**Exhibit 10.9**
THORNBURG MORTGAGE, INC.
AMENDED AND RESTATED
2002 LONG-TERM INCENTIVE PLAN
JANUARY 21, 2003
ARTICLE I
PURPOSES
     The purposes of the Plan are to enable the Company to provide competitivelong-term incentives that will help attract, retain, motivate and rewarddirectors, officers, key employees and consultants of the Company and itssubsidiaries as well as managing directors and key employees of the Manager andto afford additional incentives to others to increase their efforts inproviding key services for the Company or the Manager.
ARTICLE II
DEFINITIONS
     2.1 Act: shall mean the Securities Act of 1933, as amended, 15 U.S.C. §77a*et seq*.
     2.2 Affiliate: shall mean, with respect to any person, any other personcontrolled by, controlling or under common control with such person.
     2.3 Agreement: shall mean an agreement that, at the determination of theCommittee, may be entered into between the Company and each Participant whoreceives a Grant hereunder evidencing the terms and conditions of the Grant.
     2.4 Advisory Board: shall mean a committee composed of former directors andexecutive officers of the Company who meet periodically to advise the Board andthe Manager on matters of policy, strategy and operations.
     2.5 Board: shall mean the Board of Directors of the Company.
     2.6 Cause: shall include, but not be limited to (a) conviction of, orconfession of guilt of, a felony, (b) the commission of a willful act that ismaterially injurious to the Company, including but not limited to, theft,fraud, or misrepresentation, (c) becoming employed by (whether as an employeeor independent contractor), or the owner of more than 5% of, a competitor ofthe Company or the Manager, or (d) willful insubordination, refusal orinability to perform duties in a competent manner. Cause, based on theforegoing factors, shall be determined by the Committee in its sole discretion.
 

 

     2.7 Change in Control: shall have the meaning set forth in Section6.6.
     2.8 Code: shall mean the Internal Revenue Code of 1986, as amended fromtime to time.
     2.9 Committee: shall mean the Compensation Committee of the Companyappointed by the Board to administer the Plan, or, if no such committee hasbeen appointed, the Board. The Committee shall consist only of two or more“outside directors” as defined in Section 1.162-27(e)(3) of the TreasuryRegulations who are “non-employee directors” as defined in Rule 16b-3(b) underthe Exchange Act.
     2.10 Common Stock: shall mean the common stock, par value of $0.01, ofthe Company.
     2.11 Company: shall mean Thornburg Mortgage, Inc., a Marylandcorporation.
     2.12 DER: shall mean a dividend equivalent right consisting of the right toreceive, as specified in the applicable Agreement, either (i) cash or (ii)PSRs, in an amount equal to the dividend distributions paid on a Share.
     2.13 Director: shall mean a member of the Board.
     2.14 DRP: shall mean the Dividend Reinvestment and Stock Purchase Plan ofthe Company, or any successor program.
     2.15 Effective Date: shall mean September 29, 2002, the originalEffective Date of the Plan. All Grants shall be effective on the date awardedby the Committee. Grants awarded under the Prior Plan shall not be subject tothe terms of the Plan and shall be awarded in accordance with the Prior Plan.
     2.16 Eligible Person: shall mean an officer, employee or director of theCompany or a Subsidiary, an officer, employee or managing director of theManager and such other persons expected to provide significant services to theCompany, the Manager or a Subsidiary and any other persons as are selected fromtime to time by the Committee to participate in the Plan. An Eligible Personincludes a consultant, vendor, customer or other provider of significantservices to the Company, the Manager or a Subsidiary as designated by theCommittee in its discretion.
     2.17 Employee: shall mean an individual, including any officer, who isemployed (within the meaning of Code Section 3401 and the regulationsthereunder) by the Company, a Subsidiary, or the Manager.
     2.18 Exchange Act: shall mean the Securities Exchange Act of 1934, asamended, 15 U.S.C. §78a *et seq*.
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     2.19 Fair Market Value: shall mean (i) with respect to a Share, the closingprice of a Share on the New York Stock Exchange on the valuation date, and (ii)with respect to a Notional Option, as determined through the Black-Scholesmethod or any other method that is considered acceptable by the Company’sindependent accountants.
     2.20 Formula Grants: shall mean the award of PSRs (or other Grant) underSection 3.2 and of DERs under Section 3.3 on a quarterly basis calculatedaccording to the number of shares of Common Stock or preferred stock sold bythe Company during the quarter just ended or at such other periods or intervalsas the Committee may determine. Formula Grants shall not be awarded based onShares sold under the dividend reinvestment or the non-waiver optional cashpurchase provisions of the DRP but shall be awarded based on Shares sold underthe waiver provisions of the optional cash purchase feature of the DRP.
     2.21 Grant: shall mean the issuance of PSRs, SARs and/or DERs to anEligible Person.
     2.22 Manager: shall mean Thornburg Mortgage Advisory Corporation, aDelaware corporation.
     2.23 Minimum Combination of Years: shall mean a total of years of service tothe Company (including a minimum of nine years of service; ten years effectiveon and after April 1, 2003) and age that equals 65.
     2.24 Notional Option: shall mean, for purposes of calculating the PSR Total,the Formula Grants and the initial award under Section 3.4, a hypotheticaloption to purchase a Share that shall be deemed to have a term of ten years andan exercise price equal to the issue price of a Share on the date of the publicoffering or private or direct placement, except that the exercise price of aninitial award granted pursuant to Section 3.4 shall equal the Fair Market Valueof a Share on the date of Grant of such award. The Fair Market Value of aNotional Option shall be determined under the Black Scholes or other reasonablemethod based on those hypothetical terms. If the offering or placement is forpreferred stock, the Notional Options shall be deemed to apply to Shares ofCommon Stock. In making such calculation, the issue price of Shares sold in acontinuous offering shall be based on the weighted average of the gross salesprice of all Shares sold under such continuous offering during the month.
     2.25 Participant: shall mean an Eligible Person who is selected toreceive Grants under the Plan.
     2.26 Permanent Disability: shall mean a physical or mental disability orinfirmity that permanently prevents the performance of a Participant’s dutiesas a director, officer or employee of the Company, the Manager or a Subsidiary.
     2.27 Plan: shall mean this Amended and Restated 2002 Long-Term IncentivePlan, as the same may be further amended from time to time.
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     2.28 Plan Year: shall mean the calendar year or such shorter period asshall be determined by the Committee.
     2.29 Prior Plan: shall mean the Thornburg Mortgage, Inc. Amended and Restated1992 Stock Option and Incentive Plan, as amended.
     2.30 PSR: shall mean a phantom stock right, consisting of (i) theunfunded deferred obligation of the Company to pay the recipient of a PSR, uponexercise, an amount of cash equal to the Fair Market Value of a Share at thetime of exercise, and (ii) the recipient’s right to receive distributions,either in the form of cash or additional PSRs, in an amount equal to the valueof the cash dividends that are paid on a Share.
     2.31 PSR Total: shall mean that number of PSRs determined by dividing (a)the Fair Market Value of that number of Notional Options equaling three percent(3%) of the total number of shares sold by the Company in any public offeringor direct or private placement of Common Stock or preferred stock (includingShares sold under the waiver provisions of the optional cash purchase featureof the DRP) by (b) the Fair Market Value of a Share on such date. In the caseof a continuous offering, the PSR Total shall be calculated by accumulating theShares issued pursuant to the continuous offering in each month during acalendar quarter and shall be awarded by the Committee after the end of suchcalendar quarter.
     2.32 Retire or Retirement: shall mean the later to occur of (a) aParticipant’s voluntary or involuntary separation from service as a Director ofthe Company or as a managing director of the Manager or (b) a Participant’svoluntary or involuntary termination of service on the Advisory Board.
     2.33 SAR: shall mean a stock appreciation right, consisting of theunfunded deferred obligation of the Company, to pay the recipient of the SAR,upon exercise, an amount of cash equal to the excess, if any, of the FairMarket Value of a Share over the stated amount of the SAR.
     2.34 Share: shall mean one (1) share of Common Stock, adjusted inaccordance with Article VI of the Plan (if applicable).
     2.35 Subsidiary: shall mean any corporation, partnership, or other entityat least fifty percent (50%) of the economic interest in the equity of which isowned by the Company or by another Subsidiary.
     2.36 Termination of Employment: shall mean the time when the employee-employerrelationship or directorship between the Participant and the Company, theManager or a Subsidiary is terminated for any reason, with or without Cause,including but not limited to any termination by resignation, discharge, deathor retirement; provided, however, Termination of Employment shall not include atermination where there is a simultaneous reemployment of the Participant bythe Company, the Manager or a Subsidiary or continued service on the AdvisoryBoard. The Committee, in its absolute discretion, shall determine the effectof all matters and questions relating to Termination of Employment, includingbut not
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limited to the question of whether any Termination of Employment was for Causeand all questions of whether particular leaves of absence constituteTerminations of Employment.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
     3.1 Participation in Plan by an Eligible Person. Subject to Section 3.6for a member of the Advisory Board, any Eligible Person may participate in andreceive Grants under the Plan. The Committee shall have the authority to awardindividual Grants to Eligible Persons from time to time in addition to theFormula Grants prescribed in Sections 3.2 and 3.3 below.
     3.2 Formula Grants for PSRs: Formula Grants for PSRs shall be made to theEligible Persons specified in this Section 3.2 as follows:
 a) Each non-employee Director and the Company’scorporate secretary shall receive individual Grants in theform of PSRs having the Fair Market Value of Notional Optionsto purchase 0.2% of the total number of shares of Common Stockand preferred stock sold by the Company in any public offeringor private or direct placement.  b) Employees shall receive, in the aggregate, Grantsin the amount of the PSR Total which shall be allocated inindividual Grants by the Committee among employee Directors,managing directors of the Manager and other Employees andEligible Persons who are selected by the Committee in itsdiscretion.  c) The Committee shall have the discretion to changethe form of the Formula Grant awards under this Section 3.2 atany time and award Grants in other forms of incentive awards,but the Formula Grant provisions of Section 3.2 and 3.3 andthe initial award provisions of Section 3.4 may otherwise besuspended, modified or terminated only upon the joint approvalof the Committee and the Board.
     3.3 Formula Grants for DERs. Formula Grants for DERs shall be made to theapplicable Eligible Persons at the same time as PSRs are granted pursuant tothis Article III at the rate of 0.75 DER multiplied by the number of NotionalOptions used to determine the PSRs granted pursuant to this Article III.
     3.4 Initial Awards. Whenever an outside Director is initially appointedto the Committee, such outside Director shall automatically be granted (i) PSRshaving the Fair Market Value of Notional Options to purchase 13,333 Shares and(ii) DERs in accordance with the DER formula set forth in Section 3.3.
     3.5 Form of Payment. Unless the Participant elects before a dividenddistribution is declared to receive distributions on his or her PSRs or DERs inthe form of cash payments, the distributions will be payable in additional PSRs.
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     3.6 Participation in Plan by members of the Advisory Board.
         3.6.1 Participation on Advisory Board. A former Director or a formermanaging director of the Manager, the Company’s corporate secretary and suchother persons as may be designated from time to time by the Committee, will beeligible to serve on the Advisory Board after reaching the Minimum Combinationof Years. While serving on the Advisory Board, he or she shall not be eligibleto receive new Grants; however, such Participant shall continue to receive thebenefits on existing vested and unvested Grants pursuant to subsection 3.6.2below until such time as the Participant enters Retirement or otherwiseterminates service for the Company or the Manager.
         3.6.2 Level of Participation. While serving on the Advisory Board anEligible Person shall participate solely by receiving distributions, either incash or in PSRs, on his or her PSRs or DERs in an amount determined withrespect to each cash dividend distribution that is paid on a Share as follows:A Minimum Combination of Years (totaling 65 years) qualifies for an 80%participation, increasing by 4% for each year of combined service and age overthe Minimum Combination of Years to 100% participation for a Participant with acombination of years of service and age equaling or exceeding 75.
ARTICLE IV
TERMS OF GRANTS
     4.1 Grants. Grants may be issued to Eligible Persons at such time ortimes as shall be determined by the Committee. Each Grant granted to aParticipant shall be evidenced by an Agreement that shall specify the terms andconditions consistent with the Plan as the Committee shall determine.Consistent with the Company’s intention for the Committee to exercise thegreatest flexibility under Rule 16b-3 under the Exchange Act in awardingGrants, the Committee shall have the power:
      (a) To determine from time to time the Grants to be awardedto Eligible Persons under the Plan and to prescribe the terms andprovisions (which need not be identical) of Grants awarded underthe Plan to such persons;
      (b) To construe and interpret the Plan and Grants thereunderand to establish, amend, and revoke rules and regulations foradministration of the Plan. In this connection, the Committee maycorrect any defect or supply any omission, or reconcile anyinconsistency in the Plan, in any Agreement, or in any relatedagreements, in the manner and to the extent it shall deem necessaryor expedient to make the Plan fully effective. All decisions anddeterminations by the Committee in the exercise of this power shallbe final and binding upon the Company and the Participant;
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      (c) To amend any outstanding Grant, subject to Sections 4.7and 8.2 hereof, and to accelerate or extend the vesting orexercisability of any Grant and to waive conditions or restrictionson any Grants, to the extent it shall deem appropriate; and
      (d) Generally, to exercise such powers and to perform suchacts as are deemed necessary or expedient to promote the bestinterests of the Company with respect to the Plan.
         4.1.1 In the event the Company determines that it is required to withholdtaxes as a result of the exercise of a Grant, as a condition to the exercisethereof, an Employee may be required to make arrangements satisfactory to theCompany to enable it to satisfy such withholding requirements in accordancewith Article VII hereof.
     4.2 Term, Nontransferability and Vesting of Grants. Each Grant shallstate the time or times at which all or part thereof becomes exercisable,subject to the following restrictions:
**    4.2.1 No Grant shall be exercisable except by the recipient.**
         4.2.2 No Grant shall be assignable or transferable, except pursuant to aqualified domestic relations order as defined in Code Section 414(p) or, in theevent of the Participant’s death, by will or the laws of descent anddistribution.
         4.2.3 Grants shall vest in accordance with the terms of the Agreementspursuant to which they are made.
     4.3 Termination of Employment, Except by Death or Permanent Disability.Upon any Termination of Employment for any reason other than his or her deathor Permanent Disability, a recipient of a Grant shall have the right toexercise his or her Grant at any time within three (3) months after Terminationof Employment, but only to the extent that, at the date of Termination ofEmployment, the recipient’s right to exercise such Grant had vested pursuant tothe terms of the applicable Agreement and had not previously been exercised;provided, however, that if the recipient was terminated as an Employee orremoved as a member of the Board for Cause (as determined by the Committee) anyGrant not exercised in full prior to such termination shall be canceled; andfurther provided that no DERs, SARs or PSRs shall vest for such Participantafter the date of his or her Termination of Employment and no additionaldividends or credits shall accrue with respect to DERs or PSRs after theTermination of Employment of the Participant. For this purpose, the employmentrelationship shall be treated as continuing intact while the recipient is onmilitary leave, sick leave or other bona fide leave of absence (to bedetermined in the sole discretion of the Committee).
     4.4 Death of Recipient. If the recipient of a Grant dies while anEligible Person or within three (3) months after any Termination of Employmentother than for Cause, and has not fully exercised the Grant, then the Grant maybe exercised in full at any time
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 within twelve (12) months after the recipient’s death, by the executors oradministrators of his or her estate or by any person or persons who haveacquired the Grant directly from the recipient by bequest or inheritance, butonly to the extent that, at the date of death, the recipient’s right toexercise such Grant had vested and had not been forfeited pursuant to the termsof the applicable Agreement and had not previously been exercised.
     4.5 Permanent Disability of Grant Recipient. Upon Termination ofEmployment for reason of Permanent Disability, such Grant recipient shall havethe right to exercise the Grant at any time within twelve (12) months afterTermination of Employment, but only to the extent that, at the date ofTermination of Employment, the recipient’s right to exercise such Grant hadvested pursuant to the terms of the applicable Agreement and had not previouslybeen exercised.
     4.6 Rights as a Shareholder. The recipient of a Grant shall have norights as a shareholder.
     4.7 Modification, Extension and Renewal of Grant. Within the limitationsof the Plan, the Committee may modify, extend or renew outstanding Grants oraccept the cancellation of outstanding Grants (to the extent not previouslyexercised) for the awarding of new Grants in substitution therefor. TheCommittee may not modify, extend or renew any Grants awarded to any Participantunless such modification, extension or renewal shall satisfy the requirementsof Rule 16b-3 under the Exchange Act. The foregoing notwithstanding, nomodification of Grant shall, without the consent of the Participant, alter orimpair any rights or obligations under any Grant previously awarded.
     4.8 Other Provisions. The Agreements authorized under the Plan maycontain such other provisions not inconsistent with the terms of the Plan(including, without limitation, restrictions upon the exercise of the Grant) asthe Committee shall deem advisable.
     4.9 Grants to Committee Members. No Director who is a member of theCommittee may vote on or participate in the award, modification, extension orrenewal of a Grant to himself or herself, except that the Committee maycollectively approve the Formula Grants under Section 3.2(a).
     4.10 Term of Plan. Grants may be awarded pursuant to the Plan until theexpiration of ten (10) years from the effective date of the Plan.
ARTICLE V
ADMINISTRATION
     5.1 Membership on Committee. The Plan shall be administered by theCommittee which shall consist of two or more members of the Board, each of whomshall qualify as a Non-Employee Director as defined in Rule 16b-3(b)(3)(i)under the Exchange Act and as an outside director within the meaning ofTreasury Regulation Section 1.162-27(e)(3). The Board shall appoint one of themembers of the Committee as Chairman of the Committee.
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     5.2 Committee Meetings. The Committee shall hold meetings at such timesand places as it may determine. Acts of a majority of the Committee, or actsapproved in writing by a majority of the members of the Committee, shall be thevalid acts of the Committee.
     5.3 Authority of the Committee. The Committee shall be responsible forthe administration of the Plan and shall have full authority to exercise itsduties and powers under the Plan in its sole discretion. Subject to the termsof the Plan, the Committee is authorized to prescribe, amend and rescind rulesand regulations relating to the administration of the Plan, to provide forconditions and assurances deemed necessary or advisable to protect theinterests of the Company and the Manager, and to make all other determinationsnecessary or advisable for the administration and interpretation of the Plan orto carry out its provisions and purposes.
     5.4 Delegation by the Committee. The Committee may delegate itsnon-discretionary ministerial duties and responsibilities under the Plan byappointment in writing, and has delegated such duties and responsibilities tothe Manager. The Committee may employ consultants, advisors and administratorsto render advice with regard to any of the duties or responsibilities of theCommittee under the Plan.
     5.5 Expenses. The Company shall be responsible for all of the expenses ofthe Plan or the administration thereof.
     5.6 Reliance. Each member of the Committee and the Board shall beentitled to rely upon all determinations, certificates and reports made by anyfinancial officer of the Company, or any actuary or independent publicaccountant and upon all opinions of law given by any counsel selected by it(who may be counsel to the Company or the Manager), and shall be fullyprotected in respect of any act done or omitted to be done or any determinationmade in good faith in reliance upon any such determination, certificate, reportor opinion. No member of the Committee or the Board shall be liable for anyact done or omitted to be done or determination made in the performance of itsduties under this Plan or for any act done or omitted to be done by any agentor representative of such Committee so long as such person acted in good faith.
     5.7 Indemnification. Each person who is or shall have been a member ofthe Committee, the Board, the Advisory Board or otherwise delegated anyadministrative duties or responsibilities hereunder shall be indemnified andheld harmless by the Company to the fullest extent permitted by law from andagainst any and all losses, costs, liabilities and expenses (including anyreasonable related attorneys’ fees and advances thereof) in connection with,based upon or arising or resulting from any claim, action, suit or proceedingto which such person may be made a party or in which such person may beinvolved by reason of any action taken or failure to act under or in connectionwith the Plan and from and against any and all amounts paid by such person insettlement thereof, with the Company’s approval, or paid by such person insatisfaction of any judgment in any such action, suit or proceeding against himor her, provided, that such person shall give the Company an opportunity, atits own expense, to defend the same before such person undertakes to defend it
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 on his or her own behalf. The foregoing right of indemnification shallnot be exclusive and shall be independent of any other rights ofindemnification to which such persons may be entitled under the Company’sArticles of Incorporation or By-laws, by contract, as a matter of law orotherwise.
ARTICLE VI
RECAPITALIZATION AND CHANGES IN CONTROL
     6.1 Adjustment to Grants. Subject to any required action by shareholders,and provided that all requirements of Rule 16b-3 under the Exchange Act aresatisfied, as applicable, the number of DERs, PSRs or SARs subject to a Grantshall be proportionately adjusted for any increase or decrease in the number ofissued Shares resulting from a subdivision or consolidation of Shares or thepayment of a stock dividend (but only of Common Stock) or any other increase ordecrease in the number of issued Shares effected without receipt ofconsideration by the Company.
     6.2 Merger or Acquisition. Subject to any required action by shareholders,if the Company is the surviving corporation in any merger or consolidation, therights under a Grant shall pertain and apply to the securities to which arecipient of the Grant would have been entitled. In the event of a merger orconsolidation in which the Company is not the surviving corporation, the dateof vesting and exercisability of each outstanding Grant shall be accelerated toa date prior to such merger or consolidation, unless the agreement of merger orconsolidation provides for the assumption of the Grant by the successor to theCompany. To the extent that the foregoing adjustments relate to securities ofthe Company, such adjustments shall be made by the Committee, whosedetermination shall be conclusive and binding on all persons.
     6.3 Certain Reorganizations Not Change In Control. Except as expresslyprovided in this Article VI, the recipient of a Grant shall have no rights byreason of subdivision or consolidation of shares of stock of any class, thepayment of any stock dividend or any other increase or decrease in the numberof shares of stock of any class or by reason of any dissolution, liquidation,merger or consolidation or spin-off of assets or stock of the Company or anyother corporation, and any issue by the Company of shares of stock of anyclass, or securities convertible into shares of stock of any class, shall notaffect, and no adjustment by reason thereof shall be made with respect to, thenumber of PSRs, DERs or SARs subject to a Grant.
     6.4 Plan Not to Affect Company’s Right to Reorganization. Grants madepursuant to the Plan shall not affect in any way the right or power of theCompany to make adjustments, reclassifications, reorganizations or changes ofits capital or business structure, to merge or consolidate or to dissolve,liquidate, sell or transfer all or any part of its business assets.
     6.5 Effect of Change of Control. Upon the occurrence of a Change ofControl as defined in this Article VI—
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         6.5.1 Each outstanding Grant shall automatically become fully exercisable.
         6.5.2 All restrictions and conditions on each Grant shall automaticallylapse and all Grants under the Plan shall be deemed fully vested.
     6.6 Change of Control. Change of Control shall mean the occurrence of anyone of the following events:
         6.6.1 any “person,” as such term is used in Sections 13(d) and 14(d) ofthe Act (other than the Company, any of its Affiliates or any trustee,fiduciary or other person or entity holding securities under any employeebenefit plan or trust of the Company or any of its Affiliates) together withall “affiliates” and “associates” (as such terms are defined in Rule 12b-2under the Exchange Act) of such person, shall become the “beneficial owner” (assuch term is defined in Rule 13d-3 under the Exchange Act), directly orindirectly, of securities of the Company representing 20% or more of either (A)the combined voting power of the Company’s then outstanding securities havingthe right to vote in an election of the Board (“voting securities”) or (B) thethen outstanding Shares (in either such case other than as a result of anacquisition of securities directly from the Company); or
         6.6.2 persons who, as of the effective date of the amendment and restatement ofthe Plan, constitute the Board (the “Incumbent Directors”) cease for anyreason, including, without limitation, as a result of a tender offer, proxycontest, merger or similar transaction, to constitute at least a majority ofthe Board, provided that any person becoming a Director subsequent to theEffective Date whose election or nomination for election was approved by a voteof at least a majority of the Incumbent Directors shall, for purposes of thisPlan, be considered an Incumbent Director; or
         6.6.3 the shareholders of the Company shall approve or the Company shallotherwise engage in (A) any consolidation or merger of the Company or anySubsidiary where the shareholders of the Company immediately prior to theconsolidation or merger, would not, immediately after the consolidation ormerger, beneficially own (as such term is defined in Rule 13d-3 under theExchange Act), directly or indirectly, shares representing in the aggregate 80%or more of the voting securities of the corporation issuing cash or securitiesin the consolidation or merger (or of its ultimate parent corporation, if any),(B) any sale, lease, exchange or other transfer (in one transaction or a seriesof transactions contemplated or arranged by any party as a single plan) of allor substantially all of the assets of the Company or (C) any plan or proposalfor the liquidation or dissolution of the Company.
         6.6.4 Notwithstanding the foregoing, a “Change of Control” shall not be deemedto have occurred for purposes of the foregoing Section 6.6.3 solely as theresult of an acquisition of securities by the Company which, by reducing thenumber of Shares or other voting securities outstanding, increases (x) theproportionate number of Shares beneficially owned by any person to 20% or moreof the Shares then outstanding or (y) the proportionate voting powerrepresented by the voting securities beneficially owned by any person to 20% ormore of the combined voting power of all then outstanding voting securities;provided,
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however, that if any person referred to in clause (x) or (y) of this sentenceshall thereafter become the beneficial owner of any additional Shares or othervoting securities (other than pursuant to a stock split, stock dividend, orsimilar transaction), then a “Change of Control” shall be deemed to haveoccurred for purposes of this Section 6.6.
ARTICLE VIII
TAX WITHHOLDING
     7.1 Each recipient of a Grant shall, no later than the date as of whichthe value of any Grant first becomes includable in the gross income of therecipient for federal income tax purposes, pay to the Company, or makearrangements satisfactory to the Company regarding payment of any federal,state or local taxes of any kind that are required by law to be withheld withrespect to such income.
     7.2 A recipient may elect to have such tax withholding satisfied, in wholeor in part, by (1) transferring to the Company Shares owned by the recipientwith a Fair Market Value equal to the amount of the required withholding tax,or (2) in the case of a recipient who is an employee of the Company at the timesuch withholding is effected, by withholding from the recipient’s cashcompensation.
     7.3 A recipient who is an employee of the Manager or another Affiliate of theCompany shall also reimburse his employer, if an Affiliate of the Company, forthe tax on any additional amount of compensation income deemed recognized bysuch recipient’s employer from the Company, reduced by the amount of thecompensation deduction permitted such recipient’s employer as a result of suchemployee’s receipt or exercise of the Grant.
ARTICLE VIII
GENERAL PROVISIONS
     8.1 Nontransferability of Grants. No Grant issued under the Plan may besold, transferred, pledged, assigned, encumbered or otherwise alienated orhypothecated and any purported action to that effect shall be void.
     8.2 Amendment or Termination. The Plan may be amended, modified orterminated by the Board including a majority of the non-employee Directors atany time or from time to time, provided that no such amendment, modification ortermination shall, without the consent of the affected Participant, adverselyaffect the vested rights of a Participant.
     8.3 Term of Plan. Following its approval by the Board, the Plan willbecome effective as of the Effective Date. The Plan shall continue in effect,unless sooner terminated pursuant to Section 8.2, until the tenth anniversaryof the Effective Date. The provisions of the Plan, however, shall continuethereafter to govern all outstanding Grants theretofore made.
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     8.4 Limitation on Participants’ Rights. The Plan shall not be construedas creating any contract of employment or otherwise conferring upon anyParticipant any legal right to continuation of employment, nor as limiting orqualifying the right of the Company, a Subsidiary or the Manager to dischargeany Employee without regard to the effect that such discharge might have uponsuch Employee’s rights under the Plan. Selection for participation in the Planshall not entitle any Participant to remain as a Director of the Company, as amanaging director of the Manager or an employee of the Company or a Subsidiaryor the Manager for any period or to receive or be eligible to receive anysubsequent or additional Grants.
     8.5 Facility of Payments. In the event that the Committee shall find thatany Participant to whom an amount is payable under the Plan is unable to carefor his or her affairs because of illness, accident or otherwise, the Committeemay direct that any payment due shall be paid to the duly appointed legalrepresentative of such person, or if there is no duly appointed legalrepresentative, to the Participant’s spouse or child of majority age, and anysuch payments shall be in complete discharge of the liabilities of the Companyunder the Plan.
     8.6 Beneficiary Designation. Each Participant under the Plan may fromtime to time name any beneficiary or beneficiaries (who may be namedcontingently or successively) to whom any cash amount payable under the Plan isto be paid. Each designation shall revoke all prior designations by the sameParticipant, shall be in a form prescribed by the Committee (which form may bethe form used generally for other benefit plan purposes) and shall be effectiveonly when filed by the Participant in writing with the Committee during his orher lifetime. In the absence of any such designation, cash amounts payableremaining unpaid or outstanding at the Participant’s death shall be paid to theParticipant’s surviving spouse, if any, or otherwise to his or her estate.
     8.7 No Limitation on Compensation. Nothing in the Plan shall be construedas limiting the right of the Company, the Manager or any Subsidiary toestablish other plans or to pay compensation to employees in cash or property,in a manner that is not expressly authorized under the Plan.
     8.8 Requirements of Law, Etc. The awarding of Grants and the satisfactionthereof, including, but not limited to, the payment of cash to a Participantshall be subject to all applicable laws, rules and regulations, and to suchapprovals by any governmental agencies or national or foreign securitiesexchanges as may be appropriate or required, as reasonably interpreted anddetermined by the Committee.
     8.9 Notices. Each Participant shall be responsible for furnishing theCommittee with the current and proper address for the mailing of notices andpayment of cash. Any notices required or permitted to be given shall be deemedgiven if directed to the person to whom addressed at such address, mailed byregular United States mail, first-class, and prepaid. If any item mailed tosuch address is returned as undeliverable to the addressee, mailing will besuspended until the Participant furnishes the proper address.
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     8.10 Severability of Provisions. If any provision of the Plan shall beheld invalid or unenforceable, such invalidity or unenforceability shall notaffect any other provisions hereof, and the Plan shall be construed andenforced as if such provision had not been included.
     8.11 Applicable Law. The Plan in all respects shall be construed andinterpreted in accordance with the laws of the State of New Mexico. Anydispute arising under the Plan shall be resolved by binding arbitration beforethe American Arbitration Association under its Commercial Arbitration Rules,before a single arbitrator in Santa Fe County, New Mexico. The parties willmutually determine the arbitrator from a list of arbitrators obtained from theAmerican Arbitration Association office located in Santa Fe County, New Mexico.If the parties are unable to agree on the arbitrator, the arbitrator will beselected by the American Arbitration Association with a preference forselecting a retired federal district judge or state district court judge as thearbitrator.
     8.12 Number and Gender. To the extent appropriate in the context, eachterm used in the Plan in either the singular or the plural shall include thesingular and the plural, and pronouns stated in either the masculine, feminineor neuter gender shall include the masculine, feminine and neuter.
     8.13 Headings and Captions. Headings and captions in the Plan areinserted for convenience of reference only and the Plan is not to be construedby the interpretation thereof.
This Plan, originally approved by the Board of Directors of Thornburg Mortgage,Inc. on July 23, 2002, is hereby amended and restated in its entirety onJanuary 21, 2003.
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