exv10w1



 




Exhibit
10.1


2002 REDWOOD TRUST, INC. INCENTIVE PLAN




Section 1.     General
Purpose of Plan; Definitions.



     
The name of this plan is the 2002 Redwood Trust, Inc. Incentive
Plan (the “Plan”). The Plan (then known as the 2002
Redwood Trust, Inc. Incentive Stock Plan) was adopted by the
Board on March 21, 2002 and approved by the Company’s
stockholders on May 9, 2002. The Board approved amendments
to the Plan on March 4, 2004 that were approved by the
Company’s stockholders on May 6, 2004. The Board
approved amendments to the Plan on March 9, 2006 (the
“2006 Amendments”) and directed that the amended Plan
be submitted to stockholders of the Company for approval. The
purpose of the Plan is to enable the Company and its
Subsidiaries to obtain and retain competent personnel who will
contribute to the Company’s success by their ability,
ingenuity, and industry, to give the Company’s non-employee
directors a proprietary interest in the Company, and to provide
incentives to the participating directors, officers, and other
key employees, and agents and consultants, that are linked to
performance measures and will therefore inure to the benefit of
all stockholders of the Company.



     
For purposes of the Plan, the following terms shall be defined
as set forth below:






		
	 	     
    (1) “Administrator” means the
    Board, or as long as the Company is subject to the reporting
    requirements of the Securities Exchange Act of 1934, as amended,
    or as required under Section 162(m) of the Code, the
    Committee appointed by the Board.
	 
	 	     
    (2) “Board” means the Board of
    Directors of the Company.
	 
	 	     
    (3) “Code” means the Internal
    Revenue Code of 1986, as amended from time to time, or any
    successor thereto.
	 
	 	     
    (4) “Committee” means the
    Compensation Committee of the Board, which shall be composed of
    not less than three Board members who shall be
    (i) Independent as defined by the rules of the New York
    Stock Exchange, as they may be amended from time to time;
    (ii) a Non-Employee Director as defined in
    Rule 16b-3
    promulgated under Section 16 of the Securities Exchange Act
    of 1934, as amended; and (iii) an Outside Director as
    defined under Section 162(m) of the Internal Revenue Code
    of 1986, as amended, and rules promulgated thereunder.
	 
	 	     
    (5) “Company” means Redwood Trust,
    Inc., a corporation organized under the laws of the State of
    Maryland (or any successor corporation).
	 
	 	     
    (6) “DERs” shall mean dividend
    equivalent rights, which are the right to receive amounts on
    related Stock awards that are linked to dividends on the Stock
    and that may be paid currently in cash or Stock, or accrued in
    shares of deferred stock with or without compounding through
    subsequent payments or accruals on the accrued shares. Payment
    of such deferred stock from DER accruals on Stock Options and
    Stock Appreciation Rights may or may not be contingent upon the
    exercise of the related award, as determined by the Committee at
    the time of grant.
	 
	 	     
    (7) “Deferred Stock” means an award
    granted pursuant to Section 7 of the right to receive Stock
    at the end of a specified deferral period or on such other bases
    as the Administrator may determine.
	 
	 	     
    (8) “Disability” means permanent
    and total disability as determined under the Company’s
    disability program or policy.
	 
	 	     
    (9) “Effective Date” shall mean the
    date provided pursuant to Section 11.
	 
	 	     
    (10) “Eligible Employee” means an
    employee of the Company or any Subsidiary, and any person to
    whom an offer of employment is made by the Company or any
    Subsidiary, eligible to participate in the Plan pursuant to
    Section 4.



1









 








		
	 	     
    (11) “Eligible Non-Employee
    Director” means a member of the Board or the board
    of directors of any Subsidiary who is not a bona fide employee
    of the Company or any Subsidiary and who is eligible to
    participate in the Plan pursuant to Section 4.
	 
	 	     
    (12) “Fair Market Value” means, as
    of any given date, with respect to any awards granted hereunder,
    at the discretion of the Administrator and subject to such
    limitations as the Administrator may impose, the closing sale
    price of the Stock on the next preceding business day as
    reported in the Western Edition of the Wall Street Journal
    Composite Tape.
	 
	 	     
    (13) “GAAP” means, for any day,
    generally accepted accounting principles, applied on a
    consistent basis, stated in the opinions and pronouncements of
    the Accounting Principles Board and the American Institute of
    Certified Public Accountants, or in statements and
    pronouncements of the Financial Accounting Standards Board or in
    such other statements by another entity or entities as may be
    approved by a significant segment of the accounting profession,
    that are applicable to the circumstances for that day.
	 
	 	     
    (14) “Incentive Stock Option” means
    any Stock Option intended to be designated as an “incentive
    stock option” within the meaning of Section 422 of the
    Code.
	 
	 	     
    (15) “Non-Employee Director” shall
    have the meaning set forth in
    Rule 16b-3
    promulgated under the Securities Exchange Act of 1934, as
    amended.
	 
	 	     
    (16) “Non-Qualified Stock Option”
    means any Stock Option that is not an Incentive Stock Option,
    including any Stock Option that provides (as of the time such
    option is granted) that it will not be treated as an Incentive
    Stock Option.
	 
	 	     
    (17) “Parent Corporation” means any
    corporation (other than the Company) in an unbroken chain of
    corporations ending with the Company, if each of the
    corporations in the chain (other than the Company) owns stock
    possessing 50% or more of the combined voting power of all
    classes of stock in one of the other corporations in the chain.
	 
	 	     
    (18) “Participant” means any
    Eligible Employee, Non-Employee Director, or consultant or agent
    of the Company or any Subsidiary selected by the Committee,
    pursuant to the Administrator’s authority in
    Section 2, to receive grants under the Plan.
	 
	 	     
    (19) “Performance Share” means an
    award of shares of Stock granted pursuant to Section 7 that
    is subject to restrictions based upon the attainment of
    specified performance objectives.
	 
	 	     
    (20) “Performance Unit” means an
    award of a unit valued by reference to a designated amount of
    property (including cash) other than Stock, which value may be
    paid to the Participant by delivery of such property as the
    Committee shall determine, including cash, Stock, other
    property, or any combination thereof, upon achievement of such
    performance goals as the Committee shall establish.
	 
	 	     
    (21) “Restricted Stock” means an
    award granted pursuant to Section 7 of shares of Stock,
    subject to restrictions that will lapse with the passage of time
    or on such other bases as the Administrator may determine.
	 
	 	     
    (22) “Stock” means the common
    stock, $0.01 par value per share, of the Company.
	 
	 	     
    (23) “Stock Appreciation Right”
    means the right pursuant to an award granted under
    Section 6 to receive an amount equal to the difference
    between (A) the Fair Market Value, as of the date such
    Stock Appreciation Right or portion thereof is surrendered, of
    the shares of Stock covered by such right or such portion
    thereof, and (B) the aggregate exercise price of such right
    or such portion thereof.
	 
	 	     
    (24) “Stock Option” means an option
    to purchase shares of Stock granted pursuant to Section 5.



2









 








		
	 	     
    (25) “Subsidiary” means
    (A) any corporation (other than the Company) or other
    entity whose assets and liabilities are consolidated with those
    of the Company on the Company’s consolidated balance sheet
    and (B) any other business venture designated by the
    Administrator in which the Company has a significant interest,
    as determined in the discretion of the Administrator.




Section 2.     Administration.



     
The Plan shall be administered by the Administrator, except as
otherwise expressly provided herein.



     
The Administrator shall have the power and authority to grant to
Participants pursuant to the terms of the Plan: (a) Stock
Options, (b) Stock Appreciation Rights, (c) Restricted
Stock, (d) Deferred Stock, (e) Performance Shares,
(f) Performance Units, or (g) any combination of the
foregoing. DERs may be granted in conjunction with any of the
Stock awards listed above.



     
In addition, the Administrator shall have the authority:






		
	 	     
    (a) to select those employees and prospective employees of
    the Company or any Subsidiary who shall be Eligible Employees;
	 
	 	     
    (b) to determine whether and to what extent Stock Options
    (with or without DERs), Stock Appreciation Rights, Restricted
    Stock, Deferred Stock, Performance Shares, Performance Units, or
    a combination of the foregoing, are to be granted to
    Participants hereunder;
	 
	 	     
    (c) to determine the number of shares to be covered by each
    such award granted hereunder;
	 
	 	     
    (d) to determine the terms and conditions, not inconsistent
    with the terms of the Plan, of any award granted hereunder
    (including, but not limited to, (x) the restricted period
    applicable to Restricted or Deferred Stock awards and the date
    or dates on which restrictions applicable to such Restricted or
    Deferred Stock shall lapse during such period, and (y) the
    performance goals and periods applicable to the award of
    Performance Shares and Performance Units); and
	 
	 	     
    (e) to determine the terms and conditions, not inconsistent
    with the terms of the Plan, which shall govern all written
    instruments evidencing the Stock Options, DERs, Stock
    Appreciation Rights, Restricted Stock, Deferred Stock,
    Performance Shares, Performance Units, or any combination of the
    foregoing.



     
The Administrator may designate whether any award being granted
to any Participant is intended to be “performance-based
compensation” as that term is used in Section 162(m)
of the Code. Any such awards designated as
“performance-based compensation” shall be conditioned
on the achievement of one or more performance measures. The
performance measures that may be used by the Administrator for
such awards shall be based on any one or more of the following,
as selected by the Administrator: revenue; revenue per employee;
GAAP earnings; taxable earnings; GAAP or taxable earnings per
employee; GAAP or taxable earnings per share (basic or diluted);
operating income; total stockholder return; dividends paid or
payable; market share; profitability as measured by return
ratios, including return on revenue, return on assets, return on
equity (including adjusted return on equity), and return on
investment; cash flow; or economic value added (economic
profit); and such criteria generally must be specified in
advance and may relate to one or any combination of two or more
corporate, group, unit, division, affiliate, or individual
performances. For awards intended to be “performance-based
compensation,” the grant of the awards, the establishment
of the performance measures, and the certification that the
performance goals were satisfied shall be made during the period
and in the manner required under Code Section 162(m).



     
The Administrator shall have the authority, in its discretion,
to adopt, alter, and repeal such administrative rules,
guidelines, and practices governing the Plan as it shall from
time to time deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan (and
any agreements relating thereto); and to otherwise supervise the
administration of the Plan.



3









 





     
All decisions made by the Administrator pursuant to the
provisions of the Plan shall be final and binding on all
persons, including the Company, any Subsidiaries, and the
Participants. Notwithstanding the foregoing or anything else to
the contrary in the Plan, any action or determination by the
Administrator specifically affecting or relating to an award to
a Non-Employee Director shall be approved and ratified by the
Board.



     
Notwithstanding anything to the contrary herein, no award
hereunder may be made to any Participant to the extent that,
following such award, the shares subject or potentially subject
to such Participant’s control (including, but not limited
to, (i) shares of the Company’s equity stock owned by
the Participant, (ii) shares of Stock subject to awards
granted to the Participant under the Prior Plan (whether such
awards are then exercisable or vested), (iii) Stock
Options, whether or not then exercisable, held by the
Participant to purchase additional such shares,
(iv) Restricted Stock, Deferred Stock, and Performance
Share awards to the Participant, whether or not then vested, and
(v) shares of Stock accrued under DERs awarded to the
Participant) would constitute more than 9.8% of the outstanding
capital stock of the Company.




Section 3.     Stock
Subject to Plan.



     
(1) Subject to the following provisions of this
Section 3, the maximum number of shares of Stock that may
be issued with respect to awards granted under the Plan
subsequent to the approval of the 2006 Amendments shall be equal
to the sum of: (i) 650,000 shares of Stock;
(ii) the number of shares of Stock remaining available for
grant under the Plan immediately prior to the stockholder
approval of the 2006 Amendments; (iii) any shares of Stock
that are represented by awards granted under the Company’s
Amended and Restated 1994 Executive and Non-Employee Director
Stock Option Plan (the “Prior Plan”) which are
(A) forfeited, expire, or are canceled without delivery of
shares of Stock or (B) settled in cash; and (iv) any
shares of Stock that are represented by awards granted under the
Prior Plan which are tendered to the Company (by either actual
delivery or attestation) to satisfy the exercise price of Stock
Options or the applicable tax withholding obligation.



     
(2) Any shares of Stock covered by an award that is
forfeited or canceled, or shares of stock not delivered because
the award is settled in cash or used to satisfy the applicable
tax withholding obligation, shall not be deemed to have been
issued for purposes of determining the maximum number of shares
of Stock available for future awards under the Plan.



     
(3) If the exercise price of any Stock Option granted under
the Plan is satisfied by tendering shares of Stock to the
Company (by either actual delivery or by attestation), only the
number of shares of Stock issued net of the shares of Stock
tendered shall be deemed issued for purposes of determining the
maximum number of shares of Stock available for future awards
under the Plan.



     
(4) Subject to Section 3(5), the following additional
maximums are imposed under the Plan:






		
	 	     
    (a) The maximum number of shares of Stock that may be the
    subject of awards granted as Incentive Stock Options under the
    Plan shall be 500,000 shares (regardless of whether the
    awards are canceled, forfeited, or materially amended or the
    shares subject to any such awards are surrendered).
	 
	 	     
    (b) The maximum number of shares that may be the subject of
    awards granted to any one individual pursuant to Sections 5
    and 6 (relating to Stock Options and Stock Appreciation Rights)
    shall be 500,000 shares during any calendar year
    (regardless of whether such awards are canceled, forfeited, or
    materially amended or the shares subject to any such award are
    surrendered).
	 
	 	     
    (c) No more than 500,000 shares of Stock may be the
    subject of awards under the Plan granted to any one individual
    during any one-calendar-year period (regardless of when such
    shares are deliverable or whether the awards are forfeited,
    canceled, or materially amended or the shares subject to any
    such award are surrendered) if such awards are intended to be
    “performance-based compensation” (as the term is used
    for purposes of Code Section 162(m)).



4









 








		
	 	     
    (d) Shares of Stock issued under the Plan or covered by
    awards granted under the Plan pursuant to the settlement,
    assumption, or substitution of outstanding awards or obligations
    to grant future awards as a condition of the Company acquiring
    another entity shall not count against the maximum number of
    shares available for future awards under the Plan.



     
(5) In the event of a corporate transaction involving the
Company (including, without limitation, any stock dividend,
stock split, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off,
combination, or exchange of shares), the Administrator may
adjust awards to preserve the benefits or potential benefits of
the awards. Action by the Administrator may include:
(i) adjustment of the number and kind of shares which may
be delivered under the Plan; (ii) adjustment of the number
and kind of shares subject to outstanding awards;
(iii) adjustment of the exercise price of outstanding Stock
Options and Stock Appreciation Rights; and (iv) any other
adjustments that the Administrator determines to be equitable,
in its sole discretion.




Section 4.     Eligibility.



     
Officers and other key employees of the Company or Subsidiaries
who are responsible for or contribute to the management, growth,
and/or profitability of the business of the Company or its
Subsidiaries, Non-Employee Directors, and consultants and agents
of the Company or its Subsidiaries, shall be eligible to be
granted Stock Options, DERs, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares, or
Performance Units hereunder. The Participants under the Plan
shall be selected from time to time by the Administrator, in its
sole discretion, from among those eligible.




Section 5.     Stock
Options.



     
Stock Options may be granted alone or in addition to other
awards granted under the Plan, including DERs. Any Stock Option
granted under the Plan shall be in such form as the
Administrator may from time to time approve, and the provisions
of Stock Option awards need not be the same with respect to each
optionee. Recipients of Stock Options shall enter into a Stock
Option agreement with the Company, in such form as the
Administrator shall determine, which agreement shall set forth,
among other things, the exercise price, the term, and provisions
regarding exercisability of the Stock Option granted thereunder.



     
The Stock Options granted under the Plan may be of two types:
(i) Incentive Stock Options and (ii) Non-Qualified
Stock Options.



     
The Administrator shall have the authority under this
Section 5 to grant any optionee (except Eligible
Non-Employee Directors) Incentive Stock Options, Non-Qualified
Stock Options, or both types of Stock Options (in each case with
or without DERs or Stock Appreciation Rights), provided,
however, that Incentive Stock Options may not be granted to any
individual who is not an employee of the Company or its
Subsidiaries. To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option. More than one option may be
granted to the same optionee and be outstanding concurrently
hereunder.



     
Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the
Plan, as the Administrator shall deem desirable:






		
	 	     
    (1) Option Price. The option price per share of
    Stock purchasable under a Stock Option shall be determined by
    the Administrator in its sole discretion at the time of grant
    but shall not be less than 100% of the Fair Market Value of the
    Stock on such date, and shall not, in any event, be less than
    the par value of the Stock. If an employee owns or is deemed to
    own (by reason of the attribution rules applicable under
    Section 425(d) of the Code) more than 10% of the combined
    voting power of all classes of stock of the Company or any
    Parent Corporation or Subsidiary and an Incentive Stock Option
    is granted to such employee, the option price of such Incentive
    Stock Option (to the extent required by the Code at the time of
    grant) shall be no less than 110% of the Fair



5









 




		
	 	
    Market Value of the Stock on the date such Incentive Stock
    Option is granted. The provisions of this Section 5(1)
    shall not be applicable to awards granted under the Plan
    pursuant to the settlement, assumption, or substitution of
    outstanding awards or obligations to grant future awards as a
    condition of the Company acquiring another entity.
	 
	 	     
    (2) Option Term. The term of each Stock Option shall
    be fixed by the Administrator, but no Stock Option shall be
    exercisable more than ten years after the date such Stock Option
    is granted; provided, however, that if an employee owns or is
    deemed to own (by reason of the attribution rules of
    Section 425(d) of the Code) more than 10% of the combined
    voting power of all classes of stock of the Company or any
    Parent Corporation or Subsidiary and an Incentive Stock Option
    is granted to such employee, the term of such Incentive Stock
    Option (to the extent required by the Code at the time of grant)
    shall be no more than five years from the date of grant.
	 
	 	     
    (3) Exercisability. Stock Options shall be
    exercisable at such time or times and subject to such terms and
    conditions as shall be determined by the Administrator at or
    after grant. The Administrator may provide, in its discretion,
    that any Stock Option shall be exercisable only in installments,
    and the Administrator may waive such installment exercise
    provisions at any time in whole or in part based on such factors
    as the Administrator may determine, in its sole discretion. To
    the extent not exercised, installments shall accumulate and be
    exercisable in whole or in part at any time after becoming
    exercisable but not later than the date the Stock Option expires.
	 
	 	     
    (4) Method of Exercise. Subject to
    Section 5(3), Stock Options may be exercised in whole or in
    part at any time during the option period, by giving written
    notice of exercise to the Company specifying the number of
    shares to be purchased, accompanied by payment in full of the
    purchase price in cash or its equivalent as determined by the
    Administrator. The Administrator may also permit a Participant
    to elect to pay the exercise price upon the exercise of a Stock
    Option by irrevocably authorizing a third party to sell shares
    of Stock (or a sufficient portion of the shares) acquired upon
    exercise of the Stock Option and remit to the Company a
    sufficient portion of the sale proceeds to pay the entire
    exercise price and any tax withholding resulting from such
    exercise. As determined by the Administrator, in its sole
    discretion, payment in whole or in part may also be made by
    surrendering unrestricted Stock already owned by the optionee,
    or, in the case of the exercise of a Non-Qualified Stock Option,
    Restricted Stock, or Performance Shares subject to an award
    hereunder (based, in each case, on the Fair Market Value of the
    Stock on the date the option is exercised); provided, however,
    that in the case of an Incentive Stock Option, the right to make
    payment in the form of already owned shares may be authorized
    only at the time of grant. Any payment in the form of stock
    already owned by the optionee may be effected by use of an
    attestation form approved by the Administrator. If payment of
    the option exercise price of a Non-Qualified Stock Option is
    made in whole or in part in the form of Restricted Stock or
    Performance Shares, the shares received upon the exercise of
    such Stock Option (to the extent of the number of shares of
    Restricted Stock or Performance Shares surrendered upon exercise
    of such Stock Option) shall be restricted in accordance with the
    original terms of the Restricted Stock or Performance Share
    award in question, except that the Administrator may direct that
    such restrictions shall apply only to that number of shares
    equal to the number of shares surrendered upon the exercise of
    such option. An optionee shall generally have the rights to
    dividends and other rights of a stockholder with respect to
    shares subject to the option only after the optionee has given
    written notice of exercise, has paid in full for such shares,
    and, if requested, has given the representation described in
    paragraph (1) of Section 11.
	 
	 	     
    (5) Limits on Transferability of Options.







		
	 	     
    (a) Subject to Section 5(5)(b), no Stock Option shall
    be transferable by the optionee otherwise than by will or by the
    laws of descent and distribution or pursuant to a
    “qualified domestic relations order,” as such term is
    defined in the Employee Retirement Income Security Act of 1974,
    as amended (“ERISA”), and all Stock Options shall be
    exercisable, during the



6









 




		
	 	
    optionee’s lifetime, only by the optionee or in accordance
    with the terms of a qualified domestic relations order.
	 
	 	     
    (b) The Administrator may, in its discretion, authorize all
    or a portion of the Non-Qualified Stock Options to be granted to
    an optionee to be on terms which permit transfer by such
    optionee to (i) the spouse, qualified domestic partner,
    children, or grandchildren of the optionee and any other persons
    related to the optionee as may be approved by the Administrator
    (“Immediate Family Members”), (ii) a trust or
    trusts for the exclusive benefit of such Immediate Family
    Members, (iii) a partnership or partnerships in which such
    Immediate Family Members are the only partners, or (iv) any
    other persons or entities as may be approved by the
    Administrator, provided that (x) there may be no
    consideration for any transfer unless approved by the
    Administrator, (y) the stock option agreement pursuant to
    which such options are granted must be approved by the
    Administrator, and must expressly provide for transferability in
    a manner consistent with this Section 5(5)(b), and
    (z) subsequent transfers of transferred Stock Options shall
    be prohibited except those in accordance with
    Section 5(5)(a) or expressly approved by the Administrator.
    Following transfer, any such Stock Options shall continue to be
    subject to the same terms and conditions as were applicable
    immediately prior to transfer, provided that, except for
    purposes of Sections 5(6) and 10(3) hereof, the terms
    “optionee,” “Stock Option holder” and
    “Participant” shall be deemed to refer to the
    transferee. The events of termination of employment contained in
    the option agreement with respect to such Stock Options shall
    continue to be applied with respect to the original optionee,
    following any which event the Stock Options shall be exercisable
    by the transferee only to the extent, and for the periods
    specified in such option agreements. Notwithstanding the
    transfer, the original optionee will continue to be subject to
    the provisions of Section 10(3) regarding payment of taxes,
    including the provisions entitling the Company to deduct such
    taxes from amounts otherwise due to such optionee. Any transfer
    of a Stock Option that was originally granted with DERs related
    thereto shall automatically include the transfer of such DERs,
    any attempt to transfer such Stock Option separately from such
    DERs shall be void, and such DERs shall continue in effect
    according to their terms. “Qualified domestic partner”
    for the purpose of this Section 5(5)(b) shall mean a
    domestic partner living in the same household as the optionee
    and registered with, certified by, or otherwise acknowledged by
    the county or other applicable governmental body as a domestic
    partner or otherwise establishing such status in any manner
    satisfactory to the Administrator.







		
	 	     
    (6) Annual Limit on Incentive Stock Options. To the
    extent that the aggregate Fair Market Value (determined as of
    the date the Incentive Stock Option is granted) of shares of
    Stock with respect to which Incentive Stock Options granted to
    an optionee under this Plan and all other option plans of the
    Company, its Parent Corporation or any Subsidiary become
    exercisable for the first time by the optionee during any
    calendar year exceeds $100,000, such Stock Options shall be
    treated as Non-Qualified Stock Options.




Section 6.     Stock
Appreciation Rights.



     
(1) Grant and Exercise. Stock Appreciation Rights
may be granted either alone (“Free Standing Rights”)
or in conjunction with all or part of any Stock Option granted
under the Plan (“Related Rights”). In the case of a
Non-Qualified Stock Option, Related Rights may be granted either
at or after the time of the grant of such Stock Option. In the
case of an Incentive Stock Option, Related Rights may be granted
only at the time of the grant of the Incentive Stock Option.



     
A Related Right or applicable portion thereof granted in
conjunction with a given Stock Option shall terminate and no
longer be exercisable upon the termination or exercise of the
related Stock Option, except that, unless otherwise provided by
the Administrator at the time of grant, a Related Right granted
with respect to less than the full number of shares covered by a
related Stock Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination
of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.



7









 





     
A Related Right may be exercised by an optionee, in accordance
with paragraph (2) of this Section 6, by
surrendering the applicable portion of the related Stock Option.
Upon such exercise and surrender, the optionee shall be entitled
to receive an amount determined in the manner prescribed in
paragraph (2) of this Section 6. Stock Options
which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the Related Rights have been
so exercised.



     
(2) Terms and Conditions. Stock Appreciation Rights
shall be subject to such terms and conditions, not inconsistent
with the provisions of the Plan, as shall be determined from
time to time by the Administrator, including the following:






		
	 	     
    (a) Stock Appreciation Rights that are Related Rights
    (“Related Stock Appreciation Rights”) shall be
    exercisable only at such time or times and to the extent that
    the Stock Options to which they relate shall be exercisable in
    accordance with the provisions of Section 5 and this
    Section 6; provided, however, that no Related Stock
    Appreciation Right shall be exercisable during the first six
    months of its term, except that this additional limitation shall
    not apply in the event of death or Disability of the optionee
    prior to the expiration of such six-month period.
	 
	 	     
    (b) Upon the exercise of a Related Stock Appreciation
    Right, an optionee shall be entitled to receive up to, but not
    more than, an amount in cash or that number of shares of Stock
    (or in some combination of cash and shares of Stock) equal in
    value to the excess of the Fair Market Value of one share of
    Stock as of the date of exercise over the option price per share
    specified in the related Stock Option multiplied by the number
    of shares of Stock in respect of which the Related Stock
    Appreciation Right is being exercised, with the Administrator
    having the right to determine the form of payment.
	 
	 	     
    (c) Related Stock Appreciation Rights shall be transferable
    or exercisable only when and to the extent that the underlying
    Stock Option would be transferable or exercisable under
    paragraph (5) of Section 5.
	 
	 	     
    (d) Upon the exercise of a Related Stock Appreciation
    Right, the Stock Option or part thereof to which such Related
    Stock Appreciation Right is related shall be deemed to have been
    exercised for the purpose of the limitation set forth in
    Section 3 on the number of shares of Stock to be issued
    under the Plan.
	 
	 	     
    (e) A Related Stock Appreciation Right granted in
    connection with an Incentive Stock Option may be exercised only
    if and when the Fair Market Value of the Stock subject to the
    Incentive Stock Option exceeds the exercise price of such Stock
    Option.
	 
	 	     
    (f) Stock Appreciation Rights that are Free Standing Rights
    (“Free Standing Stock Appreciation Rights”) shall be
    exercisable at such time or times and subject to such terms and
    conditions as shall be determined by the Administrator at or
    after grant; provided, however, that no Free Standing Stock
    Appreciation Right shall be exercisable during the first six
    months of its term, except that this limitation shall not apply
    in the event of death or Disability of the recipient of the Free
    Standing Stock Appreciation Right prior to the expiration of
    such six-month period.
	 
	 	     
    (g) The term of each Free Standing Stock Appreciation Right
    shall be fixed by the Administrator, but no Free Standing Stock
    Appreciation Right shall be exercisable more than ten years
    after the date such right is granted.
	 
	 	     
    (h) Upon the exercise of a Free Standing Stock Appreciation
    Right, a recipient shall be entitled to receive up to, but not
    more than, an amount in cash or that number of shares of Stock
    (or any combination of cash or shares of Stock) equal in value
    to the excess of the Fair Market Value of one share of Stock as
    of the date of exercise over the price per share specified in
    the Free Standing Stock Appreciation Right (which price shall be
    no less than 100% of the Fair Market Value of the Stock on the
    date of grant) multiplied by the number of shares of Stock with
    respect to which the right is being exercised, with the
    Administrator having the right to determine the form of payment.



8









 








		
	 	     
    (i) Free Standing Stock Appreciation Rights shall be
    transferable or exercisable subject to the provisions governing
    the transferability and exercisability of Stock Options set
    forth in paragraphs (3) and (5) of Section 5.
	 
	 	     
    (j) In the event of the termination of an employee who has
    been granted one or more Free Standing Stock Appreciation
    Rights, such rights shall be exercisable to the same extent that
    a Stock Option would have been exercisable in the event of the
    termination of the optionee.
	 
	 	     
    (k) For the purpose of the limitation set forth in
    Section 3 on the number of shares to be issued under the
    Plan, the grant or exercise of Free Standing Stock Appreciation
    Rights shall be deemed to constitute the grant or exercise,
    respectively, of Stock Options with respect to the number of
    shares of Stock with respect to which such Free Standing Stock
    Appreciation Rights were so granted or exercised.




Section 7.     Restricted
Stock, Deferred Stock, and Performance Shares.



     
(1) General. Restricted Stock, Deferred Stock, or
Performance Share awards may be issued either alone or in
addition to other awards granted under the Plan. The
Administrator shall determine the Participants to whom, and the
time or times at which, grants of Restricted Stock, Deferred
Stock, or Performance Share awards shall be made; the number of
shares to be awarded; the price, if any, to be paid by the
recipient of Restricted Stock, Deferred Stock, or Performance
Share awards; the Restricted Period (as defined in
Section 7(3)) applicable to Restricted Stock, Deferred
Stock, or Performance Share awards; the performance objectives
applicable to Performance Share, Restricted Stock, or Deferred
Stock awards; the date or dates on which restrictions applicable
to such Restricted Stock or Deferred Stock awards shall lapse
during such Restricted Period; and all other conditions of the
Restricted Stock, Deferred Stock, and Performance Share awards.
The Administrator may also condition the grant of Restricted
Stock, Deferred Stock, or Performance Share awards upon the
exercise of Stock Options or upon such other criteria as the
Administrator may determine, in its sole discretion. The
provisions of Restricted Stock, Deferred Stock, or Performance
Share awards need not be the same with respect to each recipient.



     
(2) Awards and Certificates. The prospective
recipient of a Restricted Stock, Deferred Stock, or Performance
Share award shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement
evidencing the award (a “Restricted Stock Award
Agreement,” “Deferred Stock Award Agreement,” or
“Performance Share Award Agreement,” as appropriate)
and delivered a fully executed copy thereof to the Company,
within a period of sixty days (or such other period as the
Administrator may specify) after the award date. Except as
otherwise provided below in this Section 7(2),
(i) each Participant who is awarded Restricted Stock or
Performance Shares shall be issued a stock certificate in
respect of such shares of Restricted Stock or Performance
Shares; and (ii) such certificate shall be registered in
the name of the Participant, and shall bear an appropriate
legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:






			
	 	   
    “The transferability of this certificate and the shares of
    stock represented hereby are subject to the terms and conditions
    (including forfeiture) of the 2002 Redwood Trust, Inc. Incentive
    Plan and a Restricted Stock Award Agreement or Performance Share
    Award Agreement entered into between the registered owner and
    Redwood Trust, Inc. Copies of such Plan and Agreement are on
    file in the offices of Redwood Trust, Inc.”	 



     
The Company shall require that the stock certificates evidencing
such shares be held in the custody of the Company until the
restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award or Performance Share
award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.



9








 





     
(3) Restrictions and Conditions. The
Restricted Stock, Deferred Stock, and Performance Share awards
granted pursuant to this Section 7 shall be subject to the
following restrictions and conditions:






		
	 	     
    (a) Subject to the provisions of the Plan and the
    Restricted Stock, Deferred Stock, or Performance Share award
    agreement, during such period as may be set by the Administrator
    commencing on the grant date (the “Restricted
    Period”), the Participant shall not be permitted to sell,
    transfer, pledge, or assign shares of Restricted Stock,
    Performance Shares, or Deferred Stock awarded under the Plan;
    provided, however, that the Administrator may, in its sole
    discretion, provide for the lapse of such restrictions in
    installments and may accelerate or waive such restrictions in
    whole or in part based on such factors and such circumstances as
    the Administrator may determine, in its sole discretion,
    including, but not limited to, the attainment of certain
    performance related goals, the Participant’s termination,
    death, or Disability or the occurrence of a “Change of
    Control” (as defined by the Administrator at the time of
    grant). Except for certain limited situations, the Restricted
    Period for awards subject solely to continued employment
    restrictions shall be not less than three years from the date of
    grant. The Restricted Period for awards subject to meeting
    specified performance criteria shall generally not be shorter
    than twelve months or longer than five years.
	 
	 	     
    (b) Except as provided in paragraph (3)(a) of this
    Section 7, the Participant shall have, with respect to the
    shares of Restricted Stock or Performance Shares, all of the
    rights of a stockholder of the Company, including the right to
    vote the shares, and the right to receive any dividends thereon
    during the Restricted Period. With respect to Deferred Stock
    awards, the Participant shall generally not have the rights of a
    stockholder of the Company, including the right to vote the
    shares during the Restricted Period; provided, however, that,
    except as otherwise specified by the Administrator at time of
    grant, dividends declared during the Restricted Period with
    respect to the number of shares covered by a Deferred Stock
    award shall accrue to the Participant. Certificates for shares
    of unrestricted Stock shall be delivered to the Participant
    promptly after, and only after, the Restricted Period shall
    expire without forfeiture in respect of such shares covered by
    the award of Restricted Stock, Performance Shares, or Deferred
    Stock, except as the Administrator, in its sole discretion,
    shall otherwise determine.






		
	Section 8.     	
    Performance Units.



     
(1) General. Performance Unit awards may be
issued either alone or in addition to other awards granted under
the Plan. The Administrator shall determine the Participants to
whom, and the time or times at which, grants of Performance Unit
awards shall be made; the number of units to be awarded; the
Performance Period (as defined in Section 8(2)) applicable
to Performance Unit awards; the performance objectives
applicable to Performance Unit awards, including the performance
measures specified in Section 2 for Performance Unit awards
that are intended to be “performance-based
compensation” as that term is used in Section 162(m)
of the Code; and all other conditions of the Performance Unit
awards. The Administrator may also condition the grant of
Performance Unit awards upon such other criteria as the
Administrator may determine, in its sole discretion. The
provisions of Performance Unit awards need not be the same with
respect to each recipient.



     
(2) Performance Period and Conditions. The
Performance Unit awards granted pursuant to this Section 8
shall be subject to the following terms and other conditions:






		
	 	     
    (a) The Performance Unit award agreement shall specify such
    period as may be set by the Administrator commencing on the
    grant date (the “Performance Period”) during which the
    Performance Unit award shall be earned, based on the attainment
    of certain performance related goals and such other factors as
    the Administrator may determine, in its sole discretion;
    provided, however, that the Administrator may waive such goals
    and factors in whole or in part under such circumstances as it
    may determine in its sole discretion, including the
    Participant’s termination, death, or Disability or the
    occurrence of a “Change of Control” (as defined by the
    Administrator at the time of grant). The Performance Period for
    awards shall generally not be shorter than twelve months or
    longer than five years. Notwithstanding anything to the contrary
    herein, with respect to a Perform-



10









 




		
	 	
    ance Unit award intended to qualify as performance-based
    compensation under Section 162(m) of the Code, the
    Committee may adjust downwards, but not upwards, the amount
    payable under such award. Notwithstanding anything to the
    contrary herein, with respect to any Performance Unit award that
    is intended to qualify as performance-based compensation under
    Section 162(m) of the Code, the Committee shall, prior to
    payment on such award, certify in writing that the applicable
    performance related goals have been met.
	 
	 	     
    (b) Except as provided in this Section 8 or as may be
    provided in an award agreement, Performance Units will be paid
    only after the end of the relevant Performance Period.
    Performance Unit awards may be paid in cash, shares of stock,
    other property, or any combination thereof, in the sole
    discretion of the Committee at the time of payment. Awards may
    be paid in a lump sum or in installments following the close of
    the Performance Period or, in accordance with procedures
    established by the Committee, on a deferred basis subject to the
    requirements of Section 409A of the Code.




     
(3) Maximum Dollar Value. The maximum dollar
value payable to any Participant in any
12-month period with
respect to a Performance Unit award that is intended to be
performance-based compensation is $5,000,000. If such an award
is cancelled, the cancelled award shall continue to be counted
towards such maximum dollar value.




Section 9.     Amendment
and Termination.



     
The Board may amend, alter, suspend, terminate, or discontinue
the Plan or any portion thereof at any time; provided, however,
that no such amendment, alteration, suspension, discontinuation,
or termination shall be made without (1) stockholder
approval if such approval is necessary to qualify for or comply
with any tax or regulatory requirement for which or with which
the Board deems it necessary or desirable to qualify or comply
or if such approval is required by the paragraph below or
(2) the consent of the affected Participant, if such action
would impair the rights of such Participant under any
outstanding award. Notwithstanding anything to the contrary
herein, the Committee may amend the Plan in such manner as may
be necessary so as to have the Plan conform to local rules and
regulations in any jurisdiction outside the United States.



     
The Administrator may amend the terms of any award theretofore
granted prospectively or retroactively, but no such amendment
shall (1) impair the rights of any Participant without his
or her consent or (2) without stockholder approval, except
for adjustments made pursuant to Section 3(5) or in
connection with substitute awards, reduce the exercise price of
outstanding Stock Options or Stock Appreciation Rights or cancel
outstanding Stock Options or Stock Appreciation Rights in
exchange for cash, other Awards or Stock Options or Stock
Appreciation Rights with an exercise price that is less than the
exercise price of the original Stock Options or Stock
Appreciation Rights. Any change or adjustment to an outstanding
Incentive Stock Option shall not, without the consent of the
Participant, be made in a manner so as to constitute a
“modification” that would cause such Incentive Stock
Option to fail to continue to qualify as an Incentive Stock
Option. Notwithstanding the foregoing, any adjustments made
pursuant to Section 3(5) shall not be subject to these
restrictions.






		
	Section 10.     	
    Unfunded Status of Plan.



     
The Plan is intended to constitute an “unfunded” plan
for incentive compensation. With respect to any payments not yet
made to a Participant or optionee by the Company, nothing
contained herein shall give any such Participant or optionee any
rights that are greater than those of a general creditor of the
Company.






		
	Section 11.     	
    General Provisions.



     
(1) The Administrator may require each person purchasing
shares pursuant to a Stock Option to represent to and agree with
the Company in writing that such person is acquiring the shares
without a



11









 






view to distribution thereof. The certificates for such shares
may include any legend which the Administrator deems appropriate
to reflect any restrictions on transfer.



     
All certificates for shares of Stock delivered under the Plan
shall be subject to such stock-transfer orders and other
restrictions as the Administrator may deem advisable under the
rules, regulations, and other requirements of the Commission,
any stock exchange upon which the Stock is then listed, and any
applicable federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such
restrictions.



     
(2) Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required;
and such arrangements may be either generally applicable or
applicable only in specific cases. The adoption of the Plan
shall not confer upon any employee of the Company or any
Subsidiary any right to continued employment with the Company or
a Subsidiary, as the case may be, nor shall it interfere in any
way with the right of the Company or a Subsidiary to terminate
the employment of any of its employees at any time.



     
(3) Each Participant shall, no later than the date as of
which the value of an award first becomes includable in the
gross income of the Participant for federal income tax purposes,
pay to the Company, or make arrangements satisfactory to the
Administrator regarding payment of, any federal, state, or local
taxes of any kind required by law to be withheld with respect to
the award. The obligations of the Company under the Plan shall
be conditional on the making of such payments or arrangements,
and the Company (and, where applicable, its Subsidiaries) shall,
to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the
Participant.



     
(4) No member of the Board or the Administrator, nor any
officer or employee of the Company acting on behalf of the Board
or the Administrator, shall be personally liable for any action,
determination, or interpretation taken or made in good faith
with respect to the Plan, and all members of the Board or the
Administrator and each and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.



     
(5) The Administrator may permit or require a Participant
to subject any award granted hereunder to any deferred
compensation, deferred stock issuance, or similar plan that may
be made available to Participants by the Company from time to
time. The Administrator may establish such rules and procedures
for participation in such deferral plans as it may deem
appropriate, in its sole discretion.



     
(6) This Plan is intended to comply and shall be
administered in a manner that is intended to comply with
Section 409A of the Code and shall be construed and
interpreted in accordance with such intent. To the extent that
an award or the payment, settlement or deferral thereof is
subject to Section 409A of the Code, the award shall be
granted, paid, settled or deferred in a manner that will comply
with Section 409A of the Code, including regulations or
other guidance issued with respect thereto, except as otherwise
determined by the Committee. Any provision of this Plan that
would cause the grant of an award or the payment, settlement or
deferral thereof to fail to satisfy Section 409A of the
Code shall be amended to comply with Section 409A of the
Code on a timely basis, which may be made on a retroactive
basis, in accordance with regulations and other guidance issued
under Section 409A of the Code.






		
	Section 12.     	
    Effective Date of Plan.



     
The Plan became effective (the “Effective Date”) on
May 9, 2002, the date the Company’s stockholders
formally approved the Plan. The Plan was amended effective on
May 6, 2004, the date the Company’s stockholders
formally approved amendments to the Plan. The 2006 Amendments
will become effective upon approval by the Company’s
stockholders at the Company’s 2006 Annual Meeting of
Stockholders.



12









 








		
	Section 13.     	
    Term of Plan.



     
The Plan shall remain in full force and effect unless terminated
by the Board or no further shares of Stock remain available for
awards to be granted under Section 3 and there are no
outstanding awards that remain to become vested, exercised, or
free of restrictions.



13