Exhibit 10.3

           

          AMENDED AND RESTATED EMPLOYMENT
AGREEMENT

           

          This Amended
and Restated Employment Agreement (“Agreement”), effective as of the 22nd
day of February, 2005 (the “Effective Date”), and amended and restated
as of the 31st day of
March, 2009, is entered into by and between Brett D.
Nicholas (the “Executive”)
and Redwood
Trust, Inc., a Maryland
corporation (the “Company”).

           

          The Company desires to establish its
right to the continued services of the Executive, in the capacity, on the terms
and conditions, and subject to the rights of termination
hereinafter set forth, and the Executive is willing to accept such employment in
such capacity, on such
terms and conditions, and subject to such rights of termination. As of the
Effective Date, this Agreement wholly supersedes the Employment Agreement
between the Executive and the Company that was effective as of April 20,
2000.

           

          In consideration of the mutual
agreements hereinafter set forth, the Executive and the Company have agreed and
do hereby agree as follows:

           

          1.  Employment
As Chief Investment Officer  and Co-Chief Operating Officer Of The
Company.  The Company does hereby employ the Executive As Chief
Investment Officer  and Co-Chief Operating Officer of the
Company, reporting to the Chief Executive Officer and of the
Company.  The Executive
does hereby accept and agree to such employment. The Executive’s duties shall be such
executive and managerial duties as set forth in Exhibit A attached hereto.
The Chief Executive Officer may, from time to time, in its sole
discretion, modify, reassign and/or augment the Executive’s responsibilities,
subject to approval by the Board of Directors of the Company (the
“Board”).  Any
such modification, reassignment or augmentation of responsibilities shall
be in writing. The Executive shall devote
such time, energy and skill to the performance of his duties for the Company and
for the benefit of the Company as may be necessary or
required for the effective conduct and operation of the Company’s business.
Furthermore, the Executive shall act only in good faith
and exercise due diligence and care in the performance of his duties to the
Company under this Agreement.

           

          2. Term
of Agreement.  The term of this Agreement (the “Term”)
shall commence on the Effective Date and shall continue through December 31, 2007; provided, however,
that (i) on January 1, 2008
and each succeeding January 1, the Term shall automatically be extended for one additional year unless,
not later than three months prior to any such January 1, either party shall have
given written notice to the other that it does not
wish to extend the Term and (ii) such one year extensions of the Term shall not
occur on and after the January 1 of the year in which the
Executive will attain age sixty-five (65) but instead the Term shall be extended
only until the date of the Executive’s sixty-fifth (65th)
birthday.

           

          
            
              
              

            

            
              1

              
                

              

            

            
              
              

            

          

           

          3. Compensation.

           

          (a) Base Salary.
The Company shall pay the
Executive, and the Executive agrees to accept from the Company, in payment
for his services to the Company a base
salary at the rate of
$500,000 per year (“Base
Salary”), payable in equal biweekly installments or at such other time or times as the
Executive and Company shall agree. Base Salary shall be subject to such
adjustments as the Company and the Executive shall
agree.

           

          (b) Performance Bonus
– Board of Directors’ Discretion. The Executive shall be eligible to
receive an annual bonus. The Board in its discretion will determine
whether such annual bonus will be paid, the amount of such bonus and its form of
payment. The Executive’s target annual bonus amount is
150% of his Base Salary
(the “Target Bonus”). If the Board determines in its discretion that the Executive’s performance meets or
exceeds the criteria established by the Board for the award of a Target Bonus,
the Board may award the Executive the Target Bonus or
a higher amount. Likewise, if the Executive’s performance does not meet said
criteria, the Board may award a lesser amount, or no
bonus may be awarded. Unless otherwise provided in this Agreement, the
Executive’s eligibility to receive any bonus under
this Section 3(b) shall be expressly conditioned on, among other things, the
Executive remaining employed with the Company up through any
designated distribution date set by the Board.

           

          (c) Equity Incentive
Awards. Executive shall be
eligible to receive grants of equity-based long-term incentive awards,
which may include options to purchase Company
stock and Company restricted stock contributions to Company’s deferred
compensation plan, or other Awards. Such awards shall
be determined in the discretion of the Board. In the event of a Change of
Control (as defined in Section 2(f) of the Redwood Trust, Inc.
Executive Deferred Compensation Plan) in which the surviving or acquiring
corporation does not assume the Executive’s outstanding stock
options and equity-related awards (including options and awards granted both
before and after the Effective Date) or substitute
similar options and equity-related awards, such options and equity-related
awards shall immediately vest and become exercisable
if the Executive’s service with the Company has not terminated before the
effective date of the Change of Control; provided, however,
that the foregoing
provision shall only apply if the Company is not the surviving corporation
or if shares of the Company’s common stock
are converted into or exchanged for other securities or
cash.

           

          (d) Annual Review.
The Executive’s performance
shall be reviewed at least annually. The performance evaluations
shall consider and assess the Executive’s
performance of his duties and responsibilities, the timely accomplishment of
existing performance objectives, his level of efficiency and
overall effectiveness and/or other factors or criteria that the Company, in its
sole discretion, may deem relevant. The frequency of
performance evaluations may vary depending upon, among other things, length of
service, past performance, changes in job duties or
performance levels. The Board shall, at least annually, review the Executive’s
entire compensation package to determine
whether it continues to meet the Company’s compensation objectives. Such annual review will include a
determination of (i) whether to increase the Base Salary in accordance with
Section 3(a); (ii) the incentive performance bonus to be
awarded in accordance with Section 3(b); and (iii) the amount and type of any
equity awards granted in accordance with Section 3(c).
Positive performance evaluations do not guarantee salary increases or incentive
bonuses. Salary increases and incentive bonus awards are
solely within the discretion of the Board and may depend upon many factors other
than the Executive’s
performance.

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

          

           

          4.  Fringe
Benefits.  The
Executive shall be entitled to participate in any benefit programs adopted from
time to time by the Company for the benefit of its senior
executive employees, and the Executive shall be entitled to receive such other
fringe benefits as may be granted to him from time to time
by the Board.

           

          (a) Benefit Plans.
The Executive shall be
entitled to participate in any benefit plans relating to stock options, stock
purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, deferred compensation, or other
retirement or employee benefits available to other senior
executive employees of the Company, subject to any restrictions (including
waiting periods) specified in such plans and/or related individual
agreements. The Company shall make commercially reasonable efforts to obtain
medical and disability insurance, and such other
forms of insurance as the Board shall from time to time determine, for its
senior executive employees.

           

          (b) Paid Time Off.
The Executive shall be
entitled to twenty-five (25) days of paid time off (“PTO”) per calendar year
consistent with the Executive’s satisfactory
performance of the duties set forth in Section 1 and in accordance with Company
policies regarding PTO; provided, however,
that the Executive may
accrue up to a maximum of fifty (50) days of PTO. The Executive may use PTO
for any reason, including vacation, sick
time, personal time and family illness.

           

          5. Business
Expenses.  The
Company shall reimburse the Executive for any and all necessary, customary and
usual expenses, properly receipted in accordance with
Company policies, incurred by Executive on behalf of the
Company.

           

          6.  Termination of
Executive’s Employment.

           

          (a) Death.
If the Executive dies while
employed by the Company, his employment shall immediately terminate. The
Company’s obligation to pay the Executive’s Base
Salary shall cease as of the date of the Executive’s death, and any unpaid Base
Salary shall be paid to the Executive’s estate. In
addition, within fifteen (15) days of the Executive’s death, the Company shall
pay to the Executive’s estate an incentive performance bonus
based on Executive’s Target Bonus then in effect, prorated for the number of
days of employment completed by the Executive
during the year of his death. Executive’s beneficiaries or his estate shall
receive benefits in accordance with the Company’s
retirement, insurance and other applicable programs and plans then in effect.
All stock options or other equity-related awards, including
restricted stock awards, shall vest in full and, in the case of stock options,
shall be exercisable for such period as set forth
in the applicable award agreement by which such awards are
evidenced.

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

          

           

          (b) Disability.
If, as a result of the
Executive’s incapacity due to physical or mental illness (“Disability”),
Executive shall have been absent from the full-time
performance of his duties with the Company for six (6) consecutive months, and,
within thirty (30) days after written notice is provided to him
by the Company, he shall not have returned to the full-time performance of his
duties, the Executive’s employment under this
Agreement may be terminated by the Company for Disability. During any period
prior to such termination during which the Executive
is absent from the full-time performance of his duties with the Company due to
Disability, the Company shall continue to pay the
Executive his Base Salary at the rate in effect at the commencement of such
period of Disability. Subsequent to such termination, the
Executive’s benefits shall be determined under the Company’s retirement,
insurance and other compensation programs then in effect in
accordance with the terms of such programs. In addition, within fifteen (15)
days of such termination, the Company shall pay to
the Executive an incentive performance bonus based on Executive’s Target Bonus
then in effect, prorated for the number of days of
employment completed by the Executive during the year in which his employment
terminated. The Executive, the Executive’s beneficiaries
or his estate shall receive benefits in accordance with the Company’s
retirement, insurance and other applicable programs and plans
then in effect. All stock options or other equity-related awards, including
restricted stock awards, shall vest in full and, in the
case of stock options, shall be exercisable for such period as set forth in the
applicable award agreement by which such awards are
evidenced.

           

          (c) Termination By
The Company For Cause. The
Company may terminate the Executive’s employment under this Agreement for Cause, at any time prior
to expiration of the Term of the Agreement. For purposes of this Agreement,
“Cause” shall mean (i) the Executive’s material
failure to substantially perform the reasonable and lawful duties of his
position for the Company, which failure shall continue for thirty (30)
days after notice thereof by the Company to the Executive; (ii) acts or
omissions constituting gross negligence, recklessness or willful
misconduct on the part of the Executive in respect of the performance of his
duties hereunder, his fiduciary obligations or otherwise
relating to the business of the Company; (iii) the habitual or repeated neglect
of his duties by Executive; (iv) the Executive’s
conviction of a felony; (v) theft or embezzlement, or attempted theft or
embezzlement, of money or tangible or intangible assets or
property of the Company or its employees, customers, clients, or others having
business relations with the Company.; (vi) any act of moral
turpitude by Executive injurious to the interest, property, operations, business
or reputation of the Company; or (vii) unauthorized use or
disclosure of trade secrets or confidential or proprietary information pertaining
to Company business. However, the termination of
Executive’s employment shall not be deemed to be for Cause unless and until
there has been delivered to Executive a copy of a
resolution duly adopted by the Board (after reasonable notice is provided to
Executive and Executive is given an opportunity to be heard by
the Board), finding that, in the good faith opinion of the Board, Executive’s
conduct met the standard for termination for
Cause.

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

          

           

          In the event of a termination under this
Section 6(c), the Company will pay only the portion of Base Salary or previously
awarded bonus unpaid as of the termination date.
Fringe benefits which have accrued and/or vested on the termination date will
continue in effect according to their
terms.

           

          (d) Termination By
The Company Without Cause. The Company may terminate Executive’s
employment hereunder at any time without Cause upon 30 days written
notice to Executive or pay in lieu thereof. In the event of a termination under
this Section 6(d),
the Executive shall be
entitled to the benefits set forth in Section 7.

           

          (e) Termination By
The Executive For Good Reason. The Executive shall have the right to
terminate this Agreement for Good Reason. For purposes of this
Agreement, “Good Reason” shall mean the occurrence, without the Executive’s
express written consent, of any one or more of the
following events:

           

          (i) A significant reduction in Executive’s
responsibilities or title;

           

          (ii) A reduction in the Executive’s Base
Salary or a material reduction by the Company in the value of the Executive’s
total compensation package (salary, bonus
opportunity, equity incentive award opportunity and benefits) if such a
reduction is not made in proportion to an across-the-board
reduction for all senior executives of the Company and a Change of Control (as
defined in Section 2(f) of the Redwood Trust, Inc. Executive
Deferred Compensation Plan) has not occurred;

           

          (iii) The relocation of the Executive’s
principal Company office to a location more than twenty-five (25) miles from its
location as of the Effective Date, except for
required travel on the Company’s business to the extent necessary to fulfill the
Executive’s obligations under Section
1;

           

          (iv) A failure at any time to renew this
Agreement for successive one-year periods pursuant to Section
2;

           

          (v) The complete liquidation of the Company;
or

           

          (vi) In the event of a merger, consolidation,
transfer, or closing of a sale of all or substantially all the assets of the
Company with or to any other individual or
entity, the failure of the Company’s successor to affirmatively adopt this
Agreement or to otherwise comply with its obligations pursuant to
Section 13 below.

           

          In the event of a termination under this
Section 6(e), the Executive shall be entitled to the benefits set forth in
Section 7.

           

          (f) Termination By
The Executive Without Good Reason. The Executive may at any time during the
Term terminate his employment hereunder for any reason or
no reason by giving the Company notice in writing not less than one hundred
twenty (120) days in advance of such
termination. The Executive shall have no further obligations to the Company
after the effective date of termination, as set forth in the
notice. In the event of a termination by
the Executive under this Section 6(f), the Company will pay only the portion of
Base Salary or previously awarded bonus unpaid as of
the termination date. Fringe benefits which have accrued and/or vested on the
termination date will continue in effect according to
their terms.

           

          
            
              
              

            

            
              5

              
                

              

            

            
              
              

            

          

           

          7.  Compensation Upon Termination By the Company
without Cause or By The Executive for Good Reason.

           

          (a) If the Executive’s employment shall be
terminated by the Company without Cause or by the Executive for Good Reason,
the Executive shall be entitled to the
following benefits:

           

          (i)  Payment of Unpaid Base Salary.
The Company shall immediately pay the Executive any portion of the Executive’s
Base Salary through the date of termination or previously awarded bonus not paid
prior to the termination date.

           

          (ii)  Severance
Payment.  The Company shall provide the Executive the
following: (x) an amount equal to 2.5 times Executive’s Annual Base Salary as in
effect immediately prior to his termination; (y) an amount equal to 1.5 times
the Executive’s Annual Base Salary in effect immediately prior to his
termination prorated for the number of days of employment completed by the
Executive during the year in which his employment is terminated; and (z) with
respect to options granted on or before December 31, 2002, the sum of the
Dividend Equivalent Rights payments (as defined in the applicable award
agreement by which any such Dividend Equivalent Rights were granted) that would
have been payable to Executive over the one (1) year period following his
termination had he remained employed (taking into consideration the term of
options and Dividend Equivalent Rights and assuming that the options are fully
vested and remain unexercised).  Payments pursuant to this Section
with respect to options granted after December 31, 2002 will be calculated in
the same manner, unless such options provide a different formula for Dividend
Equivalent Rights payments if Executive’s employment is terminated by the
Company without Cause or by the Executive for Good Reason, in which case the
Dividend Equivalent Rights payments shall be governed by the terms of such
options. The
quarterly dividend per share rate that shall be used in this calculation is the
higher of (I) one-fourth (25%) of the sum of common stock dividends declared per
common share in the twelve (12) months prior to the termination date, and (II)
one-twelfth (8.333%) of the sum of common stock dividends declared per common
share in the thirty-six (36) months prior to the termination date.

           

          (iii)  Stock Options and Other
Equity-Related Awards.  All stock options and other
equity-related awards, including restricted stock awards, held by the Executive
as of the termination date, shall vest in full and, in the case of stock
options, shall be exercisable for such period as set forth in the applicable
award agreements by which such awards are evidenced.

           

          (v) Continuation of
Fringe Benefits. For the
twelve (12) month period following the termination of the
Executive’s employment, the Company shall continue
to provide the Executive with all life insurance, disability insurance and
medical coverage fringe benefits set forth in Section 4
as if the Executive’s employment under the Agreement had not been terminated;
provided, however,
that such life insurance,
disability insurance and medical coverage shall cease as of the date the
Executive receives such coverage from a subsequent employer. No
provision of this Agreement will affect the continuation coverage rules under
Consolidated Omnibus Budget Reconciliation Act of
1985 (“COBRA”), except that the Company’s payment, if any, of applicable
insurance premiums will be credited as payment by the
Executive for purposes of the Executive’s payment required under COBRA.
Therefore, the period during which the Executive may elect to
continue the Company’s medical plan coverage at the Executive’s own expense
under COBRA, the length of time during which
COBRA coverage will be made available to the Executive, and all other rights and
obligations of the Executive under COBRA (except the
obligation to pay insurance premiums that the Company pays) will be applied in
the same manner that such rules would apply in
the absence of this Agreement. For purposes of this Section 7(a)(v), (A)
references to COBRA shall be deemed to refer also to
analogous provisions of state law and (B) any applicable insurance premiums that
are paid by the Company shall not include any amounts
payable by the Executive under an Internal Revenue Code Section 125 health
care reimbursement plan, which amounts, if
any, are the sole responsibility of the Executive.

           

          
            
              
              

            

            
              6

              
                

              

            

            
              
              

            

          

           

          (vi) Excise Tax
Gross-Up. In the event that
the Executive becomes entitled to the payments and benefits provided under
the provisions of this Section 7 (“Payments
and Benefits”), and if any of the Payments and Benefits will be subject to any
excise tax imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended from time to time (the “Code”), or
successor sections thereto (“Excise Tax”), the Company
shall pay to or for the benefit of the Executive an additional amount (the
“Gross-Up Payment”) such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Payments and Benefits and
any federal, state and local income tax and Excise
Tax upon the payments provided for under this Section 7(a)(vi), shall be equal
to the amount of the Payments and Benefits. For purposes
of determining whether any of the Payments and Benefits will be subject to the
Excise Tax and the amount of such Excise Tax, (i)
any other payments or benefits received or to be received by the Executive that
are contingent on a transaction described in Section
280G(b)(2)(A)(i) of the Code or on an event, including (without limitation) a
termination of the Executive’s employment that is
materially related to such a transaction (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in such a transaction, or any person
affiliated with the Company or such person) shall be
treated as “parachute payments” within the meaning of Section 280G(b)(2)
of the Code, and all “excess parachute payments” within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to
the Excise Tax, unless, in the opinion of tax counsel selected by the Company
and reasonably acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the
Code, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually
rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of
the Base Amount (as defined in Section 280G(b)(3) of the
Code) allocable to such reasonable compensation, or are otherwise not subject to
the Excise Tax; (ii) the amount of the Payments and
Benefits which shall be treated as subject to the Excise Tax shall be equal to
the lesser of (A) the total amount of the Payments and
Benefits or (B) the amount of excess parachute payments within the meaning
of Section 280G(b)(1) of the Code (after
applying clause (i), above); and (iii) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Company’s independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal
income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive’s
residence on the termination date of employment, net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes based on the
marginal rate referenced above. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account
hereunder at the termination date, the Executive shall repay to the Company, at
the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
and/or a federal, state or local income tax
deduction) plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of
the termination of the Executive’s
employment (including by reason of any payment, the existence or amount of which
cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess, but only to the
extent that such interest, penalties or additions
would not have been reduced by prompt payment by the Executive to the
appropriate tax authority of the Gross-Up Payments previously
received) at the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate
with the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for
Excise Tax with respect to the Payments and Benefits.

           

          
            
              
              

            

            
              7

              
                

              

            

            
              
              

            

          

           

          (b) No Mitigation
Required; No Other Entitlement To Benefits Under Agreement. The Executive shall not be required
in any way to mitigate the amount of any payment provided for in
this Section 7, including, without limitation, by seeking other employment, nor
shall the amount of any payment provided for in this
Section 7 be reduced by any compensation earned by the Executive as the result
of employment with another employer after the
termination date of employment, or otherwise. Except as set forth in this
Section 7, following a termination governed by this Section 7,
the Executive shall not be entitled to any other compensation or benefits set
forth in this Agreement, except as may be separately
negotiated by the parties and approved the Board in writing in conjunction with
the termination of Executive’s employment
under this Section 7.

           

          (c) Release
Agreement. As a condition
of receiving any of the payments and benefits set forth in this Section 7, the
Executive shall be required to execute a mutual
release agreement in the form attached hereto as Exhibit C or Exhibit D, as
appropriate, and such release agreement must have become
effective in accordance with its terms. The Company, in its sole discretion, may
modify the term of the required release agreement
to comply with applicable state law and may incorporate the required release
agreement into a termination agreement or other agreement
with the Executive.

           

          
            
              
              

            

            
              8

              
                

              

            

            
              
              

            

          

           

          (d)
Timing of Severance
Payments. Notwithstanding any other provision of
this Agreement, any and all severance payments provided under this Agreement in
connection with the termination of the employment of the Executive shall be
payable in an amount equal to 75% of such payments on the date that is six
months after the termination date, and the remaining 25% shall be payable in six
equal monthly installments beginning on the date that is seven months after the
termination date and continuing on the same date of each of the five months
thereafter.

           

          (e)
Timing
of Bonus Payments.  Notwithstanding any other provision
of this Agreement, any and all bonus payments provided under the Agreement in
connection with the termination of the employment of the Executive shall be
payable on the date that is six months after the termination
date.

           

          8.  Disputes
Relating To Executive’s Termination of Employment For Good
Reason.  If the
Executive resigns his employment with the Company alleging in good faith
as the basis for such resignation “Good Reason” as defined in Section 6(e), and
if the Company then disputes the Executive’s right to
the payment of benefits under Section 7, the Company shall continue to pay the
Executive the full compensation (including, without
limitation, his Base Salary) in effect at the date the Executive provided
written notice of such resignation, and the Company shall
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was then a participant,
until the earlier of the expiration of the Term or the date the dispute is
finally resolved, either by mutual written agreement of the parties
or by application of the provisions of Section 11. For the purposes of this
Section 8, the Company shall bear the burden of proving
that the grounds for the Executive’s resignation do not fall within the scope of
Section 6(e), and there shall be a rebuttable
presumption that the Executive alleged such grounds in good
faith.

           

          9.  Noncompetition
Provisions.

           

          (a) Noncompetition.
The Executive agrees that
during the Term prior to any termination of his employment hereunder, he
will not, directly or indirectly, without the
prior written consent of a majority of the non-employee members of the Board,
manage, operate, join, control, participate in, or be
connected as a stockholder (other than as a holder of shares publicly traded on
a stock exchange or the NASDAQ National Market System),
partner, or other equity holder with, or as an officer, director or employee of,
any real estate investment organization whose business
strategy is competitive with that of the Company, as determined by a majority of
the nonemployee members of the Board. It is further
expressly agreed that the Company will or would suffer irreparable injury if the
Executive were to compete with the Company or any
subsidiary or affiliate of the Company in violation of this Agreement and that
the Company would by reason of such
competition be entitled to injunctive relief in a court of appropriate
jurisdiction, and the Executive further consents and stipulates to the
entry of such injunctive relief in such a court prohibiting the Executive from
competing with the Company or any subsidiary or affiliate
of the Company, in the areas of business set forth above, in violation of this
Agreement.

           

          
            
              
              

            

            
              9

              
                

              

            

            
              
              

            

          

           

          (b) Duty To Avoid
Conflict Of Interest. During his employment by the Company,
Executive agrees not to engage or participate in, directly or indirectly, any
activities in conflict with the best interests of the Company. The Company shall
be the final decision-maker with regard to any conflict of interest
issue.

           

          (c) Right To Company
Materials. The Executive
agrees that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other
documents (“Company Materials”) used, prepared, or made available to the
Executive shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration of this Agreement,
the Executive shall immediately return to the Company all
Company Materials, and the Executive shall not make or retain any copies
thereof.

           

          (d) Nonsolicitation.
The Executive promises and
agrees that he will not directly or indirectly solicit any of the
Company’s employees to work for any competing real
estate investment organization as determined under Section 9(a) for a period of
one (1) year following the occurrence of any event
entitling the Executive to payments and benefits, provided the Company makes all
such payments when due according to the
provisions of herein.

           

          (e) Confidential And Proprietary
Information.

           

          (1) It is hereby acknowledged that Executive
has and shall gain knowledge of trade secrets and confidential information owned by or related to the Company
and/or its affiliates including but not limited to the following: (i) the names,
lists, buying habits and practices of customers, clients or
vendors, (ii) marketing and related information, (iii) relationships with the
persons or entities with whom or with which the Company has
contracted, (iv) their products, designs, software, developments, improvements
and methods of operation, (v) financial condition,
profit performance and financial requirements, (vi) the compensation paid to
employees, (vii) business plans and the information contained
therein, and (viii) all other confidential information of, about or concerning the
Company, the manner of operation of the Company and other
confidential data of any kind, nature or description
relating to the Company (collectively, the “Confidential Information”). Confidential Information does not include
information which (ix) is or becomes generally available to the public other than as a result of a
disclosure by Executive; or (x) becomes available to Executive on a
non-confidential basis after the termination or expiration of Executive’s
obligations under this Agreement from a source other than the Company, provided
that such source is not bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to the Company or any other party with respect
to such information; or (xi) is independently developed after the termination or
expiration of Executive’s obligations under this
agreement without reference to the Confidential Information, provided such independent
development can reasonably be proven by Executive by
written records.

           

          
            
              
              

            

            
              10

              
                

              

            

            
              
              

            

          

           

          (2) The parties hereby acknowledge that the
Confidential Information constitutes important,
unique, material and confidential trade secrets which affect the
successful activities of the Company, and constitute a substantial part of the
assets and goodwill of the Company. In view of the foregoing,
Executive agrees that he will not at any time whether during or after the term
of this Agreement, except as required in the course of
Executive’s employment by Company and at its direction and for its sole benefit,
in any fashion, form or manner, directly or indirectly
(i) use or divulge, disclose, communicate or provide or permit access to any
person, firm, partnership, corporation or other
entity, any Confidential Information of any kind, nature or
description, or (ii) remove from Company’s premises any notes or records relating
thereto, or copies or facsimiles thereof (whether made by electronic,
electrical, magnetic, optical, laser, acoustic or other
means).

           

          (3) Promptly upon the request of Company,
and immediately upon the termination of Executive’s employment,
Executive shall not transfer to any third person
and shall deliver to Company all Confidential Information, and other property
belonging to the Company, including all copies thereof,
in the possession or under the control of the Executive.

           

          (4) Executive represents that the
performance of all the terms of this Agreement will not conflict with, and will
not breach, any other invention assignment agreement,
confidentiality
agreement, employment
agreement or non-competition agreement to which Executive is or has been a party. To the
extent that Executive has confidential information or materials of any former
employer, Executive acknowledges that the Company
has directed Executive to not disclose such confidential information or materials to
the Company or any of its employees, and
that the Company prohibits Executive from using said confidential information or materials in any work that Executive may perform for
the Company. Executive agrees that Executive will not bring with Executive to
the Company, and will not use or disclose any
confidential, proprietary information, or trade
secrets acquired by Executive prior to his employment with the Company. Executive will not
disclose to the Company or any of its employees, or induce the Company or any of
its employees to use, any confidential or proprietary information or material
belonging to any previous employers or others, nor will Executive bring
to the Company or use in connection with
Executive’s work for the Company copies of any software, computer files, or any
other copyrighted or trademarked materials
except those owned by or licensed to the Company. Executive represents that he
is not a party to any other agreement that will
interfere with his full compliance with this Agreement. Executive further agrees
not to enter into any agreement, whether written or oral, in
conflict with the provisions of this Agreement.

           

          
            
              
              

            

            
              11

              
                

              

            

            
              
              

            

          

           

          (f) Inventions.
Any and all inventions,
discoveries or improvements that Executive has conceived or made or may conceive
or make during the period of employment
relating to or in any way pertaining to or connected with the
systems, products, computer programs, software,
apparatus or methods employed, manufactured or constructed by the Company or to
systems, products, apparatus or methods with
respect to which the Company engages in, requests or anticipates research or
development, shall be promptly and fully disclosed and
described by Executive to the Company and shall be the sole and exclusive
property of the Company, and Executive shall assign, and
hereby does assign to the Company Executive’s entire right, title and interest
in and to all such inventions, discoveries or
improvements as well as any modifications or improvements thereto that may be
made. The parties agree that any inventions, discoveries
or ideas that Executive has created or possesses prior to his employment by the
Company are specified in Exhibit B attached to this
Agreement and will not be considered to be the property of the
Company.

           

          The obligations outlined in this Section
9(f), except for the requirements as to disclosure, do not apply to any
invention that qualifies fully under California Labor
Code Section 2870 or to any rights Executive may have acquired in connection
with an invention, discovery or improvement that was
developed entirely on Executive’s own time for which no equipment, supplies,
facilities or trade secret information of the Company was
used and (a) that does not relate directly or indirectly to the business of the
Company or to the Company’s actual or demonstrable
anticipated research or development, or (b) that does not result from any work
performed by Executive for the
Company.

           

          (g) Maryland Law. The Executive agrees, in accordance with
Maryland law, to first offer to the Company
corporate opportunities learned of solely as a
result of his service as an officer of the Company.

           

          (h) Breach.
It is expressly agreed that
each breach of this Section 9 is a distinct and material breach of this
Agreement and that solely a monetary remedy would be
inadequate, impracticable and extremely difficult to prove, and that each such
breach would cause the Company irreparable harm. It
is further agreed that, in addition to any and all remedies available at law or
equity (including money damages), either party shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Section, without the necessity of proving actual
damages. It is further agreed that either party shall be entitled to seek such
equitable relief in any forum, including a court of law,
notwithstanding the provisions of Section 11. Either party may pursue any of the
remedies described herein concurrently or
consecutively in any order as to any such breach or violation, and the pursuit
of one of such remedies at any time will not be deemed an
election of remedies or waiver of the right to pursue any of the other such
remedies. Any breach of this Section 9 shall immediately
terminate any obligations by the Company to provide Executive with severance and
continued benefits pursuant to Section 6 or 7 of this
Agreement.

           

          
            
              
              

            

            
              12

              
                

              

            

            
              
              

            

          

           

          (i) Unenforceability.
Should any portion of this
Section 9 be deemed unenforceable because of its scope, duration or
effect, and only in such event, then the parties
expressly consent and agree to such limitation on scope, duration or effect as
may be finally adjudicated as enforceable, to give this
Section 9 its maximum permissible scope, duration and effect.

           

          10.  Notices.  All notices and other communications
under this Agreement shall be in writing and shall be given by fax or first
class mail, certified or registered with
return receipt requested, and shall be deemed to have been duly given three (3)
days after mailing or twenty-four (24) hours after
transmission of a fax to the respective persons named below:

           

          
            	
                  	
                    If
      to the Company: 

                  	
                    Redwood
      Trust, Inc.

                  


          

          Attn: Chief Executive
Officer

          One Belvedere Place, Suite
300

          Mill Valley, CA 94941

          Phone: (415) 389-7373

          Fax: (415) 381-1773

          


          
            	
                  	
                    If
      to the Executive:   

                  	
                    Brett
      D. Nicholas

                  


          

          c/o
Redwood Trust, Inc.

          One
Belvedere Place, Suite 300

          Mill
Valley, CA 94941

          Phone:
(415) 389-7373

          Fax:
(415) 381-1773

           

          Either party may change such party’s
address for notices by notice duly given pursuant hereto.

           

          11.  Resolution
of Disputes.  To
ensure the rapid and economical resolution of disputes that may arise in
connection with the Executive’s employment with the Company,
the Executive and the Company agree that any and all disputes, claims, or causes
of action, in law or equity, arising from
or relating to the
enforcement, breach,
performance, or interpretation of this Agreement, the Executive’s employment, or the
termination of the Executive’s employment (“Arbitrable Claims”) shall be
submitted to confidential mediation in San Francisco, California
conducted by a mutually agreeable mediator from Judicial Arbitration and
Mediation Services (“JAMS”) or its successor, and the cost
of JAMS’ mediation fees shall be paid by the Company. In the event that
mediation is unsuccessful in resolving the Arbitrable
Claims, the Arbitrable Claims shall be resolved, to the fullest extent permitted
by law, by final, binding and confidential arbitration in San Francisco, California conducted by JAMS or its successor,
under the then applicable rules of JAMS. The Executive
acknowledges that by agreeing to this arbitration procedure, both the Executive
and the Company waive the right to
resolve any such dispute through a trial by jury or judge or administrative
proceeding. The arbitrator
shall: (a) have the authority to compel
adequate discovery for the resolution of the dispute and to award such relief as
would otherwise be permitted by law; and (b) issue a
written arbitration decision including the arbitrator’s essential findings and
conclusions and a statement of the award. The arbitrator
shall be authorized to award any or all remedies that the Executive or the
Company would be entitled to seek in a court of law,
including, without limitation, the award of attorneys’ fees based on a determination of the
extent to which each party has prevailed as to the material issues raised in
determination of the dispute. The Company shall pay all JAMS’
arbitration fees in excess of those which would be required if the dispute were
decided in a court of law. Nothing in this Agreement
is intended to prevent either the Executive or the Company from obtaining
injunctive relief in court to prevent irreparable harm
pending the conclusion of any such mediation or arbitration.

           

          
            
              
              

            

            
              13

              
                

              

            

            
              
              

            

          

           

          12.
Termination of Prior Agreements.  This Agreement terminates and supersedes
any and all prior agreements and understandings between the parties with
respect to employment or with respect to the compensation of the Executive by
the Company.

           

          13.  Assignment  Successors.  This Agreement is personal in its
nature, and neither of the parties hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder; provided, however,
that, in the event of
the merger, consolidation, transfer, or sale
of all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall, subject to the
provisions hereof, be binding upon and inure to the benefit of such successor
and such successor shall discharge and perform all the
promises, covenants, duties, and obligations of the Company
hereunder.

           

          14.  Governing
Law.  This
Agreement and the legal relations thus created between the parties hereto shall
be governed by and construed under and in accordance with
the laws of the State of California.

           

          15.  Entire
Agreement; Headings.  This Agreement embodies the entire
agreement of the parties with respect to the subject matter hereof, excluding the plans and programs
under which compensation and benefits are provided pursuant to Sections 3 and 4
hereof to the extent such plans and programs are
not inconsistent with this Agreement, and may be modified only in writing.
Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.

           

          16.  Waiver;
Modification.  Failure to insist upon strict compliance
with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition, nor shall any waiver or relinquishment of, or failure to
insist upon strict compliance with, any right or power
hereunder at any one or more times be deemed a waiver or relinquishment of such
right or power at any other time or times. This Agreement
shall not be modified in any respect except by a writing executed by each party
hereto.

           

          17.  Severability.  In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation
of any statute or public policy, only the
portions of this Agreement that violate such statute or public policy shall be
stricken. All portions of this Agreement that do not violate
any statute or public policy shall continue in full force and effect. Further,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this
Agreement.

           

          
            
              
              

            

            
              14

              
                

              

            

            
              
              

            

          

           

          18.  Indemnification.  The Company shall indemnify and hold
Executive harmless to the maximum extent permitted by Section 2-418 of the Maryland General Corporations Law
or its successor statute, or if greater, by the Company’s Bylaws, by any
applicable resolution of the Board or by the terms
providing the most extensive indemnification contained in any written agreement
between the Company and any director or officer of
the Company. The Company shall make Executive a named beneficiary under all
director and officer liability policies maintained by
the Company from time to time for the benefit of its directors and officers,
entitled to all benefits provided thereunder to persons serving
in a comparable role as an officer of the Company.

           

          19. Counterparts.  This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original
but all of which together will constitute
one and the same instrument.

           

          20.  Successor
Sections.  References herein to sections or rules
of the Code or the Securities and Exchange Act of 1934, as amended, shall be deemed to include any
successor sections or rules.

           

          IN WITNESS WHEREOF,
the Company has caused this
Agreement to be executed by its duly authorized officer, and the
Executive has hereunto signed this Agreement, as
of the Effective Date.

           

          
            
              	 	
                      REDWOOD TRUST, INC.

                    	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	/S/ GEORGE E.
      BULL,
      III	 
	 	 	GEORGE E.
      BULL,
      III	 
	 	 	Chief
      Executive Officer	 
	 	 	 	 
	 	 	/S/ BRETT D. NICHOLAS	 
	 	 	BRETT D. NICHOLAS	 


            

          

           

          
            
              
              

            

            
              15

              
                

              

            

            
              
              

            

          

           

          
            INDIVIDUAL
TERMINATION

             

          

          EXHIBIT C

          


          RELEASE AGREEMENT

           

          Except as otherwise set forth in this
Release Agreement or in Sections 7 and 18 of the Amended and Restated
Employment Agreement between Brett D. Nicholas and Redwood Trust, Inc., Brett
D. Nicholas (“Executive”) hereby generally
and completely Company and its directors, officers, employees, shareholders,
partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers,
affiliates, and assigns from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring at any time prior to and
including the date Executive signs this Release Agreement.
The Company, its directors, officers, employees, shareholders, partners, agents,
attorneys, predecessors, successors, parent and
subsidiary entities, insurers, affiliates, and assigns, hereby releases
Executive and his heirs, executors, successors and assigns, from
any and all claims, liabilities and obligations, both known and unknown, that
arise out of or are in any way related to events, acts,
conduct, or omissions occurring at any time prior to and including the date the
Company signs this Release Agreement. This general
mutual release includes, but is not limited to: (A) all claims arising out of or
in any way related to Executive’s employment with the Company
or the termination of that employment; (B) all claims related to Executive’s
compensation or benefits from the Company, including
salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, or any
other ownership interests in the Company; (C) all claims for breach of contract,
wrongful termination, and breach of the implied
covenant of good faith and fair dealing; (D) all tort claims, including claims
for fraud, defamation, emotional distress, and discharge in
violation of public policy; and (E) all federal, state, and local statutory
claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of
1964 (as amended),
the federal Americans with
Disabilities Act of 1990, the federal Age Discrimination in Employment Act of
1967 (as amended) (“ADEA”), the federal Employee Retirement Income
Security Act of 1974 (as amended), and the California Fair Employment and
Housing Act (as amended); provided, however,
that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify Executive pursuant to
agreement, the Company’s bylaws or binding resolutions, or applicable
law.

           

          
            
              
              

            

            
              1

              
                

              

            

            
              
              

            

          

           

          Executive acknowledges that he is
knowingly and voluntarily waiving and releasing any rights he may have under the
ADEA, and that the consideration given under his
Employment Agreement with the Company for the waiver and release in the
preceding paragraph hereof is in addition to anything of
value to which he was already entitled. Executive further acknowledges that he
has been advised by this writing, as required by the ADEA,
that: (A) this waiver and release does not apply to any rights or claims that
may arise after the date Executive signs this Release
Agreement; (B) Executive should consult with an attorney prior to signing this
Release Agreement (although Executive may choose
voluntarily not do so); (C) Executive has twenty-one (21) days to consider this Release
Agreement (although Executive may choose voluntarily to sign this Release
Agreement earlier); (D) Executive has seven (7) days
following the date that he signs this Release Agreement to revoke the Release
Agreement by providing written notice to an officer
of the Company; and (E) this Release Agreement shall not be effective until the
date upon which the revocation period has expired, which
shall be the eighth day after Executive signs this Release
Agreement. Both Executive and the Company
acknowledge that each has read and understands Section 1542 of the California
Civil Code which reads as follows: “A general release
does not extend to claims which the creditor does not know or suspect to exist
in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.” Both Executive and the Company hereby
expressly waive and relinquish all rights and benefits under that section and
any law of any jurisdiction of similar effect
with respect to each party’s release of any claims
hereunder.

           

          
            
              
                
                  	 	EXECUTIVE	 
	 	 	 	 
	
                           

                        	Name:        	 	 
	 	 	 	 
	 	Date:       	 	 
	 	 	 	 


                

              

               

               

              
                
                  
                    	 	
                            Company

                          	 
	 	 	 	 
	
                             

                          	Name:        	 	 
	 	 	 	 
	 	Date:       	 	 
	 	 	 	 


                  

                

              

            

          

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

          

          

            GROUP TERMINATION

             

          

          EXHIBIT D

          


          RELEASE AGREEMENT

           

          Except as otherwise set forth in this
Release Agreement or in Sections 7 and 18 of the Amended and Restated
Employment Agreement between Brett D. Nicholas and Redwood Trust, Inc., Brett
Nicholas (“Executive”) hereby generally and completely releases the Company and its directors, officers,
employees, shareholders, partners, agents, attorneys, predecessors, successors,
parent and subsidiary entities, insurers,
affiliates, and assigns from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring at any time prior to and
including the date Executive signs this Release Agreement.
The Company, its directors, officers, employees, shareholders, partners, agents,
attorneys, predecessors, successors, parent and
subsidiary entities, insurers, affiliates, and assigns, hereby releases
Executive and his heirs, executors, successors and assigns, from
any and all claims, liabilities and obligations, both known and unknown, that
arise out of or are in any way related to events, acts,
conduct, or omissions occurring at any time prior to and including the date the
Company signs this Release Agreement. This general
mutual release includes, but is not limited to: (A) all claims arising out of or
in any way related to Executive’s employment with the Company
or the termination of that employment; (B) all claims related to Executive’s
compensation or benefits from the Company, including
salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, or any
other ownership interests in the Company; (C) all claims for breach of contract,
wrongful termination, and breach of the implied
covenant of good faith and fair dealing; (D) all tort claims, including claims
for fraud, defamation, emotional distress, and discharge in
violation of public policy; and (E) all federal, state, and local statutory
claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of
1964 (as amended), the federal Americans with Disabilities
Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as
amended) (“ADEA”),
the federal Employee
Retirement Income Security Act of 1974 (as amended), and the California Fair
Employment and Housing Act (as amended); provided, however,
that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify Executive pursuant to
agreement, the Company’s bylaws or binding resolutions, or applicable
law.

           

          Executive acknowledges that he is
knowingly and voluntarily waiving and releasing any rights he may have under the
ADEA, and that the consideration given under his
Employment Agreement with the Company for the waiver and release in the
preceding paragraph hereof is in addition to anything of
value to which he was already entitled. Executive further acknowledges that he
has been advised by this writing, as required by the ADEA,
that: (A) this waiver and release does not apply to any rights or claims that
may arise after the date Executive signs this Release
Agreement; (B) Executive should consult with an attorney prior to signing this
Release Agreement (although Executive may choose
voluntarily not do so); (C) Executive has forty-five (45) days to consider this
Release Agreement (although he may choose voluntarily to
sign this Release Agreement earlier); (D)
Executive has seven (7) days following the date that he signs this Release
Agreement to revoke the Release Agreement by providing
written notice to an officer of the Company; (E) this Release Agreement shall
not be effective until the date upon which the revocation
period has expired, which shall be the eighth day after Executive signs this
Release Agreement; and (F) Executive has received with this
Release Agreement a detailed list of the job titles and ages of all employees
who were terminated in this group termination and
the ages of all employees of the Company in the same job classification or
organizational unit who were not
terminated.

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          Both the Executive and the Company
acknowledge that each has read and understands Section 1542 of the California
Civil Code which reads as follows: “A general release
does not extend to claims which the creditor does not know or suspect to exist
in his favor at the time
of executing the release, which if known by him must have materially affected
his settlement with the debtor.” Both the Executive and the Company
hereby expressly waive and relinquish all rights and benefits under that section
and any law of any jurisdiction of similar
effect with respect to each party’s release of any claims
hereunder.

           

        

      

      
        
          
            	 	EXECUTIVE	 
	 	 	 	 
	
                     

                  	Name:        	 	 
	 	 	 	 
	 	Date:       	 	 
	 	 	 	 


          

        

         

         

        
          
            
              	 	
                      Company

                    	 
	 	 	 	 
	
                       

                    	Name:        	 	 
	 	 	 	 
	 	Date:       	 	 
	 	 	 	 


            

          

        

      

       

      
        
          
          

        

        
          2