Exhibit
10.4

     

    
       

      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 Harold F.
Zagunis (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 March 13, 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 Risk Officer Of The Company.  The Company does hereby
employ the Executive as Chief Risk
Officer of the Company, reporting to the President of the Company. The
Executive does hereby accept and agree to such employment.  The
Executive’s duties as Chief Risk
Officer shall be such executive and managerial duties as set forth in
Exhibit A attached hereto.  The President 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.

       

      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
$400,000 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.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      (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 75% 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, 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 1.75 times Executive’s Annual Base Salary as
in effect immediately prior to his termination; (y) an amount equal to 0.75
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.

       

      (iv)  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)(iv), (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

          
            

          

        

        
          
          

        

      

       

      (v)  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)(v), 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 non-employee 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 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 between
them and the persons and entities with whom - or with which the Company has
contracted, (iv) with 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.

       

      (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.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      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.

       

      (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

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      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: President

      One Belvedere Place, Suite
300

      Mill Valley, CA 94941

      Phone: (415) 389-7373

      Fax: (415) 381-1773

      


      
        	
              	
                If
      to the Executive:    

              	
                Harold
      F. Zagunis

              


      

      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 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/ MARTIN S.
      HUGHES	 
	 	 	
                  MARTIN S. HUGHES

                	 
	 	 	President	 
	 	 	 	 
	 	 	/S/ HAROLD
      F. ZAGUNIS	 
	 	 	HAROLD F.
      ZAGUNIS	 
	 	 	 	 


        

      

       

      
        
          
          

        

        
          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 Harold F. Zagunis and Redwood Trust, Inc., Harold F.
Zagunis (“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 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.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      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 Harold F. Zagunis and Redwood Trust, Inc., Harold F. Zagunis
(“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.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      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