Exhibit
10.2

    


    [FORM
OF]

    PERFORMANCE
STOCK UNIT AWARD AGREEMENT


    


    PERFORMANCE STOCK UNIT AWARD
AGREEMENT dated as of the __ day of ________ 20__ (the “Award
Agreement”), by and between Redwood Trust, Inc., a Maryland corporation (the
“Company”), and­­­­­­­­­­______________,
an employee of the Company (the “Participant”).

     

    Pursuant
to the 2002 Redwood Trust, Inc. Incentive Stock Plan (the “Plan”), the
Compensation Committee (the “Committee”) has determined that the Participant is
to be granted a Performance Stock Unit award for shares of the Company’s common
stock, par value $0.01 per share (“Common Stock”) on the terms and conditions
set forth herein (the “Award”), and the Company hereby grants such
Award.  This Award is being made in connection with a deferral of
compensation by the Participant pursuant to the Redwood Trust, Inc. Executive
Deferred Compensation Plan (the “Deferred Compensation Plan”) and the executed
Deferral Election attached hereto as Exhibit B (the
“Deferral Election”). Any capitalized terms not defined herein shall have the
meaning set forth in the Plan or the Deferred Compensation Plan, as
applicable.

     

    1.           Number of
Performance Stock Units Awarded.  This Award
Agreement sets forth the terms and conditions of a Performance Stock Unit Award
with a target award of _________ shares
of Common Stock, as adjusted to reflect cash dividends declared on the Common
Stock pursuant to Section 2 (the “Target Shares”).  The number of
units representing shares of Common Stock that shall be credited to
Participant’s Deferral Account pursuant to this Award (the “Award Shares”) shall
be determined based upon the Company’s achievement of the Performance Goals set
forth in Exhibit
A hereto and may range from zero percent (0%) to two hundred percent
(200%) of the Target Shares.

     

    2.           Effect of
Dividends on Target Shares.  On the last day
of the Performance Period, the number of Target
Shares set forth in Section 1 shall automatically be increased to reflect all
cash dividends, if any, which have been paid to all or substantially all holders
of the outstanding shares of Common Stock during the Performance Period (as such
term is defined in Exhibit
A).  On such date, the Target Shares shall be automatically
increased by an aggregate number of shares determined by multiplying (x) the
target award amount set forth in Section 1 above by (y) the Dividend
Reinvestment Factor (as such term is defined below).


    
      
         


      

      
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    “Dividend
Reinvestment Factor” shall mean the number of shares of Common Stock that would
have been acquired from the reinvestment of cash dividends, if any, which have
been paid to all or substantially all holders of the outstanding shares of
Common Stock during the Performance Period, with respect to one share of Common
Stock outstanding on the first day of the Performance
Period.   Such number of shares shall be determined cumulatively,
for each cash dividend paid during the Performance Period (beginning with the
first cash dividend paid during the Performance Period and continuing
chronologically with each subsequent cash dividend paid during the Performance
Period (and in each case other than the first such cash dividend, taking into
account any increase in shares resulting from the application of this formula to
the chronologically immediately preceding cash dividend)), by multiplying (i)
the applicable number of shares of Common Stock immediately prior to the record
date of such cash dividend (which in the case of the first cash dividend paid
during the Performance Period shall be one) by (ii) the per share amount of such
cash dividend and dividing the product by the Fair Market Value per share of
Common Stock on the payment date of such dividend.


     

    3.           Vesting
and Payment of Award.  The Award Shares
shall vest and be credited effective as of the last day of the Performance
Period, if at all, when the Administrator determines, in its sole discretion,
whether and to what extent the Performance Goals set forth in Exhibit A have been
attained.  The crediting of the Award Shares is contingent on the
attainment of the Performance Goals as set forth on Exhibit
A.  Upon such determination by the Administrator and subject to
the provisions of the Plan and this Award Agreement, the Participant shall be
entitled to crediting of that portion of the Performance Stock Units as
corresponds to the Performance Goals attained (as determined by the
Administrator in its sole discretion) as set forth on Exhibit A.

     

    No Award
Shares shall be credited to Participant’s Deferral Account unless the
Administrator determines, in its sole discretion, whether and to what extent the
Performance Goals set forth in Exhibit A have been
attained and the number of Award Shares earned pursuant to the Award have been
determined.  Any shares of Common Stock in respect of Award Shares
credited to Participant’s Deferral Account shall be delivered to the Participant
at the time or times provided in the Deferral Election and the Deferred
Compensation Plan (or any re-deferral election made in accordance with Section
409A and the terms of the Deferred Compensation Plan).

     

    3.           Forfeiture
of Performance Stock Units.  Upon termination
of employment with the Company due to death or Disability or by the Company
without Cause (as defined below) the Target Shares shall be reduced on a
pro-rata basis to reflect the number of days of employment completed during the
Performance Period, and the Award shall continue to be eligible to vest and
become payable based on such prorated number of Target Shares and the
Performance Goals.  Upon termination of employment with the Company
for any reason other than death, Disability or without Cause, prior to
expiration of the Performance Period, any Award Shares not vested at the time of
such termination shall become ineligible for crediting to Participant’s Deferral
Account and shall be forfeited.  Any Award Shares which have been
credited to Participant’s Deferral Account prior to termination of employment
shall not be forfeited in the event of termination of employment but rather
delivery of such shares shall continue to be governed by the terms of the
Deferral Election and the Deferred Compensation Plan (or any re-deferral
election made in accordance with Section 409A and the terms of the Deferred
Compensation Plan).


    
      
         


      

      
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    For
purposes of this Award Agreement, “Cause” shall mean (i) the Participant’s
material failure to substantially perform the reasonable and lawful duties of
his or her position for the Company, which failure shall continue for thirty
(30) days after notice thereof by the Company to the Participant; (ii) acts or
omissions constituting gross negligence, recklessness or willful misconduct on
the part of the Participant in respect of the performance of his or her duties
hereunder, his or her fiduciary obligations or otherwise relating to the
business of the Company; (iii) the habitual or repeated neglect of his or her
duties by Participant; (iv) the Participant’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 Participant 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.

     

    4.           Adjustments.  The
Administrator, in its discretion, may adjust or modify the methodology for
calculating the achievement of the Performance Goals set forth in Exhibit A hereto as
necessary or desirable to account for events affecting the value of the Common
Stock which, in the discretion of the Administrator, are not considered
indicative of Company performance, such as the issuance of new Common Stock,
stock repurchases, stock splits, issuances and/or exercises of stock grants or
stock options, and similar events, all in order to properly reflect the
Company’s intent with respect to the performance objectives underlying this
Award or to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available with respect to the Award.

     

    5.           At-Will
Employment.  This Award
Agreement is not an employment contract and nothing in this Award Agreement
shall be deemed to create in any way whatsoever any obligation of the
Participant to continue in the employ of the Company or on the part of the
Company to continue the employment of the Participant with the
Company.  It is understood and agreed to by the Participant that the
Award and participation in the Plan or the Deferred Compensation Plan does not
alter the at-will nature of Participant’s relationship with the Company (subject
to the terms of any separate employment agreement Participant may have with the
Company).  The at-will nature of Participant’s relationship with the
Company can only be altered by a writing signed by both the Participant and the
President of the Company.

     

    6.           Notices.  Any notice
required or permitted under this Award Agreement shall be deemed given when
delivered personally, or when deposited in a United States Post Office, postage
prepaid, addressed, as appropriate, to the Participant either at the
Participant’s address set forth below or such other address as the Participant
may designate in writing to the Company, and to the
Company:  Attention:  General Counsel, at the Company’s
address or such other address as the Company may designate in writing to the
Participant.


    
      
         


      

      
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    7.           Failure
to Enforce Not a Waiver.  The failure of
the Company to enforce at any time any provision of this Award Agreement shall
in no way be construed to be a waiver of such provision or of any other
provision hereof.

     

    8.           Existing
Agreements.  This Award
Agreement does not supersede nor does it modify any existing agreements between
the Participant and the Company.

     

    9.           Governing
Law.  This Award
Agreement shall be governed by and construed according to the laws of the State
of Maryland without regard to its principles of conflict of laws.

     

    10.         Incorporation
of Plan.  The Plan and the
Deferred Compensation Plan are incorporated by reference and made a part of this
Award Agreement, and this Award Agreement is subject to all terms and conditions
of the Plan and the Deferred Compensation Plan as in effect from time to
time.  Notwithstanding the foregoing, this Award Agreement is intended
to comply with Section 409A of the Code and this Award Agreement, the Plan and
Deferred Compensation Plan shall be interpreted in a manner consistent with such
intent, and any provisions of this Agreement, the Plan or the Deferred
Compensation Plan that would cause the Award to fail to satisfy the requirements
for an effective deferral of compensation under Section 409A of the Code shall
have no force and effect.

     

    11.         Amendments.   This Award
Agreement may be amended or modified at any time by an instrument in writing
signed by the parties hereto.  Notwithstanding the foregoing, the
Deferral Election shall be irrevocable and the dates specified for distribution
of Vested Award Shares may not be modified after the date hereof except as
otherwise permitted under Section 409A of the Code.

     

    [Signature page
follows.]


    
      
         


      

      
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    IN WITNESS WHEREOF, the
parties have executed this Award Agreement on the day and year first above
written.

    


    
      
        
          
            
              	
                      REDWOOD
      TRUST, INC.

                    
	 
      	 
      
	
                      By:

                    	 
      
	 
      	
                      Martin
      S. Hughes

                    
	 
      	
                      President
      & Chief Executive Officer

                    
	 
      	
                      One
      Belvedere Place, Suite 300

                    
	 
      	
                      Mill
      Valley, CA  94941

                    
	 
      	 
      
	
                      The
      undersigned hereby accepts and agrees to all the terms and provisions of
      this Award Agreement and to all the terms and provisions of the Plan
      herein incorporated by reference.

                    
	 
      	 
      
	 
      
	
                      [Insert
      Participant Name]

                    
	
                      c/o
      Redwood Trust, Inc.

                    
	
                      One
      Belvedere Place, Suite 300

                    
	
                      Mill
      Valley,
CA  94941

                    


            

          

        

      

    


    
      
         


      

      
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    Exhibit
A

    Performance
Goals

    


    Performance
Period: The
performance period begins [insert grant date] and ends
on [insert 3rd anniversary of grant date]
(the “Performance Period”).

    


    Performance
Goals: The number
of Award Shares which will vest and be credited to the Participant’s Deferral
Account at the end of the Performance Period shall be determined based upon the
Company’s cumulative total shareholder return (“TSR”) for the performance period
in accordance with the following schedule:

    


    
      
        
          
            
              	
                      TSR

                    	 	
                      % of Target Shares Credited to Deferral Account

                    	 
	
                      Less
      than 0%

                    	 	 	0	%
	
                      25%

                    	     	 	100	%
	
                      125%
      or greater

                    	 	 	200	%


            

          

        

      

    

    


    If the
actual performance results fall between 0% and 25% TSR, or between 25% and 125%
TSR, the actual number of Award Shares which shall vest and be credited to the
Participant’s Deferral Account determined based on a straight-line, mathematical
interpolation between the applicable vesting percentages.  In no event
shall the number of Award Shares exceed 200% of the Target Shares.  In
the event the TSR is equal to or less than 0% at the end of the Performance
Period, all Award Shares shall become ineligible for crediting to Participant’s
Deferral Account and shall be forfeited.

    


    Cumulative
Total Shareholder Return:  TSR shall mean,
with respect to a share of Common Stock outstanding on the first day of the
Performance Period, the percentage by which:

    


    
      (A)
the
sum of:

    

    


    (x) the
Per Share Price as of the Valuation Date, plus

    


    (y) the
Per Share Price as of the Valuation Date multiplied by the Dividend Reinvestment
Factor,

    


    exceeds,

    


    
      (B)
$[_____]1.

    

    


    Notwithstanding
the foregoing, the Administrator shall make appropriate adjustments in
calculating TSR to reflect any dividends which may be declared during the twenty
(20) consecutive trading days prior to the end of the Performance Period, as
determined by the Administrator in its sole discretion.

    
       

        
          

        

      

      
        
          
            	
                    1

                  	
                     The average of the
      closing prices of the Company’s Common Stock during the twenty (20)
      consecutive trading days ending on the day prior to the first day of the
      Performance
Period.

                  


          

        

      

    


    
      
         


      

      
        A-1

        
          

        

      

      
         


      

    

     

    “Per Share Price”
shall mean the average of the closing prices of the Company’s Common Stock
during the twenty (20) consecutive trading days ending on the day prior to the
applicable Valuation Date; provided, however, that for
purposes of calculating the Per Share Price in the event of a Change in Control
the Per Share Price shall be the price per share of Common Stock paid in
connection with such Change in Control.


    


    “Valuation Date” means
with respect to the Performance Period, [insert last day of Performance
Period]; provided,
however, that in the event of a Change in Control that occurs prior to
[insert last day of
Performance Period], the Valuation Date shall mean the date of the Change
in Control.

    


    “Change in Control”
shall have the same meaning as defined in the Deferred Compensation
Plan.


    
      
         


      

      
        A-2