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.




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Exhibit 10.1



          (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.




          (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.




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Exhibit 10.1



          (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.




          (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,



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Exhibit 10.1


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.



     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:




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Exhibit 10.1



               (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)).



               (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.



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Exhibit 10.1



     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
FairMarket 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




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Exhibit 10.1


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 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




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Exhibit 10.1


(“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.




          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.



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Exhibit 10.1



               (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.



               (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:




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Exhibit 10.1


     “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.




          (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.




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Exhibit 10.1



          (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
Performance 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.



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Exhibit 10.1



     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 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




 - 12 -









 




Exhibit 10.1


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.




     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.



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