is determined by reference to trailing cash flows. COMMON STOCK The Company has reserved 5,912,920 shares of common stock for issuance upon the exercise of options and warrants to purchase such shares, and upon the conversion of Series A and Series B preferred stock into such shares. STOCK OPTION PLAN The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," (Statement 123) requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals or exceeds the fair value of the underlying stock on the date of grant, no compensation expense is recognized. In August 1996, the Company adopted the 1996 Stock Option Plan (1996 Plan), and in July 1997, the Company adopted the 1997 Restaurant Management Stock Option Plan (1997 Plan). Options under the 1996 Plan may be granted to employees, consultants and directors to purchase the Company's common stock at an exercise price that equals or exceeds the fair value of such shares on the date such option is granted. Options under the 1997 Plan may be granted to key employees of the Company who are actively engaged in the management and operation of the Company's restaurants to purchase the Company's common stock at an exercise price that equals or exceeds the fair value of such shares on the date such option is granted. Vesting periods are determined at the discretion of the board of directors, and options currently outstanding at December 28, 1997 vest over five years. Options may be exercised immediately upon grant subject to a right by the Company to repurchase any unvested shares at the exercise price. Any options granted shall not be F-14

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) exercisable after ten years. Incentive options granted to individuals who own more than ten percent of the total combined voting power of all classes of stock shall not be exercisable after five years and options granted to prospective employees, consultants or directors may not become exercisable prior to the date on which such person commences services with the Company. Upon certain changes in control of the Company, the Plan provides for two additional years of immediate vesting. The Company has reserved a total of 1,086,500 shares of common stock for issuance under the 1996 and 1997 Plans. Pro forma information regarding net income (loss) is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1997: risk-free interest rate of 5.5 percent; a dividend yield of -0-percent; volatility factors of the expected market price of the Company's common stock of .01 and .122, respectively; and a weighted-average expected life of the option of five years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Because Statement 123 is applicable to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until approximately 2002. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
PERIOD FROM FEBRUARY 29, 1996 TO YEAR ENDED DECEMBER 29, DECEMBER 28, 1996 1997 ----------------------(IN THOUSANDS) $1,145 $1,696 48 82 ----------$1,193 $1,778 ====== ======

Net loss, as reported.............................. Pro forma compensation expense for stock options... Pro forma net loss.................................

F-15

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information regarding activity for stock options outstanding under the Plans are as follows:
OUTSTANDING OPTIONS ---------------------WEIGHTEDAVERAGE EXERCISE SHARES PRICE -----------------$ ---791,510 2.98 ----------------791,510 2.98 --170,000 5.40 ----------------961,510 3.40 --48,125 13.09 ----------------1,009,635 $3.87 ========= =====

Outstanding at December 31, 1995................... Authorized....................................... Granted.......................................... Exercised........................................ Forfeited (canceled)............................. Outstanding at December 29, 1996................... Authorized....................................... Granted.......................................... Exercised........................................ Forfeited (canceled)............................. Outstanding at December 28, 1997................... Authorized (unaudited)........................... Granted (unaudited).............................. Exercised (unaudited)............................ Forfeited (canceled) (unaudited)................. Outstanding at June 28, 1998 (unaudited)...........

SHARES AVAILABLE FOR OPTIONS ---------890,000 (791,510) ---------98,490 196,500 (170,000) ---------124,990 -(48,125) ---------76,865 ========

Information regarding options outstanding and exercisable at December 28, 1997 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------------------------WEIGHTEDAVERAGE REMAINING WEIGHTEDWEIGHTEDRANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE ------------------------------------------------------------------------------------------$2.40 504,872 8.16 years $ 2.40 176,672 $2.40 $4.00-$6.00 445,388 5.38 years 4.38 105,510 4.00 $10.00 11,250 9.90 years 10.00 ---

Since options are generally exercisable upon date of grant, options exercisable included in the above table represent vested options that are not subject to repurchase by the Company. The weighted-average fair value of options granted during the period from February 29, 1996 to December 29, 1996 and for the year ended December 28, 1997 was $0.56 and $1.38, respectively. F-16

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES Income tax expense consisted of the following:
PERIOD FROM FEBRUARY 29, 1996 TO YEAR ENDED DECEMBER 29, DECEMBER 28, 1996 1997 ----------------------(IN THOUSANDS) $-----30 ---30 --$30 === $-----69 ---69 --$69 ===

Federal: Current.......................................... Deferred......................................... State: Current.......................................... Deferred.........................................

The Company's effective tax rate differs from the federal statutory rate for the following reasons:
PERIOD FROM FEBRUARY 29, 1996 TO YEAR ENDED DECEMBER 29, DECEMBER 28, 1996 1997 ----------------------(IN THOUSANDS) $(379) $(553) 30 69 398 426 (19) 127 --------$ 30 $ 69 ===== =====

Income tax benefit at federal statutory rate....... State taxes, net of federal benefit................ Increase in valuation allowance.................... Other, net.........................................

The Company's net income for the year ended December 31, 1995 and for the period from January 1, 1996 to February 28, 1996 included earnings attributable to the Scottsdale, Newport Beach, La Jolla and Irvine restaurants. These restaurants were organized as limited liability companies or had elected under Subchapter S of the Internal Revenue Code to have their stockholders pay any federal and state income tax due on their earnings. Although income prior to the consolidation attributable to the acquired restaurants is included in the Company's consolidated financial statements, the Company is not required to pay income taxes on the income since they are the responsibility of the members and stockholders of the acquired companies. F-17

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The income tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:
DECEMBER 29, DECEMBER 28, 1996 1997 ----------------------(IN THOUSANDS) $ 47 44 80 7 290 ----468 $ -2 267 -760 -----1,029

Deferred tax assets: Bonus accrual.................................... Depreciation on property and equipment........... Preopening expenses.............................. Goodwill amortization............................ Net operating loss carryforwards................. Deferred tax liabilities: Goodwill amortization............................ Valuation allowance................................ Net deferred tax assets............................

-----468 (468) ----$ -=====

136 -----893 (893) -----$ -======

During the period from January 1, 1996 to December 29, 1996 and for the year ended December 28, 1997, the valuation allowance increased $468,000 and $425,000, respectively. At December 28, 1997, the Company has a net operating loss carryforward of approximately $1,900,000 which begins to expire for federal purposes in 2011 and for state purposes in 2001. F-18

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. NET INCOME (LOSS) PER SHARE AND PRO FORMA NET INCOME (LOSS) PER SHARE The following table sets forth the computation of basic and diluted net income (loss) per share:
PERIOD FROM FEBRUARY 29, 1996 TO DECEMBER 29, 1996 -----------Numerator: Net income (loss).................... Convertible redeemable preferred stock accretion................... Numerator for basic net income (loss) per share--income available to common stockholders............... Effect of dilutive securities: Convertible redeemable preferred stock accretion................. Numerator for diluted net income (loss) per share--income available to common stockholders after assumed conversions............... Denominator: Denominator for basic net income (loss) per share--weighted-average shares............................ Effect of dilutive securities: Employee and director stock options........................... Warrants............................. Convertible redeemable preferred stock............................. Denominator for diluted net income (loss) per share--adjusted weighted average shares and assumed conversions.......................... Net income (loss) per share: Basic................................ Diluted.............................. SIX MONTHS ENDED -------------------JUNE 29, JUNE 28, 1997 1998 --------------(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 28, 1997 -----------$(1,696) (876) ------(2,572) -------$ (241) (396) -----(637) ------$ 847

$(1,145) (504) ------(1,649) --------

(477) -----370 477 ------

$(1,649) =======

$(2,572) =======

$ (637) ======

$ 847 ======

2,500 ----------

2,500 ----------

2,500 ---------

2,500 660 39 3,456 ------

2,500 ======= $ (0.66) ======= $ (0.66) =======

2,500 ======= $ (1.03) ======= $ (1.03) =======

2,500 ====== $(0.25) ====== $(0.25) ======

6,655 ====== $ 0.15 ====== $ 0.13 ======

Warrants of 62,190 and options to purchase 961,510 shares of common stock ranging from $2.40 to $10.00 per share were outstanding during the year ended December 28, 1997, but were not included in the computation of diluted net income (loss) per share because the effect would be antidilutive. The Series A and B preferred stock convertible to common stock is not included in the computation of diluted net income (loss) per share during the year ended December 28, 1997, because the assumed conversions would be antidilutive. As discussed in Note 1 and should the Company complete an IPO, contingently issuable shares based on the IPO common stock price will be issued. As the conditions for the shares to be issued have not been satisfied, the contingent shares are not included in diluted net income (loss) per share. F-19

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the computation of basic and diluted pro forma net income (loss) per share giving effect to the conversion of the preferred stock and the deferred purchase price to common stock as of the beginning of each period presented:
YEAR ENDED DECEMBER 28, 1997 -----------SIX MONTHS ENDED JUNE 28, 1998 -------------(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) $ 847 ====== 2,500 3,599 -----6,099 660 39 -----6,798 ====== $ 0.14 ====== $ 0.13 ======

Numerator for basic pro forma net income (loss) per share: Net income (loss)....................................... Denominator: Weighted-average shares................................. Conversion of convertible preferred stock and deferred purchase price....................................... Denominator for basic pro forma net income (loss) per share................................................ Effect of dilutive securities: Employee and director stock options.................. Warrants............................................. Denominator for dilutive pro forma net income (loss) per share -- adjusted weighted average shares and assumed conversions.......................................... Pro forma net income (loss) per share: Basic................................................... Diluted.................................................

$(1,696) ======= 2,500 3,206 ------5,706 --------5,706 ======= $ (0.30) ======= $ (0.30) =======

9. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases restaurant and office facilities and equipment and certain real property under operating leases having terms expiring between 2000 and 2019. The restaurant facility and real property leases primarily have renewal clauses of five to 15 years exercisable at the option of the Company and rent escalation clauses stipulating specific rent increases, some of which are based on the consumer price index. Certain of these leases require the payment of contingent rentals based on a percentage of gross revenues, as defined. Rent expense during the year ended December 31, 1995, the period from January 1, 1996 to February 28, 1996, the period from February 29, 1996 to December 29, 1996 and for the year ended December 28, 1997 was approximately $656,000, $121,000, $1,176,000 and $2,203,000, respectively. During the six months ended June 29, 1997 and June 28, 1998, rent expense was approximately $698,000 and $1,311,000, respectively. Contingent rent included in rent expense during the year ended December 31, 1995, the period from January 1, 1996 to February 28, 1996, the period from February 29, 1996 to December 29, 1996 and for the year ended December 28, 1997 was approximately $152,000, $76,000, $225,000 and $605,000, respectively. During the six months ended June 29, 1997 and June 28, 1998, contingent rent included in rent expense was approximately $270,000 and $493,000, respectively. At December 28, 1997, the Company had entered into other lease agreements for restaurant facilities currently under construction or yet to be constructed. In addition, the leases also contain provisions for F-20

P.F. CHANG'S CHINA BISTRO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) additional contingent rent based upon gross sales, as defined in the leases. Future minimum lease payments under operating leases (including restaurants to be opened in 1998) are as follows (in thousands):
1998............................................... 1999............................................... 2000............................................... 2001............................................... 2002............................................... Thereafter......................................... Total minimum lease payments....................... $ 3,158 4,161 4,220 4,172 4,145 38,537 ------$58,393 =======

The Company leases a building and certain furniture and equipment from a partnership in which the Company owns an approximate six percent interest. Annual rent payments are contingent based on a percentage of gross revenues. The respective period rent expense are included in the above disclosed amounts. 10. BENEFIT PLAN Effective July 1, 1997, the Company adopted the 401(k) Defined Contribution Benefit Plan, which covers substantially all employees of the Company that have completed one year of service and have attained the age of 21 years old. The plan permits participants to contribute to the plan, subject to Internal Revenue Code restrictions, and the plan also permits the Company to make discretionary matching contributions. During the year ended December 28, 1997 and for the six months ended June 28, 1998, the Company did not make any contributions to the Plan. 11. SUBSEQUENT EVENTS On June 2, 1998, the Company's Board of Directors approved, subject to stockholder approval, a one-for-two reverse stock split of the common and preferred stock and made conforming adjustments on the terms of all outstanding common stock equivalents except for the par value and authorized shares. All shares and per share information in the accompanying consolidated financial statements has been retroactively adjusted to reflect the reverse split. During 1998, the Company's Board of Directors approved, subject to stockholder approval, the 1998 Stock Option Plan (1998 Plan) which provides for discretionary grants of incentive stock options and nonqualified stock options to the Company's employees including officers, directors, consultants, advisors, and other independent contractors. A total of 280,000 shares have been reserved for issuance under the 1998 Plan. The option price per share for an incentive stock option may not be less than 100% of the fair market value of a share of common stock on the grant date. The option price per share for a nonstatutory stock option may not be less than 85 percent of the fair market value of a share of common stock on the grant date. The option price per share for an incentive stock option granted to a person owning stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company (or a parent or subsidiary) may not be less than 110 percent of the fair market value of a share of common stock on the grant date. The Company's Compensation Committee has the authority to, among other things, determine the vesting schedule for each option granted. All options expire within 10 years. The 1998 Plan includes an automatic grant program for outside directors. Pursuant to this program, each outside director will be granted an option to purchase 10,000 shares of common stock at the time he or she is first elected or appointed a director of the Company. In addition, each outside director remaining in office will be granted an option to purchase 2,500 shares on the day following each annual meeting of stockholders. During 1998, the Company's Board of Directors approved, subject to stockholder approval, the 1998 Employee Stock Purchase Plan (Purchase Plan) and reserved 400,000 shares for issuance thereunder. The Purchase Plan permits eligible employees to purchase common stock at a discount, but only through payroll deductions, during concurrent 24 month offering periods. Each offering period will be divided into four consecutive 6 month purchase periods. The price at which stock is purchased under the Purchase Plan is equal to 85 percent of the lower of the fair market value of the common stock on the first day of the offering period and the fair market value of the common stock on the last day of the purchase period. F-21

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS
Prospectus Summary......................... Risk Factors............................... Use of Proceeds............................ Dividend Policy............................ Capitalization............................. Dilution................................... Selected Consolidated Financial and Operating Data........................... Management's Discussion and Analysis of Financial Condition and Results of Operations............................... Business................................... Management................................. Certain Transactions....................... Principal and Selling Stockholders......... Description of Capital Stock............... Shares Eligible for Future Sale............ Underwriting............................... Legal Matters.............................. Experts.................................... Additional Information..................... Index to Financial Statements.............. PAGE 3 6 11 11 12 13 14 16 25 34 39 41 43 46 47 49 49 49 F-1

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

SHARES [P.F. CHANG'S LOGO] COMMON STOCK PROSPECTUS DONALDSON, LUFKIN & JENRETTE NATIONSBANC MONTGOMERY SECURITIES LLC DAIN RAUSCHER WESSELS a division of Dain Rauscher Incorporated , 1998

PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. The Company is paying all of the expenses incurred on behalf of the Selling Stockholders (other than underwriting discounts and commissions). All amounts shown are estimates except for the registration fee and the NASD filing fee.
Registration fee............................................ NASD filing fee............................................. Nasdaq National Market fee.................................. Blue sky qualification fees and expenses.................... Printing and engraving expenses............................. Legal fees and expenses..................................... Accounting fees and expenses................................ Transfer agent and registrar fees........................... Fee for Custodian for Selling Stockholders.................. Miscellaneous............................................... Total............................................. $ 16,963 6,250 41,250 5,000 100,000 250,000 100,000 10,000 10,000 15,537 -------$550,000 ========

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 145 of the DGCL permits indemnification of officers, directors, and other corporate agents under certain circumstances and subject to certain limitations. The Registrant's Amended and Restated Certificate of Incorporation and By-laws provide that the Registrant shall indemnify its directors, officers, employees and agents to the full extent permitted by the DGCL, including circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the Registrant has entered into separate indemnification agreements with its directors and executive officers which require the Registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service (other than liabilities arising from acts or omissions not in good faith or willful misconduct). These indemnification provisions and the indemnification agreements entered into between the Registrant and its executive officers and directors may be sufficiently broad to permit indemnification of the Registrant's executive officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the Underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act, or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since July 31, 1995, the Registrant and its Predecessors have sold and issued the following unregistered securities: (a) Issuances of Shares of Common Stock. On January 31, 1996, the Registrant issued a total of 500 shares of Common Stock to Paul Fleming in exchange for an aggregate purchase price of $100.00, or $0.20 per share. On February 28, 1996, the Registrant issued a total of 2,499,500 shares of Common Stock to Paul and Kelly Fleming in exchange for their interests in the Predecessors. (b) Issuances of Shares of Preferred Stock. On February 1, 1996, the Registrant issued a total of 2,487,500 shares of Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") and Warrants exercisable for a total of 621,875 shares of Series A Preferred Stock to accredited investors for an aggregate purchase price of $9,950,000. II-1

In September 1996, the Company issued an additional 189,635 shares of Series A Preferred Stock to accredited investors for an aggregate purchase price of $758,540. On March 31, 1998 and June 30, 1998, the Company issued an aggregate of 80,913 shares of Series A Preferred Stock as paid-in-kind dividends to holders of Series A Preferred Stock. On May 1, 1997, the Registrant issued a total of 758,565 shares of Series B Convertible Redeemable Preferred Stock to accredited investors for an aggregate offering price of $6,599,519. (c) Option Issuances to, and Exercises by, Employees and Directors. From June 28, 1996 to June 28, 1998, the Registrant issued options to purchase a total of 1,009,635 shares of Common Stock at a weighted-average exercise price of $3.87 per share to 45 employees. No consideration was paid to the Registrant by any recipient of any of the foregoing options for the grant of any such options. As of June 28, 1998, no employees had exercised their options. (d) Warrants In connection with the original capitalization of the Company, warrants to purchase 62,190 shares of Series A Preferred Stock at $4.00 per share were issued to an investment bank. The warrants expire February 28, 2001. There were no underwriters employed in connection with any of the transactions set forth in Item 15. The issuances described in Items 15(a) and 15(b) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. In addition, the issuances described in Item 15(c) were deemed exempt from registration under the Securities Act in reliance on Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients 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 and other instruments issued in such transactions. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
EXHIBIT NUMBER 1.1* 3.1 3.2 4.1* 4.2 5.1* 10.1 10.2 10.3 10.4 10.5 10.6* 10.7 10.8 10.9 10.10 21.1 23.1 23.2* DESCRIPTION OF DOCUMENT Form of Underwriting Agreement. Certificate of Incorporation of the Company. By-laws. Specimen Common Stock Certificate. Amended and Restated Registration Rights Agreement dated May 1, 1997. Opinion of Gray Cary Ware & Freidenrich LLP. Form of Indemnification Agreement for directors and executive officers. 1998 Stock Option Plan and forms of agreement thereunder. 1997 Restaurant Manager Stock Option Plan and forms of Agreement thereunder. 1996 Stock Option Plan and forms of Agreement thereunder. 1998 Employee Stock Purchase Plan. Employment Agreement between Paul M. Fleming and the Company dated January 31, 1996. Series A Preferred Stock Purchase Agreement dated February 1, 1996. Series B Preferred Stock Purchase Agreement dated May 1, 1997. Amended and Restated Revolving Line of Credit Loan Agreement between the Company and FFCA dated June 20, 1998. Office Lease between the Company and U.S. West Business Resources, Inc. dated February 15, 1997. List of Subsidiaries. Consent of Independent Auditors (see page II-5). Consent of Counsel (included in Exhibit 5.1).

II-2

EXHIBIT NUMBER 24.1 27.1

DESCRIPTION OF DOCUMENT Power of Attorney (see page II-4). Financial Data Schedule.

* To be filed by amendment. (b) Financial Statement Schedules. None. 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 by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement 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 the Registrant of expenses incurred or paid by a director, officer, employee or agent of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, employee or agent in connection with the securities being registered hereunder, 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, 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, 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 the time shall be deemed to be the initial bona fide offering thereof. II-3

SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, County of Maricopa, State of Arizona, on the 23rd day of July 1998. P.F. Chang's China Bistro, Inc.
By: /s/ RICHARD L. FEDERICO -----------------------------------Richard L. Federico Chief Executive Officer and President (Principal Executive Officer)

POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Richard L. Federico and Robert T. Vivian, or either of them, as his attorney-in-fact, 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 and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this Registration Statement as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE /s/ RICHARD L. FEDERICO --------------------------------------------------Richard L. Federico /s/ ROBERT T. VIVIAN --------------------------------------------------Robert T. Vivian /s/ PAUL M. FLEMING --------------------------------------------------Paul M. Fleming /s/ J. MICHAEL CHU --------------------------------------------------J. Michael Chu /s/ GERALD R. GALLAGHER --------------------------------------------------Gerald R. Gallagher /s/ R. MICHAEL WELBORN --------------------------------------------------R. Michael Welborn /s/ JAMES G. SHENNAN, JR. --------------------------------------------------James G. Shennan, Jr. /s/ YVES SISTERON --------------------------------------------------Yves Sisteron TITLE Chief Executive Officer, President and Director (Principal Executive Officer) Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) Director DATE July 23, 1998

July 23, 1998

July 23, 1998

Director

July 23, 1998

Director

July 23, 1998

Director

July 23, 1998

Director

July 23, 1998

Director

July 23, 1998

II-4

EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS CONSENT OF ERNST & YOUNG LLP We consent to the reference to our firm under the captions "Selected Consolidated Financial and Operating Data" and "Experts" and to the use of our report dated January 26, 1998, except Note 11 as to which the date is , 1998, in the Registration Statement (Form S-1 No. ) and related Prospectus of P.F. Chang's China Bistro, Inc. for the registration of shares of its common stock ERNST & YOUNG LLP Phoenix, Arizona , 1998 The foregoing consent is in the form that will be signed upon the completion of the one-for-two reverse stock split described in Note 11 to the consolidated financial statements.
/s/ ERNST & YOUNG LLP Phoenix, Arizona July 22, 1998

II-5

INDEX TO EXHIBITS
EXHIBIT NUMBER ------1.1* 3.1 3.2 4.1* 4.2 5.1* 10.1 10.2 10.3 10.4 10.5 10.6* 10.7 10.8 10.9 10.10 21.1 23.1 23.2* 24.1 27.1 DESCRIPTION OF DOCUMENT ----------------------Form of Underwriting Agreement Certificate of Incorporation of the Company By-laws Specimen Common Stock Certificate Amended and Restated Registration Rights Agreement dated May 1, 1997 Opinion of Gray Cary Ware & Freidenrich LLP Form of Indemnification Agreement for directors and executive officers 1998 Stock Option Plan and forms of agreement thereunder 1997 Restaurant Manager Stock Option Plan and forms of Agreement thereunder 1996 Stock Option Plan and forms of Agreement thereunder 1998 Employee Stock Purchase Plan Employment Agreement between Paul M. Fleming and the Company dated January 31, 1996 Series A Preferred Stock Purchase Agreement dated February 1, 1996 Series B Preferred Stock Purchase Agreement dated May 1, 1997 Amended and Restated Revolving Line of Credit Loan Agreement between the Company and FFCA dated June 20, 1998 Office Lease between the Company and U.S. West Business Resources, Inc. dated February 15, 1997 List of Subsidiaries Consent of Independent Auditors (see page II-5) Consent of Counsel (included in Exhibit 5.1) Power of Attorney (see page II-4) Financial Data Schedule

* To be filed by amendment.

EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF P.F. CHANG'S CHINA BISTRO, INC. FIRST: The name of the corporation (hereinafter referred to as the "Corporation") is: P.F. CHANG'S CHINA BISTRO, INC. SECOND: The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805-1297. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the Corporation 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. FOURTH: The aggregate number of all classes of shares which the Corporation shall have authority to issue is Ten Million (10,000,000) shares divided into two classes of which Two Million (2,000,000) shares of par value $.01 per share shall be designated Preferred Stock and Eight Million (8,000,000) shares of par value $.01 per share shall be designated Common Stock. At all times, each holder of common stock of the Corporation shall be entitled to one vote for each share of common stock held by such stockholder standing in the name of such stockholder on the books of the Corporation. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish the 1

number of shares to be included in each such series, and to fix the designations, powers, preferences, and rights of the shares of each such series, and any qualifications, limitations or restrictions thereof. FIFTH: The name and address of the Incorporator is as follows:
Paul M. Fleming 2201 E. Camelback Road Phoenix, Arizona 85016 SIXTH: In furtherance and not in limitation of the power conferred

by statute, the Board of Directors is expressly authorized to make, alter or repeal the Bylaws of the Corporation. SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for the breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate actions further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of this Article SEVENTH by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. The Corporation may adopt such provisions with respect to indemnification of 2

directors, officers, or employees of the Corporation, consistent with this Article SEVENTH, as may be set forth from time to time in the Bylaws of the Corporation or a resolution adopted by the Board of Directors. EIGHTH: Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the law of the State of Delaware. All rights conferred upon stockholders herein are granted subject to this reservation. I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, herein declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 30th day of January, 1996.
/s/ Paul M. Fleming ------------------------Paul M. Fleming, Sole Incorporator

3

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF P.F. CHANG'S CHINA BISTRO, INC. P.F. Chang's China Bistro, Inc., a corporation organized and existing under and by virtue of the General Corporation's Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the corporation, by unanimous written consent, adopted a resolutions proposing and declaring advisable the following amendments to the Certificate of Incorporation of the corporation: RESOLVED, that Article IV of the Certificate of Incorporation of P.F. Chang's China Bistro, Inc., a Delaware corporation (the "Corporation"), is amended in its entirety to read as follows: FOURTH: The aggregate number of all classes of shares which the Corporation shall have authority to issue is Thirty Million (30,000,000) shares divided into two classes of which Ten Million (10,000,000) shares of par value $.001 per share shall be designated Preferred Stock and Twenty Million (20,000,000) shares of par value $.001 per share shall be designated Common Stock. At all times, each holder of Common Stock of the Corporation shall be entitled to one vote for each share of Common Stock held by such stockholder standing in the name of such stockholder on the books of the Corporation. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish the number of shares to be included in each such series, and to fix the designations, powers, preferences, and rights of the

shares of each such series, and any qualifications, limitations, or restrictions thereof. FURTHER RESOLVED that the resolutions of the Board of Directors as set forth in the Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series A Convertible Preferred Stock of P.F. Chang's China Bistro, Inc. are amended to increase the number of shares designated as "Series A Convertible Preferred Stock" to 7,500,000 shares and to change the par value of such shares to $.001 per share. FURTHER RESOLVED that in order to effect a 10:1 stock split of the outstanding capital stock of the Corporation, effective upon the date of filing (the "Effective Date") of a Certificate of Amendment with the Secretary of State of the State of Delaware, each issued and outstanding share of the Corporation's capital stock, including without limitation all issued and outstanding shares of Common Stock and Series A Convertible Preferred Stock and options and warrants exercisable for such shares, shall be divided into 10 shares of validly issued, fully paid and non-assessable stock of the same class or series. As soon as practicable after the Effective Date, the Corporation shall request in writing the holders of its capital stock outstanding as of the Effective Date to surrender certificates representing the Corporation's capital stock to the Corporation and each such shareholder shall receive upon such surrender a stock certificate or certificates to evidence and represent the number of shares of post-split capital stock to which such shareholder is entitled. SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to the amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware and written notice of the adoption of the amendments has been given as provided in Section 228 of the General Corporation Law of the State of Delaware to every stockholder entitled to such notice.

THIRD:

That the amendments were duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, P.F. Chang's China Bistro, Inc. has caused this

certificate to be signed by Richard L. Federico, its President, this 24th day of April, 1997. P.F. Chang's China Bistro, Inc.
By /s/ R. L. Federico ------------------------------Richard L. Federico, President

AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF OF SERIES A CONVERTIBLE PREFERRED STOCK OF P.F. CHANG'S CHINA BISTRO, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in Article FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware (the "DGCL"), the Board of Directors of the Corporation by written consent dated as of April 30, 1997, duly adopted the following resolution, which resolution (i) amended and restated prior resolutions of the Board of Directors of the Corporation adopted by written consent as of February 22, 1996 pursuant to which the Corporation had originally established the Series A Preferred Stock (as defined below), (ii) was approved by written consent of the holders of the Series A Preferred Stock, and (iii) remains in full force and effect on the date hereof: RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation be and hereby is established, consisting of 7,700,000 shares, $.001 par value per share, to be designated the "Series A Convertible Preferred Stock" (hereinafter, "Series A Preferred Stock"); that the Board of Directors be and hereby is authorized to issue such shares of Series A Preferred Stock from time to time and for such consideration and on such terms as the Board of Directors shall determine; and that, subject to the limitations provided by law and by the Certificate of Incorporation, the voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof shall be as follows:

1. Certain Definitions. Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Affiliate" shall have the meaning given to such term under Rule 12b-2 of the rules promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. "Annual Per Share Cash Dividend Amount" shall mean a cash payment equal to ten percent (10%) per annum of the Liquidation Price of one share of the Series A Preferred Stock. "Annual Per Share PIK Dividend Amount" shall mean a fraction of one share of Series A Preferred Stock equal to six percent (6%) per annum of one share of the Series A Preferred Stock. "Business Day" shall mean a day other than a Saturday, a Sunday or any other day on which banking institutions in New York, New York are authorized or obligated by law to close. "Common Equity" shall mean all shares now or hereafter authorized of any class of common stock of the Corporation, however, designated, including the Comon Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" shall mean the common stock, par value $.001 per share, of the Corporation. "Corporation's Affiliates" shall mean (i) PFCCB Scottsdale, L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C., an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited liability company; (v) PFC Building III Limited Partnership, an Arizona limited partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership; and (vii) PFCCB NUC LLC, an Arizona limited liability company. "Conversion Date" shall have the meaning set forth in subparagraph 4.1(b) below. 2

"Debt" shall mean any indebtedness, contingent or otherwise, of any person in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property or interest therein, except any such balance that constitutes a trade payable, if and to the extent such indebtedness would appear as a liability upon a balance sheet of such person prepared on a consolidated basis in accordance with generally accepted accounting principles. "Debt to Equity Ratio" shall mean the ratio of (i) the total Indebtedness to (ii) Total Stockholders' Equity. "Delinquent Mandatory Redemption Price" shall mean, with respect to each share of Series A Preferred Stock, $2.00 (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all accrued and unpaid dividends payable in respect of such a share of the Series A Preferred Stock, plus an amount thereon accruing from the Mandatory Redemption Date relating thereto at the Increasing Rate. "Final Mandatory Redemption Date" shall mean May 1, 2004 or, if such day is not a Business Day, the next succeeding Business Day. "Increasing Rate" shall mean, with respect to any obligation, an annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent after the first completed six-month period that the obligation subject to the Increasing Rate has been outstanding and has not been paid in full. "Indebtedness" shall mean the Debt of the Corporation or a subsidiary of the Corporation plus, to the extent not otherwise included, (i) the guaranty of any Debt of any other person; and (ii) obligations in respect of borrowed money secured by any Lien to which any property or asset owned or held by the Corporation or a subsidiary is subject, whether or not the obligations secured thereby shall have been assumed by the Corporation or such subsidiary; and (iii) capitalized lease obligations. "Initial Issue Date" shall mean the date that shares of Series A Preferred Stock are first issued by the Corporation. "Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if such day is not a Business Day, the next succeeding Business Day. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest of any kind or nature whatsoever (excluding preferred stock or equity related preferences) including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital 3

lease obligation, or any financing lease having substantially the same economic effect as any of the foregoing. "Liquidation Price" shall mean $2.00 per share of Series A Preferred Stock (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all accrued and unpaid dividends payable in respect of such share of Series A Preferred Stock pursuant to subparagraph 2(c). "Mandatory Redemption Date" shall mean the Initial Mandatory Redemption Date and the Final Mandatory Redemption Date. "Mandatory Redemption Obligation" shall have the meaning set forth in subparagraph 5(c) below. "Non-Investor Directors" shall mean those directors elected to the Corporation's Board of Directors other than those directors that are elected solely by the holders of Series A Preferred Stock or Parity Stock pursuant to the Shareholders Agreement. "Parity Stock" shall mean any class or series of capital stock of the Corporation ranking on a parity with the Series A Preferred Stock as to (i) priority of payment of cash and stock dividends and other distributions, (ii) priority of payment upon liquidation, dissolution or winding up of the Corporation, and (iii) the time of, and priority of payment upon, any mandatory redemption. For purposes of this definition, differences between any class or series of capital stock and the Series A Preferred Stock as to the amount of the liquidation price (or other fixed amount) to which any cash dividend rate is applied, the amount of the liquidation price payable upon liquidation, dissolution or winding up of the Corporation, the amount of the redemption price payable upon any mandatory redemption, or the time when cash or stock dividends or other distributions shall begin to accrue, shall not be considered in determining whether such class or series of capital stock is on a parity with the Series A Preferred Stock. "PIK Dividends" shall mean the "paid-in-kind" dividends as set forth in subparagraph 2(a) below. "PIK Dividend Payment Date" shall mean March 31, June 30, September 30, and December 31, of each year during the PIK Dividend Payment Period. "PIK Dividend Payment Period" shall mean the period from, and including, January 1, 1998, to and including the Final Mandatory Redemption Date. "PIK Dividend Period" shall mean the period from, and including, January 1, 1998, to, but not including, the first PIK Dividend Payment Date and thereafter, each quarterly period, including any PIK Dividend Payment Date to, but not including, the next PIK Dividend Payment Date. 4

"PIK Record Date" shall mean the date that is ten Business Days prior to any PIK Dividend Payment Date. "Preferred Cash Dividends" shall mean the cash dividends as set forth in subparagraph 2(f) below. "Prime Rate" shall mean the rate announced as the "prime rate" by NationsBank, N.A. whether or not such rate is actually charged. "Pro Rata" shall mean, in the case of stock dividends, stock dividends of the same class or series as the stock upon which the dividends are being paid and that are proportionate to the number of outstanding shares of such stock, and, in the case of cash dividends or dividends in property, cash dividends or dividends in property that are proportionate to the liquidation price of the class or series of stock upon which the dividends are being paid. "Qualified Initial Public Offering" shall mean an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross proceeds of which equal or exceed $15,000,000 and (ii) the per share offering price of which equals or exceeds $10.00; provided, however, that the per share offering price referred to in clause (ii) shall be adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination or like event of or with respect to outstanding shares of Common Stock occurring after May 1, 1997. "Quoted Price" shall mean with respect to any security the arithmetic mean of the last bid and ask price for one (1) share of the applicable security as reported by the National Association of Securities Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"), or, if the applicable security is listed or admitted for trading on a securities exchange, the arithmetic mean of the high and low trading prices during the relevant trading day for one (1) share of the applicable security on the principal exchange on which the applicable security is listed or admitted for trading (which shall be for consolidated trading if applicable to such exchange), in each case, on the Trading Day in question. "Redemption Price" shall mean, with respect to each share of Series A Preferred Stock, $2.00 (adjusted for stock splits, subdivisions, combinations and similar transactions) plus all accrued and unpaid dividends payable in respect of such share of the Series A Preferred Stock. "Series A Directors" shall mean those members of the Board of Directors of the Corporation elected solely by the holders of the Series A Preferred Stock pursuant to the Shareholders Agreement. 5

"Shareholders Agreement" shall mean the Amended and Restated Shareholders Agreement among the Corporation and the holders of the Common Stock, Series A Preferred Stock and Parity Stock dated as of May 1, 1997, as the same may be amended from time to time. "Stock Purchase Agreement" shall mean the Stock Purchase Agreement among the Corporation, Paul Fleming and the Purchasers listed therein dated as of February 1, 1996, as the same may be amended from time to time. "Subordinate Stock" shall mean the Common Equity and any class or series of capital stock of the Corporation, however designated, which is not entitled to receive (i) any dividends unless all dividends required to have been paid or declared and set apart for payment on the Series A Preferred Stock shall have been so paid or declared and set apart for payment or (ii) any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Series A Preferred Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Total Stockholders' Equity" shall mean the stockholders' equity of the Corporation as it appears in the monthly balance sheet of the Corporation. "Trading Days" shall mean any day on which any market in which the applicable security is then traded and in which a Quoted Price may be ascertained is open for business. 2. Dividends. (a) The record holders of Series A Preferred Stock on each PIK Record Date shall receive on each PIK Dividend Payment Date during the PIK Dividend Payment Period per share dividends in additional fully paid and nonassessable shares of Series A Preferred Stock legally available for such purpose (such dividends being herein called "PIK Dividends"). PIK Dividends shall be paid by delivering to the record holders of Series A Preferred Stock a number of shares of Series A Preferred Stock equal to (i) the number of shares of Series A Preferred Stock held by such holder on the applicable PIK Record Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation shall not issue fractional shares of Series A Preferred Stock to which holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall at the option of the holder either (i) deliver its check in an amount equal to the applicable fraction of one (1) share of Series A Preferred Stock multiplied by $2.00 (adjusted for stock splits, subdivisions, combinations or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer delivery of the fractional PIK Cash Dividend Payment to the holder and apply such amount to PIK Dividends issued to such holder on the subsequent PIK Dividend Date. Any additional shares of Series A Preferred Stock issued pursuant to this paragraph shall be governed by this 6

resolution and shall be subject in all respects, except as to the date of issuance and date from which PIK Dividends accrue and cumulate as set forth below, to the same terms as the shares of Series A Preferred Stock originally issued hereunder; provided, however, in no event shall any PIK Dividends accrue prior to January 1, 1998. (b) Prior to each PIK Record Date immediately preceding each PIK Dividend Payment Date, the Board of Directors of the Corporation shall declare PIK Dividends on the Series A Preferred Stock in accordance with subparagraph 2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment due pursuant to subparagraph 2(a)) on shares of Series A Preferred Stock shall accrue and be cumulative from the later of (i) January 1, 1998 and (ii) the date of issuance of such shares, notwithstanding the failure of the Board of Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend Period. PIK Dividends shall be payable in arrears during the PIK Dividend Payment Period on each PIK Dividend Payment Date, commencing on the first PIK Dividend Payment Date subsequent to January 1, 1998, and for shares issued as PIK Dividends, commencing on the first PIK Dividend Payment Date after such shares are issued. If any PIK Dividend Payment Date occurs on a day that is not a Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend Payment Date shall be paid on the next succeeding Business Day. PIK Dividends shall be paid on each PIK Dividend Payment Date to the holders of record of the Series A Preferred Stock as their names shall appear on the share register of the Corporation on the PIK Record Date immediately preceding such PIK Dividend Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that would otherwise be issued as fractional shares may not legally be paid in the full amount to which shares of Series A Preferred Stock are entitled with respect to any PIK Dividend Period, dividends in the full preferential amount hereby provided shall be, to the extent legally and contractually permissible, declared and paid as PIK Dividends in the form of shares of Series A Preferred Stock (including fractional shares thereof). PIK Dividends on account of arrears for any past PIK Dividend Periods may be declared and paid at any time to the holders of record on the PIK Record Dates applicable to such past PIK Dividend Periods. (c) In addition to the PIK Dividends and the PIK Cash Dividend Payments referred to in subparagraph 2(a) hereof and the Preferred Cash Dividends referred to in subparagraph 2(f), at any time during which any shares of Series A Preferred Stock remain outstanding, the Corporation may declare, pay or set apart for payment cash and/or property to be distributed or paid as a dividend in respect of shares of Series A Preferred Stock. The foregoing notwithstanding, no dividends may be declared or paid on the Series A Preferred Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are contemporaneously declared or paid on any then outstanding Parity Stock. (d) So long as any shares of Series A Preferred Stock shall be outstanding: 7

(i) the Corporation shall not declare, pay or set apart for payment on any Subordinate Stock any dividends or distributions whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Subordinate Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall any Subordinate Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Subordinate Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock and unless all dividends to which the holders of Series A Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart; (ii) the Corporation shall not declare, pay or set apart for payment on any Parity Stock any dividends or distributions whatsoever, whether in cash, property or otherwise, unless Pro Rata dividends are contemporaneously declared, paid or set apart for payment on the Series A Preferred Stock; and (iii) neither the Corporation nor any of its subsidiaries of which it owns not less than a majority of the outstanding voting power shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any monies to or make any monies available for a sinking fund for the purchase or redemption of any Parity Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock and unless all dividends to which the holders of Series A Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart, except that the Corporation may redeem Parity Stock so long as it contemporaneously redeems a proportionate percentage of the outstanding Series A Preferred Stock, ratably among the holders thereof. (e) In the event that full dividends, in cash or property, if declared, are not paid or made available to the holders of all outstanding shares of Series A Preferred Stock and Parity Stock and funds or property available for payment of dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of dividends shall be distributed ratably among all such holders of Series A Preferred Stock and Parity Stock in proportion to the full amount to which they would otherwise be respectively entitled. 8

(f) Notwithstanding anything to the contrary set forth herein, with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment Date pursuant to this paragraph 2, the Corporation may, upon the unanimous approval of the Non-Investor Directors by vote on or prior to the applicable PIK Record Date, declare on such PIK Record Date and pay on such PIK Dividend Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders of Series A Preferred Stock on such PIK Record Date in an amount per share equal to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount. Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date. The foregoing notwithstanding, no Preferred Cash Dividend may be declared and paid on the Series A Preferred Stock unless Pro Rata cash dividends are contemporaneously declared and then paid on any then outstanding Parity Stock. (g) Notwithstanding anything contained herein to the contrary, no dividends on shares of Series A Preferred Stock shall be declared by the Board of Directors of the Corporation or paid or set apart for payment by the Corporation at such time if such declaration or payment shall be restricted or prohibited by law. 3. Distributions Upon Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation, before any payment or distribution shall be made to the holders of Subordinate Stock and contemporaneously with any payment or distribution to the holders of Parity Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash, or, if the Corporation does not have sufficient cash on hand to pay such amounts, property of the Corporation at its fair market value as determined by the Board of Directors of the Corporation, the greater of (i) the Liquidation Price per share of Series A Preferred Stock, or (ii) such amount per share of Series A Preferred Stock as would have been payable had each such share been converted into Common Stock pursuant to paragraph 4 immediately prior to such liquidation, dissolution or other winding up of the affairs of the Corporation. Immediately preceding such liquidation, dissolution or winding up, adjustment shall be made for accrued but unpaid dividends (including, without limitation, PIK Dividends). (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Liquidation Price for each share of the Series A Preferred Stock and the applicable liquidation price for each share of any Parity Stock then outstanding, then the assets of the Corporation shall be ratably distributed among the holders of Series A Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all amounts thereon were paid in full. Neither the consolidation or merger of the Corporation into or with another corporation or corporations, nor the sale, lease, transfer or conveyance of all or any 9

portion of the assets of the Corporation to another corporation or any other entity shall be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph 3. 4. Conversion Rights. 4.1 Conversion at the Option of the Holder. (a) At any time before the close of business on the Final Mandatory Redemption Date (unless the Corporation shall default in payment of the Redemption Price or the Delinquent Mandatory Redemption Price, in which case, the conversion rights set forth in this paragraph shall continue until the cure of any such default), each holder of Series A Preferred Stock may, at its option, convert each share of Series A Preferred Stock held by such holder into one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3. Upon such conversion, the rights of the holders of converted Series A Preferred Stock with respect to the shares of Series A Preferred Stock so converted shall cease. (b) To convert Series A Preferred Stock in accordance with this paragraph 4.1, a holder must (i) surrender the certificate or certificates evidencing the shares of Series A Preferred Stock to be converted (or a duly executed affidavit of lost certificate in accordance with the bylaws of the Corporation), duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation or transfer agent for the Series A Preferred Stock, (ii) notify the Corporation at such office in writing that it elects to convert Series A Preferred Stock, and the number of shares it wishes to convert, (iii) state in writing the name or names in which it wishes the certificate or certificates for shares of Common Stock to be issued, and (iv) pay any transfer or similar tax with respect to the transfer of the shares of Series A Preferred Stock converted, if required. The date on which the holder satisfies the foregoing requirements shall be the "Conversion Date." As soon as practical but in any event within five (5) Business Days of the Conversion Date, the Corporation shall deliver a certificate for the number of shares of Common Stock issuable upon the conversion, a check for the amount payable in respect of any fractional share pursuant to subparagraph 4.1(c) and a new certificate representing the unconverted portion, if any, of the shares of Series A Preferred Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock certificate is registered shall be treated as the stockholder of record on and after the Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Conversion Date, on converted shares of Series A Preferred Stock. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series A Preferred Stock surrendered for conversion at any time on or after a PIK Record Date for the payment of a PIK Dividend to the registered holder of Series A Preferred Stock on such PIK Record Date. If the last day on which Series A Preferred Stock may be converted is not a Business 10

Day, Series A Preferred Stock may be surrendered for conversion on the next succeeding day that is a Business Day. (c) The Corporation will not issue a fractional share of Common Stock upon conversion of Series A Preferred Stock. Instead the Corporation will deliver its check in an amount equal to the applicable fraction multiplied by the fair market value of the Common Stock. (d) If a holder converts shares of Series A Preferred Stock, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion; provided, however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax which is due because the shares are issued in a name other than the holder's name. 4.2 Mandatory Conversion. Subject to the adjustments set forth in paragraph 4.3, each share of the Series A Preferred Stock shall be automatically converted into one (1) share of Common Stock on the date a Qualified Initial Public Offering is consummated ("Mandatory Conversion Date"). Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation shall (i) notify all holders of the Series A Preferred Stock not later than five (5) Business Days subsequent to approval by the Board of Directors of the Corporation to undertake a Qualified Initial Public Offering, (ii) demand that all shares representing the Series A Preferred Stock be returned to the Corporation's offices or to the designated transfer agent, and (iii) pay any transfer or similar tax with respect to the conversion, if any. As soon as practical but in any event within thirty (30) days of the Mandatory Conversion Date, the Corporation shall deliver a certificate to and in the name of the holder of the Series A Preferred Stock for the number of shares of Common Stock issuable upon the conversion and a check in an amount calculated in accordance with subparagraph 4.1(c) for any fractional shares, if any, for the shares of Series A Preferred Stock represented by the certificate. The name of the person in which the Series A Preferred Stock was issued shall be treated as the stockholder of record of the Common Stock in which the Series A Preferred Stock was converted on and after the Mandatory Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Mandatory Conversion Date, on shares of Series A Preferred Stock converted pursuant to this paragraph 4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series A Preferred Stock converted pursuant to this paragraph 4.2 on or after a PIK Record Date to the registered holder of Series A Preferred Stock on such PIK Record Date, and the shares of Series A Preferred Stock received in payment of such PIK Dividend shall be deemed automatically converted to one (1) share of Common Stock, subject to adjustment in accordance with paragraph 4.3, effective as of the Mandatory Conversion Date. Upon such conversion, the rights of the holders of converted Series A Preferred Stock with respect to the shares of Series A Preferred Stock so converted shall cease. 11

4.3 Certain Matters With Respect to Conversion. (a) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock enough shares of Common Stock to permit the conversion of the Series A Preferred Stock in full. All shares of Common Stock which are issued upon conversion of Series A Preferred Stock shall be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall comply with all securities laws regulating the offer and delivery of shares of common stock upon conversion of Series A Preferred Stock and will list such shares on each national securities exchange on which the common stock is listed. (b) If the Corporation: (i) pays a dividend or makes a distribution on its Common Stock or any other class of the Corporation's stock other than the Series A Preferred Stock in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii) combines its outstanding shares of Common Stock into a smaller number of shares; (iv) issues by reclassification of its Common Stock any shares of its capital stock; then an appropriate and proportionate adjustment shall be made to the number of shares into which each share of Series A Preferred Stock is convertible so that immediately after the occurrence of such event the holders of Series A Preferred Stock shall be entitled to receive the same percentage of the issued and outstanding Common Stock upon conversion of the Series A Preferred Stock as such holders would have received if converted immediately prior to such dividend, distribution, subdivision, combination or reclassification. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (c) If the Corporation distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) below to purchase additional shares of Common Stock at a price per share less than $2.00 per share (as adjusted to reflect any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on that record date, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be adjusted, in accordance with the following formula: 12

N'

=

N x (O+A) -------O + AxP --M

where:
N' = the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible after such distribution. the number of shares of Common Stock outstanding on the record date. the number of shares of Common Stock into which each share of Series A Preferred Stock was convertible prior to such distribution. the offering price per share of the additional shares of Common Stock. the current market price per share of Common Stock on the record date. the number of additional shares of Common Stock offered.

O N

= =

P M A

= = =

The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such warrants, options or rights are exercisable, not all warrants, options or rights shall have been exercised, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be immediately readjusted to what it would have been if "A" in the above formula had been the number of shares actually issued. (d) If the Corporation issues shares of Common Stock for a consideration per share less than $2.00 per share (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date the Corporation fixes the offering price of such additional shares, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be adjusted in accordance with the following formula:
N x A ----O + P M

N'

=

13

where:
N' = the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible after such issuance. the number of shares of Common Stock into which each share of Series A Preferred Stock was convertible prior to such issuance. the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares. the aggregate consideration received the issuance of such additional shares. for

N

=

O

=

P M

= =

the current market price per share of Common Stock on the date of issuance of such additional shares. the number of shares outstanding immediately after the issuance of such additional shares.

A

=

The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This subparagraph 4.3(d) does not apply to (i) any transaction or issuance described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below, including issuances of Common Stock pursuant to warrants, options, rights or other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii) the conversion of Series A Preferred Stock, or the conversion, exchange or exercise of other securities convertible into or exchangeable or exercisable for Common Stock, (iii) Common Stock issued to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but only to the extent that the aggregate number of shares excluded hereby (together with the aggregate number of shares issuable upon conversion, exchange or exercise of the securities excluded by clause (iii) of subparagraph 4.3(e) below) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iv) Common Stock issued in a bona fide public offering pursuant to a firm commitment underwriting. (e) If the Corporation issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series A Preferred Stock or securities issued in transactions described in subparagraph 4.3(c) above) for a consideration per share of Common Stock initially deliverable upon 14

conversion, exchange or exercise of such securities of less than $2.00 per share of Common Stock (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date of issuance of such securities, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be adjusted in accordance with the following formula:
N x (O+D) --------O + P M

N' where: N' =

=

the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible immediately after such issuance. the number of shares of Common Stock into which each share of Series A Preferred Stock was convertible immediately prior to such issuance. the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. the aggregate consideration received the issuance of such securities. for

N

=

O

=

P M D

= = =

the current market price per share of Common Stock on the date of issuance of such securities. the maximum number of shares deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate.

The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when such securities are no longer outstanding, then the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall promptly be readjusted to the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. This subparagraph 4.3(e) does not apply to (i) the issuance of any such securities in a bona fide public offering pursuant to a firm commitment underwriting, (ii) the issuance of any such securities to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such securities would otherwise be covered 15

by this subparagraph 4.3(e) (but only to the extent that the aggregate number of shares issuable upon the conversion, exchange or exercise of the aggregate number of securities excluded hereby (together with the aggregate number of shares excluded by clause (iii) of subparagraph 4.3(d) above) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iii) shares issued as PIK Dividends or as "paid-in-kind" dividends on any Parity Stock provided such dividends are required by the terms of such Parity Stock. (f) If the Corporation (i) distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) herein to purchase additional shares of Common Stock; (ii) issues shares of Common Stock; or (iii) issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series A Preferred Stock or securities issued in transactions described in (i) above) at a price reflecting an implied price per share less than $2.00 per share, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be reduced proportionally to reflect the price at which the Corporation issued or sold such shares of Common Stock pursuant to this subparagraph 4.3(f). (g) For the purpose hereof, the current market price per share of any security on any date is the average of the Quoted Prices for thirty (30) consecutive Trading Days commencing forty-five (45) Trading Days before the date in question. If the Quoted Price is not ascertainable, the current market price per share of any security on any date shall be the current market price as determined by the Board of Directors of the Corporation in its reasonable judgment exercised in good faith. Notwithstanding the foregoing, the current market price per share of any security shall be deemed to be the greater of (i) the current market price as determined above and (ii) the Liquidation Price. (h) For purposes of any computation respecting consideration received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall apply: (i) in case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Corporation for any underwriting of the issue or otherwise in connection therewith; (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of 16

Directors of the Corporation in its reasonable judgment exercised in good faith (irrespective of the accounting treatment thereof); and (iii) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such options, warrants or other securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this subparagraph 4.3(h)). (i) No adjustment in the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible need be made unless the adjustment would require an increase or decrease of at least one-half of one percent (.5%) in the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 4.3 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (j) No adjustment in the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible need be made under this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a Corporation plan for reinvestment of dividends or interest, or (ii) any change in the par value or change from no par value to par value of the Common Stock. If an adjustment is made to the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible upon a record date established for a distribution subject to this paragraph 4.3 and if such distribution is subsequently cancelled, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible then in effect shall be readjusted, effective as of the date when the Board of Directors of the Corporation determines to cancel such distribution, to the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible as would have been in effect if such record date had not been fixed. No adjustment need be made under paragraph 4.3 if the Corporation issues or distributes to each holder of Series A Preferred Stock the shares of Common Stock, evidences of indebtedness, assets, rights, options or warrants referred to in such paragraph which each holder would have been entitled to receive had Series A Preferred Stock been converted into Common Stock prior to or simultaneously with the happening of such event or the record date with respect thereto. (k) Whenever the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible is adjusted, the Corporation shall promptly mail to holders of Series A Preferred Stock, first class, postage prepaid, a notice of the adjustment. The Corporation shall file with the transfer agent, if any, for 17

Series A Preferred Stock a certificate from the Corporation's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. Subject to subparagraph 4.3(o) below, the certificate shall be conclusive evidence that the adjustment is correct. (l) If: (i) the Corporation takes any action that would require an adjustment pursuant to paragraph 4.3; (ii) the Corporation consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Corporation must approve the transaction; or (iii) there is a dissolution or liquidation of the Corporation; a holder of Series A Preferred Stock may want to convert such stock into shares of Common Stock prior to the record date for or the effective date of the transaction so that it may receive the rights, warrants, securities or assets which a holder of shares of Common Stock on that date may receive. Therefore, the Corporation shall mail to such holders, first class, postage prepaid, a notice stating the proposed record or effective date, as the case may be. The Corporation shall mail the notice at least thirty (30) days before such date. (m) If the Corporation is party to a consolidation or merger which reclassifies or changes its Common Stock or to the sale of all or substantially all of the assets of the Corporation, upon consummation of such transaction the Series A Preferred Stock shall automatically become convertible at the option of their respective holders into the kind and amount of securities, cash or other assets which the holder of Series A Preferred Stock would have owned immediately after the sale, consolidation or merger, if such holder had converted Series A Preferred Stock immediately before the effective date of the transaction, and an appropriate adjustment (as determined by the Board of Directors of the Corporation) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series A Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to liquidation preferences and changes in and other adjustment of the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of Series A Preferred Stock. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a form reasonably satisfactory to the holders of a majority of the Series A Preferred Stock then outstanding), the obligation to deliver to each such holder such 18

shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. If this subparagraph 4.3(m) applies, subparagraphs 4.3(b), 4.3(c), 4.3(d) and 4.3(e) do not apply. (n) In any case in which this paragraph 4.3 shall require that an adjustment as a result of any event become effective from and after a record date, the Corporation may elect to defer until after the occurrence of such event (i) the issuance to the holder of any shares of Series A Preferred Stock converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable immediately prior to adjustment and (ii) the delivery of a check for any remaining fractional shares as provided in subparagraph 4.1(c) above. (o) Whenever the Corporation or its Board of Directors shall be required to make a determination under this paragraph 4.3, such determination shall be made in good faith and may be challenged in good faith by the holders of a majority of the Series A Preferred Stock, and any dispute shall be resolved promptly (and in no event later than ninety (90) days after any challenge), at the Corporation's expense, by an investment banking firm of recognized national standing selected by the Corporation and acceptable to such holders of Series A Preferred Stock. Any such determination shall be deemed approved if the requisite holders have not notified the Corporation of any challenge within thirty (30) days after receiving notice (including a statement in reasonable detail of the bases therefor) of such determination. (p) If any event occurs of the type contemplated by the provisions of this paragraph 4.3 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's Board of Directors shall make an appropriate adjustment to the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible so as to protect the rights of the holders of Series A Preferred Stock; provided that no such adjustment shall increase the number of shares of Common Stock into which a share of Series A Preferred Stock is convertible if otherwise adjusted pursuant to another provision of this paragraph 4.3 or decrease the number of shares of Common Stock issuable upon conversion of each share of Series A Preferred Stock. 19

5. Mandatory Redemption by the Corporation. (a) To the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Initial Mandatory Redemption Date at least fifty percent (50%) of the then outstanding shares of Series A Preferred Stock at the Redemption Price, ratably among the holders thereof. In addition, to the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Final Mandatory Redemption Date all of the then outstanding shares of Series A Preferred Stock at the Redemption Price, plus an amount accruing thereon at the Increasing Rate from the Initial Mandatory Redemption Date. (b) Shares of Series A Preferred Stock which have been issued and converted or reacquired in any manner, including as a result of redemption, shall (upon compliance with any applicable provisions of the DGCL) have the status of authorized and unissued shares of the class of preferred stock of the Corporation undesignated as to series, and may be redesignated and reissued as part of any series of preferred stock of the Corporation; provided, however, that no such issued and reacquired shares of Series A Preferred Stock shall be reissued as Series A Preferred Stock. (c) If on any Mandatory Redemption Date the Corporation is unable or shall fail to discharge its obligation to redeem all outstanding shares of Series A Preferred Stock required to be redeemed on such date pursuant to subparagraph 5(a) and all outstanding shares of Parity Stock required to be redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation shall redeem on such Mandatory Redemption Date the number of shares of Series A Preferred Stock and Parity Stock which it is able to redeem, ratably among the holders of Series A Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all shares of Series A Preferred Stock and Parity Stock required to be redeemed on such date were redeemed. In such a case, the remainder of the Redemption Price payable but not paid at the Mandatory Redemption Date shall be converted into the Delinquent Mandatory Redemption Price and shall be discharged as soon as the Corporation is able to discharge such Delinquent Mandatory Redemption Price out of funds legally available therefor. If and so long as any Mandatory Redemption Obligation (or any obligation in respect of the Delinquent Mandatory Redemption Price) with respect to the Series A Preferred Stock and any Parity Stock shall not be fully discharged and paid, the Corporation shall not declare or pay any dividend or make any distribution on, or, directly or indirectly, purchase, redeem or satisfy any mandatory redemption, sinking fund or other similar obligation in respect of Subordinate Stock (other than repurchases of shares of Subordinate Stock in accordance with the terms of restricted stock vesting agreements with employees of the Corporation approved by the Board of Directors of the Corporation). (d) Notwithstanding the foregoing provisions of this paragraph 5, unless the full cumulative dividends on all outstanding shares of Series A Preferred Stock and 20

Parity Stock have been paid or contemporaneously are declared and paid for all dividend periods to and including the Mandatory Redemption Date, none of the shares of Series A Preferred Stock or Parity Stock shall be redeemed or set aside for redemption, unless such shares of Series A Preferred Stock and Parity Stock are redeemed pro rata based upon the full amounts to which the holders thereof would otherwise be respectively entitled. (e) Notice of any redemption shall be sent by or on behalf of the Corporation not more than sixty (60) days nor less than thirty (30) days prior to any Mandatory Redemption Date, by first class mail, postage prepaid, to all holders of record of the Series A Preferred Stock at their respective last addresses as they shall appear on the books of the Corporation; provided, however, that no failure to give notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom the Corporation has failed to give notice or except as to the holder to whom notice was defective. In addition to any information required by law or by the applicable rules of any exchange upon which Series A Preferred Stock may be listed or admitted to trading, such notice shall state: (i) the Mandatory Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series A Preferred Stock to be redeemed; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (v) that dividends on the shares to be redeemed will cease to accrue on the Mandatory Redemption Date; (vi) the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible as of the notice date and, if any transactions are contemplated to occur between the notice date and the Mandatory Redemption Date which would cause such number of shares of Common Stock to be adjusted, the number of shares of Common Stock into which each share of Series A Preferred Stock would be convertible after giving effect to such transaction(s); (vii) that Series A Preferred Stock called for redemption may be converted at any time before the close of business on the Mandatory Redemption Date; and (viii) that holders of Series A Preferred Stock must satisfy the requirements of subparagraph 4.1(b) above if such holders desire to convert such shares. Upon the mailing of any such notices of redemption, the Corporation shall become obligated to redeem at the time of redemption specified therein all shares called for redemption other than shares converted into Common Stock prior to the Mandatory Redemption Date. (f) If notice has been mailed in accordance with subparagraph 5(e) above and provided that on or before the Mandatory Redemption Date specified in such notice, all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds in trust for the pro rata benefit of the holders of the shares so called for redemption, so as to be, and to continue to be available therefor, then, from and after the Mandatory Redemption Date, dividends on the shares of the Series A Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of the holders thereof as 21

shareholders of the Corporation (except the right to receive from the Corporation the Redemption Price) shall cease, irrespective of whether any certificates for shares called for redemption have been surrendered to the Corporation. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer), such shares shall be redeemed by the Corporation at the Redemption Price and no holder of shares called for redemption shall be entitled to receive payment of the Redemption Price therefor until such surrender to the Corporation has been accomplished or a duly executed affidavit of lost certificate shall have been delivered to the Corporation. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares without cost to the holder thereof (so long as such certificate is issued to the holder). (g) Any funds deposited with a bank or trust company for the purpose of redeeming Series A Preferred Stock shall be irrevocable except that: (i) the Corporation shall be entitled to receive from such bank or trust company the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Corporation and unclaimed by the holders of the Series A Preferred Stock entitled thereto at the expiration of two (2) years from the applicable Mandatory Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings. (h) Notwithstanding anything to the contrary herein, no shares of Series A Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. 6. Voting Rights. (a) Except as otherwise set forth in this paragraph 6 and the Shareholders Agreement or as otherwise required by law, each share of Series A Preferred Stock issued and outstanding shall have the right to vote on all matters presented to the holders of the Common Stock for vote in the number of votes equal at any time to the number of shares of Common Stock into which each share of Series A Preferred Stock would then be convertible, and the holders of the Series A Preferred Stock and Parity Stock shall vote with the holders of the Common Stock as a single class. 22

(b) In addition to any vote or consent of shareholders required by law or the Certificate of Incorporation of the Corporation, the affirmative consent of the holders of a majority of the issued and outstanding shares of Series A Preferred Stock at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) (x) Any amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation (including without limitation this Certificate of Designation) of the Corporation or (y) any amendment of the by-laws of the Corporation that materially affects the rights of the holders of the Series A Preferred Stock; (ii) Any action by the Corporation or any of its subsidiaries not approved in advance by all Series A Directors to effect any amendment, alteration or repeal of any of the provisions of the articles of organization, operating agreements, certificates of limited partnership, or partnership agreements of any of the Corporation's Affiliates or subsidiaries (except such amendments, alterations or repeals that are ministerial in nature or required to effect a transfer of ownership interests in the Corporation's Affiliates or subsidiaries (other than any ownership interest beneficially owned by the Corporation)); (iii) Any authorization, issuance or creation of, or increase in the authorized amount of, (x) any shares of any class or any security of any class ranking senior to the shares of Series A Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up of the Corporation or in the payment of dividends or requiring redemption at any time any shares of Series A Preferred Stock are still outstanding, or (y) any shares of Parity Stock (except shares issued as "paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have also been declared and paid on the Series A Preferred Stock); (iv) Any action by the Corporation or any of its subsidiaries not approved in advance by all Series A Directors to effect the authorization, issuance or creation of, or increase in the authorized amount of, any membership interests, limited partnership interests or other equity security interests of any of the Corporation's Affiliates or subsidiaries; (v) Any increase or decrease (other than by redemption or conversion) in the total number of authorized shares of Series A Preferred Stock or any issuance of the currently authorized shares of the Series A Preferred Stock other than the issuance of shares of Series A Preferred Stock pursuant to the Stock Purchase Agreement or as PIK Dividends; (vi) Any transaction or series of related transactions that entails the sale, lease, assignment, transfer or other conveyance of assets having a value 23

greater than $10 million (measured by the book value at the date of such transaction) of the Corporation and its subsidiaries (determined on a consolidated basis); any sale or issuance of shares of capital stock of any subsidiary (other than such sales or issuance approved in advance by all Series A Directors), any consolidation or merger involving the Corporation or any of such subsidiaries other than a consolidation or merger in which the Corporation or subsidiary, as the case may be, is the surviving entity and no change in the capital stock or ownership of the Corporation or the subsidiary, as the case may be, occurs, or any reclassification or recapitalization of any capital stock of the Corporation, or any dissolution, liquidation, or winding up of the Corporation, or any agreement to become so obligated; (vii) Any acquisition or series of related acquisitions of a business, businesses or assets involving aggregate consideration of $10 million or more; (viii) The incurrence of, or agreement to incur, any Indebtedness which would result in a Debt to Equity Ratio at the time the Indebtedness is incurred (after giving effect to such incurrence) of greater than 1:1, as measured based upon the balance sheet of the Corporation prepared as of the last day of the immediately preceding month, with a pro forma adjustment for the Indebtedness incurred and any equity invested in the Corporation since such date, other than such incurrences or agreements to incur Indebtedness that have been approved in advance by all Series A Directors; (ix) Any action by the Corporation or any of its subsidiaries not approved in advance by all Series A Directors to effect the incurrence of, or agreement to incur, any Indebtedness by any of the Corporation's Affiliates or subsidiaries; (x) Any loan, advance or guarantee to, or for the benefit of, or any sale, lease, transfer or disposition of any of the properties or assets of the Corporation or its subsidiaries to, or for the benefit of, or any purchase or lease of any property or assets from, or the execution, performance or amendment of any contract, agreement or understanding with, or for the benefit of, any Affiliate of the Corporation or its subsidiaries; (xi) Any declaration or payment of any dividends on or any declaration or making of any other distribution, directly or indirectly, through subsidiaries (excluding dividends and distributions made to all owners of the Corporation's Affiliates in proportion to their respective ownership interests) or otherwise, on account of any Parity Stock (unless Pro Rata dividends have also been declared or paid on the Series A Preferred Stock) or Subordinate Stock or the setting apart of any sum for any such purpose; 24

(xii) The appointment or involuntary termination of the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or other senior officers of the Corporation or its subsidiaries; (c) The rights of the holders of the Series A Preferred Stock may be exercised in writing without a meeting or by proxy or in person at a special meeting of the holders of Series A Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such annual meetings or by a holder of Series A Preferred Stock designated in writing by the written consent of the holders of Series A Preferred Stock. (d) A special meeting of the holders of Series A Preferred Stock for purposes of voting on matters with respect to which the holders of such shares are entitled to vote as a class may be called by the Secretary of the Corporation or by a holder of Series A Preferred Stock designated in writing by the holders of ten percent (10%) of the shares of Series A Preferred Stock then outstanding. Such meeting may be called at the expense of the Corporation by either such person. At any meeting of the holders of Series A Preferred Stock, the presence in person or by proxy of the holders of a majority of the shares of Series A Preferred Stock then outstanding shall constitute a quorum of the Series A Preferred Stock for the purpose of voting on matters to be acted upon by holders of the Series A Preferred Stock. 7. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Certificate of Incorporation of the Corporation. 8. Headings of Subdivisions. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 25

9. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) are invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed by an authorized officer and attested by its Secretary, this _________ day of ______________________, 1997. P.F. CHANG'S CHINA BISTRO, INC. By: Richard L. Federico, President Attest:

Robert T. Vivian, Secretary 26

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF OF SERIES B CONVERTIBLE PREFERRED STOCK OF P.F. CHANG'S CHINA BISTRO, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in Article FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware (the "DGCL"), the Board of Directors of the Corporation by written consent dated as of April 30, 1997, duly adopted the following resolution, which resolution was approved by written consent of the holders of the Series A Convertible Preferred Stock of the Corporation and remains in full force and effect on the date hereof: RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation be and hereby is established, consisting of 2,300,000 shares, $.001 par value per share, to be designated the "Series B Convertible Preferred Stock" (hereinafter, "Series B Preferred Stock"); that the Board of Directors be and hereby is authorized to issue such shares of Series B Preferred Stock from time to time and for such consideration and on such terms as the Board of Directors shall determine; and that, subject to the limitations provided by law and by the Certificate of Incorporation, the voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof shall be as follows: 1. Certain Definitions.

Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Affiliate" shall have the meaning given to such term under Rule 12b-2 of the rules promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. "Annual Per Share Cash Dividend Amount" shall mean a cash payment equal to ten percent (10%) per annum of the Liquidation Price of one share of the Series B Preferred Stock. "Annual Per Share PIK Dividend Amount" shall mean a fraction of one share of Series B Preferred Stock equal to six percent (6%) per annum of one share of the Series B Preferred Stock. "Business Day" shall mean a day other than a Saturday, a Sunday or any other day on which banking institutions in New York, New York are authorized or obligated by law to close. "Common Equity" shall mean all shares now or hereafter authorized of any class of common stock of the Corporation, however, designated, including the Comon Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" shall mean the common stock, par value $.001 per share, of the Corporation. "Corporation's Affiliates" shall mean (i) PFCCB Scottsdale, L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C., an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited liability company; (v) PFC Building III Limited Partnership, an Arizona limited partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership; and (vii) PFCCB NUC LLC, an Arizona limited liability company. "Conversion Date" shall have the meaning set forth in subparagraph 4.1(b) below. "Debt" shall mean any indebtedness, contingent or otherwise, of any person in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments or letters of credit or representing the balance deferred 2

and unpaid of the purchase price of any property or interest therein, except any such balance that constitutes a trade payable, if and to the extent such indebtedness would appear as a liability upon a balance sheet of such person prepared on a consolidated basis in accordance with generally accepted accounting principles. "Debt to Equity Ratio" shall mean the ratio of (i) the total Indebtedness to (ii) Total Stockholders' Equity. "Delinquent Mandatory Redemption Price" shall mean, with respect to each share of Series B Preferred Stock, $4.35 (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all accrued and unpaid dividends payable in respect of such a share of the Series B Preferred Stock, plus an amount thereon accruing from the Mandatory Redemption Date relating thereto at the Increasing Rate. "Final Mandatory Redemption Date" shall mean May 1, 2004 or, if such day is not a Business Day, the next succeeding Business Day. "Increasing Rate" shall mean, with respect to any obligation, an annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent after the first completed six-month period that the obligation subject to the Increasing Rate has been outstanding and has not been paid in full. "Indebtedness" shall mean the Debt of the Corporation or a subsidiary of the Corporation plus, to the extent not otherwise included, (i) the guaranty of any Debt of any other person; and (ii) obligations in respect of borrowed money secured by any Lien to which any property or asset owned or held by the Corporation or a subsidiary is subject, whether or not the obligations secured thereby shall have been assumed by the Corporation or such subsidiary; and (iii) capitalized lease obligations. "Initial Issue Date" shall mean the date that shares of Series B Preferred Stock are first issued by the Corporation. "Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if such day is not a Business Day, the next succeeding Business Day. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest of any kind or nature whatsoever (excluding preferred stock or equity related preferences) including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease obligation, or any financing lease having substantially the same economic effect as any of the foregoing. "Liquidation Price" shall mean $4.35 per share of Series B Preferred Stock (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all 3

accrued and unpaid dividends payable in respect of such share of Series B Preferred Stock pursuant to subparagraph 2(c). "Mandatory Redemption Date" shall mean the Initial Mandatory Redemption Date and the Final Mandatory Redemption Date. "Mandatory Redemption Obligation" shall have the meaning set forth in subparagraph 5(c) below. "Non-Investor Directors" shall mean those directors elected to the Corporation's Board of Directors other than those directors that are elected solely by the holders of Series B Preferred Stock or Parity Stock pursuant to the Shareholders Agreement. "Parity Stock" shall mean any class or series of capital stock of the Corporation ranking on a parity with the Series B Preferred Stock as to (i) priority of payment of cash and stock dividends and other distributions, (ii) priority of payment upon liquidation, dissolution or winding up of the Corporation, and (iii) the time of, and priority of payment upon, any mandatory redemption. For purposes of this definition, differences between any class or series of capital stock and the Series B Preferred Stock as to the amount of the liquidation price (or other fixed amount) to which any cash dividend rate is applied, the amount of the liquidation price payable upon liquidation, dissolution or winding up of the Corporation, the amount of the redemption price payable upon any mandatory redemption, or the time when cash or stock dividends or other distributions shall begin to accrue, shall not be considered in determining whether such class or series of capital stock is on a parity with the Series B Preferred Stock. "PIK Dividends" shall mean the "paid-in-kind" dividends as set forth in subparagraph 2(a) below. "PIK Dividend Payment Date" shall mean March 31, June 30, September 30, and December 31, of each year during the PIK Dividend Payment Period. "PIK Dividend Payment Period" shall mean the period from, and including, April 1, 1999, to and including the Final Mandatory Redemption Date. "PIK Dividend Period" shall mean the period from, and including, April 1, 1999, to, but not including, the first PIK Dividend Payment Date and thereafter, each quarterly period, including any PIK Dividend Payment Date to, but not including, the next PIK Dividend Payment Date. "PIK Record Date" shall mean the date that is ten Business Days prior to any PIK Dividend Payment Date. 4

"Preferred Cash Dividends" shall mean the cash dividends as set forth in subparagraph 2(f) below. "Prime Rate" shall mean the rate announced as the "prime rate" by NationsBank, N.A. whether or not such rate is actually charged. "Pro Rata" shall mean, in the case of stock dividends, stock dividends of the same class or series as the stock upon which the dividends are being paid and that are proportionate to the number of outstanding shares of such stock, and, in the case of cash dividends or dividends in property, cash dividends or dividends in property that are proportionate to the liquidation price of the class or series of stock upon which the dividends are being paid. "Qualified Initial Public Offering" shall mean an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross proceeds of which equal or exceed $15,000,000 and (ii) the per share offering price of which equals or exceeds $10.00; provided, however, that the per share offering price referred to in clause (ii) shall be adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination or like event of or with respect to outstanding shares of Common Stock occurring after the Initial Issue Date. "Quoted Price" shall mean with respect to any security the arithmetic mean of the last bid and ask price for one (1) share of the applicable security as reported by the National Association of Securities Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"), or, if the applicable security is listed or admitted for trading on a securities exchange, the arithmetic mean of the high and low trading prices during the relevant trading day for one (1) share of the applicable security on the principal exchange on which the applicable security is listed or admitted for trading (which shall be for consolidated trading if applicable to such exchange), in each case, on the Trading Day in question. "Redemption Price" shall mean, with respect to each share of Series B Preferred Stock, $4.35 (adjusted for stock splits, subdivisions, combinations and similar transactions) plus all accrued and unpaid dividends payable in respect of such share of the Series B Preferred Stock. "Series B Director" shall mean that member of the Board of Directors of the Corporation elected solely by the holders of the Series B Preferred Stock pursuant to the Shareholders Agreement. "Shareholders Agreement" shall mean the Amended and Restated Shareholders Agreement among the Corporation and the holders of the Common Stock, Series B Preferred Stock and Parity Stock dated as of May 1, 1997, as the same may be amended from time to time. 5

"Stock Purchase Agreement" shall mean the Stock Purchase Agreement among the Corporation and the Purchasers listed therein dated as of April 28, 1997, as the same may be amended from time to time. "Subordinate Stock" shall mean the Common Equity and any class or series of capital stock of the Corporation, however designated, which is not entitled to receive (i) any dividends unless all dividends required to have been paid or declared and set apart for payment on the Series B Preferred Stock shall have been so paid or declared and set apart for payment or (ii) any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Series B Preferred Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Total Stockholders' Equity" shall mean the stockholders' equity of the Corporation as it appears in the monthly balance sheet of the Corporation. "Trading Days" shall mean any day on which any market in which the applicable security is then traded and in which a Quoted Price may be ascertained is open for business. 2. Dividends. (a) The record holders of Series B Preferred Stock on each PIK Record Date shall receive on each PIK Dividend Payment Date during the PIK Dividend Payment Period per share dividends in additional fully paid and nonassessable shares of Series B Preferred Stock legally available for such purpose (such dividends being herein called "PIK Dividends"). PIK Dividends shall be paid by delivering to the record holders of Series B Preferred Stock a number of shares of Series B Preferred Stock equal to (i) the number of shares of Series B Preferred Stock held by such holder on the applicable PIK Record Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation shall not issue fractional shares of Series B Preferred Stock to which holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall at the option of the holder either (i) deliver its check in an amount equal to the applicable fraction of one (1) share of Series B Preferred Stock multiplied by $4.35 (adjusted for stock splits, subdivisions, combinations or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer delivery of the fractional PIK Cash Dividend Payment to the holder and apply such amount to PIK Dividends issued to such holder on the subsequent PIK Dividend Date. Any additional shares of Series B Preferred Stock issued pursuant to this paragraph shall be governed by this resolution and shall be subject in all respects, except as to the date of issuance and date from which PIK Dividends accrue and cumulate as set forth below, to the same terms as the shares of Series B Preferred Stock originally issued hereunder; provided, however, in no event shall any PIK Dividends accrue prior to April 1, 1999. 6

(b) Prior to each PIK Record Date immediately preceding each PIK Dividend Payment Date, the Board of Directors of the Corporation shall declare PIK Dividends on the Series B Preferred Stock in accordance with subparagraph 2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment due pursuant to subparagraph 2(a)) on shares of Series B Preferred Stock shall accrue and be cumulative from the later of (i) April 1, 1999 and (ii) the date of issuance of such shares, notwithstanding the failure of the Board of Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend Period. PIK Dividends shall be payable in arrears during the PIK Dividend Payment Period on each PIK Dividend Payment Date, commencing on the first PIK Dividend Payment Date subsequent to April 1, 1999, and for shares issued as PIK Dividends, commencing on the first PIK Dividend Payment Date after such shares are issued. If any PIK Dividend Payment Date occurs on a day that is not a Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend Payment Date shall be paid on the next succeeding Business Day. PIK Dividends shall be paid on each PIK Dividend Payment Date to the holders of record of the Series B Preferred Stock as their names shall appear on the share register of the Corporation on the PIK Record Date immediately preceding such PIK Dividend Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that would otherwise be issued as fractional shares may not legally be paid in the full amount to which shares of Series B Preferred Stock are entitled with respect to any PIK Dividend Period, dividends in the full preferential amount hereby provided shall be, to the extent legally and contractually permissible, declared and paid as PIK Dividends in the form of shares of Series B Preferred Stock (including fractional shares thereof). PIK Dividends on account of arrears for any past PIK Dividend Periods may be declared and paid at any time to the holders of record on the PIK Record Dates applicable to such past PIK Dividend Periods. (c) In addition to the PIK Dividends and the PIK Cash Dividend Payments referred to in subparagraph 2(a) hereof and the Preferred Cash Dividends referred to in subparagraph 2(f), at any time during which any shares of Series B Preferred Stock remain outstanding, the Corporation may declare, pay or set apart for payment cash and/or property to be distributed or paid as a dividend in respect of shares of Series B Preferred Stock. The foregoing notwithstanding, no dividends may be declared or paid on the Series B Preferred Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are contemporaneously declared or paid on any then outstanding Parity Stock. (d) So long as any shares of Series B Preferred Stock shall be outstanding: (i) the Corporation shall not declare, pay or set apart for payment on any Subordinate Stock any dividends or distributions whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the 7

class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Subordinate Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall any Subordinate Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Subordinate Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series B Preferred Stock and unless all dividends to which the holders of Series B Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart; (ii) the Corporation shall not declare, pay or set apart for payment on any Parity Stock any dividends or distributions whatsoever, whether in cash, property or otherwise, unless Pro Rata dividends are contemporaneously declared, paid or set apart for payment on the Series B Preferred Stock, except that, prior to the commencement of the PIK Dividend Payment Period, the Corporation may declare and pay dividends on the Series A Convertible Preferred Stock of the Corporation as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock; and (iii) neither the Corporation nor any of its subsidiaries of which it owns not less than a majority of the outstanding voting power shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any monies to or make any monies available for a sinking fund for the purchase or redemption of any Parity Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series B Preferred Stock and unless all dividends to which the holders of Series B Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart, except that the Corporation may redeem Parity Stock so long as it contemporaneously redeems a proportionate percentage of the outstanding Series B Preferred Stock, ratably among the holders thereof. (e) In the event that full dividends, in cash or property, if declared, are not paid or made available to the holders of all outstanding shares of Series B Preferred Stock and Parity Stock and funds or property available for payment of dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of dividends shall be distributed ratably among all such holders of Series B Preferred Stock and Parity Stock in proportion to the full amount to which they would otherwise be respectively entitled. 8

(f) Notwithstanding anything to the contrary set forth herein, with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment Date pursuant to this paragraph 2, the Corporation may, upon the unanimous approval of the Non-Investor Directors by vote on or prior to the applicable PIK Record Date, declare on such PIK Record Date and pay on such PIK Dividend Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders of Series B Preferred Stock on such PIK Record Date in an amount per share equal to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount. Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date. The foregoing notwithstanding, no Preferred Cash Dividend may be declared and paid on the Series B Preferred Stock unless Pro Rata cash dividends are contemporaneously declared and then paid on any then outstanding Parity Stock. (g) Notwithstanding anything contained herein to the contrary, no dividends on shares of Series B Preferred Stock shall be declared by the Board of Directors of the Corporation or paid or set apart for payment by the Corporation at such time if such declaration or payment shall be restricted or prohibited by law. 3. Distributions Upon Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation, before any payment or distribution shall be made to the holders of Subordinate Stock and contemporaneously with any payment or distribution to the holders of Parity Stock, the holders of Series B Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash, or, if the Corporation does not have sufficient cash on hand to pay such amounts, property of the Corporation at its fair market value as determined by the Board of Directors of the Corporation, the greater of (i) the Liquidation Price per share of Series B Preferred Stock, or (ii) such amount per share of Series B Preferred Stock as would have been payable had each such share been converted into Common Stock pursuant to paragraph 4 immediately prior to such liquidation, dissolution or other winding up of the affairs of the Corporation. Immediately preceding such liquidation, dissolution or winding up, adjustment shall be made for accrued but unpaid dividends (including, without limitation, PIK Dividends). (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Liquidation Price for each share of the Series B Preferred Stock and the applicable liquidation price for each share of any Parity Stock then outstanding, then the assets of the Corporation shall be ratably distributed among the holders of Series B Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all amounts thereon were paid in full. Neither the consolidation or merger of the Corporation into or with another corporation or corporations, nor the sale, lease, transfer or conveyance of all or any 9

portion of the assets of the Corporation to another corporation or any other entity shall be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph 3. 4. Conversion Rights. 4.1 Conversion at the Option of the Holder. (a) At any time before the close of business on the Final Mandatory Redemption Date (unless the Corporation shall default in payment of the Redemption Price or the Delinquent Mandatory Redemption Price, in which case, the conversion rights set forth in this paragraph shall continue until the cure of any such default), each holder of Series B Preferred Stock may, at its option, convert each share of Series B Preferred Stock held by such holder into one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3. Upon such conversion, the rights of the holders of converted Series B Preferred Stock with respect to the shares of Series B Preferred Stock so converted shall cease. (b) To convert Series B Preferred Stock in accordance with this paragraph 4.1, a holder must (i) surrender the certificate or certificates evidencing the shares of Series B Preferred Stock to be converted (or a duly executed affidavit of lost certificate in accordance with the bylaws of the Corporation), duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation or transfer agent for the Series B Preferred Stock, (ii) notify the Corporation at such office in writing that it elects to convert Series B Preferred Stock, and the number of shares it wishes to convert, (iii) state in writing the name or names in which it wishes the certificate or certificates for shares of Common Stock to be issued, and (iv) pay any transfer or similar tax with respect to the transfer of the shares of Series B Preferred Stock converted, if required. The date on which the holder satisfies the foregoing requirements shall be the "Conversion Date." As soon as practical but in any event within five (5) Business Days of the Conversion Date, the Corporation shall deliver a certificate for the number of shares of Common Stock issuable upon the conversion, a check for the amount payable in respect of any fractional share pursuant to subparagraph 4.1(c) and a new certificate representing the unconverted portion, if any, of the shares of Series B Preferred Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock certificate is registered shall be treated as the stockholder of record on and after the Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Conversion Date, on converted shares of Series B Preferred Stock. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series B Preferred Stock surrendered for conversion at any time on or after a PIK Record Date for the payment of a PIK Dividend to the registered holder of Series B Preferred Stock on such PIK Record Date. If the last day on which Series B Preferred Stock may be converted is not a Business 10

Day, Series B Preferred Stock may be surrendered for conversion on the next succeeding day that is a Business Day. (c) The Corporation will not issue a fractional share of Common Stock upon conversion of Series B Preferred Stock. Instead the Corporation will deliver its check in an amount equal to the applicable fraction multiplied by the fair market value of the Common Stock. (d) If a holder converts shares of Series B Preferred Stock, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion; provided, however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax which is due because the shares are issued in a name other than the holder's name. 4.2 Mandatory Conversion. Subject to the adjustments set forth in paragraph 4.3, each share of the Series B Preferred Stock shall be automatically converted into one (1) share of Common Stock on the date a Qualified Initial Public Offering is consummated ("Mandatory Conversion Date"). Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation shall (i) notify all holders of the Series B Preferred Stock not later than five (5) Business Days subsequent to approval by the Board of Directors of the Corporation to undertake a Qualified Initial Public Offering, (ii) demand that all shares representing the Series B Preferred Stock be returned to the Corporation's offices or to the designated transfer agent, and (iii) pay any transfer or similar tax with respect to the conversion, if any. As soon as practical but in any event within thirty (30) days of the Mandatory Conversion Date, the Corporation shall deliver a certificate to and in the name of the holder of the Series B Preferred Stock for the number of shares of Common Stock issuable upon the conversion and a check in an amount calculated in accordance with subparagraph 4.1(c) for any fractional shares, if any, for the shares of Series B Preferred Stock represented by the certificate. The name of the person in which the Series B Preferred Stock was issued shall be treated as the stockholder of record of the Common Stock in which the Series B Preferred Stock was converted on and after the Mandatory Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Mandatory Conversion Date, on shares of Series B Preferred Stock converted pursuant to this paragraph 4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series B Preferred Stock converted pursuant to this paragraph 4.2 on or after a PIK Record Date to the registered holder of Series B Preferred Stock on such PIK Record Date, and the shares of Series B Preferred Stock received in payment of such PIK Dividend shall be deemed automatically converted to one (1) share of Common Stock, subject to adjustment in accordance with paragraph 4.3, effective as of the Mandatory Conversion Date. Upon such conversion, the rights of the holders of converted Series B Preferred Stock with respect to the shares of Series B Preferred Stock so converted shall cease. 11

4.3 Certain Matters With Respect to Conversion. (a) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock enough shares of Common Stock to permit the conversion of the Series B Preferred Stock in full. All shares of Common Stock which are issued upon conversion of Series B Preferred Stock shall be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall comply with all securities laws regulating the offer and delivery of shares of common stock upon conversion of Series B Preferred Stock and will list such shares on each national securities exchange on which the common stock is listed. (b) If the Corporation: (i) pays a dividend or makes a distribution on its Common Stock or any other class of the Corporation's stock other than the Series B Preferred Stock in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii)combines its outstanding shares of Common Stock into a smaller number of shares; (iv) issues by reclassification of its Common Stock any shares of its capital stock; then an appropriate and proportionate adjustment shall be made to the number of shares into which each share of Series B Preferred Stock is convertible so that immediately after the occurrence of such event the holders of Series B Preferred Stock shall be entitled to receive the same percentage of the issued and outstanding Common Stock upon conversion of the Series B Preferred Stock as such holders would have received if converted immediately prior to such dividend, distribution, subdivision, combination or reclassification. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (c) If the Corporation distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) below to purchase additional shares of Common Stock at a price per share less than $4.35 per share (as adjusted to reflect any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on that record date, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be adjusted, in accordance with the following formula: 12

N' where: N' =

=

N x (O+A) --------O + AxP --M

the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible after such distribution. the number of shares of Common Stock outstanding on the record date. the number of shares of Common Stock into which each share of Series B Preferred Stock was convertible prior to such distribution. the offering price per share of the additional shares of Common Stock. the current market price per share of Common Stock on the record date. the number of additional shares of Common Stock offered.

O N

= =

P M A

= = =

The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such warrants, options or rights are exercisable, not all warrants, options or rights shall have been exercised, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be immediately readjusted to what it would have been if "A" in the above formula had been the number of shares actually issued. 13

(d) If the Corporation issues shares of Common Stock for a consideration per share less than $4.35 per share (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date the Corporation fixes the offering price of such additional shares, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be adjusted in accordance with the following formula:
N x A ----O + P M

N' where: N' =

=

the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible after such issuance. the number of shares of Common Stock into which each share of Series B Preferred Stock was convertible prior to such issuance. the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares. the aggregate consideration received for the issuance of such additional shares. the current market price per share of Common Stock on the date of issuance of such additional shares. the number of shares outstanding immediately after the issuance of such additional shares.

N

=

O

=

P M

= =

A

=

The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This subparagraph 4.3(d) does not apply to (i) any transaction or issuance described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below, including issuances of Common Stock pursuant to warrants, options, rights or other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii) the conversion of Series B Preferred Stock, or the conversion, exchange or exercise of other securities convertible into or exchangeable or exercisable for Common Stock, (iii) Common Stock issued to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but only to the extent that the aggregate number of shares excluded hereby (together with 14

the aggregate number of shares issuable upon conversion, exchange or exercise of the securities excluded by clause (iii) of subparagraph 4.3(e) below) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iv) Common Stock issued in a bona fide public offering pursuant to a firm commitment underwriting. (e) If the Corporation issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series B Preferred Stock or securities issued in transactions described in subparagraph 4.3(c) above) for a consideration per share of Common Stock initially deliverable upon conversion, exchange or exercise of such securities of less than $4.35 per share of Common Stock (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date of issuance of such securities, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be adjusted in accordance with the following formula:
N x (O+D) --------O + P M

N' where: N' =

=

the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible immediately after such issuance. the number of shares of Common Stock into which each share of Series B Preferred Stock was convertible immediately prior to such issuance. the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. the aggregate consideration received for the issuance of such securities. the current market price per share of Common Stock on the date of issuance of such securities. the maximum number of shares deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate.

N

=

O

=

P M D

= = =

15

The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when such securities are no longer outstanding, then the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall promptly be readjusted to the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. This subparagraph 4.3(e) does not apply to (i) the issuance of any such securities in a bona fide public offering pursuant to a firm commitment underwriting, (ii) the issuance of any such securities to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such securities would otherwise be covered by this subparagraph 4.3(e) (but only to the extent that the aggregate number of shares issuable upon the conversion, exchange or exercise of the aggregate number of securities excluded hereby (together with the aggregate number of shares excluded by clause (iii) of subparagraph 4.3(d) above) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iii) shares issued as PIK Dividends, shares issued as "paid-in-kind" dividends on the Series A Convertible Preferred Stock of the Corporation as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock, or shares issued as "paid-in-kind" dividends on Parity Stock provided such dividends are required by the terms of such Parity Stock. (f) If the Corporation (i) distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) herein to purchase additional shares of Common Stock; (ii) issues shares of Common Stock; or (iii) issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series B Preferred Stock or securities issued in transactions described in (i) above) at a price reflecting an implied price per share less than $4.35 per share, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be reduced proportionally to reflect the price at which the Corporation issued or sold such shares of Common Stock pursuant to this subparagraph 4.3(f). (g) For the purpose hereof, the current market price per share of any security on any date is the average of the Quoted Prices for thirty (30) consecutive Trading Days commencing forty-five (45) Trading Days before the date in question. If the Quoted Price is not ascertainable, the current market price per share of any security on any date shall be the current market price as determined by the Board of Directors of the Corporation in its reasonable judgment exercised in good faith. Notwithstanding the foregoing, the current market price per share of any security shall be deemed to be the greater of (i) the current market price as determined above and (ii) the Liquidation Price. 16

(h) For purposes of any computation respecting consideration received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall apply: (i) in case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Corporation for any underwriting of the issue or otherwise in connection therewith; (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors of the Corporation in its reasonable judgment exercised in good faith (irrespective of the accounting treatment thereof); and (iii) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such options, warrants or other securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this subparagraph 4.3(h)). (i) No adjustment in the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible need be made unless the adjustment would require an increase or decrease of at least one-half of one percent (.5%) in the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 4.3 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (j) No adjustment in the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible need be made under this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a Corporation plan for reinvestment of dividends or interest, or (ii) any change in the par value or change from no par value to par value of the Common Stock. If an adjustment is made to the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible upon a record date established for a distribution subject to this paragraph 4.3 and if such distribution is subsequently cancelled, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible then in effect shall be readjusted, effective as of the date when the Board of Directors of the Corporation determines to cancel such distribution, to the number of shares of Common 17

Stock into which each share of Series B Preferred Stock is convertible as would have been in effect if such record date had not been fixed. No adjustment need be made under paragraph 4.3 if the Corporation issues or distributes to each holder of Series B Preferred Stock the shares of Common Stock, evidences of indebtedness, assets, rights, options or warrants referred to in such paragraph which each holder would have been entitled to receive had Series B Preferred Stock been converted into Common Stock prior to or simultaneously with the happening of such event or the record date with respect thereto. (k) Whenever the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible is adjusted, the Corporation shall promptly mail to holders of Series B Preferred Stock, first class, postage prepaid, a notice of the adjustment. The Corporation shall file with the transfer agent, if any, for Series B Preferred Stock a certificate from the Corporation's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. Subject to subparagraph 4.3(o) below, the certificate shall be conclusive evidence that the adjustment is correct. (l) If: (i) the Corporation takes any action that would require an adjustment pursuant to paragraph 4.3; (ii) the Corporation consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Corporation must approve the transaction; or (iii) there is a dissolution or liquidation of the Corporation; a holder of Series B Preferred Stock may want to convert such stock into shares of Common Stock prior to the record date for or the effective date of the transaction so that it may receive the rights, warrants, securities or assets which a holder of shares of Common Stock on that date may receive. Therefore, the Corporation shall mail to such holders, first class, postage prepaid, a notice stating the proposed record or effective date, as the case may be. The Corporation shall mail the notice at least thirty (30) days before such date. (m) If the Corporation is party to a consolidation or merger which reclassifies or changes its Common Stock or to the sale of all or substantially all of the assets of the Corporation, upon consummation of such transaction the Series B Preferred Stock shall automatically become convertible at the option of their respective holders into the kind and amount of securities, cash or other assets which the holder of Series B Preferred Stock would have owned immediately after the sale, consolidation or merger, if such holder had converted Series B Preferred Stock immediately before the effective date of the transaction, and an appropriate adjustment (as determined by the 18

Board of Directors of the Corporation) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series B Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to liquidation preferences and changes in and other adjustment of the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of Series B Preferred Stock. The Corporation shall not affect any such consolidation, merge or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a form reasonably satisfactory to the holders of a majority of the Series B Preferred Stock then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. If this subparagraph 4.3(m) applies, subparagraphs 4.3(b), 4.3(c), 4.3(d) and 4.3(e) do not apply. (n) In any case in which this paragraph 4.3 shall require that an adjustment as a result of any event become effective from and after a record date, the Corporation may elect to defer until after the occurrence of such event (i) the issuance to the holder of any shares of Series B Preferred Stock converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable immediately prior to adjustment and (ii) the delivery of a check for any remaining fractional shares as provided in subparagraph 4.1(c) above. (o) Whenever the Corporation or its Board of Directors shall be required to make a determination under this paragraph 4.3, such determination shall be made in good faith and may be challenged in good faith by the holders of a majority of the Series B Preferred Stock, and any dispute shall be resolved promptly (and in no event later than ninety (90) days after any challenge), at the Corporation's expense, by an investment banking firm of recognized national standing selected by the Corporation and acceptable to such holders of Series B Preferred Stock. Any such determination shall be deemed approved if the requisite holders have not notified the Corporation of any challenge within thirty (30) days after receiving notice (including a statement in reasonable detail of the bases therefor) of such determination. (p) If any event occurs of the type contemplated by the provisions of this paragraph 4.3 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's Board of Directors shall make an appropriate adjustment to the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible so as to protect the rights of the holders of Series B Preferred Stock; provided that no such adjustment shall increase the number of shares of Common Stock into which a share of Series B Preferred Stock is 19

convertible if otherwise adjusted pursuant to another provision of this paragraph 4.3 or decrease the number of shares of Common Stock issuable upon conversion of each share of Series B Preferred Stock. 5. Mandatory Redemption by the Corporation. (a) To the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Initial Mandatory Redemption Date at least fifty percent (50%) of the then outstanding shares of Series B Preferred Stock at the Redemption Price, ratably among the holders thereof. In addition, to the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Final Mandatory Redemption Date all of the then outstanding shares of Series B Preferred Stock at the Redemption Price, plus an amount accruing thereon at the Increasing Rate from the Initial Mandatory Redemption Date. (b) Shares of Series B Preferred Stock which have been issued and converted or reacquired in any manner, including as a result of redemption, shall (upon compliance with any applicable provisions of the DGCL) have the status of authorized and unissued shares of the class of preferred stock of the Corporation undesignated as to series, and may be redesignated and reissued as part of any series of preferred stock of the Corporation; provided, however, that no such issued and reacquired shares of Series B Preferred Stock shall be reissued as Series B Preferred Stock. (c) If on any Mandatory Redemption Date the Corporation is unable or shall fail to discharge its obligation to redeem all outstanding shares of Series B Preferred Stock required to be redeemed on such date pursuant to subparagraph 5(a) and all outstanding shares of Parity Stock required to be redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation shall redeem on such Mandatory Redemption Date the number of shares of Series B Preferred Stock and Parity Stock which it is able to redeem, ratably among the holders of Series B Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all shares of Series B Preferred Stock and Parity Stock required to be redeemed on such date were redeemed. In such a case, the remainder of the Redemption Price payable but not paid at the Mandatory Redemption Date shall be converted into the Delinquent Mandatory Redemption Price and shall be discharged as soon as the Corporation is able to discharge such Delinquent Mandatory Redemption Price out of funds legally available therefor. If and so long as any Mandatory Redemption Obligation (or any obligation in respect of the Delinquent Mandatory Redemption Price) with respect to the Series B Preferred Stock and any Parity Stock shall not be fully discharged and paid, the Corporation shall not declare or pay any dividend or make any distribution on, or, directly or indirectly, purchase, redeem or satisfy any mandatory redemption, sinking fund or other similar obligation in respect of Subordinate Stock (other than repurchases of shares of Subordinate Stock in accordance 20

with the terms of restricted stock vesting agreements with employees of the Corporation approved by the Board of Directors of the Corporation). (d) Notwithstanding the foregoing provisions of this paragraph 5, unless the full cumulative dividends on all outstanding shares of Series B Preferred Stock and Parity Stock have been paid or contemporaneously are declared and paid for all dividend periods to and including the Mandatory Redemption Date, none of the shares of Series B Preferred Stock or Parity Stock shall be redeemed or set aside for redemption, unless such shares of Series B Preferred Stock and Parity Stock are redeemed pro rata based upon the full amounts to which the holders thereof would otherwise be respectively entitled. (e) Notice of any redemption shall be sent by or on behalf of the Corporation not more than sixty (60) days nor less than thirty (30) days prior to any Mandatory Redemption Date, by first class mail, postage prepaid, to all holders of record of the Series B Preferred Stock at their respective last addresses as they shall appear on the books of the Corporation; provided, however, that no failure to give notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series B Preferred Stock except as to the holder to whom the Corporation has failed to give notice or except as to the holder to whom notice was defective. In addition to any information required by law or by the applicable rules of any exchange upon which Series B Preferred Stock may be listed or admitted to trading, such notice shall state: (i) the Mandatory Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series B Preferred Stock to be redeemed; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (v) that dividends on the shares to be redeemed will cease to accrue on the Mandatory Redemption Date; (vi) the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible as of the notice date and, if any transactions are contemplated to occur between the notice date and the Mandatory Redemption Date which would cause such number of shares of Common Stock to be adjusted, the number of shares of Common Stock into which each share of Series B Preferred Stock would be convertible after giving effect to such transaction(s); (vii) that Series B Preferred Stock called for redemption may be converted at any time before the close of business on the Mandatory Redemption Date; and (viii) that holders of Series B Preferred Stock must satisfy the requirements of subparagraph 4.1(b) above if such holders desire to convert such shares. Upon the mailing of any such notices of redemption, the Corporation shall become obligated to redeem at the time of redemption specified therein all shares called for redemption other than shares converted into Common Stock prior to the Mandatory Redemption Date. (f) If notice has been mailed in accordance with subparagraph 5(e) above and provided that on or before the Mandatory Redemption Date specified in such notice, all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds in trust for the pro rata benefit of 21

the holders of the shares so called for redemption, so as to be, and to continue to be available therefor, then, from and after the Mandatory Redemption Date, dividends on the shares of the Series B Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series B Preferred Stock, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the Redemption Price) shall cease, irrespective of whether any certificates for shares called for redemption have been surrendered to the Corporation. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer), such shares shall be redeemed by the Corporation at the Redemption Price and no holder of shares called for redemption shall be entitled to receive payment of the Redemption Price therefor until such surrender to the Corporation has been accomplished or a duly executed affidavit of lost certificate shall have been delivered to the Corporation. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares without cost to the holder thereof (so long as such certificate is issued to the holder). (g) Any funds deposited with a bank or trust company for the purpose of redeeming Series B Preferred Stock shall be irrevocable except that: (i) the Corporation shall be entitled to receive from such bank or trust company the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Corporation and unclaimed by the holders of the Series B Preferred Stock entitled thereto at the expiration of two (2) years from the applicable Mandatory Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings. (h) Notwithstanding anything to the contrary herein, no shares of Series B Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. 6. Voting Rights. (a) Except as otherwise set forth in this paragraph 6 and the Shareholders Agreement or as otherwise required by law, each share of Series B Preferred Stock issued and outstanding shall have the right to vote on all matters presented to the holders of the Common Stock for vote in the number of votes equal at any time to the number of shares of Common Stock into which each share of Series B 22

Preferred Stock would then be convertible, and the holders of the Series B Preferred Stock and Parity Stock shall vote with the holders of the Common Stock as a single class. (b) In addition to any vote or consent of shareholders required by law or the Certificate of Incorporation of the Corporation, the affirmative consent of the holders of a majority of the issued and outstanding shares of Series B Preferred Stock at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) (x) Any amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation (including without limitation this Certificate of Designation) of the Corporation or (y) any amendment of the by-laws of the Corporation that materially affects the rights of the holders of the Series B Preferred Stock; (ii) Any action by the Corporation or any of its subsidiaries not approved in advance by the Series B Director to effect any amendment, alteration or repeal of any of the provisions of the articles of organization, operating agreements, certificates of limited partnership, or partnership agreements of any of the Corporation's Affiliates or subsidiaries (except such amendments, alterations or repeals that are ministerial in nature or required to effect a transfer of ownership interests in the Corporation's Affiliates or subsidiaries (other than any ownership interest beneficially owned by the Corporation)); (iii) Any authorization, issuance or creation of, or increase in the authorized amount of, (x) any shares of any class or any security of any class ranking senior to the shares of Series B Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up of the Corporation or in the payment of dividends or requiring redemption at any time any shares of Series B Preferred Stock are still outstanding, or (y) any shares of Parity Stock (except shares issued as "paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have also been declared and paid on the Series B Preferred Stock and except, prior to the commencement of the PIK Dividend Payment Period, shares issued as "paid-in-kind" dividends on the Series A Preferred Stock as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock); (iv) Any action by the Corporation or any of its subsidiaries not approved in advance by the Series B Director to effect the authorization, issuance or creation of, or increase in the authorized amount of, any membership interests, limited partnership interests or other equity security interests of any of the Corporation's Affiliates or subsidiaries; 23

(v) Any increase or decrease (other than by redemption or conversion) in the total number of authorized shares of Series B Preferred Stock or any issuance of the currently authorized shares of the Series B Preferred Stock other than the issuance of shares of Series B Preferred Stock pursuant to the Stock Purchase Agreement or as PIK Dividends; (vi) Any transaction or series of related transactions that entails the sale, lease, assignment, transfer or other conveyance of assets having a value greater than $10 million (measured by the book value at the date of such transaction) of the Corporation and its subsidiaries (determined on a consolidated basis); any sale or issuance of shares of capital stock of any subsidiary (other than such sales or issuance approved in advance by the Series B Director), any consolidation or merger involving the Corporation or any of such subsidiaries other than a consolidation or merger in which the Corporation or subsidiary, as the case may be, is the surviving entity and no change in the capital stock or ownership of the Corporation or the subsidiary, as the case may be, occurs, or any reclassification or recapitalization of any capital stock of the Corporation, or any dissolution, liquidation, or winding up of the Corporation, or any agreement to become so obligated; (vii) Any acquisition or series of related acquisitions of a business, businesses or assets involving aggregate consideration of $10 million or more; (viii) The incurrence of, or agreement to incur, any Indebtedness which would result in a Debt to Equity Ratio at the time the Indebtedness is incurred (after giving effect to such incurrence) of greater than 1:1, as measured based upon the balance sheet of the Corporation prepared as of the last day of the immediately preceding month, with a pro forma adjustment for the Indebtedness incurred and any equity invested in the Corporation since such date, other than such incurrences or agreements to incur Indebtedness that have been approved in advance by the Series B Director; (ix) Any action by the Corporation or any of its subsidiaries not approved in advance by the Series B Director to effect the incurrence of, or agreement to incur, any Indebtedness by any of the Corporation's Affiliates or subsidiaries; (x) Any loan, advance or guarantee to, or for the benefit of, or any sale, lease, transfer or disposition of any of the properties or assets of the Corporation or its subsidiaries to, or for the benefit of, or any purchase or lease of any property or assets from, or the execution, performance or amendment of any contract, agreement or understanding with, or for the benefit of, any Affiliate of the Corporation or its subsidiaries; 24

(xi) Any declaration or payment of any dividends on or any declaration or making of any other distribution, directly or indirectly, through subsidiaries (excluding dividends and distributions made to all owners of the Corporation's Affiliates in proportion to their respective ownership interests) or otherwise, on account of any Parity Stock (unless Pro Rata dividends have also been declared or paid on the Series B Preferred Stock and except that, prior to the commencement of the PIK Dividend Payment Period, "paid-in-kind" dividends on the Series A Convertible Preferred Stock of the Corporation may be paid thereon as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock) or Subordinate Stock or the setting apart of any sum for any such purpose; (xii) The appointment or involuntary termination of the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or other senior officers of the Corporation or its subsidiaries; (c) The rights of the holders of the Series B Preferred Stock may be exercised in writing without a meeting or by proxy or in person at a special meeting of the holders of Series B Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such annual meetings or by a holder of Series B Preferred Stock designated in writing by the written consent of the holders of Series B Preferred Stock. (d) A special meeting of the holders of Series B Preferred Stock for purposes of voting on matters with respect to which the holders of such shares are entitled to vote as a class may be called by the Secretary of the Corporation or by a holder of Series B Preferred Stock designated in writing by the holders of ten percent (10%) of the shares of Series B Preferred Stock then outstanding. Such meeting may be called at the expense of the Corporation by either such person. At any meeting of the holders of Series B Preferred Stock, the presence in person or by proxy of the holders of a majority of the shares of Series B Preferred Stock then outstanding shall constitute a quorum of the Series B Preferred Stock for the purpose of voting on matters to be acted upon by holders of the Series B Preferred Stock. 7. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series B Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Certificate of Incorporation of the Corporation. 8. Headings of Subdivisions. 25

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 9. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Series B Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) are invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. 26

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed by an authorized officer and attested by its Secretary, this ________ day of _________________, 1997. P.F. CHANG'S CHINA BISTRO, INC. By: Richard L. Federico, President Attest:

Robert T. Vivian, Secretary 27

EXHIBIT 3.2 BY-LAWS OF P.F. CHANG'S CHINA BISTRO, INC.

ARTICLE I OFFICES Section 1. The registered office shall be in the City of Dover, County of Kent, State of Delaware. Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 11 MEETINGS OF STOCKHOLDERS Section 1. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the Corporation. Section 2. The annual meeting of stockholders shall be held each year on a date and a time designated by the Board of Directors. At each annual meeting directors shall be elected and any other proper business may be transacted. Section 3. 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 By-Laws. 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 1

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. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes, or the Certificate of Incorporation, or these By-Laws, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 5. 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 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 des 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 2

the Board of Directors as provided in Article V, Section 6 hereof. All elections shall be had and all questions decided by a plurality vote. Section 6. 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 President and shall be called by the President or the Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation, issued and outstanding, and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 7. 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 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. 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 3

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 9. 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. 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 which shall constitute the whole Board shall be not less than five (5) and not more than seven (7). The initial number of directors shall be five (5), and any increase from the initial number of directors shall require the unanimous consent of the directors. The directors need not be stockholders. The directors shall be elected at the annual meeting of the stockholders, except as 4

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 of Directors may be removed, either with or without cause, from the Board of Directors at any meeting of stockholders by two-thirds of the stock represented and entitled to vote thereat. Section 2. Vacancies on the Board of Directors 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 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 replaced by a vote of the shareholders. 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. The property and business of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and 5

authorities by these By-Laws 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 or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. The directors may hold their meetings and have one or more offices, and keep the books of the Corporation outside of the State of Delaware. Section 5. Regular meetings of the Board of Directors 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 of the Board of Directors may be called by 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. Section 7. At all meetings of the Board of Directors 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 of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors, 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. At any meeting, a director shall have the right to be accompanied by counsel provided that such 6

counsel shall agree to any confidentiality restrictions reasonably imposed by the Corporation. Section 8. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors 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. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, 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. The Board of Directors 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 or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such 7

committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors 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 dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws 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. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 12. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors 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 of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors 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. 8

Section 13. The Corporation shall 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 is or was a director or officer of the Corporation or, while a director or officer or employee of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, 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 in connection with such action, suit or proceeding, to the full extent permitted by applicable law. ARTICLE IV OFFICERS Section 1. The officers of this corporation shall be chosen by the Board of Directors and shall include a President, a Secretary, and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, such other officers as are desired, including a Chairman of the Board, Chief Executive Officer, 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 By-Laws otherwise provide. 9

Section 2. The Board of Directors, at its first meeting after each annual meeting of stockholders, shall choose the officers of the Corporation. Section 3. The Board of Directors 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. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. Section 5. 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 of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. Section 6. Chairman of the Board. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 8 of this Article IV. Section 7. Chief Executive Officer. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the Chief Executive Officer shall, subject to the control of the Board 10

of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall be an ex-officio member of all committees and shall have the general powers and duties of management usually vested in the office of the Chief Executive Officer of corporations, and shall have such other powers and duties as may be prescribed by the Board of Directors or these By-Laws. Section 8. President. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be an ex-officio member of all committees and shall have the general powers and duties of management usually vested in the office of President of corporations, and shall have such other powers and duties as may be prescribed by the Board of Directors or these By-Laws. Section 9. Vice Presidents. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall have such other duties as from time to time may be prescribed for them, respectively, by the Board of Directors. 11

Section 10. Secretary. The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required by the Board of Directors. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or these By-Laws. He shall keep in safe custody the seal of the Corporation, and when authorized by the Board, affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature or by the signature of an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 11. Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, or if there be no such determination, the Assistant Secretary designated by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 12. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. He shall disburse the funds 12

of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond, in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 13. Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, or if there be no such determination, the Assistant Treasurer designated by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE V CERTIFICATES OF STOCK Section 1. 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 Chairman or Vice Chairman of the Board of Directors, or the Chief Executive Officer, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an 13

Assistant Treasurer of the Corporation, certifying the number of shares represented by the certificate owned by such stockholder in the Corporation. Section 2. 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 were such officer, transfer agent, or registrar at the date of issue. Section 3. 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. Section 4. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the 14

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 of Directors 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. 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, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the certificate transaction upon its book. Section 6. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders, or any adjournment thereof, or to express consent to corporate action in writing without a meeting, 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 of Directors may fix a record date which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall 15

apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 7. 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, save as expressly provided by the laws of the State of Delaware. ARTICLE VI GENERAL PROVISIONS Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation, and the directors may abolish any such reserve. 16

Section 3. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. Section 4. The fiscal year of the Corporation shall be the calendar year. Section 5. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 6. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, 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 or facsimile transmission. Section 7. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, 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. Section 8. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. 17

ARTICLE VII AMENDMENTS Section 1. These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Directors at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal By-Laws is conferred upon the Board of Directors by the Certificate of Incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal By-Laws. 18

CERTIFICATE OF SECRETARY I, the undersigned, do hereby certify: (1) That I am the duly elected and acting Secretary of P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation; and (2) That the foregoing By-Laws, comprising seventeen pages, constitute the By-Laws of said corporation as duly adopted by the written consent of the Incorporator, and approved by the Board of Directors, of said corporation as of January 31 , 1996. IN WITNESS WHEREOF, I have hereunto subscribed my name this 31 day of January, 1996.
/s/ MICHELLE D. PRATT ------------------------------------------Michelle D. Pratt, Secretary

19

EXHIBIT 4.2 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of the 1st day of May, 1997 by and among P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Company"), and the PERSONS listed on Schedule 1 attached hereto. RECITALS WHEREAS, as a condition precedent to the consummation of the transactions contemplated by that certain Stock Purchase Agreement (the "Original Purchase Agreement") dated as of February 1, 1996 among the Company and certain of the shareholders of the Company (the "Original Investors"), the Company and the Original Investors entered into a Registration Rights Agreement (the "Original Registration Rights Agreement") dated as of February 28, 1996; WHEREAS, the Company has entered into a Stock Purchase Agreement (the "New Purchase Agreement") dated as of April 28, 1997 with certain of the Original Investors and additional investors (collectively, the "Purchasers"), pursuant to which the Company will issue shares of its Series B Convertible Preferred Stock to the Purchasers; and WHEREAS, in order to induce the Purchasers to enter into the New Purchase Agreement, the Company has agreed to amend and restate the Original Registration Rights Agreement to grant the benefits of the Original Registration Rights Agreement to the holders of the Series B Convertible Preferred Stock and to join those Purchasers not party to the Original Registration Rights Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows: 1. (a) Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms shall have the meanings indicated: "Agent" means any Person authorized to act and who acts on behalf of any holder of Registrable Securities with respect to the transactions contemplated by this Agreement or the Stock Purchase Agreements.

"Agreement Year" means each consecutive twelve-month period beginning with the date of the Original Registration Rights Agreement. "Business Days" means all days other than Saturday or Sunday or any day on which banking institutions in New York, New York are authorized or obligated by law to close. "Common Stock" means capital stock of the Company, however designated, which is not limited as to the amount of dividends (except as subordinated to preferred stock in priority), or which is not limited as to the amount of distributions upon liquidation or dissolution of the Company (except as subordinated to preferred stock in priority), and shall include, without limitation, the Company's presently authorized Common Stock, par value $.001 per share. "Demand Registration" means a registration pursuant to Section 3(a). "Equivalent Transaction" means, with respect to any proposed Piggy-Back Registration, the sale, pursuant to Rule 144A or any successor rule thereto, of the Registrable Securities proposed to be sold in such Piggy-Back Registration, which sale, in the good faith judgment of the holders of a majority of such Registrable Securities after consultation with a reputable investment banking firm, is likely to result in sales proceeds of 95% or more of the greater of (i) the sales proceeds pursuant to such Piggy-Back Registration and (ii) if the class of securities of which the Registrable Securities is a part is traded on a national securities exchange or the Nasdaq National Market System, the market price thereof. "Exchange Act" means the Securities Exchange Act of 1934, and the rules and regulations thereunder as amended from time to time. "NASD" means National Association of Securities Dealers, Inc. "Person" means an individual, firm, partnership, corporation, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company or other entity or a government or agency or political subdivision thereof. "Piggy-Back Registration" means a registration pursuant to Section 3(e). "Preferred Stock" means the Series A Convertible Preferred Stock and Series B Convertible Preferred Stock of the Company, par value $.001 per share, issued or sold pursuant to the Stock Purchase Agreements, or issued by way of stock dividend or stock split in respect thereof, together with any securities issued in substitution or exchange therefor. 2

"Priority Amount" means $16.6 million. "Prospectus" means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Registrable Securities" means (a) the shares of Common Stock issued or issuable upon conversion of the Preferred Stock, whether owned by any Purchaser or not, and (b) any shares of Common Stock issued or issuable with respect to such Common Stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization; provided, however, that any such share or other security shall be deemed to be a Registrable Security only if and so long as it is a Transfer Restricted Security. "Registration Expenses" See Section 6 hereof. "Registration Statement" means any registration statement of the Company which covers Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such Registration Statement. "Securities Act" means the Securities Act of 1933, as amended from time to time. "SEC" means the Securities and Exchange Commission. "Stock Purchase Agreements" means the Original Purchase Agreement and the New Purchase Agreement. "Transfer Restricted Securities" means securities acquired by the holder thereof other than pursuant to an effective registration under Section 5 of the Securities Act or pursuant to Rule 144; provided that a Registrable Security that has ceased to be a Transfer Restricted Security cannot thereafter become a Transfer Restricted Security. "Underwritten Registration or Underwritten Offering" means a registration in which securities of the Company are sold (whether by the Company or by selling stockholders) to an underwriter for reoffering to the public. 3

(b) Knowledge Standard. When used herein, the phrase "to the knowledge of" any Person, "to the best knowledge of" any Person or any similar phrase shall mean, (i) with respect to any individual, the actual knowledge of such Person (ii) with respect to any corporation (or a limited liability company), the actual knowledge of officers and directors, or Persons acting in similar capacities, of such corporation and the knowledge of such facts that such persons should have in the exercise of their duties after reasonable inquiry and (iii) with respect to a partnership, the actual knowledge of the officers and directors of the general partner of such partnership and the knowledge of such facts that such persons should have in the exercise of their duties after reasonable inquiry. When used herein, the phrase "to the knowledge of the Company," "to the best knowledge of the Company" or any similar phrase shall mean "to the best knowledge of the Company" using the standards set forth in the previous sentence. 2. Securities Subject to this Agreement. (a) Registrable Securities. The securities entitled to the benefits of this Agreement are the Registrable Securities. (b) Holders of Registrable Securities. A Person is deemed to be a holder of Registrable Securities whenever such Person owns Registrable Securities or has the right to acquire such Registrable Securities whether or not such acquisition has actually been effected and disregarding the legal restrictions upon the exercise of such right; provided, however, that a Person shall not be deemed to be a holder of Registrable Securities who, together with such Person's affiliates, then holds Registrable Securities constituting less than one percent (1%) of the then issued and outstanding Common Stock and who may then sell all Registrable Securities owned by such holder in reliance upon Rule 144 of the Securities Act within six months pursuant to the volume restrictions under said Rule based upon the average weekly reported trading volume (currently Rule 144(e)(1)(ii)). 3. Demand Registration and Piggy-Back Registration. (a) Request for Registration by Holders of Registrable Securities. At any time after the earlier of (i) the last day of the third Agreement Year or (ii) six months after the closing of the Company's initial public offering, if the Company receives from the holders of at least 50% of the then outstanding Registrable Securities then having a market value of at least $5 million, a written request that the Company effect any registration or qualification with respect to the Registrable Securities, the Company will: (1) within ten (10) days of receipt of such a request, give written notice of the proposed registration or qualification to all other holders of Registrable Securities; and 4

(2) as soon as reasonably practicable, use its best efforts to effect such registration or qualification (including, without limitation, the execution in the applicable Registration Statement of an undertaking to file required post-effective amendments, appropriate qualification under the applicable blue sky or other state securities laws and appropriate compliance with exemptive regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as are reasonably necessary to permit or facilitate the sale and distribution of all or such portion of such holder's or holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other holder or holders joining in such request, or the Company in the case of securities requested by the Company to be registered (provided, however, the Company shall be permitted to participate in such registration only to the extent that all Registrable Securities as are specified by any holder in a Demand Registration request have been included in such registration), as are specified in a written notice given to the Company within 20 days after the date of such written notice from the Company pursuant to Section 3(a)(1); provided, however that the Company will not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 3(a) after the completion of three Demand Registrations as set forth in Section 3(b). Subject to the foregoing provisions, the Company will file a Registration Statement covering the Registrable Securities so requested to be registered as soon as practicable, but in any event within one hundred twenty (120) days, after receipt of the request or requests of the initiating holders, and shall use its best efforts to cause such Registration Statement and Prospectus through which such Demand Registration is effected to remain effective for a period of not more than twelve (12) months; provided, however, that the Company may, for reasonable cause, by written notice to the holders requesting a Demand Registration within ten (10) business days after such request for a Demand Registration is given, elect to defer the Demand Registration for a period not to exceed ninety (90) days (only one such election to defer may be made in any 360-day period), whereupon at any time during such ninety (90) day period the holders requesting such Demand Registration may withdraw such request. (b) Effective Registration. A registration of Registrable Securities will not count as a Demand Registration until it has become effective and has been effective until all Registrable Securities included in such Demand Registration have been sold pursuant thereto, provided, that such period of effectiveness shall not exceed twelve (12) months. (c) Priority on Demand Registrations. If the holder or holders of a majority in number of the Registrable Securities to be registered in a Demand Registration under this Section 3 (or the holder or holders who initiated the Demand Registration) so elect, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an Underwritten Offering. In such event, if the managing underwriter or underwriters of such offering advise the Company and the 5

holders in writing that in their opinion the Registrable Securities requested to be included in such offering is sufficiently large so as to materially and adversely affect the success of the offering, the Company shall include in such registration the maximum amount of Registrable Securities which in the opinion of such managing underwriter or underwriters can be sold without any such material adverse effect. The Company shall include Registrable Securities in such registration as follows: (i) first, pro rata among the holders of Registrable Securities who have requested to be included in such registration pursuant to Section 3(a), including Section 3(a)(2) (based upon the number of shares requested to be included in such registration), (ii) second, all securities held by the Company for which the Company has requested inclusion pursuant to Section 3(a), and (iii) third, any other holders of securities of the Company who have requested to be included in such registration. (d) Selection of Underwriters. The investment banker or bankers and manager or managers that will administer the offering will be nationally recognized investment banking firm(s) selected by the Company with the prior written consent of the holders of a majority in number of Registrable Securities to be included in such offering, which consent shall not be unreasonably withheld. (e) Piggy-Back Registration. If the Company determines to file a registration statement under the Securities Act relating to a proposed sale to the public of its equity securities (but excluding registrations relating solely to employees' stock option or purchase plans or relating solely to a transaction employing SEC Form S-4 or Form S-8 or successor forms thereto), either for its own account or the account of a security holder or holders, the Company shall: (1) promptly give to each holder of Registrable Securities written notice thereof (which will include, to the extent known at the time, a list of the jurisdictions in which the Company intends to qualify such securities under the applicable blue sky or other state securities laws, the proposed offering price or price range, and the plan of distribution); (2) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within thirty (30) days after such written notice from the Company; and (3) use its best efforts to cause the managing underwriter or underwriters of such proposed Underwritten Offering to permit the Registrable Securities requested to be included in the registration statement for such offering to be included on the same terms and conditions as any similar securities of the Company included therein. Notwithstanding the foregoing, if the managing underwriter or underwriters of such offering deliver a written opinion to the Company and the holders of such Registrable Securities that marketing considerations require a limitation on the number of shares of Common Stock 6

offered pursuant to any Registration Statement filed under this Section 3(e), such limitation shall be imposed pro rata among all holders of Common Stock (other than such holders, if any, initiating the registration pursuant to registration rights granted by the Company, which holders shall receive priority with respect to inclusion in such registration in accordance with such contractual rights) and Registrable Securities who requested inclusion in the registration (based upon the number of shares requested to be included in the registration). The foregoing notwithstanding, the Company shall not be obligated to effect a Piggy-Back Registration pursuant to this Section 3(e) if at the time of the request for such Piggy-Back Registration an Equivalent Transaction is available. (f) Priority on All Registrations. If the Company (i) determines to file a registration statement under the Securities Act relating to a proposed sale to the public of its equity securities (but excluding registrations relating solely to employees' stock option or purchase plans or relating solely to a transaction employing SEC Form S-4 or Form S-8 or any successor forms thereto), either for its own account or the account of a security holder or holders or (ii) receives a written request to effect a Demand Registration, the Company shall promptly give written notification ("Priority Notice") of the proposed registration to all holders of Registrable Securities. Upon receipt of a Priority Notice, any holder of Registrable Securities may elect to join in any such proposed registration pursuant and subject to the terms of this Section 3(f) by providing the Company with written notice of such election and the number of shares for which registration is requested ("Priority Request") within thirty (30) days of receipt of the Priority Notice; provided, however, that the holders of at least a majority of outstanding Registrable Securities so elect. Notwithstanding anything to the contrary set forth in this Agreement, in connection with any registration of securities of the Company, upon receipt of a Priority Request, the Company shall include in such registration the Registrable Securities beneficially owned by such holders of Registrable Securities that request to be included in such registration, representing up to the Priority Amount in gross proceeds to such holders (less any amount of gross proceeds received by any holders of Registrable Securities in connection with a prior request pursuant to this Section 3(f)) (the "Priority Securities"), prior to including securities of any other holder in such registration. In connection with any registration in which more than one holder of Registrable Securities makes a request to include Priority Securities, the Company shall include Priority Securities in accordance with such holders' pro rata portion of the Priority Amount (less any amount of gross proceeds received by such holder in connection with a prior request pursuant to this Section 3(f)). Any request for registration made pursuant to Section 3(a) or 3(e) that is withdrawn by a majority of the holders of Registrable Securities who requested inclusion therein at any time prior to the date the Registration Statement has become effective, due to a request by the holders of a majority of outstanding Registrable 7

Securities pursuant to this Section 3(f), shall not be counted as a Demand Registration; provided, however, that the holder(s) effecting such withdrawal shall be required to pay any Registration Expenses unless the managing underwriter or underwriters shall have determined that the inclusion of the Priority Securities in such registration would impair the ability to include the Registrable Securities originally proposed for inclusion in such registration by such withdrawing holder(s) or the price at which such shares would be offered to the public. Any request for registration made pursuant to Section 3(f) shall not be counted as a Demand Registration. 4. Hold-Back Agreements. (a) Restrictions on Public Sale by the Company of Registrable Securities. Each holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement filed pursuant to Section 3 hereof agrees, if requested in writing by the managing underwriters in an Underwritten Offering, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such Registration Statement, including a sale pursuant to Rule 144 under the Securities Act (except as part of such Underwritten Registration), during the ninety (90) day period subsequent to the filing of the Registration Statement for each Underwritten Offering pursuant to such Registration Statement and during such other period (not less than ninety (90) days) following such effective date as shall be reasonably agreed upon by the Company, the holders of the Registrable Securities whose Registrable Securities are covered by such registration and the managing underwriters. (b) Restrictions on Public Sale by the Company and Others. The Company agrees: (1) not to effect any public or private sale or distribution of its debt or equity securities, including a sale pursuant to Regulation D under the Securities Act, during the ninety (90) day period prior to the filing of a Registration Statement under Section 3 hereof, and during the one hundred twenty (120) day period beginning on, the closing date of each Underwritten Offering made pursuant to a Registration Statement filed under Section 3 hereof, to the extent timely requested in writing by the managing underwriters (except as part of such Underwritten Registration or pursuant to registrations on Forms S-4 or S-8 or any successor forms thereto), and (2) to cause each holder of its privately placed debt or equity securities issued by the Company at any time on or after the date of this Agreement (other than Registrable Securities or securities issued upon the exercise or conversion of securities outstanding as of the date hereof) to agree not to effect any public sale or distribution of any such securities, including a sale pursuant to Rule 144 under the Securities Act (except as part of such Underwritten Registration, if permitted), during the ninety (90) day period subsequent to the filing of the 8

Registration Statement for each Underwritten Offering and during the ninety (90) day period following the effective date of such Registration Statement, in each case to the extent the managing underwriter makes a timely written request that specifically identifies such holder(s). 5. Registration Procedures. In connection with the Company's registration obligations pursuant to Section 3 hereof, the Company will use its best efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (a) before filing a Registration Statement or Prospectus or any amendments or supplements thereto, furnish to the holders of the Registrable Securities covered by such Registration Statement and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents will be made available for review by such holders and managing underwriters, and the Company will not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto which includes information provided by the holders of Registrable Securities to which the holders of a majority in number of the Registrable Securities covered by such Registration Statement or the underwriters, if any, shall reasonably object; (b) prepare and file with the SEC such amendments and post-effective amendments to any Registration Statement, and such supplements to the Prospectus, as may be reasonably requested by any holders of a majority of Registrable Securities covered by the Registration Statement or any managing underwriter of Registrable Securities or as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or otherwise necessary to keep such Registration Statement effective for the applicable period and cause the Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (c) notify the counsel to the selling holders of Registrable Securities and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (1) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, 9

(2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (4) if at any time, to the knowledge of the Company, the representations and warranties of the Company contemplated by paragraph (n) below cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (6) of the existence of any fact, to the knowledge of the Company, which results in the Registration Statement, the Prospectus or any document incorporated therein by reference containing an untrue statement of material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (d) use every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (e) if reasonably requested by the managing underwriter or underwriters or a holder of Registrable Securities being sold in connection with an Underwritten Offering, immediately incorporate in a Prospectus supplement or post-effective amendment such necessary information as the managing underwriters and the holders of a majority of the Registrable Securities being sold reasonably request to have included therein relating to the plan of distribution with respect to such Registrable Securities, including, without limitation, information with respect to the amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the Underwritten (or best efforts underwritten) Offering of the Registrable Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment within three (3) Business Days of the Company's knowledge of any matters that would require such Prospectus supplement or post-effective amendment; (f) at the request of any selling holder of Registrable Securities, furnish to such selling holder of Registrable Securities and each managing underwriter, without charge, such number of conformed copies of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all 10

documents incorporated therein by reference and all exhibits (including those incorporated by reference) as such holder may reasonably request; (g) deliver to each selling holder of Registrable Securities and the underwriters, if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; provided, however, the Company may revoke such consent at any time the continued use of such Prospectus or any amendment or supplement thereto would be in violation of applicable federal or state securities laws or regulations; (h) prior to any public offering of Registrable Securities, register or qualify or cooperate with the selling holders of Registrable Securities, the managing underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any seller or underwriter reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject; (i) cooperate with the selling holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and, if not required by applicable law, not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters; (j) use its best efforts to cause, and cooperate with the holders of the Registrable Securities to cause, the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; (k) if any fact contemplated by paragraph (c)(6) above shall exist, to the Company's knowledge, during the period that the Company shall be required hereunder to use its best efforts to maintain the effectiveness of the applicable Registration Statement, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference 11

or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (l) use its best efforts to cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed if requested by the holders of a majority in number of such Registrable Securities or by the managing underwriters, if any; (m) not later than the effective date of the applicable Registration Statement, provide a CUSIP number for all Registrable Securities and, consistent with subparagraph (i) above, provide the applicable trustees or transfer agents with printed certificates for the Registrable Securities which are in a form eligible for deposit with Depositary Trust Company; (n) enter into agreements (including underwriting agreements) in a form reasonably satisfactory to the Company and take all other appropriate and reasonable actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration: (1) make such representations and warranties to the holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary Underwritten Offerings, in a manner reasonably satisfactory to the Company; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the counsel to the holders of Registrable Securities being sold) addressed to each selling holder and the underwriters, if any, covering the matters customarily covered in opinions requested in Underwritten Offerings, in a manner reasonably satisfactory to the Company; (3) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the selling holders of Registrable Securities and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with primary Underwritten Offerings; (4) if an underwriting agreement is entered into, cause the same to set forth in full the indemnification provisions and procedures of Section 7 hereof (or such other substantially similar indemnification and contribution provisions and 12

procedures as the underwriters shall reasonably request) with respect to all parties to be indemnified pursuant to said Section; and (5) deliver such documents and certificates as may be reasonably requested by the holders of a majority of the Registrable Securities being sold and the managing underwriters, if any, to evidence compliance with paragraph (k) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The actions set forth in the above paragraph (n) shall be done at the effectiveness of such Registration Statement, each closing under any underwriting or similar agreement as and to the extent required thereunder and from time to time as may reasonably be requested by any selling holder in connection with the disposition of Registrable Securities pursuant to such Registration Statement, all in a manner consistent with customary industry practice; (o) make available to a representative of the holders of a majority in number of the Registrable Securities being sold, any managing underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant retained by the sellers or managing underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant reasonably related to the registration, with respect to each at such time or times as the Company shall reasonably determine; provided that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such Persons unless disclosure of such records, information or documents is required by court or administrative order; (p) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and make generally available to its security holders, earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder; (q) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (r) promptly prior to the filing of any document which is to be incorporated by reference into the Registration Statement or the Prospectus (after initial filing of the Registration Statement) provide copies of such document to counsel to the selling holders of Registrable Securities and to the managing underwriters, if any, make the Company's representatives available for discussion of such document during business hours upon reasonable advance request and make such changes in such 13

document prior to the filing thereof as counsel for such selling holders or underwriters may reasonably request. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such seller and that distribution of such securities as the Company may from time to time reasonably request in writing. Each holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (k) above, such holder will forthwith discontinue disposition of Registrable Securities until such holder's receipt of the copies of the supplemented or amended Prospectus contemplated by paragraph (k) above, or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such holder will deliver to the Company (at the Company's expense, unless such supplement or amendment is due to inaccurate information supplied by such holder to the Company in writing specifically for inclusion in the applicable Registration Statement) all copies, other than permanent file copies then in such holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time periods mentioned in Section 4(a) hereof shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement either receives the copies of the supplemented or amended Prospectus contemplated by paragraph (k) above or is advised in writing by the Company that the use of the Prospectus may be resumed. 6. Registration Expenses. (a) All expenses incident to the Company's performance of or compliance with this Agreement will be paid by the Company, regardless whether the Registration Statement becomes effective including without limitation: (1) all registration and filing fees; (2) fees and expenses of compliance with securities or blue sky laws (including, without limitation, fees and disbursements of counsel for the underwriters or selling holders in connection with blue sky qualifications of the Registrable Securities and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters or holders of a majority of the Registrable Securities being sold may reasonably designate); 14

(3) printing (including, without limitation, expenses of printing or engraving certificates for the Registrable Securities in a form eligible for deposit with Depositary Trust Company and of printing prospectuses), messenger, telephone and delivery expenses; (4) fees and disbursements of counsel (i) for the Company and (ii) for the selling holders of the Registrable Securities; (5) fees and disbursements of all independent certified public accountants of the Company (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance); (6) fees and disbursements of underwriters as reasonably approved by the Company (excluding (x) discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Securities or (y) legal expenses of any Person other than the Company, the underwriters and the selling holders); (7) securities acts liability insurance if the Company so desires, and in such event, coverage for, selling holders of Registrable Securities should they so request and it is available; (8) fees and expenses associated of other Persons retained by the Company; and (9) fees and expenses associated with any NASD filing required to be made in connection with the Registration Statement, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained in accordance with the rules and regulations of the NASD (all such expenses being herein called "Registration Expenses"). Notwithstanding the provisions of subsection (a)(4) above, the amount of legal fees reimbursable by the Company with respect to services rendered on behalf of the selling holders of Registrable Securities thereunder shall not, without the consent of the Company (which consent shall not be unreasonably withheld) exceed (i) $5,000 in connection with a registration on Form S-3 and (ii) $20,000 in connection with any other registration. The Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed, and the fees and expenses of any Person, including special experts, retained by the Company. 15

(b) In connection with each Registration Statement required hereunder and pursuant to subsection (a)(4)(ii) above, the Company will reimburse the holders of Registrable Securities being registered (together with the holders of all other securities being registered) pursuant to such Registration Statement for the reasonable fees and disbursements of not more than one counsel (or more than one counsel if a conflict exists among such selling holders in the exercise of the reasonable judgment of counsel for the selling holders and counsel for the Company) chosen by the holders of a majority of such Registrable Securities and such other securities being registered under such Registration Statement. 7. Indemnification. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each holder of Registrable Securities, its officers, directors, employees and Agents and each Person who controls such holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each such person being sometimes hereinafter referred to as an "Indemnified Holder") from and against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation and legal expenses) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary Prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any such untrue statement or omission or allegation thereof based upon information furnished in writing to the Company by such holder expressly for use therein; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary Prospectus if (i) such holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale of Registrable Securities and (ii) the Prospectus would have corrected such untrue statement or omission; and provided, further, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Prospectus, if such untrue statement or alleged untrue statement, omission or alleged omission is corrected in an amendment or supplement to the Prospectus and if, having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such holder thereafter fails to deliver such Prospectus as so amended or supplemented prior to or concurrently with the sale of a Registrable Security to the person asserting such loss, claim, damage, liability or expense who purchased such Registrable Security which is the subject thereof from such holder. This indemnity will be in addition to any liability which the Company may otherwise have. 16

The Company will also provide customary indemnification to underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Indemnified Holders of Registrable Securities. If any action or proceeding (including any governmental investigation or inquiry) shall be brought or asserted against an Indemnified Holder in respect of which indemnity may be sought from the Company, such Indemnified Holder shall promptly notify the Company in writing, and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Holder and the payment of all expenses. Such Indemnified Holder shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expense of such Indemnified Holder unless (a) the Company has agreed to pay such fees and expenses or (b) the Company shall have failed to assume the defense of such action or proceeding or has failed to employ counsel reasonably satisfactory to such Indemnified Holder in any such action or proceeding or (c) if the representation of such Indemnified Holder by the counsel retained by the Company would be inappropriate due to actual or potential conflicts of interests between the Indemnified Holder and any other party represented by such counsel in such proceeding based on written advice of counsel made available to the Company (in which case, if such Indemnified Holder notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Holder, it being understood, however, that the Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for such Indemnified Holder and any other Indemnified Holders, which firm shall be designated in writing by such Indemnified Holders). The Company shall not be liable for any settlement of any such action or proceeding effected without its written consent, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the Company agrees to indemnify and hold harmless such Indemnified Holders from and against any loss or liability by reason of such settlement or judgment. (b) Indemnification by Holder of Registrable Securities. Each holder of Registrable Securities agrees to indemnify and hold harmless the Company, its directors and officers and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such holder, but only with respect to information relating to such holder furnished in writing by such holder expressly for use in any Registration Statement or Prospectus, or any amendment or 17

supplement thereto, or any preliminary Prospectus. In case any action or proceeding shall be brought against the Company or its directors or officers or any such controlling person, in respect of which indemnity may be sought against a holder of Registrable Securities, such holder shall have the rights and duties given the Company and the Company or its directors, officers, employees, agents or such controlling person shall have the rights and duties given to each holder by Section 7(a). In no event shall the liability of any selling holder of Registrable Securities under this Section 7(b) be greater in amount than the dollar amount of the net proceeds received by such holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement or any amendment or supplement thereto, or any preliminary Prospectus. (c) Contribution. If the indemnification provided for in this Section 7 is unavailable to an indemnified party under Section 7(a) or Section 7(b) hereof (other than by reason of exceptions provided in those Sections) in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and of the Indemnified Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Indemnified Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 7(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company and each holder of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 7(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 7(c), an Indemnified Holder shall not be required to contribute any amount in excess of the amount by which the total price at 18

which the Registrable Securities sold by such Indemnified Holder or its affiliated Indemnified Holders and distributed to the public were offered to the public exceeds the amount of any damages which such Indemnified Holder, or its affiliated Indemnified Holders, has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Rule 144. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder and, at all times after the effective date of the first registration filed by the Company which involves a sale of securities of the Company to the general public, will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such information and requirements. 9. Participation in Underwritten Registrations. No holder of Registrable Securities (or its successors or assigns) may participate in any Underwritten Registration hereunder unless such Person (a) agrees to sell such Person's Registrable Securities on the basis provided in any underwriting arrangements approved by the underwriters and other Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Remedies. Each holder of Registrable Securities, in addition to being entitled to exercise all rights provided herein, and as provided in the Transaction Agreements (as defined in the Stock Purchase Agreements), and granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement, and as of the date of this Agreement the Company is not a party to any agreement, with respect to its securities which is 19

inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof or impairs the rights granted hereunder. The Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person which has not been terminated on or prior to the date hereof. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of holders of at least 50% of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other holders of Registrable Securities may be given by the holders of 50% of the Registrable Securities being sold. (d) Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, courier service or personal delivery to the Company at its principal office and to the Shareholders at the addresses or facsimile numbers set forth on Schedule 1 hereto or to such other addresses or facsimile number, as applicable, as any party hereto may designate to the other in writing. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; when mailed, five business days after being deposited in the mail, postage prepaid. (e) Successors and Assigns. (i) Subject to subparagraph (ii) of this Section 10(e), this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation, and without the need for an express assignment, subsequent holders of Registrable Securities. (ii) The rights to cause the Company to register securities granted to a holder of Registrable Securities by the Company pursuant to this Agreement may be assigned by such holder to a transferee or assignee of any of the holders' Registrable Securities; provided that (1) the Company is given written notice by the holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and (2) within sixty (60) days after being requested to do so by the Company, said transferee or assignee executes an agreement reasonably proposed by the Company by which the transferee or assignee agrees to be bound by the terms hereof. 20

(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (i) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings as to the subject matter, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the securities sold pursuant to the Stock Purchase Agreements. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [signature pages follow] 21

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. P.F. CHANG'S CHINA BISTRO, INC.
By: ___________________________________ Richard L. Federico, President 5090 North 40th Street Suite 160 Phoenix, Arizona 85018 Attention: Bert Vivian Telephone: 602-957-8986 Telecopy: 602-957-8998

22

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. CATTERTON-SIMON PARTNERS, L.P. By: CATTERTON INVESTMENT PARTNERS, its General Partner By: CATTERTON PARTNERS CORPORATION its Managing General Partner
By:________________________________________ Name: Title: 115 East Putnam Avenue Greenwich, Connecticut 06830 Attention: J. Michael Chu Telephone: 203-629-4901 Telecopy: 203-629-4903

CATTERTON-PFC, L.L.C. By: CATTERTON PARTNERS CORPORATION its Managing Member By:________________________________________ Name: Title: 115 East Putnam Avenue Greenwich, Connecticut 06830 Attention: J. Michael Chu 23

Telephone: 203-629-4901 Telecopy: 203-629-4903 24

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. CATTERTON-PFC PARTNERS II, L.L.C. By: CATTERTON PARTNERS CORPORATION its Managing Member
By:________________________________________ Name: Title: 115 East Putnam Avenue Greenwich, Connecticut 06830 Attention: J. Michael Chu Telephone: 203-629-4901 Telecopy: 203-629-4903

25

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. OAK INVESTMENT PARTNERS VI, LIMITED PARTNERSHIP
By:________________________________________ Gerald R. Gallagher Managing Member of Oak Associates VI, LLC, the General Partner of Oak Investment Partners VI, Limited Partnership Oak Investment Partners 4550 Norwest Center Minneapolis, Minnesota 55402 Attention: Gerald Gallagher Telephone: 612-339-9322 Telecopy: 612-337-8017

OAK VI AFFILIATES FUND, LIMITED PARTNERSHIP By:________________________________________ Gerald R. Gallagher Managing Member of Oak VI Affiliates, LLC, the General Partner of Oak VI Affiliates Fund, Limited Partnership Oak Investment Partners 4550 Norwest Center Minneapolis, Minnesota 55402 Attention: Gerald Gallagher 26

Telephone: 612-339-9322 Telecopy: 612-337-8017 27

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. TRINITY VENTURES V, L.P.
By:________________________________________ James G. Shennan, Jr. General Partner Trinity Ventures 155 Bovet Road, Suite 660 San Mateo, California 94402 Attention: James G. Shennan, Jr. Telephone: 415-358-9700 Telecopy: 415-358-9785

TRINITY VENTURES V SIDE-BY-SIDE FUND, L.P.
By:________________________________________ James G. Shennan, Jr. General Partner Trinity Ventures 155 Bovet Road, Suite 660 San Mateo, California 94402 Attention: James G. Shennan, Jr. Telephone: 415-358-9700 Telecopy: 415-358-9785

28

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. ARABELLA S.A.
By:________________________________________ Name: Title: c/o Scorpion Holdings 599 Lexington Avenue, Suite 2700 New York, New York 10022 Attention: Kevin McCarthy Telephone: (212) 207-9020 Telecopy: (212) 207-9050

ALBA, LTD.
By:________________________________________ Name: Title: c/o Scorpion Holdings 599 Lexington Avenue, Suite 2700 New York, New York 10022 Attention: Kevin McCarthy Telephone: (212) 207-9020 Telecopy: (212) 207-9050

29

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. YVES SISTERON

602 North Crescent Avenue Beverly Hills, California 90210 Telephone: 310-858-8042 Telecopy: 310-550-1876 STEVEN LEBOW

150 North Cliffwood Los Angeles, California 90049 Telephone: 310-282-6165 Telecopy: 310-282-6178 30

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. SUSAN C. SCHNABEL AND EDWARD L. PLUMMER, JOINTLY

Susan C. Schnabel

Edward L. Plummer 40858 N. 109th Place Scottsdale, Arizona 85262 Telephone: (602) 595-1366 Telecopy: (602) 595-1041 31

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. JOSEPH SCHELL
___________________________________________ 3983 Happy Valley Road Lafayette, California 94549 Telephone: 415-627-2000 Telecopy: 415-249-5513 KARL MATTHIES

___________________________________________ 7 Bellagio Road P. O. Box 1322 Ross, California 94957 Telephone: 415-627-2250 Telecopy: 415-249-5513 MURRAY HUNEKE

___________________________________________ 315 Ambar Way Menlo Park, California 94025 Telephone: 415-627-2873 Telecopy: 415-249-5512

32

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. DAVID JACQUIN

c/o Montgomery Securities 600 Montgomery Street San Francisco, California 94111 Telephone: (415) 627-2000 Telecopy: (415) 249-5513 PAUL S. MADERA AND JOAN K. MADERA, JTWROS
___________________________________________ Paul S. Madera ___________________________________________ Joan K. Madera 1205 Vancouver Avenue Burlingame, California 94010 Telephone: 415-627-3174 Telecopy: 413-249-5704

KENNETH LANG

c/o Putnam Investments One Post Office Square 33

Boston, Massachusetts 02109 Telephone: (617) 760-7443 Telecopy: (617) 292-1784 34

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. RICHARD FEDERICO
___________________________________________ c/o P.F. Chang's China Bistro, Inc. 5090 North 40th Street Suite 160 Phoenix, Arizona 85018 Telephone: 602-957-8986 Telecopy: 602-957-8998 EDWARD J. MATHIAS

___________________________________________ 5120 Cammack Drive Bethesda, Maryland 20816 Telephone: 202-626-1228 Telecopy: 202-347-1818 A. WILLIAM ALLEN

7710 Sweetgum Avenue Los Colinas, Texas 75063 Telephone: (972) 401-0668 Telecopy: (972) 444-8375 35

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. J. RICHARD FREDERICKS
___________________________________________ 2395 Vallejo Street San Francisco, California 94010 Telephone: 415-627-2000 Telecopy: 413-249-5513 C. DONALD DORSEY

1225 E. Warner Road, Lot 18 Tempe, Arizona 85284-3245 Telephone: 602-491-3109 Telecopy: 602-491-1505 36

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. MICHAEL G. MUELLER AND CHRISTINE ELLEN CULLENS, TRUSTEES OF THE MUELLER-CULLENS FAMILY TRUST U/D/T/ DATED JULY 9, 1996

Michael G. Mueller, Trustee

Christine Ellen Cullens, Trustee 2710 Filbert Street San Francisco, California 94112 Telephone: 415-775-4528 37

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. MICHAEL WELBORN
___________________________________________ c/o Bank One, Arizona 201 North Central Avenue 35th Floor Phoenix, Arizona 85004 Telephone: (602) 221-1674 Telecopy: (602) 221-2684

38

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. GLOBAL RETAIL PARTNERS, L.P. By: GLOBAL RETAIL PARTNERS, INC., its General Partner
By:________________________________________ Name: Title: Global Retail Partners, L.P. 277 Park Avenue, 19th Floor New York, New York 10172 Attention: Nicole Arnaboldi/Theo Rand Telephone: (212) 892-3000 Telecopy: (212) 892-7552 Global Retail Partners, L.P. 2121 Avenue of the Stars, 30th Floor Los Angeles, California 90067 Attention: Osamu Watanabe Telephone: (310) 282-6100 Telecopy: (310) 282-6178

39

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. DLJ DIVERSIFIED PARTNERS, L.P. By: DLJ DIVERSIFIED PARTNERS, INC., its General Partner
By:________________________________________ Name: Title: DLJ Diversified Partners, L.P. 277 Park Avenue, 19th Floor New York, New York 10172 Attention: Nicole Arnaboldi/Theo Rand Telephone: (212) 892-3000 Telecopy: (212) 892-7552 with copy to: DLJ Diversified Partners, L.P. 277 Park Avenue, 23rd Floor New York, New York 10172 Attention: Ivy Dodes Telephone: (212) 892-3000 Telecopy: (212) 892-2689

40

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. GRP PARTNERS, L.P. By: GLOBAL RETAIL PARTNERS, INC., its General Partner
By:________________________________________ Name: Title: GRP Partners, L.P. 277 Park Avenue, 19th Floor New York, New York 10172 Attention: Nicole Arnaboldi/Theo Rand Telephone: (212) 892-3000 Telecopy: (212) 892-7552 with copy to: GRP Partners, L.P. 2121 Avenue of the Stars, 30th Floor Los Angeles, California 90067 Attention: Osamu Watanabe Telephone: (310) 282-6100 Telecopy: (310) 282-6178

41

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. GLOBAL RETAIL PARTNERS FUNDING, INC.
By:________________________________________ Name: Title: Global Retail Partners Funding, Inc. 277 Park Avenue, 19th Floor New York, New York 10172 Attention: Nicole Arnaboldi/Theo Rand Telephone: (212) 892-3000 Telecopy: (212) 892-7552 with copy to: Global Retail Partners Funding, Inc. 2121 Avenue of the Stars Los Angeles, California 90067 Attention: Osamu Watanabe Telephone: (310) 282-6100 Telecopy: (310) 282-6178

42

P.F. CHANG'S CHINA BISTRO, INC. REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement or caused this Agreement to be executed and delivered by their authorized representatives as of the date first above written. DLJ FIRST ESC L.L.C. By: DLJ LBO PLANS MANAGEMENT CORPORATION, its Manager
By:________________________________________ Name: Title: DLJ First ESC L.L.C. 277 Park Avenue, 19th Floor New York, New York 10172 Attention: Ed Poletti Telephone: (212) 892-3005 Telecopy: (212) 892-7272 with copy to: DLJ First ESC L.L.C. 277 Park Avenue, 23rd Floor New York, New York 10172 Attention: Ivy Dodes Telephone: (212) 892-3000 Telecopy: (212) 892-2689

43

P.F. CHANG'S CHINA BISTRO, INC. AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT Dated as of May 1, 1997 TABLE OF CONTENTS
1. 2. (a) (b) Definitions........................................................................ Knowledge Standard................................................................. 1 3 4 4 4 4 4 5 5 6 6 7 7 7 8 8

Securities Subject to this Agreement........................................................ (a) Registrable Securities............................................................. (b) Holders of Registrable Securities.................................................. Demand Registration and Piggy-Back Registration............................................. (a) Request for Registration by Holders of Registrable Securities...................... (b) Effective Registration............................................................. (c) Priority on Demand Registrations................................................... (d) Selection of Underwriters. ........................................................ (e) Piggy-Back Registration............................................................ (f) Priority on All Registrations...................................................... Hold-Back Agreements........................................................................ (a) Restrictions on Public Sale by the Company of Registrable Securities............... (b) Restrictions on Public Sale by the Company and Others.............................. Registration Procedures.....................................................................

3.

4.

5.

44

6. 7.

Registration Expenses....................................................................... Indemnification............................................................................. (a) Indemnification by the Company..................................................... (b) Indemnification by Holder of Registrable Securities................................ (c) Contribution....................................................................... Rule 144.................................................................................... Participation in Underwritten Registrations.................................................

14 15 15 17 17 18 18 19 19 19 19 19 20 20 20 20 20 20

8. 9.

10. Miscellaneous................................................................................ (a) Remedies........................................................................... (b) No Inconsistent Agreements......................................................... (c) Amendments and Waivers............................................................. (d) Notices............................................................................ (e) Successors and Assigns............................................................. (f) Counterparts....................................................................... (g) Headings........................................................................... (h) Governing Law...................................................................... (i) Severability....................................................................... (j) Entire Agreement...................................................................

45

EXHIBIT 10.1 FORM OF INDEMNITY AGREEMENT This Indemnity Agreement, dated as of ____________, 19__, is made by and between P.F. Chang's China Bistro, Inc., a Delaware corporation (the "Company"), and ______________ (the "Indemnitee"). RECITALS A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors, officers or agents of corporations unless they are protected by comprehensive liability insurance or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors, officers and other agents. B. The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors, officers and agents with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action to take. C. Plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors, officers and other agents. D. The Company believes that it is unfair for its directors, officers and agents and the directors, officers and agents of its subsidiaries to assume the risk of huge judgments and other expenses which may occur in cases in which the director, officer or agent received no personal profit and in cases where the director, officer or agent was not culpable. E. The Company recognizes that the issues in controversy in litigation against a director, officer or agent of a corporation such as the Company or its subsidiaries are often related to the knowledge, motives and intent of such director, officer or agent, that he is usually the only witness with knowledge of the essential facts and exculpating circumstances regarding such matters, and that the long period of time which usually elapses before the trial or other disposition of such litigation often extends beyond the time that the director, officer or agent can reasonably recall such matters; and may extend beyond the normal time for retirement for such director, officer or agent with the result that he, after retirement or in the event of his death, his spouse, heirs, executors or administrators, may be faced with limited ability and undue hardship in maintaining an adequate defense, which may discourage such a director, officer or agent from serving in that position. 1

F. Based upon their experience as business managers, the Board of Directors of the Company (the "Board") has concluded that, to retain and attract talented and experienced individuals to serve as directors, officers and agents of the Company and its subsidiaries and to encourage such individuals to take the business risks necessary for the success of the Company and its subsidiaries, it is necessary for the Company to contractually indemnify its directors, officers and agents and the directors, officers and agents of its subsidiaries, and to assume for itself maximum liability for expenses and damages in connection with claims against such directors, officers and agents in connection with their service to the Company and its subsidiaries, and has further concluded that the failure to provide such contractual indemnification could result in great harm to the Company and its subsidiaries and the Company's stockholders. G. Section 145 of the General Corporation Law of Delaware, under which the Company is organized ("Section 145"), empowers the Company to indemnify its directors, officers, employees and agents by agreement and to indemnify persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive. H. The Company desires and has requested the Indemnitee to serve or continue to serve as a director, officer or agent of the Company and/or one or more subsidiaries of the Company free from undue concern for claims for damages arising out of or related to such services to the Company and/or one or more subsidiaries of the Company. I. Indemnitee is willing to serve, or to continue to serve, the Company and/or one or more subsidiaries of the Company, provided that he is furnished the indemnity provided for herein. AGREEMENT NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions. (a) Agent. For the purposes of this Agreement, "agent" of the Company means any person who is or was a director, officer, employee or other agent of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise; or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Company or a subsidiary of the Company, or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor corporation. 2

(b) Expenses. For purposes of this Agreement, "expenses" include all out-of-pocket costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements), actually and reasonably incurred by the Indemnitee in connection with either the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement or Section 145 or otherwise; provided, however, that "expenses" shall not include any judgments, fines, ERISA excise taxes or penalties, or amounts paid in settlement of a proceeding. (c) Proceeding. For the purposes of this Agreement, "proceeding" means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, or investigative. (d) Subsidiary. For purposes of this Agreement, "subsidiary" means any corporation of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more other subsidiaries, or by one or more other subsidiaries. 2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as agent of the Company, at its will (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves as an agent of the Company, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the By-laws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing; provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by Indemnitee. 3. Mandatory Indemnification. Subject to Section 8 below, the Company shall indemnify the Indemnitee as follows: (a) Successful Defense. To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding (including, without limitation, an action by or in the right of the Company) to which the Indemnitee was a party by reason of the fact that he is or was an agent of the Company at any time, against all expenses of any type whatsoever actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding. (b) Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify the Indemnitee against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding, provided the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. 3

(c) Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify the Indemnitee against all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement, or appeal of such proceeding, provided the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and its stockholders; except that no indemnification under this subsection 3(c) shall be made in respect to any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction unless and only to the extent that the court in which such proceeding 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 amounts which the court shall deem proper. (d) Actions where Indemnitee is Deceased. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, and if prior to, during the pendency of after completion of such proceeding Indemnitee becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors and administrators against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred to the extent Indemnitee would have been entitled to indemnification pursuant to Sections 3(a), 3(b), or 3(c) above were Indemnitee still alive. (e) Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) for which payment is actually made to or on behalf of Indemnitee under a valid and collectible insurance policy of D&O Insurance, or under a valid and enforceable indemnity clause, by-law or agreement. 4. Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a proceeding, but not entitled, however, to indemnification for all of the total amount hereof, the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion hereof to which the Indemnitee is not entitled. 5. Mandatory Advancement of Expenses. Subject to Section 7(a) below, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall be determined ultimately that the Indemnitee is not entitled to be indemnified 4

by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to the Indemnitee within twenty (20) days following delivery of a written request therefor by the Indemnitee to the Company. 6. Notice and Other Indemnification Procedures. (a) Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. (b) If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 6(a) hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement 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 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (c) In the event the Company shall be obligated to pay the expenses of any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee, upon the delivery to the Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that (i) the Indemnitee shall have the right to employ his counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 7. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the General Corporation Law of Delaware or (iv) the proceeding is brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145. (b) Lack of Good Faith. To indemnify the Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by the Indemnitee to enforce 5

or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or (c) Unauthorized Settlements. To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of a proceeding unless the Company consents to such settlement, which consent shall not be unreasonably withheld. 8. Non-exclusivity. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or By-laws, the vote of the Company's stockholders or disinterested directors, other agreements, or otherwise, both as to action in his official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 9. Enforcement. Any right to indemnification or advances granted by this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Indemnitee, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under this Agreement (other than an action brought to enforce a claim for expenses pursuant to Section 5 hereof, provided that the required undertaking has been tendered to the Company) that Indemnitee is not entitled to indemnification because of the limitations set forth in Sections 3 and 7 hereof. Neither the failure of the Company (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors or its stockholders) that such indemnification is improper, shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise. 10. Subrogation. In the event of 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 documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 11. Survival of Rights. (a) All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an agent of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Indemnitee was serving in the capacity referred to herein. 6

(b) The Company shall require any successor to the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 12. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to the Indemnitee to the fullest extent permitted by law including those circumstances in which indemnification would otherwise be discretionary. 13. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 12 hereof. 14. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of 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 hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 7

The parties hereto have entered into this Indemnity Agreement effective as of the date first above written. THE COMPANY: P.F. CHANG'S CHINA BISTRO, INC. By: _______________________________

(Printed Name) Title _______________________________ Address: ____________________________

INDEMNITEE: By: _______________________________

(Indemnitee's Printed Name) Address: ____________________________

8

EXHIBIT 10.2 P.F. CHANG'S CHINA BISTRO, INC. 1998 STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. The P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") is hereby established effective as of the effective date of the initial registration by the Company of its Stock under Section 12 of the Exchange Act (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Incentive Stock Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "BOARD" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. 1

(d) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (f) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (g) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (h) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (j) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. 2

(ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (k) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (l) "INSIDER" means an officer or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act. (m) "NONEMPLOYEE DIRECTOR" means a Director of the Company who is not an Employee. (n) "NONEMPLOYEE DIRECTOR OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) granted to a Nonemployee Director pursuant to the terms and conditions of the Plan. Nonemployee Director Options shall be Nonstatutory Stock Options. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option. (p) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan, including a Nonemployee Director Option. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. (q) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. (r) "OPTIONEE" means a person who has been granted one or more Options. (s) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (t) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (u) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (v) "PRIOR PLANS" means the Company's 1996 Stock Option Plan and 1997 Restaurant Management Stock Option Plan. 3

(w) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation. (x) "SECTION 162(m)" means Section 162(m) of the Code. (y) "SECURITIES ACT" means the Securities Act of 1933, as amended. (z) "SERVICE" means an Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. An Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, an Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Optionee's Option Agreement. An Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether an Optionee's Service has terminated and the effective date of such termination. (aa) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (bb) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. (cc) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall 4

include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3. 3.3 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating Company is a "publicly held corporation" within the meaning of Section 162(m), the Board may establish a Committee of "outside directors" within the meaning of Section 162(m) to approve the grant of any Option which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m). 3.4 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to designate Options as Incentive Stock Options or Nonstatutory Stock Options; (c) to determine the Fair Market Value of shares of Stock or other property; (d) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the 5

withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of Service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; (e) to approve one or more forms of Option Agreement; (f) to amend, modify, extend, cancel, renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof; (g) to accelerate, continue, extend or defer the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of Service with the Participating Company Group; (h) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and (i) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be the sum of (a)____________________________ (__________) shares, (b) the number of shares of Stock, as of the date on which the Board adopted the Plan (the "ADOPTION DATE"), subject to outstanding options granted pursuant to the Prior Plans (the "PRIOR PLAN OPTIONS"), and (c) the number of shares of Stock available for future grant under the Prior Plans as of the Adoption Date (the "PRIOR PLAN AVAILABLE SHARES"), resulting in an aggregate total of five hundred sixty thousand (560,000) shares (the "SHARE RESERVE") and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. Notwithstanding the foregoing, the Share Reserve, determined at any time, shall be reduced by (a) the number of shares remaining subject to outstanding Prior Plan Options, (b) the number of shares issued upon the exercise of Prior Plan Options, and (c) the number of shares, if any, of the Prior Plan Available Shares which are issued upon the exercise of options granted under the Prior 6

Plans subsequent to the Effective Date. If an outstanding Option for any reason expires or is terminated or canceled, or if shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option or such repurchased shares of Stock shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options, in the share limit set forth in Section 3.4(h), in the Section 162(m) Grant Limit set forth in Section 5.4, to the automatic Nonemployee Director Option grant provisions set forth in Section 7.1 and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 9.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees, Consultants and Directors. For purposes of the foregoing sentence, "Employees", "Consultants" and "Directors" shall include prospective Employees, prospective Consultants and prospective Directors to whom Options are granted in connection with written offers of employment or other service relationship with the Participating Company Group. Eligible persons may be granted more than one (1) Option. 5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences Service as an Employee with a Participating Company, with an exercise price determined as of such date in accordance with Section 6.1. A Nonemployee Director Option may be granted only to a person who at the time of grant is a Nonemployee Director. 7

5.3 FAIR MARKET VALUE LIMITATION. To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by an Optionee for the first time during any calendar year for stock having an aggregate Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 5.3, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 5.3, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. 5.4 SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in Section 4.2, at any such time as a Participating Company is a "publicly held corporation" within the meaning of Section 162(m), no Employee shall be granted one or more Options within any fiscal year of the Company which in the aggregate are for the purchase of more than ___________________________ (_____________) shares of Stock (the "SECTION 162(m) GRANT LIMIT"). An Option which is canceled in the same fiscal year of the Company in which it was granted shall continue to be counted against the Section 162(m) Grant Limit for such period. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement. Option Agreements may incorporate all or any of the terms of the Plan by reference and, except as otherwise set forth in Section 7 with respect to Nonemployee Director Options, shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that (a) the exercise price per share for an Incentive Stock Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option, (b) the exercise price per share for a Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option, and (c) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the 8

Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. 6.2 EXERCISE PERIOD. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Incentive Stock Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to the date on which such person commences Service with a Participating Company. Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of the grant of the Option. 6.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) provided that the Optionee is an Employee, by cash for a portion of the aggregate exercise price not less than the par value of the shares being acquired and the Optionee's promissory note in a form approved by the Company for the balance of the aggregate exercise price, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 8, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may 9

not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine at the time the Option is granted. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 6.4 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Company shall have no obligation to deliver shares of Stock until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 6.5 EFFECT OF TERMINATION OF SERVICE. (a) OPTION EXERCISABILITY. Subject to earlier termination of the Option as otherwise provided herein, an Option shall be exercisable after an Optionee's termination of Service as follows: (i) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be 10

exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months (or such longer or shorter period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option's term as set forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE"). (ii) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months (or such longer or shorter period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (iii) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability, death or Cause, as provided in Section 6.5(d) below, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such longer or shorter period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 6.5(a) is prevented by the provisions of Section 12 below, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 6.5(a) of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. (d) TERMINATION FOR CAUSE. Except as otherwise provided in a contract of employment or service between a Participating Company and an Optionee, and notwithstanding any other provision of the Plan to the contrary, if the Optionee's Service with the Participating Company Group is terminated for Cause as defined below, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. For purposes of this Section 6.5(d), "CAUSE" shall mean any of the following: (1) the Optionee's 11

theft, dishonesty, or falsification of any Participating Company documents or records; (2) the Optionee's improper use or disclosure of a Participating Company's confidential or proprietary information; (3) any action by the Optionee which has a detrimental effect on a Participating Company's reputation or business; (4) the Optionee's failure or inability to perform any reasonable assigned duties after written notice from the Participating Company Group of, and a reasonable opportunity to cure, such failure or inability; (5) any material breach by the Optionee of any agreement of employment or service between the Optionee and the Participating Company Group, which breach is not cured pursuant to the terms of such agreement; or (6) the Optionee's conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Optionee's ability to perform his or her duties with the Participating Company Group. A determination by the Board that the Optionee was terminated for Cause shall be final and binding upon the Optionee for all purposes and shall not be subject to review by any governmental agency or court of law. 7. TERMS AND CONDITIONS OF NONEMPLOYEE DIRECTOR OPTIONS. Nonemployee Director Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Such Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 7.1 AUTOMATIC GRANT. Subject to the execution by a Nonemployee Director of an appropriate Option Agreement, Nonemployee Director Options shall be granted automatically and without further action of the Board, as follows: (a) INITIAL OPTION. Each person who first becomes a Nonemployee Director on or after the Effective Date shall be granted on the date such person first becomes a Nonemployee Director a Nonemployee Director Option to purchase twenty thousand (20,000) shares of Stock (an "INITIAL OPTION"); provided, however, that an Initial Option shall not be granted to a Director who previously did not qualify as a Nonemployee Director but subsequently becomes a Nonemployee Director as a result of the termination of his or her status as an Employee. (b) ANNUAL OPTION. Each Nonemployee Director (including any Director who previously did not qualify as a Nonemployee Director but who subsequently becomes a Nonemployee Director) shall be granted on the date immediately following each annual meeting of the stockholders of the Company which occurs on or after the Effective Date (an "ANNUAL MEETING") a Nonemployee Director Option to purchase five thousand (5,000) shares of Stock (an "ANNUAL OPTION"); provided, however, that a Nonemployee Director granted an Initial Option on the date of an Annual Meeting shall not be granted an Annual Option pursuant to this Section on the date immediately following the same Annual Meeting. (c) RIGHT TO DECLINE NONEMPLOYEE DIRECTOR OPTION. Notwithstanding the foregoing, any person may elect not to receive a Nonemployee Director Option by delivering 12

written notice of such election to the Board no later than the day prior to the date such Nonemployee Director Option would otherwise be granted. A person so declining a Nonemployee Director Option shall receive no payment or other consideration in lieu of such declined Nonemployee Director Option. A person who has declined a Nonemployee Director Option may revoke such election by delivering written notice of such revocation to the Board no later than the day prior to the date such Nonemployee Director Option would be granted pursuant to Section 7.1(a) or (b), as the case may be. 7.2 EXERCISE PRICE. The exercise price per share of Stock subject to a Nonemployee Director Option shall be the Fair Market Value of a share of Stock on the date the Nonemployee Director Option is granted. 7.3 EXERCISE PERIOD. Each Nonemployee Director Option shall terminate and cease to be exercisable on the date ten (10) years after the date of grant of the Nonemployee Director Option unless earlier terminated pursuant to the terms of the Plan or the Option Agreement. 7.4 RIGHT TO EXERCISE NONEMPLOYEE DIRECTOR OPTIONS. Except as otherwise provided in the Option Agreement, 1/5 of the shares subject to a Nonemployee Director Option shall become vested and exercisable on the first anniversary of the date on which such Option was granted, and the remaining shares shall vest in equal monthly installments over the following 48 months, provided that the Optionee's Service has not terminated prior to the relevant date. 7.5 EFFECT OF TERMINATION OF SERVICE ON NONEMPLOYEE DIRECTOR OPTIONS. (a) OPTION EXERCISABILITY. Subject to earlier termination of the Nonemployee Director Option as otherwise provided herein, a Nonemployee Director Option shall be exercisable after an Optionee's termination of Service as follows: (i) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Nonemployee Director Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option Expiration Date. (ii) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Nonemployee Director Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Nonemployee Director Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The 13

Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within six (6) months after the Optionee's termination of Service. (iii) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability or death, the Nonemployee Director Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within six (6) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of a Nonemployee Director Option within the applicable time periods set forth in Section 7.5(a) is prevented by the provisions of Section 12 below, the Nonemployee Director Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Nonemployee Director Option is exercisable, but in any event no later than the Option Expiration Date. (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.5(a) of shares acquired upon the exercise of the Nonemployee Director Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Nonemployee Director Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 8. STANDARD FORMS OF OPTION AGREEMENT. 8.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as an "Incentive Stock Option" shall comply with and be subject to the terms and conditions set forth in the appropriate form of Incentive Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 8.2 NONSTATUTORY STOCK OPTIONS (OTHER THAN NONEMPLOYEE DIRECTOR OPTION). Unless otherwise provided by the Board at the time the Option is granted, an Option designated as a "Nonstatutory Stock Option" (other than a Nonemployee Director Option) shall comply with and be subject to the terms and conditions set forth in the appropriate form of Nonstatutory Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 8.3 NONEMPLOYEE DIRECTOR OPTION. Each Nonemployee Director Option shall comply with and be subject to the terms and conditions set forth in the appropriate form of 14

Nonstatutory Stock Option Agreement (Nonemployee Director Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 8.4 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 8 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. 9. CHANGE IN CONTROL. 9.1 DEFINITIONS. Except as otherwise determined by the Board and set forth in an Option Agreement, the following terms shall have their respective meanings set forth below: (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 15

9.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change in Control, each holder of an unexercisable or unvested outstanding Option shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for the purpose of determining the number of exercisable and vested shares of Stock subject to the Option. The exercise or vesting of any Option that was permissible solely by reason of this Section shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. For purposes of this Section 9.2, an Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 9.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its sole discretion. 9.3 NOTICE. The Company shall provide notice of a Change in Control to all holders of outstanding Options at least ten (10) days prior to the consummation of the Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the outstanding Options or substituting equivalent options therefor. 10. PROVISION OF INFORMATION. Each Optionee shall be given access to information concerning the Company equivalent to that information generally made available to the Company's common stockholders. 11. TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. 16

Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable or transferable to the extent permitted by the Board and set forth in the Option Agreement evidencing such Option. 12. COMPLIANCE WITH SECURITIES LAW. The grant of Options and the issuance of shares of Stock upon exercise of Options shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. Options may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Option may be exercised unless (a) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of any Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 13. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 17

14. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Company's stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company's stockholders under any applicable law, regulation or rule. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option or is necessary to comply with any applicable law, regulation or rule. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan was duly adopted by the Board on _________________, 1998.

18

P.F. CHANG'S CHINA BISTRO, INC. NONSTATUTORY STOCK OPTION AGREEMENT (NONEMPLOYEE DIRECTOR) THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of the Date of Option Grant by and between P.F. Chang's China Bistro, Inc. and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase certain shares of Stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). 1. DEFINITIONS AND CONSTRUCTION. 1.1. DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means ___________________ , 199 __ . (b) "NUMBER OF OPTION SHARES" means __________________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ ______________ per share of Stock, as adjusted from time to time pursuant to Section 9. (d) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (e) "VESTED RATIO" means, on any relevant date, the ratio determined as follows:
Vested Ratio -----------Prior to Initial Vesting Date On Initial Vesting Date, provided the Optionee's Service has not terminated prior to such date Plus: For each full month of the Optionee's continuous Service from the Initial Vesting Date until the Vested Ratio equals 1/1, an additional 0

1/5

1/60

1

(f) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (g) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (h) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (i) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (j) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (k) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (l) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (m) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (o) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: 2

(i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "SECURITIES ACT" means the Securities Act of 1933, as amended. (t) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (u) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (v) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 3

1.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX STATUS OF OPTION. This Option is intended to be a nonstatutory stock option and shall not be treated as an incentive stock option within the meaning of Section 422(b) of the Code. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Date of Option Grant and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares multiplied by the Vested Ratio less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and the tax withholding obligations, if any, as provided in Section 4.4. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and tax withholding obligations, if any. 4.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to 4

such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve or terminate any such program or procedure. 4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares. 4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock 5

may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 6

7. EFFECT OF TERMINATION OF SERVICE. 7.1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within six (6) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within six (6) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 8. CHANGE IN CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: 7

(i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the Optionee shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for purposes of determining the Vested Ratio. Any exercise or vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and 8

immediately after any such event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 8.3. NOTICE. The Company shall provide notice of a Change in Control to the Optionee at least ten (10) days prior to the consummation of a Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the Option or substituting an equivalent option therefor. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. 9

11. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. 12. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation. No amendment or addition to this Option Agreement shall be effective unless in writing. 14. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address of such party as set forth below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 10

15. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 16. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. P.F. CHANG'S CHINA BISTRO, INC. By: ________________________________ Title: _____________________________ Address: ___________________________ The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. OPTIONEE
Date:_____________________________ ____________________________________ Optionee Address: ____________________________________ ____________________________________

11

P.F. CHANG'S CHINA BISTRO, INC. NONSTATUTORY STOCK OPTION AGREEMENT THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of the Date of Option Grant by and between P.F. Chang's China Bistro, Inc. and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase certain shares of Stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). 1. DEFINITIONS AND CONSTRUCTION. 1.1. DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means ___________________ , 199 __ . (b) "NUMBER OF OPTION SHARES" means __________________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ ______________ per share of Stock, as adjusted from time to time pursuant to Section 9. (d) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (e) "VESTED RATIO" means, on any relevant date, the ratio determined as follows:
Vested Ratio -----------Prior to Initial Vesting Date On Initial Vesting Date, provided the Optionee's Service has not terminated prior to such date Plus: For each full month of the Optionee's continuous Service from the Initial Vesting Date until the Vested Ratio equals 1/1, an additional 0

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(f) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (g) "CAUSE" means any of the following: (i) the Optionee's theft, dishonesty, or falsification of any Participating Company documents or records; (ii) the Optionee's improper use or disclosure of a Participating Company's confidential or proprietary information; (iii) any action by the Optionee which has a detrimental effect on a Participating Company's reputation or business; (iv) the Optionee's failure or inability to perform any reasonable assigned duties after written notice from the Participating Company Group of, and a reasonable opportunity to cure, such failure or inability; (v) any material breach by the Optionee of any agreement of employment or service between the Optionee and the Participating Company Group, which breach is not cured pursuant to the terms of such agreement; or (vi) the Optionee's conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Optionee's ability to perform his or her duties with the Participating Company Group. A determination by the Board that the Optionee was terminated for Cause shall be final and binding upon the Optionee for all purposes and shall not be subject to review by any governmental agency or court of law. (h) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (i) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (j) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (k) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (l) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (m) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (n) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the 2

effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (p) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (q) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (r) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (s) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (t) "SECURITIES ACT" means the Securities Act of 1933, as amended. (u) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of 3

absence shall not be treated as Service for purposes of determining the Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (v) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 1.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX STATUS OF OPTION. This Option is intended to be a nonstatutory stock option and shall not be treated as an incentive stock option within the meaning of Section 422(b) of the Code. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Date of Option Grant and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares multiplied by the Vested Ratio less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered to the Chief Financial Officer of the Company, or other authorized 4

representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and the tax withholding obligations, if any, as provided in Section 4.4. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and tax withholding obligations, if any. 4.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve or terminate any such program or procedure. 4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the 5

Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares. 4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. 6

The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 7.1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability, death, or Cause, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 7

7.4. TERMINATION FOR CAUSE. Except as otherwise provided in a contract of employment or service between a Participating Company and the Optionee, and notwithstanding any other provision of this Option Agreement to the contrary, if the Optionee's Service with the Participating Company Group is terminated for Cause, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. 8. CHANGE IN CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the Optionee shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for purposes of determining the Vested Ratio. Any exercise or vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and 8

obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after any such event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 8.3. NOTICE. The Company shall provide notice of a Change in Control to the Optionee at least ten (10) days prior to the consummation of a Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the Option or substituting an equivalent option therefor. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly 9

authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. 12. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation. No amendment or addition to this Option Agreement shall be effective unless in writing. 14. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address of such party as set forth below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 15. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained 10

herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 16. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. P.F. CHANG'S CHINA BISTRO, INC. By: ________________________________ Title: _____________________________ Address: ___________________________ The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. OPTIONEE
Date:_____________________________ ____________________________________ Optionee Address: ____________________________________ ____________________________________

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P.F. CHANG'S CHINA BISTRO, INC. INCENTIVE STOCK OPTION AGREEMENT THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of the Date of Option Grant by and between P.F. Chang's China Bistro, Inc. and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase certain shares of Stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). 1. DEFINITIONS AND CONSTRUCTION. 1.1. DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means ___________________ , 199 __ . (b) "NUMBER OF OPTION SHARES" means __________________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ ______________ per share of Stock, as adjusted from time to time pursuant to Section 9. (d) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (e) "VESTED RATIO" means, on any relevant date, the ratio determined as follows:
Vested Ratio -----------Prior to Initial Vesting Date On Initial Vesting Date, provided the Optionee's Service has not terminated prior to such date Plus: For each full month of the Optionee's continuous Service from the Initial Vesting Date until the Vested Ratio equals 1/1, an additional 0

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(f) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (g) "CAUSE" means any of the following: (i) the Optionee's theft, dishonesty, or falsification of any Participating Company documents or records; (ii) the Optionee's improper use or disclosure of a Participating Company's confidential or proprietary information; (iii) any action by the Optionee which has a detrimental effect on a Participating Company's reputation or business; (iv) the Optionee's failure or inability to perform any reasonable assigned duties after written notice from the Participating Company Group of, and a reasonable opportunity to cure, such failure or inability; (v) any material breach by the Optionee of any agreement of employment or service between the Optionee and the Participating Company Group, which breach is not cured pursuant to the terms of such agreement; or (vi) the Optionee's conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the Optionee's ability to perform his or her duties with the Participating Company Group. A determination by the Board that the Optionee was terminated for Cause shall be final and binding upon the Optionee for all purposes and shall not be subject to review by any governmental agency or court of law. (h) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (i) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (j) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (k) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (l) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (m) "DISABILITY" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code. (n) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the 2

effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (p) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (q) "INCENTIVE STOCK OPTION" means an Option intended to be (to the extent set forth in this Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (r) "NONSTATUTORY STOCK OPTION" means an Option which does not qualify as an Incentive Stock Option. (s) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (t) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (u) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (v) "SECURITIES ACT" means the Securities Act of 1933, as amended. 3

(w) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, the Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonstatutory Stock Option unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (NOTE: If the Option is exercised more than three (3) months after the date on which the Optionee ceased to be an Employee (other than by reason of death or Disability), the Option will be treated as a Nonstatutory Stock Option and not as an incentive stock option to the extent required by Section 422 of the Code.) (x) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (y) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 1.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX STATUS OF OPTION. This Option is intended to be an Incentive Stock Option, but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee's own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options held by the Optionee (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is 4

greater than One Hundred Thousand Dollars ($100,000), the Optionee should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.) 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Date of Option Grant and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares multiplied by the Vested Ratio less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and the tax withholding obligations, if any, as provided in Section 4.4. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and tax withholding obligations, if any. 4.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the 5

redemption of the Company's stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve or terminate any such program or procedure. 4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares. 4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE 6

OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 7.1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service with the Participating Company Group is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option 7

Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability, death, or Cause, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor as to the tax consequences to the Optionee of any such delayed exercise. 7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisors as to the tax consequences to the Optionee of any such delayed exercise. 7.4. TERMINATION FOR CAUSE. Except as otherwise provided in a contract of employment or service between a Participating Company and the Optionee, and notwithstanding any other provision of this Option Agreement to the contrary, if the Optionee's Service with the Participating Company Group is terminated for Cause, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. 8. CHANGE IN CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; 8

(ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the Optionee shall be credited with an additional two (2) years of Service as of the date ten (10) days prior to the date of the Change in Control, solely for purposes of determining the Vested Ratio. Any exercise or vesting of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after any such event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without 9

regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 8.3. NOTICE. The Company shall provide notice of a Change in Control to the Optionee at least ten (10) days prior to the consummation of a Change in Control. The Company's notice shall summarize the principal terms of the Change in Control, including, without limitation, whether the Acquiring Corporation is assuming the Option or substituting an equivalent option therefor. 8.4. FAIR MARKET VALUE LIMITATION. Should the exercisability of this Option be accelerated in connection with a Change in Control in accordance with Section 8.2, then to the extent that the aggregate Fair Market Value of the shares of Stock with respect to which the Optionee may exercise the Option for the first time during the calendar year of such acceleration, when added to the aggregate Fair Market Value of the shares subject to any other options designated as Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group prior to the Date of Option Grant with respect to which such options are exercisable for the first time during the same calendar year, exceeds One Hundred Thousand Dollars ($100,000) (or such other limit, if any, imposed by Section 422 of the Code), the portion of the Option which exceeds such amount shall be treated as a Nonstatutory Stock Option. For purposes of the preceding sentence, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of shares of stock shall be determined as of the time the option with respect to such shares is granted. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, 10

distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, the Optionee shall promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and shall provide the Company with a description of the terms and circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 12. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. 13. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 14. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such 11

termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing. 15. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address of such party as set forth below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 17. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. P.F. CHANG'S CHINA BISTRO, INC. By: ________________________________ Title: _____________________________ Address: ___________________________ 12

The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. OPTIONEE
Date:______________________________ ____________________________________ Optionee Address: ____________________________________ ____________________________________

13

Exhibit 10.3 P.F. CHANG'S CHINA BISTRO, INC. 1997 RESTAURANT MANAGEMENT STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1. ESTABLISHMENT. The P.F. CHANG'S CHINA BISTRO, INC.'s 1997 Restaurant Management Stock Option Plan (the "PLAN") is hereby established effective as of July 18, 1997 (the "EFFECTIVE DATE"). 1.2. PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 1.3. TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company. 2. DEFINITIONS AND CONSTRUCTION. 2.1. DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. 1

(f) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing sale price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (j) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (k) "INSIDER" means an officer or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act. (l) "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option. (m) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. 2

(n) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. (o) "OPTIONEE" means a person who has been granted one or more Options. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation. (t) "STOCK" means the common stock, $0.01 par value per share, of the Company, as adjusted from time to time in accordance with Section 4.2. (u) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. (v) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code. 2.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 3. ADMINISTRATION. 3.1. ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 3

3.2. ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3. 3.3. POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to designate Options as Incentive Stock Options or Nonstatutory Stock Options; (c) to determine the Fair Market Value of shares of Stock or other property; (d) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of employment or service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; (e) to approve one or more forms of Option Agreement; (f) to amend, modify, extend, or renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof; (g) to amend the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of employment or service with the Participating Company Group; (h) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and 4

(i) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 4. SHARES SUBJECT TO PLAN. 4.1. MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be one hundred twenty-five thousand (125,000) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled, or if shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option or such repurchased shares of Stock shall again be available for issuance under the Plan. Notwithstanding the foregoing, at any such time as the offer and sale of securities pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the California Code of Regulations ("SECTION 260.140.45"), the total number of shares of Stock issuable upon the exercise of all outstanding Options (together with options outstanding under any other stock option plan of the Company) and the total number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) (or such other higher percentage limitation as may be approved by the shareholders of the Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45. 4.2. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5

5.1. PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to key Employees of the Company who are actively engaged in the management and operation of the Company's restaurants. For Purposes of the foregoing sentence, "Employees" shall include prospective Employees to whom Options are granted in connection with written offers of employment or other service relationship with the Participating Company Group. Eligible persons may be granted more than one (1) Option. 5.2. OPTION GRANT RESTRICTIONS. Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences service with a Participating Company, with an exercise price determined as of such date in accordance with Section 6.1. 5.3. FAIR MARKET VALUE LIMITATION. To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by an Optionee for the first time during any calendar year for stock having an aggregate Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 5.3, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 5.3, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1. EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that (a) the exercise price per share for an Incentive Stock Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option, (b) the exercise price per share for a Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option, and (c) no Option granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) 6

of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. 6.2. EXERCISE PERIOD. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to the date on which such person commences service with a Participating Company, and (d) with the exception of an Option granted to an officer, Director or Consultant, no Option shall become exercisable at a rate less than twenty percent (20%) per year over a period of five (5) years from the effective date of grant of such Option, subject to the Optionee's continued Service. Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option. 6.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved by the Company, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the 7

redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine at the time the Option is granted. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 6.4. TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to the Option Agreement until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 6.5. REPURCHASE RIGHTS. Shares issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board, in its sole discretion, at the time the Option is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the 8

Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions. 7. STANDARD FORMS OF OPTION AGREEMENT. 7.1. INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as an "Incentive Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Immediately Exercisable Incentive Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.2. NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as a "Nonstatutory Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Immediately Exercisable Nonstatutory Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.3. STANDARD TERM OF OPTIONS. Except as otherwise provided in Section 6.2 or by the Board in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option. 7.4. AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. Such authority shall include, but not by way of limitation, the authority to grant Options which are not immediately exercisable. 8. TRANSFER OF CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. 9

(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be, provided, however, that neither an initial public offering by the Company, nor an equity or convertible securities financing by the Company shall be deemed an Ownership Change Event or Transfer of Control for the purpose of any accelerated vesting provision of this Option Agreement. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of an eligible Transfer of Control, each of the outstanding Options shall receive an additional two (2) years of accelerated vesting as of the date ten (10) days prior to the date of the Transfer of Control. The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall be deemed assumed if, following the Transfer of Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Transfer of Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Transfer of Control was entitled. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of 10

the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its sole discretion. 8.3. NOTICE. The Company shall send to all holders of outstanding Options at least ten (10) days' written notice prior to the consummation of a Transfer of Control. The Company's notice shall summarize the principal terms of the Transfer of Control including, without limitation, whether the Acquiring Corporation is assuming the outstanding Options or substituting equivalent options therefor. 9. PROVISION OF INFORMATION. At least annually, copies of the Company's balance sheet and income statement for the just completed fiscal year shall be made available to each Optionee and purchaser of shares of Stock upon the exercise of an Option. The Company shall not be required to provide such information to persons whose duties in connection with the Company assure them access to equivalent information. 10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. 11. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Company's stockholders there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company's stockholders under any applicable law, regulation or rule. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such 11

termination or amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option or is necessary to comply with any applicable law, regulation or rule. 13. STOCKHOLDER APPROVAL. The Plan or any increase in the maximum number of shares of Stock issuable thereunder as provided in Section 4.1 (the "MAXIMUM SHARES") shall be approved by the stockholders of the Company within twelve (12) months of the date of adoption thereof by the Board. Options granted prior to stockholder approval of the Plan or in excess of the Maximum Shares previously approved by the stockholders shall become exercisable no earlier than the date of stockholder approval of the Plan or such increase in the Maximum Shares, as the case may be. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing P.F. CHANG'S CHINA BISTRO, INC. 1997 Restaurant Management Stock Option Plan was duly adopted by the Board on July 18, 1997. By: _____________________________________ Title: __________________________________

Print Name and Title 12

PLAN HISTORY
July 18, 1997 ________, 1997 Board adopts the Plan, with an initial reserve of 125,000 shares. Stockholders approve the Plan, with an initial reserve of 125,000 shares.

13

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. P.F. CHANG'S CHINA BISTRO, INC. IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of ___________, 199_, by and between P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "COMPANY") and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1997 Restaurant Management Stock Option Plan (the "Plan") an option to purchase certain shares of stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). The Option shall in all respects be subject to the terms and conditions of the Plan, the provisions of which are incorporated herein by reference. 1. DEFINITIONS AND CONSTRUCTION. 1. DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Plan. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means , 199_. (b) "NUMBER OF OPTION SHARES" means ________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ _____ per share of Stock, as adjusted from time to time pursuant to Section 9.

(d) "INITIAL EXERCISE DATE" means the letter of the Date of Option Grant or the date the Optionee's Service commences.
year after (check one): _____ _____ (f) determined as follows: Ratio shall be 0. the Date of Option Grant _________________________, 199_, the date the Optionee's Service commenced. "VESTED RATIO" means, on any relevant date, the ratio (i) (ii) Prior to the Initial Vesting Date, the Vested On the Initial Vesting Date, provided that the (e) "INITIAL VESTING DATE" means the date occurring one (1)

Optionee's Service has been continuous from the Date of Option Grant until the Initial Vesting Date, the Vested Ratio shall be 1/5. (iii) For each full month of the Optionee's continuous service after the Initial Vesting Date, the Vested Ratio shall be increased by one-sixtieth (1/60). (iv) In no event shall the Vested Ratio exceed 1/1. (g) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (h) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (i) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (j) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (k) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (l) "DISABILITY" means the inability of the Optionee, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Optionee's position with the Participating Company Group because of the sickness or injury of the Optionee.

(m) "EMPLOYEE" means any person treated as an employee (including an officer or a director who is also treated as an employee) in the records of the Company; provided, however, that neither service as a director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (o) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "PLAN" means the P.F. Chang's China Bistro, Inc. 1997 Restaurant Management Stock Option Plan. (t) "SECURITIES ACT" means the Securities Act of 1933, as amended. (u) "SERVICE" means the Optionee's employment or service with the Participating Company Group in the capacity of an Employee. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, the Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Optionee's Service shall be deemed to have terminated unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (v) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code.

2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 2. TAX CONSEQUENCES. 1. TAX STATUS OF OPTION. This Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code. 2. ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee exercises this Option to purchase shares of Stock that are both nontransferable and subject to a substantial risk of forfeiture, the Optionee understands that the Optionee should consult with the Optionee's tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date on which the Optionee exercises the Option. Shares acquired upon exercise of the Option are nontransferable and subject to a substantial risk of forfeiture if, for example, (a) they are unvested and are subject to a right of the Company to repurchase such shares at the Optionee's original purchase price if the Optionee's Service terminates, (b) the Optionee is an Insider and exercises the Option within six (6) months of the Date of the Option Grant (if a class of equity security of the Company is registered under Section 12 of the Exchange Act), or (c) the Optionee is subject to a restriction on transfer to comply with "Pooling-of-Interests Accounting" rules. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Optionee. The Optionee acknowledges that the Optionee has been advised to consult with a tax advisor prior to the exercise of the Option regarding the tax consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board, including any duly appointed Committee of the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares less the number of shares of Stock previously acquired upon exercise of the Option subject to the Optionee's agreement that any shares purchased upon exercise are subject to the Company's repurchase rights set forth in Section 11 and to the Company's first refusal rights set forth in Section 12. In no event shall the Option be exercisable for more shares than the Number of Option Shares.

2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 6, accompanied by (i) full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and (ii) an executed copy, if required herein, of the then current forms of escrow and security agreement referenced below. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and, if required by the Company, such executed agreements. 3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3.(c), (iv) in the Company's sole discretion at the time the Option is exercised, by cash for a portion of the aggregate Exercise Price not less than the par value of the shares being acquired, and the Optionee's promissory note for the balance of the aggregate Exercise Price, or (v) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of shares of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's Stock. The Option may not be exercised by the tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, modify, decline to approve or terminate any such Cashless Exercise program or procedures. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if an exercise of the Option using a promissory note would be a violation of any law. The promissory note permitted in clause (iv) of Section 4.3.(a) shall be a full recourse note in a form satisfactory to the Company, with principal payable no more than four (4) years after the date the Option is exercised. Interest on the principal balance of the promissory note shall be payable in annual installments at the minimum interest rate necessary to avoid imputed interest pursuant to all applicable sections of the Code. Such recourse promissory note shall be secured by the shares of Stock acquired pursuant to the then

current form of security agreement as approved by the Company. At any time the Company is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. Except as the Company in its sole discretion shall determine, the Optionee shall pay the unpaid principal balance of the promissory note and any accrued interest thereon upon termination of the Optionee's Service with the Participating Company Group for any reason, with or without cause. 4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless such tax withholding obligations are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares or release such shares from any escrow provided for herein. 5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the shares of Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Transfer of Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 2. ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the provisions of Section 7.1, the Option may not be exercised after the Optionee's termination of Service to the extent that the shares to be acquired upon exercise of the Option would be subject to the Unvested Share Repurchase Option as provided in Section 11. Except as the Company and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1 following termination of the Optionee's Service may not be made by delivery of a promissory note as provided in Section 4.3.(a). 3. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the

provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified that the Option is exercisable, but in any event no later than the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor as to the tax consequences to the Optionee of any such delayed exercise. 4. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor(s) as to the tax consequences to the Optionee of any such delayed exercise. 5. LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's Service shall not be deemed to terminate if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave of absence in excess of ninety (90) days, the Optionee's Service shall be deemed to terminate on the ninety-first (91st) day of such leave unless the Optionee's right to return to Service remains guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company (or required by law), a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. 8. TRANSFER OF CONTROL. 1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE

CORPORATION(S)"), as the case may be; provided, however, that neither an initial public offering by the Company, nor an equity or convertible securities financing by the Company shall be deemed an Ownership Change Event or Transfer of Control for the purpose of any accelerated vesting provision of this Option Agreement.. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 2. EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of an eligible Transfer of Control, the Vested Ratio shall be increased by two-fifths (2/5) as of the date ten (10) days prior to the date of any such eligible Transfer of Control; provided, however, that in no event shall the Vested Ratio be increased pursuant to this Section 8.2 to a ratio in excess of one (1). The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Transfer of Control, the Option confers the right to purchase, for each share of Stock subject to the Option immediately prior to the Transfer of Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Transfer of Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Transfer of Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1.(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "New Shares"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to

the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. UNVESTED SHARE REPURCHASE OPTION. 1. GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the Optionee's Service is terminated for any reason or no reason, with or without cause, of if the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event) any shares acquired upon exercise of the Option which exceed the Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the Company shall have the right to repurchase the Unvested Shares under the terms and subject to the conditions set forth in this Section 11 (the "Unvested Share Repurchase Option"). 2. VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested Shares" shall mean, on any given date, a number of shares of Stock equal to the Number of Option Shares multiplied by the Vested Ratio determined as of such date and rounded down to the nearest whole share. On such given date, the "Unvested Shares" shall mean the number of shares of stock acquired upon exercise of the Option which exceed the Vested Shares determined as of such date. 3. EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may exercise the Unvested Share Repurchase Option by written notice to the Optionee within sixty (60) days after (a) termination of the Optionee's Service for exercise of the Option, if later) or (b) the Company has received notice of the attempted disposition of Unvested Shares. If the Company fails to give notice within such sixty (60) day period, the Unvested Share Repurchase Option shall terminate (unless the Company and the Optionee have extended the time for the exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at all, for all of the Unvested Shares, except as the Company and the Optionee otherwise agree. 4. PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The Purchase price per share being repurchased by the Company shall be an amount equal to the Optionee's original cost per share, as adjusted pursuant to Section 9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price to the Optionee in cash within thirty (30) days after the date of the written notice to the Optionee of the Company's exercise of the Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest.

The shares being repurchased shall be delivered to the Company by the Optionee at the same time as the delivery of the Repurchase Price to the Optionee. 5. ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company shall have the right to assign the Unvested Share Repurchase Option at any time, whether or not such option is then exercisable, to one or more persons as may be selected by the Company. 6. OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership Change Event, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of Unvested Shares shall be immediately subject to the Unvested Share Repurchase Option and included in the terms "Stock" and "Unvested Shares" for all purposes of the Unvested Share Repurchase Option with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event. While the aggregate Repurchase Price shall remain the same after such Ownership Change Event, the Repurchase Price per Unvested Share upon exercise of the Unvested Share Repurchase Option following such Ownership Change Event shall be adjusted as appropriate. For purposes of determining the Vested Ratio following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event. The foregoing notwithstanding, in the event of an Ownership Change Event that is also a Transfer of Control, the Unvested Share Repurchase Option will terminate if the surviving corporation does not assume, or substitute substantially equivalent options for, all outstanding Options under the Plan. 12. RIGHT OF FIRST REFUSAL. 1. GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section 12.7 below, in the event the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the "TRANSFER SHARES") to any person or entity, including, without limitation, any shareholder of the Participating Company Group, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 12 (the "RIGHT OF FIRST REFUSAL"). 2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER NOTICE") to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer price, and containing such information necessary to show the bona fide nature of the proposed transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the Fair Market Value of the Transfer Shares, as determined by the Board in good faith. If the Optionee proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Optionee shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer Notice shall be signed by both the Optionee and the Proposed Transferee and must constitute a binding commitment of the Optionee and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal. 3. BONA FIDE TRANSFER. If the Company determines that the information provided by the Optionee in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Optionee written notice of the Optionee's failure to comply with the procedure described in this Section 12, and the Optionee shall have no right to transfer

the Transfer Shares without first complying with the procedure described in this Section 12. The Optionee shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide. 4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Optionee otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Optionee of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company. The Company's exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the Company's right to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Optionee or issued by a person other than the Optionee with respect to a proposed transfer to the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the Optionee shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest canceled. 5. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Optionee otherwise agree) within the period specified in Section 12.4 above, the Optionee may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice. The Company shall have the right to demand further assurances from the Optionee and the Proposed Transferee (in a form satisfactory to the Company) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice. No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed transfer as bona fide. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance by the Optionee with the procedure described in this Section 12. 6. TRANSFEREES OF TRANSFER SHARES. All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of this Option Agreement, including this Section 12 providing for the Right of First Refusal with respect to any subsequent transfer. Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 12 are met. 7. TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event. If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration

shall remain subject to the Right of First Refusal unless the provisions of Section 12.9 below result in a termination of the Right of First Refusal. 8. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or more persons as may be selected by the Company. 9. EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Transfer of Control, unless the Acquiring Corporation assumes the Company's rights and obligations under the Option or substitutes a substantially equivalent option for the Acquiring Corporation's stock for the Option, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Exchange Act) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal. 13. ESCROW. 1. ESTABLISHMENT OF ESCROW. To ensure that shares of Stock obtained upon exercise of this Option which are subject to the Unvested Share Repurchase Option, the Right of First Refusal or securing any promissory note will be available for repurchase, the Company may require the Optionee to deposit the certificate evidencing the shares of Stock which the Optionee purchases upon exercise of the Option with an escrow agent designated by the Company under the terms and conditions of an escrow and security agreements approved by the Company. If the Company does not require such deposit as a condition of exercise of the Option, the Company reserves the right at any time to require the Optionee to so deposit the certificate in escrow. Upon the occurrence of an Ownership Change Event or a change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of shares of Stock acquired upon exercise of the Option that remain, following such Ownership Change Event or change described in Section 9, subject to the Unvested Share Repurchase Option Right of First Refusal or any security interest held by the Company shall be immediately subject to the escrow to the same extent as such shares of Stock immediately before such event. The Company shall bear the expenses of the escrow. 2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after the expiration of the Unvested Share Repurchase Option, the Right of First Refusal and after full repayment of any promissory note secured by the option shares of Stock or other property in escrow, but not more frequently than twice each calendar year, the escrow agent shall deliver to the Optionee the shares of Stock and any other property no longer subject to such restrictions and no longer securing any promissory note. 3. NOTICES AND PAYMENTS. In the event the shares of Stock and any other property held in escrow are subject to the Company's exercise of the Unvested Share Repurchase Option, the Right of First Refusal, or any security interest of the Company, the notices required to be given to the Optionee shall be given to the escrow agent, and any payment required to be given to the Optionee shall be given to the escrow agent. Within thirty (30) days after payment by the Company, the escrow agent shall deliver the shares of Stock and any other property which the Company has purchased to the Company and shall deliver the payment received from the Company to the Optionee.

14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Optionee is entitled by reason of the Optionee's ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Unvested Share Repurchase Option, Right of First Refusal and any security interest held by the Company and with the same force and effect as the shares subject to the Unvested Share Repurchase Option, Right of First Refusal and any such security interest immediately before such event. 15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, the Optionee shall promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and shall provide the Company with a description of the terms and circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 16. LEGENDS. The Company may at any time place legends referencing the Unvested Share Repurchase Option, the Right of First Refusal, any security interest and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following: 1. "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT." 2. Any legend required to be placed thereon by the Commissioner of Corporations of the State of California. 3. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS

ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 4. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 17. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering at its sole discretion. The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act. The Optionee shall be subject to this Section provided and only if the officers and directors of the Company are also subject to similar arrangements. 18. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Option Agreement and, except pursuant to an Ownership Change, until the date on which such shares become Vested Shares, any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred. 19. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 20. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Transfer of Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing. 21. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown below that party's signature or at such other address as such party may designate in writing from time to time to the other party.

22. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein or therein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 23. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. COMPANY: P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation By:_____________________________________ Title:__________________________________

Print Name and Title 5040 North 40th Street Phoenix, AZ 85018 The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, including the Unvested Share Repurchase Option set forth in Section 11, and the Right of First Refusal set forth in Section 12, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. The undersigned acknowledges receipt of a copy of the Plan. OPTIONEE:
Date:______________________________ ________________________________________ Signature ________________________________________ Print Name Optionee's Address: ________________________________________ ________________________________________ ________________________________________

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. P.F. CHANG'S CHINA BISTRO, INC. IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of ___________, 199_, by and between P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Company") and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1997 Restaurant Management Stock Option Plan (the "Plan") an option to purchase certain shares of stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). The Option shall in all respects be subject to the terms and conditions of the Plan, the provisions of which are incorporated herein by reference. 1. DEFINITIONS AND CONSTRUCTION. 1 DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Plan. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means , 199_. (b) "NUMBER OF OPTION SHARES" means shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $ per share of Stock, as adjusted from time to time pursuant to Section 9.

(d) "INITIAL EXERCISE DATE" means the Date of Option Grant. (e) "INITIAL VESTING DATE" means the date occurring one (1) year after (check one):
_____ _____ the Date of Option Grant. _______________, 199__, the date the Optionee's Service commenced.

(f) "VESTED RATIO" means, on any relevant date, the ratio determined as follows: (i) Prior to the Initial Vesting Date, the Vested Ratio shall be 0. (ii) On the Initial Vesting Date, provided that the Optionee's Service has been continuous from the Date of Option Grant until the Initial Vesting Date, the Vested Ratio shall be 1/5. (iii) For each full month of the Optionee's continuous service after the Initial Vesting Date, the Vested Ratio shall be increased by one-sixtieth (1/60). (iv) In no event shall the Vested Ratio exceed 1/1. (g) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (h) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (i) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (j) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (k) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (l) "DISABILITY" means the inability of the Optionee, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Optionee's position with the Participating Company Group because of the sickness or injury of the Optionee. (m) "EMPLOYEE" means any person treated as an employee (including an officer or a director who is also treated as an employee) in the records of the Company; provided,

however, that neither service as a director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (o) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "PLAN" means the P.F. Chang's China Bistro, Inc. 1997 Restaurant Management Stock Option Plan. (t) "SECURITIES ACT" means the Securities Act of 1933, as amended. (u) "SERVICE" means the Optionee's employment or service with the Participating Company Group in the capacity of an Employee. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, the Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Optionee's Service shall be deemed to have terminated unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (v) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when

otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 2. TAX CONSEQUENCES. 1 TAX STATUS OF OPTION. This Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code (an "INCENTIVE STOCK OPTION"), but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee's own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options held by the Optionee (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than One Hundred Thousand Dollars ($100,000), the Optionee should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.) 2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee exercises this Option to purchase shares of Stock that are both nontransferable and subject to a substantial risk of forfeiture, the Optionee understands that the Optionee should consult with the Optionee's tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date on which the Optionee exercises the Option. Shares acquired upon exercise of the Option are nontransferable and subject to a substantial risk of forfeiture if, for example, (a) they are unvested and are subject to a right of the Company to repurchase such shares at the Optionee's original purchase price if the Optionee's Service terminates, (b) the Optionee is an Insider and exercises the Option within six (6) months of the Date of Option Grant (if a class of equity security of the Company is registered under Section 12 of the Exchange Act), or (c) the Optionee is subject to a restriction on transfer to comply with "Pooling-of-Interests Accounting" rules. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Optionee. The Optionee acknowledges that the Optionee has been advised to consult with a tax advisor prior to the exercise of the Option regarding the tax consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board, including any duly appointed Committee of the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election.

4. EXERCISE OF THE OPTION. 1 RIGHT TO EXERCISE. (a) Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares less the number of shares of Stock previously acquired upon exercise of the Option, subject to the Optionee's agreement that any shares purchased upon exercise are subject to the Company's repurchase rights set forth in Section 11 and to the Company's first refusal rights set forth in Section 12. In no event shall the Option be exercisable for more shares than the Number of Option Shares. Notwithstanding the foregoing, except as provided in Section 4.1(b), the aggregate Fair Market Value of the shares of Stock with respect to which the Optionee may exercise the Option for the first time during any calendar year, when added to the aggregate Fair Market Value of the shares subject to any other options designated as Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group prior to the Date of Option Grant with respect to which such options are exercisable for the first time during the same calendar year, shall not exceed One Hundred Thousand Dollars ($100,000). For purposes of the preceding sentence, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of shares of stock shall be determined as of the time the option with respect to such shares is granted. Such limitation on exercise shall be referred to in this Option Agreement as the "ISO Exercise Limitation." If Section 422 of the Code is amended to provide for a different limitation from that set forth in this Section 4.1(a), the ISO Exercise Limitation shall be deemed amended effective as of the date required or permitted by such amendment to the Code. The ISO Exercise Limitation shall terminate upon the earlier of (i) the Optionee's termination of Service, (ii) the day immediately prior to the effective date of a Transfer of Control in which the Option is not assumed or substituted for by the Acquiring Corporation as provided in Section 8, or (iii) the day ten (10) days prior to the Option Expiration Date. Upon such termination of the ISO Exercise Limitation, the Option shall be deemed a Nonstatutory Stock Option to the extent of the number of shares subject to the Option which would otherwise exceed the ISO Exercise Limitation. (b) Notwithstanding any other provision of this Option Agreement, if compliance with the ISO Exercise Limitation as set forth in Section 4.1(a) will result in the exercisability of any Vested Shares (as defined in Section 11.2) being delayed more than thirty (30) days beyond the date such shares become Vested (the "Vesting Date"), the Option shall be deemed to be two (2) options. The fist option shall be for the maximum portion of the Number of Option Shares that can comply with the ISO Exercise Limitation without causing the Option to be unexercisable in the aggregate as to Vested Shares on the Vesting Date for such shares. The second option, which shall not be treated as an Incentive Stock Option as described in Section 422(b) of the Code, shall be for the balance of the Number of Option Shares: that is, those such shares which, on the respective Vesting Date for such shares, would be unexercisable if included in the first option and thereby made subject to the ISO Exercise Limitation. Shares treated as subject to the second option shall be exercisable on the same terms and at the same time as set forth in this Option Agreement; provided, however, that (i) the third sentence of Section 4.1(a) shall not apply to the second option and (ii) each such share shall become a Vested Share on the Vesting Date on which such shares must first be allocated to the second option pursuant to the preceding sentence. Unless the Optionee specifically elects to the contrary in the Optionee's written notice of exercise, the first option shall be deemed to be exercise first to the maximum possible extent and then the second option shall be deemed to be exercised. 2 METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for

which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 6, accompanied by (i) full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and (ii) an executed copy, if required herein, of the then current forms of escrow and security agreement referenced below. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and, if required by the Company, such executed agreements. 3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the Company's sole discretion at the time the Option is exercised, by cash for a portion of the aggregate Exercise Price not less than the par value of the shares being acquired, and the Optionee's promissory note for the balance of the aggregate Exercise Price, or (v) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of shares of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's Stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, modify, decline to approve or terminate any such program or procedures. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if an exercise of the Option using a promissory note would be a violation of any law. The promissory note permitted in clause (iv) of Section 4.3(a) shall be a full recourse note in a form satisfactory to the Company, with principal payable no more than four (4) years after the date the Option is exercised. Interest on the principal balance of the promissory note shall be payable in annual installments at the minimum interest rate necessary to avoid imputed interest pursuant to all applicable sections of the Code. Such recourse promissory note shall be secured by the shares of Stock acquired pursuant to the then current form of security agreement as approved by the Company. At any time the Company is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any

promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. Except as the Company in its sole discretion shall determine, the Optionee shall pay the unpaid principal balance of the promissory note and any accrued interest thereon upon termination of the Optionee's Service with the Participating Company Group for any reason, with or without cause. 4 TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless such tax withholding obligations are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares or release such shares from any escrow provided for herein. 5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the shares of Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 7 FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option.

5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Transfer of Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 1 OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (NOTE: If the Option is exercised more than three (3) months after the date on which the Optionee's Service as an Employee terminated as a result of a Disability other than a permanent and total disability as defined in Section 22(e)(3) of the Code, the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code. (b) DEATH. If the Optionee's Service is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the provisions in Section 7.1, the Option may not be exercised after the Optionee's termination of Service to the extent that the shares to be acquired upon exercise of the Option would be subject to the Unvested Share Repurchase Option as provided in Section 11. Except as the Company and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1 following termination of the Optionee's Service may not be made by delivery of a promissory note as provided in Section 4.3(a).

3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified that the Option is exercisable, but in any event no later than the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor as to the tax consequences to the Optionee of any such delayed exercise. 4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor(s) as to the tax consequences to the Optionee of any such delayed exercise. 5 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's Service shall not be deemed to terminate if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave of absence in excess of ninety (90) days, the Optionee's Service shall be deemed to terminate on the ninety-first (91st) day of such leave unless the Optionee's right to return to Service remains guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company (or required by law), a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. 8. TRANSFER OF CONTROL. 1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent

(50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(s)"), as the case may be; provided, however, that neither an initial public offering by the Company, nor an equity or convertible securities financing by the Company shall be deemed an Ownership Change Event or Transfer of Control for the purpose of any accelerated vesting provision of this Option Agreement. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of an eligible Transfer of Control, the Vested Ratio shall be increased by two-fifths (2/5) as of the date ten (10) days prior to the date of any such eligible Transfer of Control; provided, however, that in no event shall the Vested Ratio be increased pursuant to this Section 8.2 to a ratio in excess of one (1). The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Transfer of Control, the Option confers the right to purchase, for each share of Stock subject to the Option immediately prior to the Transfer of Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Transfer of Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Transfer of Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "New Shares"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this

Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. UNVESTED SHARE REPURCHASE OPTION. 1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the Optionee's Service is terminated for any reason or no reason, with or without cause, or if the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event) any shares acquired upon exercise of the Option which exceed the Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the Company shall have the right to repurchase the Unvested Shares under the terms and subject to the conditions set forth in this Section 11 (the "Unvested Share Repurchase Option"). 2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested Shares" shall mean, on any given date, a number of shares of Stock equal to the Number of Option Shares multiplied by the Vested Ratio determined as of such date and rounded down to the nearest whole share. On such given date, the "Unvested Shares" shall mean the number of shares of Stock acquired upon exercise of the Option which exceed the Vested Shares determined as of such date. 3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may exercise the Unvested Share Repurchase Option by written notice to the Optionee within sixty (60) days after (a) termination of the Optionee's Service (or exercise of the Option, if later) or (b) the Company has received notice of the attempted disposition of Unvested Shares. If the Company fails to give notice within such sixty (60) day period, the Unvested Share Repurchase Option shall terminate unless the Company and the Optionee have extended the time for the exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at all, for all of the Unvested Shares, except as the Company and the Optionee otherwise agree. 4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The purchase price per share being repurchased by the Company shall be an amount equal to the Optionee's original cost per share, as adjusted pursuant to Section 9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price to the Optionee in cash within thirty (30) days after the date of the written notice to the Optionee of the Company's exercise of the Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be

treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest canceled. The shares being repurchased shall be delivered to the Company by the Optionee at the same time as the delivery of the Repurchase Price to the Optionee. 5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company shall have the right to assign the Unvested Share Repurchase Option at any time, whether or not such option is then exercisable, to one or more persons as may be selected by the Company. 6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership Change Event, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of Unvested Shares shall be immediately subject to the Unvested Share Repurchase Option and included in the terms "Stock" and "Unvested Shares" for all purposes of the Unvested Share Repurchase Option with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event. While the aggregate Repurchase Price shall remain the same after such Ownership Change Event, the Repurchase Price per Unvested Share upon exercise of the Unvested Share Repurchase Option following such Ownership Change Event shall be adjusted as appropriate. For purposes of determining the Vested Ratio following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event. The foregoing notwithstanding, in the event of an Ownership Change Event that is also a Transfer of Control, the Unvested Share Repurchase Option will terminate if the surviving corporation does not assume, or substitute substantially equivalent options for, all outstanding Options under the Plan. 12. RIGHT OF FIRST REFUSAL. 1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section 12.7 below, in the event the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the "TRANSFER SHARES") to any person or entity, including, without limitation, any shareholder of the Participating Company Group, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 12 (the "RIGHT OF FIRST REFUSAL"). 2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER NOTICE") to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer price, and containing such information necessary to show the bona fide nature of the proposed transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the Fair Market Value of the Transfer Shares, as determined by the Board in good faith. If the Optionee proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Optionee shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer Notice shall be signed by both the Optionee and the Proposed Transferee and must constitute a binding commitment of the Optionee and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal. 3 BONA FIDE TRANSFER. If the Company determines that the information provided by the Optionee in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Optionee written notice of the Optionee's failure to comply with the procedure described in this Section 12, and the Optionee shall have no right to transfer

the Transfer Shares without first complying with the procedure described in this Section 12. The Optionee shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide. 4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Optionee otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Optionee of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company. The Company's exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the Company's right to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Optionee or issued by a person other than the Optionee with respect to a proposed transfer to the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the Optionee shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest canceled. 5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Optionee otherwise agree) within the period specified in Section 12.4 above, the Optionee may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice. The Company shall have the right to demand further assurances from the Optionee and the Proposed Transferee (in a form satisfactory to the Company) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice. No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed transfer as bona fide. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance by the Optionee with the procedure described in this Section 12. 6 TRANSFEREES OF TRANSFER SHARES. All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of this Option Agreement, including this Section 12 providing for the Right of First Refusal with respect to any subsequent transfer. Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 12 are met. 7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event. If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration shall remain

subject to the Right of First Refusal unless the provisions of Section 12.9 below result in a termination of the Right of First Refusal. 8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or more persons as may be selected by the Company. 9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Transfer of Control, unless the Acquiring Corporation assumes the Company's rights and obligations under the Option or substitutes a substantially equivalent option for the Acquiring Corporation's stock for the Option, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Exchange Act) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal. 13. ESCROW. 1 ESTABLISHMENT OF ESCROW. To ensure that shares of Stock issued upon exercise of this Option which are subject to the Unvested Share Repurchase Option, the Right of First Refusal or securing any promissory note will be available for repurchase, the Company may require the Optionee to deposit the certificate evidencing the shares of Stock which the Optionee purchases upon exercise of the Option with an escrow agent designated by the Company under the terms and conditions of an escrow and security agreements approved by the Company. If the Company does not require such deposit as a condition of exercise of the Option, the Company reserves the right at any time to require the Optionee to so deposit the certificate in escrow. Upon the occurrence of an Ownership Change Event or a change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of shares of Stock acquired upon exercise of the Option that remain, following such Ownership Change Event or change described in Section 9, subject to the Unvested Share Repurchase Option, the Right of First Refusal or any security interest held by the Company shall be immediately subject to the escrow to the same extent as such shares of Stock immediately before such event. The Company shall bear the expenses of the escrow. 2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after the expiration of the Unvested Share Repurchase Option, the Right of First Refusal and after full repayment of any promissory note secured by the shares of Stock or other property in escrow, but not more frequently than twice each calendar year, the escrow agent shall deliver to the Optionee the shares of Stock and any other property no longer subject to such restrictions and no longer securing any promissory note. 3 NOTICES AND PAYMENTS. In the event the shares of Stock and any other property held in escrow are subject to the Company's exercise of the Unvested Share Repurchase Option, the Right of First Refusal, or any security interest of the Company, the notices required to be given to the Optionee shall be given to the escrow agent, and any payment required to be given to the Optionee shall be given to the escrow agent. Within thirty (30) days after payment by the Company, the escrow agent shall deliver the shares of Stock and any other property which the Company has purchased to the Company and shall deliver the payment received from the Company to the Optionee.

14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Optionee is entitled by reason of the Optionee's ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Unvested Share Repurchase Option, the Right of First Refusal and any security interest held by the Company and with the same force and effect as the shares subject to the Unvested Share Repurchase Option, the Right of First Refusal and any such security interest immediately before such event. 15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, the Optionee shall promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and shall provide the Company with a description of the terms and circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 16. LEGENDS. The Company may at any time place legends referencing the Unvested Share Repurchase Option, the Right of First Refusal, any security interest and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following: 1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT." 2 Any legend required to be placed thereon by the Commissioner of Corporations of the State of California. 3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS

ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 5 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO . SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE." 17. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering at its sole discretion. The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act. The Optionee shall be subject to this Section provided and only if the officers and directors of the Company are also subject to similar arrangements. 18. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Option Agreement and, except pursuant to an Ownership Change, until the date on which such shares become Vested Shares, any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred. 19. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 20. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Transfer of Control, no such termination or amendment may adversely affect the Option or any

unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing. 21. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 22. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein or therein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 23. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. COMPANY: P.F. CHANG'S CHINA BISTRO, INC. By:____________________________________ Title:_________________________________

Print Name and Title 5040 North 49th Street Phoenix, AZ 85018

The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, including the Unvested Share Repurchase Option set forth in Section 11, and the Right of First Refusal set forth in Section 12, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. The undersigned acknowledges receipt of a copy of the Plan. OPTIONEE
Date:_______________________________ _______________________________________ Signature _______________________________________ Print Name Optionee's Address: _______________________________________ _______________________________________

_______________________________________

Exhibit 10.4 P.F. CHANG'S CHINA BISTRO, INC. 1996 STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1 ESTABLISHMENT. The P.F. CHANG'S CHINA BISTRO, INC.'s 1996 Stock Option Plan (the "PLAN") is hereby established effective as of August 2, 1996 (the "EFFECTIVE DATE"). 2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company. 2. DEFINITIONS AND CONSTRUCTION. 1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto.

(e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (f) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing sale price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (j) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (k) "INSIDER" means an officer or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act. (l) "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option.

(m) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. (n) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. (o) "OPTIONEE" means a person who has been granted one or more Options. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation. (t) "STOCK" means the common stock, $0.01 par value per share, of the Company, as adjusted from time to time in accordance with Section 4.2. (u) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. (v) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code. 2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 3

3. ADMINISTRATION. 1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3. 3 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to designate Options as Incentive Stock Options or Nonstatutory Stock Options; (c) to determine the Fair Market Value of shares of Stock or other property; (d) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of employment or service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; (e) to approve one or more forms of Option Agreement; (f) to amend, modify, extend, or renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof;

(g) to amend the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of employment or service with the Participating Company Group; (h) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and (i) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 4. SHARES SUBJECT TO PLAN. 1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be one hundred seventy-eight thousand (178,000) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled, or if shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option or such repurchased shares of Stock shall again be available for issuance under the Plan. 2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive.

5. ELIGIBILITY AND OPTION LIMITATIONS. 1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees, Consultants, and Directors. For purposes of the foregoing sentence, "Employees," "Consultants" and "Directors" shall include prospective Employees, prospective Consultants and prospective Directors to whom Options are granted in connection with written offers of employment or other service relationship with the Participating Company Group. Eligible persons may be granted more than one (1) Option. 2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences service with a Participating Company, with an exercise price determined as of such date in accordance with Section 6.1. 3 FAIR MARKET VALUE LIMITATION. To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by an Optionee for the first time during any calendar year for stock having an aggregate Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 5.3, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 5.3, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 1 EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that (a) the exercise price per share for an Incentive Stock Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option, (b) the exercise price per share for a Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of a share of

Stock on the effective date of grant of the Option, and (c) no Option granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. 2 EXERCISE PERIOD. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to the date on which such person commences service with a Participating Company. 3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved by the Company, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company.

(c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine at the time the Option is granted. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 4 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to the Option Agreement until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 5 REPURCHASE RIGHTS. Shares issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board, in its sole discretion, at the time the Option is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.

7. STANDARD FORMS OF OPTION AGREEMENT. 1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as an "Incentive Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Immediately Exercisable Incentive Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as a "Nonstatutory Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Immediately Exercisable Nonstatutory Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 3 STANDARD TERM OF OPTIONS. Except as otherwise provided in Section 6.2 or by the Board in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option. 4 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. Such authority shall include, but not by way of limitation, the authority to grant Options which are not immediately exercisable. 8. TRANSFER OF CONTROL. 1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.

(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be, provided, however, that neither an initial public offering by the Company, nor an equity or convertible securities financing by the Company shall be deemed an Ownership Change Event or Transfer of Control for the purpose of any accelerated vesting provision of this Option Agreement. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.

2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of an eligible Transfer of Control, each of the outstanding Options shall receive an additional two (2) years of accelerated vesting as of the date ten (10) days prior to the date of the Transfer of Control. The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall be deemed assumed if, following the Transfer of Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Transfer of Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Transfer of Control was entitled. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its sole discretion. 3 NOTICE. The Company shall send to all holders of outstanding Options at least ten (10) days' written notice prior to the consummation of a Transfer of Control. The Company's notice shall summarize the principal terms of the Transfer of Control including, without limitation, whether the Acquiring Corporation is assuming the outstanding Options or substituting equivalent options therefor. 9. PROVISION OF INFORMATION. At least annually, copies of the Company's balance sheet and income statement for the just completed fiscal year shall be made available to each Optionee and purchaser of shares of Stock upon the exercise of an Option. The Company shall not be required to provide such information to persons whose duties in connection with the Company assure them access to equivalent information. 10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution.

11. TRANSFER OF COMPANY'S RIGHTS. In the event any Participating Company assigns, other than by operation of law, to a third person, other than another Participating Company, any of the Participating Company's rights to repurchase any shares of Stock acquired upon the exercise of an Option, the assignee shall pay to the assigning Participating Company the value of such right as determined by the Company in the Company's sole discretion. Such consideration shall be paid in cash. In the event such repurchase right is exercisable at the time of such assignment, the value of such right shall be not less than the Fair Market Value of the shares of Stock which may be repurchased under such right (as determined by the Company) minus the repurchase price of such shares. The requirements of this Section 11 regarding the minimum consideration to be received by the assigning Participating Company shall not inure to the benefit of the Optionee whose shares of Stock are being repurchased. Failure of a Participating Company to comply with the provisions of this Section 11 shall not constitute a defense or otherwise prevent the exercise of the repurchase right by the assignee of such right. 12. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 13. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Company's stockholders there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company's stockholders under any applicable law, regulation or rule. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option or is necessary to comply with any applicable law, regulation or rule.

14. STOCKHOLDER APPROVAL. The Plan or any increase in the maximum number of shares of Stock issuable thereunder as provided in Section 4.1 (the "MAXIMUM SHARES") shall be approved by the stockholders of the Company within twelve (12) months of the date of adoption thereof by the Board. Options granted prior to stockholder approval of the Plan or in excess of the Maximum Shares previously approved by the stockholders shall become exercisable no earlier than the date of stockholder approval of the Plan or such increase in the Maximum Shares, as the case may be. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing P.F. CHANG'S CHINA BISTRO, INC. 1996 Stock Option Plan was duly adopted by the Board on August 2, 1996. PLAN HISTORY
August 2, 1996 ________, 1997 Board adopts the Plan, with an initial reserve of 178,000 shares. Stockholders approve the Plan, with an initial reserve of 178,000 shares.

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. P.F. CHANG'S CHINA BISTRO, INC. IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of ___________, 199_, by and between P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Company") and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1996 Stock Option Plan (the "Plan") an option to purchase certain shares of stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). The Option shall in all respects be subject to the terms and conditions of the Plan, the provisions of which are incorporated herein by reference. 1. DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Plan. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means _________________ , 199_. (b) "NUMBER OF OPTION Shares" means _____________ shares of Stock, as adjusted from time to time pursuant to Section 9. (c) "EXERCISE PRICE" means $________ per share of Stock, as adjusted from time to time pursuant to Section 9. (d) "INITIAL EXERCISE DATE" means the Date of Option Grant.

(e) "INITIAL VESTING DATE" means the date occurring one (1) year after (check one):
_____ _____ the Date of Option Grant. _______________, 199__, the date the Optionee's Service commenced.

(f) "VESTED RATIO" means, on any relevant date, the ratio determined as follows: (i) Prior to the Initial Vesting Date, the Vested Ratio shall be 0. (ii) On the Initial Vesting Date, provided that the Optionee's Service has been continuous from the Date of Option Grant until the Initial Vesting Date, the Vested Ratio shall be 1/5. (iii) For each full month of the Optionee's continuous service after the Initial Vesting Date, the Vested Ratio shall be increased by one-sixtieth (1/60). (iv) In no event shall the Vested Ratio exceed 1/1. (g) "OPTION EXPIRATION Date" means the date ten (10) years after the Date of Option Grant. (h) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (i) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (j) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (k) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (l) "DISABILITY" means the inability of the Optionee, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Optionee's position with the Participating Company Group because of the sickness or injury of the Optionee.

(m) "EMPLOYEE" means any person treated as an employee (including an officer or a director who is also treated as an employee) in the records of the Company; provided, however, that neither service as a director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (o) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "PLAN" means the P.F. Chang's China Bistro, Inc. 1996 Stock Option Plan. (t) "SECURITIES ACT" means the Securities Act of 1933, as amended. (u) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, the Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Optionee's Service shall be deemed to have terminated unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (v) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 9. (w) "SUBSIDIARY Corporation" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code.

1.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 2. TAX CONSEQUENCES. 2.1 TAX STATUS OF OPTION. This Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code (an "INCENTIVE STOCK OPTION"), but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee's own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options held by the Optionee (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than One Hundred Thousand Dollars ($100,000), the Optionee should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.) 2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee exercises this Option to purchase shares of Stock that are both nontransferable and subject to a substantial risk of forfeiture, the Optionee understands that the Optionee should consult with the Optionee's tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date on which the Optionee exercises the Option. Shares acquired upon exercise of the Option are nontransferable and subject to a substantial risk of forfeiture if, for example, (a) they are unvested and are subject to a right of the Company to repurchase such shares at the Optionee's original purchase price if the Optionee's Service terminates, (b) the Optionee is an Insider and exercises the Option within six (6) months of the Date of Option Grant (if a class of equity security of the Company is registered under Section 12 of the Exchange Act), or (c) the Optionee is subject to a restriction on transfer to comply with "Pooling-of-Interests Accounting" rules. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Optionee. The Optionee acknowledges that the Optionee has been advised to consult with a tax advisor prior to the exercise of the Option regarding the tax consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board, including any duly appointed Committee of the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election.

4. EXERCISE OF THE OPTION. 4.1 RIGHT TO EXERCISE. (a) Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares less the number of shares of Stock previously acquired upon exercise of the Option, subject to the Optionee's agreement that any shares purchased upon exercise are subject to the Company's repurchase rights set forth in Section 11 and to the Company's first refusal rights set forth in Section 12. In no event shall the Option be exercisable for more shares than the Number of Option Shares. Notwithstanding the foregoing, except as provided in Section 4.1(b), the aggregate Fair Market Value of the shares of Stock with respect to which the Optionee may exercise the Option for the first time during any calendar year, when added to the aggregate Fair Market Value of the shares subject to any other options designated as Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group prior to the Date of Option Grant with respect to which such options are exercisable for the first time during the same calendar year, shall not exceed One Hundred Thousand Dollars ($100,000). For purposes of the preceding sentence, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of shares of stock shall be determined as of the time the option with respect to such shares is granted. Such limitation on exercise shall be referred to in this Option Agreement as the "ISO Exercise Limitation." If Section 422 of the Code is amended to provide for a different limitation from that set forth in this Section 4.1(a), the ISO Exercise Limitation shall be deemed amended effective as of the date required or permitted by such amendment to the Code. The ISO Exercise Limitation shall terminate upon the earlier of (i) the Optionee's termination of Service, (ii) the day immediately prior to the effective date of a Transfer of Control in which the Option is not assumed or substituted for by the Acquiring Corporation as provided in Section 8, or (iii) the day ten (10) days prior to the Option Expiration Date. Upon such termination of the ISO Exercise Limitation, the Option shall be deemed a Nonstatutory Stock Option to the extent of the number of shares subject to the Option which would otherwise exceed the ISO Exercise Limitation. (b) Notwithstanding any other provision of this Option Agreement, if compliance with the ISO Exercise Limitation as set forth in Section 4.1(a) will result in the exercisability of any Vested Shares (as defined in Section 11.2) being delayed more than thirty (30) days beyond the date such shares become Vested (the "Vesting Date"), the Option shall be deemed to be two (2) options. The fist option shall be for the maximum portion of the Number of Option Shares that can comply with the ISO Exercise Limitation without causing the Option to be unexercisable in the aggregate as to Vested Shares on the Vesting Date for such shares. The second option, which shall not be treated as an Incentive Stock Option as described in Section 422(b) of the Code, shall be for the balance of the Number of Option Shares: that is, those such shares which, on the respective Vesting Date for such shares, would be unexercisable if included in the first option and thereby made subject to the ISO Exercise Limitation. Shares treated as subject to the second option shall be exercisable on the same terms and at the same time as set forth in this Option Agreement; provided, however, that (i) the third sentence of Section 4.1(a) shall not apply to the second option and (ii) each such share shall become a Vested Share on the Vesting Date on which such shares must first be allocated to the second option pursuant to the preceding sentence. Unless the Optionee specifically elects to the contrary in the Optionee's written notice of exercise, the first option shall be deemed to be exercise first to the maximum possible extent and then the second option shall be deemed to be exercised. 4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock

for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 6, accompanied by (i) full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and (ii) an executed copy, if required herein, of the then current forms of escrow and security agreement referenced below. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and, if required by the Company, such executed agreements. 4.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the Company's sole discretion at the time the Option is exercised, by cash for a portion of the aggregate Exercise Price not less than the par value of the shares being acquired, and the Optionee's promissory note for the balance of the aggregate Exercise Price, or (v) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of shares of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's Stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, modify, decline to approve or terminate any such program or procedures. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if an exercise of the Option using a promissory note would be a violation of any law. The promissory note permitted in clause (iv) of Section 4.3(a) shall be a full recourse note in a form satisfactory to the Company, with principal payable no more than four (4) years after the date the Option is exercised. Interest on the principal balance of the promissory note shall be payable in annual installments at the minimum interest rate necessary to avoid imputed interest pursuant to all applicable sections of the Code. Such recourse promissory note shall be secured by the shares of Stock acquired pursuant to the then current form of security agreement as approved by the Company. At any time the Company is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other

governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. Except as the Company in its sole discretion shall determine, the Optionee shall pay the unpaid principal balance of the promissory note and any accrued interest thereon upon termination of the Optionee's Service with the Participating Company Group for any reason, with or without cause. 4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless such tax withholding obligations are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares or release such shares from any escrow provided for herein. 4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the shares of Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

4.7 FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Transfer of Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 7.1 OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (NOTE: If the Option is exercised more than three (3) months after the date on which the Optionee's Service as an Employee terminated as a result of a Disability other than a permanent and total disability as defined in Section 22(e)(3) of the Code, the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code. (b) DEATH. If the Optionee's Service is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the provisions in Section 7.1, the Option may not be exercised after the Optionee's termination of Service to the extent that the shares to be acquired upon exercise of the Option would be subject to the Unvested Share Repurchase Option as provided in Section 11. Except as the Company and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1 following termination of the Optionee's Service may not be made by delivery of a promissory note as provided in Section 4.3(a).

7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified that the Option is exercisable, but in any event no later than the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor as to the tax consequences to the Optionee of any such delayed exercise. 7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor(s) as to the tax consequences to the Optionee of any such delayed exercise. 7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's Service shall not be deemed to terminate if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave of absence in excess of ninety (90) days, the Optionee's Service shall be deemed to terminate on the ninety-first (91st) day of such leave unless the Optionee's right to return to Service remains guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company (or required by law), a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. 8. TRANSFER OF CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the

Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be; provided, however, that neither an initial public offering by the Company, nor an equity or convertible securities financing by the Company shall be deemed an Ownership Change Event or Transfer of Control for the purpose of any accelerated vesting provision of this Option Agreement. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of an eligible Transfer of Control, the Vested Ratio shall be increased by two-fifths (2/5) as of the date ten (10) days prior to the date of any such eligible Transfer of Control; provided, however, that in no event shall the Vested Ratio be increased pursuant to this Section 8.2 to a ratio in excess of one (1). The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 8.2, the Option shall be deemed assumed if, following the Transfer of Control, the Option confers the right to purchase, for each share of Stock subject to the Option immediately prior to the Transfer of Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Transfer of Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Transfer of Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 8.3 FAIR MARKET VALUE LIMITATION. Should the exercisability of this Option be accelerated in connection with a Transfer of Control in accordance with Section 8.2, then to the extent that the aggregate Fair Market Value of the shares of Stock with respect to which the Optionee may exercise the Option for the first time during the calendar year of the Transfer of Control, when added to the aggregate Fair Market Value of the shares subject to any other options designated as Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group prior to the Date of Option Grant with respect to which such options are exercisable for the first time during the same calendar year, exceeds One Hundred Thousand Dollars ($100,000) (or such other limit, if any,

imposed by Section 422 of the Code), the portion of the Option which exceeds such amount shall be treated as a Nonstatutory Stock Option. For purposes of the preceding sentence, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of shares of stock shall be determined as of the time the option with respect to such shares is granted. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "New Shares"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. UNVESTED SHARE REPURCHASE OPTION. 11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the Optionee's Service is terminated for any reason or no reason, with or without cause, or if the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event) any shares acquired upon exercise of the Option which exceed the Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the Company shall have the right to repurchase the Unvested Shares under the terms and subject to the conditions set forth in this Section 11 (the "Unvested Share Repurchase Option"). 11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested Shares" shall mean, on any given date, a number of shares of Stock equal to the Number of Option Shares multiplied by the Vested Ratio determined as of such date and rounded down to the nearest whole share. On such given date, the "Unvested Shares" shall mean the number of shares of Stock acquired upon exercise of the Option which exceed the Vested Shares determined as of such date.

11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may exercise the Unvested Share Repurchase Option by written notice to the Optionee within sixty (60) days after (a) termination of the Optionee's Service (or exercise of the Option, if later) or (b) the Company has received notice of the attempted disposition of Unvested Shares. If the Company fails to give notice within such sixty (60) day period, the Unvested Share Repurchase Option shall terminate unless the Company and the Optionee have extended the time for the exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at all, for all of the Unvested Shares, except as the Company and the Optionee otherwise agree. 11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The purchase price per share being repurchased by the Company shall be an amount equal to the Optionee's original cost per share, as adjusted pursuant to Section 9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price to the Optionee in cash within thirty (30) days after the date of the written notice to the Optionee of the Company's exercise of the Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest canceled. The shares being repurchased shall be delivered to the Company by the Optionee at the same time as the delivery of the Repurchase Price to the Optionee. 11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company shall have the right to assign the Unvested Share Repurchase Option at any time, whether or not such option is then exercisable, to one or more persons as may be selected by the Company. 11.6 OWNERSHIP CHANGE Event. Upon the occurrence of an Ownership Change Event, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of Unvested Shares shall be immediately subject to the Unvested Share Repurchase Option and included in the terms "Stock" and "Unvested Shares" for all purposes of the Unvested Share Repurchase Option with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event. While the aggregate Repurchase Price shall remain the same after such Ownership Change Event, the Repurchase Price per Unvested Share upon exercise of the Unvested Share Repurchase Option following such Ownership Change Event shall be adjusted as appropriate. For purposes of determining the Vested Ratio following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event. The foregoing notwithstanding, in the event of an Ownership Change Event that is also a Transfer of Control, the Unvested Share Repurchase Option will terminate if the surviving corporation does not assume, or substitute substantially equivalent options for, all outstanding Options under the Plan. 12. RIGHT OF FIRST REFUSAL. 12.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section 12.7 below, in the event the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares acquired upon exercise of the Option (the "TRANSFER SHARES") to any person or entity, including, without limitation, any shareholder of the Participating Company Group, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 12 (the "RIGHT OF FIRST REFUSAL").

12.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER NOTICE") to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer price, and containing such information necessary to show the bona fide nature of the proposed transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the Fair Market Value of the Transfer Shares, as determined by the Board in good faith. If the Optionee proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Optionee shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer Notice shall be signed by both the Optionee and the Proposed Transferee and must constitute a binding commitment of the Optionee and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal. 12.3 BONA FIDE TRANSFER. If the Company determines that the information provided by the Optionee in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Optionee written notice of the Optionee's failure to comply with the procedure described in this Section 12, and the Optionee shall have no right to transfer the Transfer Shares without first complying with the procedure described in this Section 12. The Optionee shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide. 12.4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Optionee otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Optionee of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company. The Company's exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the Company's right to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Optionee or issued by a person other than the Optionee with respect to a proposed transfer to the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the Optionee shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest canceled. 12.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Optionee otherwise agree) within the period specified in Section 12.4 above, the Optionee may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice. The Company shall have the right to demand further assurances from the Optionee and the Proposed Transferee (in a form satisfactory to the Company) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice. No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed transfer as bona fide. Any proposed

transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance by the Optionee with the procedure described in this Section 12. 12.6 TRANSFEREES OF TRANSFER SHARES. All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of this Option Agreement, including this Section 12 providing for the Right of First Refusal with respect to any subsequent transfer. Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 12 are met. 12.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event. If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration shall remain subject to the Right of First Refusal unless the provisions of Section 12.9 below result in a termination of the Right of First Refusal. 12.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or more persons as may be selected by the Company. 12.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Transfer of Control, unless the Acquiring Corporation assumes the Company's rights and obligations under the Option or substitutes a substantially equivalent option for the Acquiring Corporation's stock for the Option, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Exchange Act) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal. 13. ESCROW. 13.1 ESTABLISHMENT OF Escrow. To ensure that shares of Stock issued upon exercise of this Option which are subject to the Unvested Share Repurchase Option, the Tight of First Refusal or securing any promissory note will be available for repurchase, the Company may require the Optionee to deposit the certificate evidencing the shares of Stock which the Optionee purchases upon exercise of the Option with an escrow agent designated by the Company under the terms and conditions of an escrow and security agreements approved by the Company. If the Company does not require such deposit as a condition of exercise of the Option, the Company reserves the right at any time to require the Optionee to so deposit the certificate in escrow. Upon the occurrence of an Ownership Change Event or a change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of shares of Stock acquired upon exercise of the Option that remain, following such Ownership Change Event or change described in Section 9, subject to the Unvested Share Repurchase Option, the Right of First Refusal or any security interest held by the Company shall be

immediately subject to the escrow to the same extent as such shares of Stock immediately before such event. The Company shall bear the expenses of the escrow. 13.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after the expiration of the Unvested Share Repurchase Option, the Right of First Refusal and after full repayment of any promissory note secured by the shares of Stock or other property in escrow, but not more frequently than twice each calendar year, the escrow agent shall deliver to the Optionee the shares of Stock and any other property no longer subject to such restrictions and no longer securing any promissory note. 13.3 NOTICES AND PAYMENTS. In the event the shares of Stock and any other property held in escrow are subject to the Company's exercise of the Unvested Share Repurchase Option, the Right of First Refusal, or any security interest of the Company, the notices required to be given to the Optionee shall be given to the escrow agent, and any payment required to be given to the Optionee shall be given to the escrow agent. Within thirty (30) days after payment by the Company, the escrow agent shall deliver the shares of Stock and any other property which the Company has purchased to the Company and shall deliver the payment received from the Company to the Optionee. 14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Optionee is entitled by reason of the Optionee's ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Unvested Share Repurchase Option, the Right of First Refusal and any security interest held by the Company and with the same force and effect as the shares subject to the Unvested Share Repurchase Option, the Right of First Refusal and any such security interest immediately before such event. 15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, the Optionee shall promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and shall provide the Company with a description of the terms and circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 16. REPRESENTATIONS AND WARRANTIES. In connection with the receipt of the Option and any acquisition of shares upon the exercise thereof, the Optionee hereby agrees, represents and warrants as follows:

16.1 The Optionee is acquiring the Option and will acquire any shares of Stock upon exercise of the Option for the Optionee's own account, and not on behalf of any other person or as a nominee, for investment and not with a view to, or sale in connection with, any distribution of the Option or such shares. 16.2 The Optionee was not presented with or solicited by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media, or broadcast over television, radio or similar communications media, or presented at any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. 16.3 The Optionee has either (a) a preexisting personal or business relationship with the Company or any of its officers, directors, or controlling persons, consisting of personal or business contacts of a nature and duration to enable the Optionee to be aware of the character, business acumen and general business and financial circumstances of the person with whom such relationship exists, or (b) such knowledge and experience in financial and business matters (or has relied on the financial and business knowledge and experience of the Optionee's professional advisor who is unaffiliated with and who is not, directly or indirectly, compensated by the Company or any affiliate or selling agent of the Company) as to make the Optionee capable of evaluating the merits and risks of the Option and any investment in shares acquired pursuant to the Option and to protect the Optionee's own interests in the transaction, or (c) both such relationship and such knowledge and experience. 16.4 The Optionee understands that the Option and any shares acquired upon exercise of the Option have not been qualified under the Corporate Securities Law of 1968, as amended, of the State of California by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Optionee's representations as expressed herein. The Optionee understands that the Company is relying on the Optionee's representations and warrants that the Company is entitled to rely on such representations and that such reliance is reasonable. 17. LEGENDS. The Company may at any time place legends referencing the Unvested Share Repurchase Option, the Right of First Refusal, any security interest and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following: 17.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."

17.2 Any legend required to be placed thereon by the Commissioner of Corporations of the State of California. 17.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 17.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 17.5 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO . SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE." 18. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering at its sole discretion. The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act. The Optionee shall be subject to this Section provided and only if the officers and directors of the Company are also subject to similar arrangements. 19. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Option Agreement and, except pursuant to an Ownership Change, until the date on which such shares become Vested Shares, any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.

20. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 21. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Transfer of Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing. 22. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown below that party's signature or at such other address as such party may designate in writing from time to time to the other party. 23. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein or therein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 24. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware. COMPANY: P.F. CHANG'S CHINA BISTRO, INC. By:___________________________________ Title:________________________________

The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, including the Unvested Share Repurchase Option set forth in Section 11, and the Right of First Refusal set forth in Section 12, and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. The undersigned acknowledges receipt of a copy of the Plan. OPTIONEE Date:________________________________ ______________________________________ Signature Optionee's Address:

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. P.F. CHANG'S CHINA BISTRO, INC. IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and entered into as of ___________, 199_, by and between P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "COMPANY") and ___________________________ (the "OPTIONEE"). The Company has granted to the Optionee pursuant to the P.F. Chang's China Bistro, Inc. 1996 Stock Option Plan (the "Plan") an option to purchase certain shares of stock, upon the terms and conditions set forth in this Option Agreement (the "OPTION"). The Option shall in all respects be subject to the terms and conditions of the Plan, the provisions of which are incorporated herein by reference. 1. DEFINITIONS AND CONSTRUCTION. 1.1. DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Plan. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "DATE OF OPTION GRANT" means_______________ , 199_. (b) "NUMBER OF OPTION SHARES" means ____________ shares of Stock, as adjusted from time to time pursuant to Section 0. (c) "EXERCISE PRICE" means $ ________ per share of Stock, as adjusted from time to time pursuant to Section 0. (d) "INITIAL EXERCISE DATE" means the letter of the Date of Option Grant or the date the Optionee's Service commences.

(e) "INITIAL VESTING DATE" means the date occurring one (1) year after (check one): _____ the Date of Option Grant _____ ______________________________, 199_, the date the Optionee's Service commenced. (f) "VESTED RATIO" means, on any relevant date, the ratio determined as follows: (i) Prior to the Initial Vesting Date, the Vested Ratio shall be 0. (ii) On the Initial Vesting Date, provided that the Optionee's Service has been continuous from the Date of Option Grant until the Initial Vesting Date, the Vested Ratio shall be 1/5. (iii) For each full month of the Optionee's continuous service after the Initial Vesting Date, the Vested Ratio shall be increased by one-sixtieth (1/60). (iv) In no event shall the Vested Ratio exceed 1/1. (g) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant. (h) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" shall also mean such Committee(s). (i) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (j) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (k) "COMPANY" means P.F. Chang's China Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (l) "DISABILITY" means the inability of the Optionee, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Optionee's position with the Participating Company Group because of the sickness or injury of the Optionee. (m) "EMPLOYEE" means any person treated as an employee (including an officer or a director who is also treated as an employee) in the records of the Company; provided,

however, that neither service as a director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (o) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein. (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "PLAN" means the P.F. Chang's China Bistro, Inc. 1996 Stock Option Plan. (t) "SECURITIES ACT" means the Securities Act of 1933, as amended. (u) "SERVICE" means the Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, the Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Optionee's Service shall be deemed to have terminated unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (v) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 0. (w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 1.2. CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when

otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 2. TAX CONSEQUENCES. 2.1. TAX STATUS OF OPTION. This Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code. 2.2. ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee exercises this Option to purchase shares of Stock that are both nontransferable and subject to a substantial risk of forfeiture, the Optionee understands that the Optionee should consult with the Optionee's tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date on which the Optionee exercises the Option. Shares acquired upon exercise of the Option are nontransferable and subject to a substantial risk of forfeiture if, for example, (a) they are unvested and are subject to a right of the Company to repurchase such shares at the Optionee's original purchase price if the Optionee's Service terminates, (b) the Optionee is an Insider and exercises the Option within six (6) months of the Date of the Option Grant (if a class of equity security of the Company is registered under Section 12 of the Exchange Act), or (c) the Optionee is subject to a restriction on transfer to comply with "Pooling-of-Interests Accounting" rules. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Optionee. The Optionee acknowledges that the Optionee has been advised to consult with a tax advisor prior to the exercise of the Option regarding the tax consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board, including any duly appointed Committee of the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option (as provided in Section 0) in an amount not to exceed the Number of Option Shares less the number of shares of Stock previously acquired upon exercise of the Option subject to the Optionee's agreement that any shares purchased upon exercise are subject to the Company's repurchase rights set forth in Section ERROR! REFERENCE SOURCE NOT FOUND. and to the Company's first refusal rights set forth in Section ERROR! REFERENCE SOURCE NOT FOUND. In no event shall the Option be exercisable for more shares than the Number of Option Shares.

4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 0, accompanied by (i) full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and (ii) an executed copy, if required herein, of the then current forms of escrow and security agreement referenced below. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and, if required by the Company, such executed agreements. 4.3. PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 0, (iv) in the Company's sole discretion at the time the Option is exercised, by cash for a portion of the aggregate Exercise Price not less than the par value of the shares being acquired, and the Optionee's promissory note for the balance of the aggregate Exercise Price, or (v) by any combination of the foregoing. (b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of shares of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's Stock. The Option may not be exercised by the tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, modify, decline to approve or terminate any such Cashless Exercise program or procedures. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if an exercise of the Option using a promissory note would be a violation of any law. The promissory note permitted in clause (iv) of Section 0 shall be a full recourse note in a form satisfactory to the Company, with principal payable no more than four (4) years after the date the Option is exercised. Interest on the principal balance of the promissory note shall be payable in annual installments at the minimum interest rate necessary to avoid imputed interest pursuant to all applicable sections of the Code. Such recourse promissory note shall be secured by the shares of Stock acquired pursuant to the then

current form of security agreement as approved by the Company. At any time the Company is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. Except as the Company in its sole discretion shall determine, the Optionee shall pay the unpaid principal balance of the promissory note and any accrued interest thereon upon termination of the Optionee's Service with the Participating Company Group for any reason, with or without cause. 4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless such tax withholding obligations are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares or release such shares from any escrow provided for herein. 4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the shares of Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.

4.7. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 0, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 0, or (c) a Transfer of Control to the extent provided in Section 0. 7. EFFECT OF TERMINATION OF SERVICE. 7.1. OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) DEATH. If the Optionee's Service is terminated because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of Service. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other longer period of time as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2. ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the provisions of Section 7.1, the Option may not be exercised after the Optionee's termination of Service to the extent that the shares to be acquired upon exercise of the Option would be subject to the Unvested Share Repurchase Option as provided in Section 11. Except as the Company and the Optionee otherwise agree, exercise of the Option pursuant to Section 0 following termination of the Optionee's Service may not be made by delivery of a promissory note as provided in Section 0. 7.3. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 0 is prevented by the

provisions of Section 0, the Option shall remain exercisable until three (3) months after the date the Optionee is notified that the Option is exercisable, but in any event no later than the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor as to the tax consequences to the Optionee of any such delayed exercise. 7.4. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 0 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisor(s) as to the tax consequences to the Optionee of any such delayed exercise. 7.5. LEAVE OF ABSENCE. For purposes of Section 0, the Optionee's Service shall not be deemed to terminate if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave of absence in excess of ninety (90) days, the Optionee's Service shall be deemed to terminate on the ninety-first (91st) day of such leave unless the Optionee's right to return to Service remains guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company (or required by law), a leave of absence shall not be treated as Service for purposes of determining the Optionee's Vested Ratio. 8. TRANSFER OF CONTROL. 8.1. DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE

CORPORATION(S)"), as the case may be; provided, however, that neither an initial public offering by the Company, nor an equity or convertible securities financing by the Company shall be deemed an Ownership Change Event or Transfer of Control for the purpose of any accelerated vesting provision of this Option Agreement. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2. EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of an eligible Transfer of Control, the Vested Ratio shall be increased by two-fifths (2/5) as of the date ten (10) days prior to the date of any such eligible Transfer of Control; provided, however, that in no event shall the Vested Ratio be increased pursuant to this Section 0 to a ratio in excess of one (1). The exercise or vesting of any Option that was permissible solely by reason of this Section 0 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. For purposes of this Section 0, the Option shall be deemed assumed if, following the Transfer of Control, the Option confers the right to purchase, for each share of Stock subject to the Option immediately prior to the Transfer of Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Transfer of Control was entitled. The Option shall terminate and cease to be outstanding effective as of the date of the Transfer of Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 0 constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its sole discretion. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "New Shares"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 0 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to

the Option. The adjustments determined by the Board pursuant to this Section 0 shall be final, binding and conclusive. 10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 0. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee, whether an Employee or Consultant, any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. UNVESTED SHARE REPURCHASE OPTION. 11.1. GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the Optionee's Service is terminated for any reason or no reason, with or without cause, of if the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event) any shares acquired upon exercise of the Option which exceed the Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the Company shall have the right to repurchase the Unvested Shares under the terms and subject to the conditions set forth in this Section 11 (the "Unvested Share Repurchase Option"). 11.2. VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested Shares" shall mean, on any given date, a number of shares of Stock equal to the Number of Option Shares multiplied by the Vested Ratio determined as of such date and rounded down to the nearest whole share. On such given date, the "Unvested Shares" shall mean the number of shares of stock acquired upon exercise of the Option which exceed the Vested Shares determined as of such date. 11.3. EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may exercise the Unvested Share Repurchase Option by written notice to the Optionee within sixty (60) days after (a) termination of the Optionee's Service for exercise of the Option, if later) or (b) the Company has received notice of the attempted disposition of Unvested Shares. If the Company fails to give notice within such sixty (60) day period, the Unvested Share Repurchase Option shall terminate (unless the Company and the Optionee have extended the time for the exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at all, for all of the Unvested Shares, except as the Company and the Optionee otherwise agree. 11.4. PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The Purchase price per share being repurchased by the Company shall be an amount equal to the Optionee's original cost per share, as adjusted pursuant to Section 9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price to the Optionee in cash within thirty (30) days after the date of the written notice to the Optionee of the Company's exercise of the Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest.

The shares being repurchased shall be delivered to the Company by the Optionee at the same time as the delivery of the Repurchase Price to the Optionee. 11.5. ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company shall have the right to assign the Unvested Share Repurchase Option at any time, whether or not such option is then exercisable, to one or more persons as may be selected by the Company. 11.6. OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership Change Event, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of Unvested Shares shall be immediately subject to the Unvested Share Repurchase Option and included in the terms "Stock" and "Unvested Shares" for all purposes of the Unvested Share Repurchase Option with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event. While the aggregate Repurchase Price shall remain the same after such Ownership Change Event, the Repurchase Price per Unvested Share upon exercise of the Unvested Share Repurchase Option following such Ownership Change Event shall be adjusted as appropriate. For purposes of determining the Vested Ratio following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event. The foregoing notwithstanding, in the event of an Ownership Change Event that is also a Transfer of Control, the Unvested Share Repurchase Option will terminate if the surviving corporation does not assume, or substitute substantially equivalent options for, all outstanding Options under the Plan. 12. RIGHT OF FIRST REFUSAL. 12.1. GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section 0 below, in the event the Optionee, the Optionee's legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the "TRANSFER SHARES") to any person or entity, including, without limitation, any shareholder of the Participating Company Group, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 0 (the "RIGHT OF FIRST REFUSAL"). 12.2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER NOTICE") to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer price, and containing such information necessary to show the bona fide nature of the proposed transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the Fair Market Value of the Transfer Shares, as determined by the Board in good faith. If the Optionee proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Optionee shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer Notice shall be signed by both the Optionee and the Proposed Transferee and must constitute a binding commitment of the Optionee and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal. 12.3. BONA FIDE TRANSFER. If the Company determines that the information provided by the Optionee in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Optionee written notice of the Optionee's failure to comply with the procedure described in this Section 0, and the Optionee shall have no right to transfer

the Transfer Shares without first complying with the procedure described in this Section 0. The Optionee shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide. 12.4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Optionee otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Optionee of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company. The Company's exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the Company's right to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Optionee or issued by a person other than the Optionee with respect to a proposed transfer to the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the Optionee shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to any Participating Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest canceled. 12.5. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Optionee otherwise agree) within the period specified in Section 0 above, the Optionee may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice. The Company shall have the right to demand further assurances from the Optionee and the Proposed Transferee (in a form satisfactory to the Company) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice. No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed transfer as bona fide. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance by the Optionee with the procedure described in this Section 0. 12.6. TRANSFEREES OF TRANSFER SHARES. All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of this Option Agreement, including this Section 0 providing for the Right of First Refusal with respect to any subsequent transfer. Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 0 are met. 12.7. TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event. If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration

shall remain subject to the Right of First Refusal unless the provisions of Section 0 below result in a termination of the Right of First Refusal. 12.8. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or more persons as may be selected by the Company. 12.9. EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Transfer of Control, unless the Acquiring Corporation assumes the Company's rights and obligations under the Option or substitutes a substantially equivalent option for the Acquiring Corporation's stock for the Option, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Exchange Act) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal. 13. ESCROW. 13.1. ESTABLISHMENT OF ESCROW. To ensure that shares of Stock obtained upon exercise of this Option which are subject to the Unvested Share Repurchase Option, the Right of First Refusal or securing any promissory note will be available for repurchase, the Company may require the Optionee to deposit the certificate evidencing the shares of Stock which the Optionee purchases upon exercise of the Option with an escrow agent designated by the Company under the terms and conditions of an escrow and security agreements approved by the Company. If the Company does not require such deposit as a condition of exercise of the Option, the Company reserves the right at any time to require the Optionee to so deposit the certificate in escrow. Upon the occurrence of an Ownership Change Event or a change, as described in Section 0, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of shares of Stock acquired upon exercise of the Option that remain, following such Ownership Change Event or change described in Section 0, subject to the Unvested Share Repurchase Option Right of First Refusal or any security interest held by the Company shall be immediately subject to the escrow to the same extent as such shares of Stock immediately before such event. The Company shall bear the expenses of the escrow. 13.2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after the expiration of the Unvested Share Repurchase Option, the Right of First Refusal and after full repayment of any promissory note secured by the option shares of Stock or other property in escrow, but not more frequently than twice each calendar year, the escrow agent shall deliver to the Optionee the shares of Stock and any other property no longer subject to such restrictions and no longer securing any promissory note. 13.3. NOTICES AND PAYMENTS. In the event the shares of Stock and any other property held in escrow are subject to the Company's exercise of the Unvested Share Repurchase Option, the Right of First Refusal, or any security interest of the Company, the notices required to be given to the Optionee shall be given to the escrow agent, and any payment required to be given to the Optionee shall be given to the escrow agent. Within thirty (30) days after payment by the Company, the escrow agent shall deliver the shares of Stock and any other property which the Company has purchased to the Company and shall deliver the payment received from the Company to the Optionee.

14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to time, there is any stock dividend, stock split or other change, as described in Section 0, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Optionee is entitled by reason of the Optionee's ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Unvested Share Repurchase Option, Right of First Refusal and any security interest held by the Company and with the same force and effect as the shares subject to the Unvested Share Repurchase Option, Right of First Refusal and any such security interest immediately before such event. 15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, the Optionee shall promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and shall provide the Company with a description of the terms and circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 16. REPRESENTATIONS AND WARRANTIES. In connection with the receipt of the Option and any acquisition of shares upon the exercise thereof, the Optionee hereby agrees, represents and warrants as follows: 16.1. The Optionee is acquiring the Option and will acquire any shares of Stock upon exercise of the Option for the Optionee's own account, and not on behalf of any other person or as a nominee, for investment and not with a view to, or sale in connection with, any distribution of the Option or such shares. 16.2. The Optionee was not presented with or solicited by any form of general solicitation or general advertising, including, but not limited to,