Document:

Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    (As
Amended and Restated on December 10, 2008)

     

    The Board
of Directors of Redwood Trust, Inc. a corporation, (“Company”) originally adopted
this Executive Deferred Compensation Plan (“Plan”) effective
June 1, 2002, approved amendments to the Plan as of May 8, 2003 and
approved further amendments to the Plan as of November 29,
2006.  In addition, the Board of Directors adopted and ratified
resolution(s) requiring administration of the Plan in accordance with those
terms necessary or advisable to bring the Plan into compliance
with Section 409A of the Code effective with respect to deferrals not
vested as of January 1, 2005 and on November 10, 2007 and December 10, 2008,
approved further amendments to the Plan evidencing such terms.

     

    1.
Purpose

     

    The
primary purpose of the Plan is to provide the opportunity to defer compensation
to a select group of management, highly compensated employees and independent
directors.  The plan is intended to be a top-hat plan described in
Section 201(2) of the “ERISA that meets the rules for non-qualified
deferred compensation under Section 409A of the Code.

     

    
      2.
Definitions and Capitalized Terms

    

     

    The
capitalized terms, set forth in alphabetical order defined below, are used
throughout the Plan.

     

    (a) “AFR Rate” means 120% of the
long term Applicable Federal Rate (as defined in the Code), compounded monthly,
as in effect each month.

     

    (b) “Annual Base Salary” means
the regular rate of compensation to be paid to the Participant for services
rendered during the Plan Year, excluding severance or termination payments,
commissions, foreign service payments, payments for consulting services and such
other unusual or extraordinary payments as the Committee may
determine.

     

    (c)
“Annual Non-Performance Based
Bonus” means all annual bonus amounts for a year payable to an Employee
under an annual bonus plan of the Company, other than bonus
amounts  that qualify as an Annual Performance Based
Bonus.

     

    (d)
“Annual Performance Based
Bonus” means an annual bonus that meets the requirements for
qualification as “performance based” under Section 409A of the Code (as in
effect from time to time) with respect to that Participant, which requirements
generally include, as of the date hereof:  (i) that receipt of the
bonus be contingent on meeting specified performance criteria, (ii) the
performance criteria be specified in writing, (iii) the service period be at
least 12 months, (iv) the performance criteria be established no later than
90 days after commencement of the service period, (v) the outcome of the
performance criteria are not substantially certain when established, and (vi)
the criteria relate to performance of the Participant, his or her business unit
or the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (e) “Beneficiary” refers to the
term defined in Section 8.5.

     

    (f) “Board” or “Board of Directors” refers
to the Board of Directors of the Company.

     

    (g) “Cash DERs” refers to DERs
payable in cash.

     

    (h) “Change of Control” refers to
the occurrence of any of the following:

     

    (1) any
one person, or more than one person acting as a group (within the meaning of
Section 409A of the Code), acquires ownership of stock of the Company that,
together with other stock held by such person or group constitutes more than 50
percent of the total fair market value or total voting power of all stock of the
Company; or

     

    (2) any
one person, or more than one person acting as a group (within the meaning of
Section 409A of the Code), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such person or persons)
ownership of stock of the Company possessing 30 percent or more of the total
voting power of the stock of the Company; or

     

    (3)
during any 12-month period, a majority of the members of the Company’s board of
directors is replaced by directors whose appointment or election is not endorsed
by a majority of the members of the Company’s board of directors prior to such
appointment or election; or

     

    (4) any
one person, or more than one person acting as a group (within the meaning of
Section 409A of the Code), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such person or persons)
assets from the Company that have a total gross fair market value equal to or
more than 40 percent of the total gross fair market value of all of the assets
of the Company immediately before such acquisition or acquisition; provided, that that no change
of control shall be deemed to occur when the assets are transferred to (x) a
shareholder of the  Company in exchange for or with respect to its
stock, (y) a person, or more than one person acting as a group (within the
meaning of Section 409A of the Code), that owns, directly or indirectly, 50
percent or more of the total value or voting power of all of the outstanding
stock of the Company, or (z) an entity, at least 50 percent of the total value
or voting power of which is owned, directly or indirectly, by a person that owns
directly or indirectly 50 percent or more of the total value or voting power of
all of the outstanding stock of the Company, in each case with such persons
status determined immediately after the transfer of assets.

     

    
      
        
        

      

      
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    (i) “Code” refers to the Internal
Revenue Code of 1986, as amended from time to time.

     

    (j) “Committee” refers to the
Company’s Compensation Committee.

     

    (k) “Company” refers to Redwood
Trust, Inc. a Maryland corporation and any of its subsidiaries.

     

    (l) “Compensation” refers to
Annual Base Salary, Annual Performance Based Bonus, Annual Non-Performance Based
Bonus, Cash DERs, Deferred Stock Awards, Retainers, Fees and such other
compensation payments as may be designated by the Committee under
Section 5.2(f).

     

    (m) “Deferral” means an amount of
Compensation deferred pursuant to a Deferral Election.

     

    (n) “Deferral Account” refers to
the bookkeeping entries established and maintained by the Company for the
purpose of recording (i) the amounts of Compensation deferred by a
Participant, (ii) and interest and stock accruals with respect to those
amounts, and (iii) any distributions to a Participant or
Beneficiary.

     

    (o) “Deferral Crediting Date”
means the business day coinciding with or next following the date the
Compensation being deferred would otherwise have been received by the
Participant.

     

    (p) “Deferral Election” means a
Participant’s irrevocable election to defer receipt of Compensation to a later
Plan Year.

     

    (q) “Deferred Stock Award” refers
to an award of the Company’s Common Stock made to a Participant in the form of a
grant of deferred stock under the 2002 Redwood Trust, Inc. Incentive Plan, as
amended, or other applicable stock-based incentive plan of the
Company.  

     

    (r) “DERs” means Dividend
Equivalent Rights.

     

    (s) “Director” refers to any
non-management director of the Board of Directors of the Company.

     

    (t)
“Disability”  means
either:

     

    (1) a determination by the Social
Security Administration that a Participant is totally disabled, or

     

    (2) a determination that the
Participant is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months, or

     

    
      
        
        

      

      
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    (3)  the Participant is, by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, receiving income replacement benefits for a
period of not less than 3 months under a disability plan or other accident
and health plan maintained by the Company.

     

    (u) “Distribution Date” means the
date or dates on which Compensation being deferred will be distributed, as
selected by the Participant on the Deferral Election form.  The term
Distribution Date does not include other dates on which amounts may be
distributed to a Participant under the Plan such as upon total Disability,
death, Unforeseeable Financial Emergency, or termination of employment other
than upon Retirement.

     

    (v) “Employee” refers to any
employee, within the meaning of Section 3121(d) of the Code, who is highly
compensated, has the title of Vice President (but only with respect to Deferrals
made prior to November 10, 2007), Managing Director, President or Chief
Executive Officer or is otherwise a member of senior management selected by the
Committee to participate in this Plan.  The Committee shall determine
at least annually whether an employee is to be considered highly compensated,
applying a definition with a dollar threshold at least as high as that set under
Section 401(a) of the Code from time to time with respect to qualified
plans.  Where the Committee considers appropriate in applying the
provisions of this Plan, the term Employee shall include only persons who are
Participants or Inactive Participants under Plan.  

     

    (w) “ERISA” refers the Employee
Retirement Income Security Act of 1974, as amended from time to
time.

     

    (x) “Fees” refers to meeting and
other fees payable to Directors of the Company, in addition to
Retainers.

     

    (y) “GAAP” refers to 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.

     

    (z) “Inactive Participant” refers
to any Employee who elected to defer Compensation under the Plan during a
previous Plan Year but who is no longer eligible to defer Compensation payable
during a current Plan Year, whether due to separation from service, change in
status or otherwise.

     

    
      
        
        

      

      
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    (aa)
“Interest Account”
refers to the subaccount of a Participant’s Deferral Account that is deemed
invested so as to earn the applicable Rate of Return each Plan
Year.

     

    (bb)
“Interim Period” means
with respect to a Participant under the Plan that receives payments before July
1, 2007, the period beginning January 1 of the year in which such payment
is made and ending on the date of such payment.

     

    (cc)
“Interim Rate of
Return” is the rate that is credited on amounts distributed from the
Interest Account during a Plan Year with respect to the Interim
Period.  The Interim Rate of Return is 8% per annum, as calculated on
an actual daily uncompounded basis.

     

    (dd)
“Market Value” has the
meaning set forth in Section 6.2(a).

     

    (ee)
“Mutual Fund Rate”
means, with respect to Deferral Elections made prior to January 1, 2007, the
annual rate of return on a publicly traded mutual fund or individual stock or
other investment selected by a Participant at the time of completion of a
Deferral Election and approved by the Committee.

     

    (ff)
“Original Effective
Date” refers to June 1, 2002 with respect to Compensation first
earned, determined or payable after that date.  

     

    (gg)
“Original Default Rate of
Return” means, solely with respect to Pre-July 2004 Deferrals credited to
the Interest Account, the average economic return – as calculated annually for
each calendar year of the Company (or, in the case of the initial Plan Year, for
the period beginning on July 1, 2002 and ending December 31,
2002) – that the Company earned as a percentage of its entire average
capital base (including common, preferred, and other forms of equity, that
portion of long-term unsecured debt that has a remaining maturity of at least
one year past the end of the Plan year and is designated as capital by the
Committee, deferred amounts under this Plan, and other forms of capital that may
be designated by the Committee) before overhead, before variable stock option
expense, and before payments made to capital (such as dividends, interest
payments on debt designated as capital, and accruals for the deferred amounts
under the Plan), less 1%.  In no case shall the rate of return for a
Plan Year be less than 0%.  The Committee shall, in good faith,
estimate a reasonable measure of the Company’s average pre-overhead marginal
economic return on capital for each year by examining the Company’s
results.  In the absence of a different determination by the
Committee, the Company’s GAAP accounting books shall be deemed an adequate
estimate of economic return and GAAP accounting numbers shall be used to
calculate the Rate of Return for the Plan.  The Committee may adjust
or modify the Company’s GAAP results, or use a different measure of results, in
order to achieve a better reasonable estimation of the Company’s economic
returns for the year (or, in the case of the initial Plan Year, the applicable
portion thereof).  

     

    
      
        
        

      

      
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    (hh)
“Participant” refers to
any Employee or Director who has elected to defer under the Plan part or all of
his or her Compensation payable during a Plan Year. 

     

    (ii)
“Plan” means this
Redwood Trust, Inc. Executive Deferred Compensation Plan.

     

    (jj)
“Plan Year” refers to
the period of 12 consecutive months commencing on the first day of January
of each year.  The initial Plan Year shall commence on the Original
Effective Date of the Plan and end on the final day of December of the same
calendar year.

     

    (kk)
“Pre-July 2004
Deferrals” means all deferrals made before July 1,
2004.

     

    (ll)
“Pre-2007 Deferrals”
means all deferrals made on or after July 1, 2004 and before January 1,
2007.

     

    (mm)
“Rate of Return” is the
rate used to credit interest accrued with respect to a Plan Year on Deferrals
and amounts previously credited to the Interest Account.  Except as
otherwise provided in Section 6.2(b), the Rate of Return on Pre-July 2004
Deferrals shall be the rate specified in the applicable Deferral Election, or
the Original Default Rate of Return if no such rate was specified in the
Deferral Election. Except as otherwise provided in Section 6.2(b), the Rate of
Return on Pre-2007 Deferrals shall be the Mutual Fund Rate if specified in the
applicable Deferral Election and approved by the Committee, and if no such rate
was specified or approved, or if the specified rate subsequently becomes unable
to be determined, the AFR Rate.  The Rate of Return on all other
Deferrals and at all other times shall be the AFR Rate.  

     

    (nn)
“Re-Deferral Election”
means a Participant’s irrevocable election to extend a Distribution
Date.

     

    (oo)
“Retainer” refers to
the annual fixed compensation amount, payable in cash to Directors, for each
fiscal year of the Company or such portion thereof as they may serve as
Directors.

     

    (pp)
“Retirement” means a
Participant’s amicable Separation from Service with the Company after employment
with the Company (including any subsidiary or affiliate of the Company) for an
aggregate period of not less than ten (10) years, or as otherwise required
to be defined under Section 409A of the Code. 

     

    (qq) “Separation
from Service” means the
termination of a Participant’s employment or service with the Company for any
reason which constitutes a “separation from service” within the meaning of
Section 409A of the Code and the regulations promulgated thereunder, including
Treasury Regulation Section 1.409A-1(h).

     

    (rr)
“Stock Equivalent
Account” refers to the subaccount of a Participant’s Deferral Account
that is deemed  invested in the Company’s common stock.

     

    
      
        
        

      

      
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    (ss)
“Unforeseeable Financial
Emergency” means a severe financial hardship to the Participant resulting
from (i) illness or accident of the Participant or of a spouse or dependent
(as defined in Section 152(a) of the Code) of the Participant;
(ii) loss of the Participant’s property due to casualty; or (iii) such
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant, as defined in Treasury
Regulation Section 1.409A-3(i)(3)(i).

     

    (tt)
“Valuation
Date”  means any date when the value of amounts credited to a
Deferral Account is measured; provided that, with respect to Plan Years
commencing prior to January 1, 2008, Valuation Date generally shall mean January
1st of each year.

     

    
      3.
Administration

    

     

    The Plan
shall be administered by the Committee except as otherwise expressly provided
herein.  The Committee shall have the powers set forth in the Plan and
the power to interpret its provisions.  Any decisions of the Committee
shall be final and binding on all persons with regard to the
Plan.  The Committee may delegate its authority hereunder to the
President of the Company or to such other officers of the Company as it may deem
appropriate, provided
that no such officer shall be delegated authority to make decisions with respect
to his or her own Deferrals or Deferral Account.

     

    
      4.
Eligibility

    

     

    The
Committee may, in writing from time to time, designate by name or title those
Employees and Directors of the Company who are eligible to participate in the
Plan for one or more Plan Years and the date upon which each such Employee’s or
Director’s participation may commence.  All designated Employees and
Directors shall be notified in writing by the Board or the Committee of their
eligibility to participate.  No Employee or Director shall be entitled
to participate in the Plan unless notified of their eligibility by the
Committee.  If the Committee provides a Participant with written
notice of revocation of eligibility, the effective date of any such
ineligibility shall be the first day of the Plan Year in which the notice is
received or the next following Plan Year, as specified in the
notice.  A Participant’s eligibility to participate in the Plan does
not confer upon the Participant any right to any award, bonus, or other
remuneration of any kind.

     

    
      5.
Deferral of Compensation

    

     

    5.1.
Rules for Deferral
Election.  Any Employee or Director may make irrevocable
elections to defer receipt of their Base Salary, Annual Performance Based Bonus,
Annual Non-Performance Based Bonus, Cash DERs, Deferred Stock Awards, Retainers
or Fees (each such election shall be referred to as a “Deferral Election” and the
amount deferred pursuant to such an election the “Deferral”) in accordance
with the rules set forth below.

     

    (a) An
Employee or Director shall be eligible to make a Deferral Election only if he or
she is an Employee or Director on the date such election is made.

     

    
      
        
        

      

      
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    (b) For
each Plan Year, an Employee or Director may make no more than one Deferral
Election regarding Annual Base Salary, Annual Performance Based Bonus, Annual
Non-Performance Based Bonus, Cash DERs, Deferred Stock Awards, Fees or
Retainer.

     

    (c) All
Deferral Elections must be made in writing on such forms as the Committee may
prescribe and must be received by the Committee no later than (i)
December 31 preceding the calendar year in which the Participant is to
perform the services to which the Compensation relates, (ii) in the case of an
Annual Performance Based Bonus, June 30th of the calendar year in which the
Participant performs the services to which such bonus relates, (iii) in the case
of Deferred Stock Awards having a vesting date more than 12 months after
the date of award, the date of award thereof, and (iv) in the case of Deferred
Stock Awards having a vesting date of 12 months or less but awarded pursuant to
the same criteria as but in lieu of an Annual Performance Based Bonus or Annual
Non-Performance Based Bonus, the same date that Deferral Elections must be made
for that type of bonus.

     

    (d) As
part of each Deferral Election, the Employee or Director must specify the
Distribution Date or Dates on which the Deferral will be paid.  The
Distribution Dates specified in an Employee’s or Director’s Deferral Elections
may, but need not necessarily, be the same for all Deferrals.  Except
as provided in subsection (h) below, the dates specified for distribution
of a Deferral shall be irrevocable and shall apply to that portion of the
Participant’s Deferral Account which is attributable to that
Deferral.

     

    (e)
Except for lump sum distributions upon termination of employment or at total
Disability or death, a Distribution Date must be specified as May 1 so as
to permit the final audit and reporting of performance for the prior year to be
completed.

     

    (f) The
earliest Distribution Date selected by an Employee or Director for any
Compensation deferred under the Plan shall not be earlier than the May 1
that occurs 16 months after the end of the Plan Year during which the
Deferral Crediting Date for such Compensation occurs.

     

    (g) As
part of each Deferral Election, an Employee or Director must elect the form in
which the Deferral will be paid beginning on the selected Distribution
Date.  The Deferral may be paid in a single lump sum or in annual
installments over a period not exceeding fifteen years.

     

    (h) A
Participant may elect to extend the Distribution Date or Dates and/or change the
method of payment (lump sum or installments) relating to any Deferral Election
(a “Re-Deferral Election”); provided, that no Re-Deferral
Election shall be effective unless (i) the Committee receives the election
at least 12 months prior to the first Distribution Date for such Deferral,
and (ii) any new first Distribution Date is at least five years later than
the existing first Distribution Date for such Deferral.  No Deferral
Election may be made the subject of more than one Re-Deferral Election to extend
the Distribution Date or Dates and, in addition, one Re-Deferral Election may be
made to change the method of payment.  All Re-Deferral Elections must
be made in writing on such forms and pursuant to such rules as the Committee may
prescribe.  Except as provided in this Section 5.1(h), an
Employee’s or Director’s election as to the time and method of payment of a
Deferral shall be irrevocable.  No payments shall be made with respect
to a Participant’s Deferral Account except as provided in the applicable
Deferral Election, this Plan or as required by law or court order.

     

    
      
        
        

      

      
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    (i) As
part of each Deferral Election, an Employee or Director must elect the
investment alternatives that shall apply to the Deferral in accordance with
Section 6.2.

     

    (j) A
Deferral Election with respect to a type of Compensation for a year shall be
irrevocable except that (A) a Participant may elect to discontinue deferral
of future unaccrued Compensation (other than Deferred Stock Awards) at any time
prior to the earlier of the date that the election to defer could have been made
under 5.1(c) above or the performance of services related to such
Compensation have commenced and (B) if the Committee determines that a
Participant has an Unforeseeable Financial Emergency and such Participant
receives distributions from his or her Deferral Account as a result thereof,
then all of the Participant’s Deferral Elections then in effect shall be revoked
with respect to all future accrued Compensation covered thereby.  A
Participant that elects to discontinue deferrals under (A) above will not be
eligible to make a new Deferral Election with respect to such type of
Compensation until the next applicable date specified for such type of
Compensation under subsection (c) above.

     

    (k)
Notwithstanding Section 5.1(c), a Participant may make a Deferral Election
with respect to all Compensation related to the year in which the Participant
first becomes eligible to participate in the Plan no later than the
30th day after the date such Participant becomes eligible to participate in
the Plan.

     

    (l)
Notwithstanding any of the foregoing required deadlines for the submission of a
Deferral Election, the Committee may, to the extent permitted by Notice 2007-86,
provide a limited period in which Participants may make new distribution
elections, or revise existing distribution elections, with respect to amounts
subject to the terms of the Plan, by submitting a Deferral Election on or before
the deadline established by the Committee, which in no event shall be later than
December 31, 2008.  Any distribution election(s) made by a
Participant, and accepted by the Committee, in accordance with this Section
shall not be treated as a change in either the form or timing of a Participant’s
benefit payment for purposes of Section 409A of the Code or the
Plan.  If any distribution election submitted by a Participant in
accordance with this Section either (i) relates to an amount that would
otherwise be paid to the Participant in 2008, or (ii) would cause an amount to
be paid to the Participant in 2008 which would have been paid in a subsequent
year, such election shall not be effective.

     

    (m)
Notwithstanding any other provision of the Plan, the Committee may refuse, in
its sole discretion, to accept any Deferral Election from a Participant
regardless of such Participant’s eligibility to participate in the Plan at the
time.

     

    
      
        
        

      

      
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    5.2.
Amounts
Deferred.  An Employee or Director may make a Deferral Election
to defer receipt of the following amounts:

     

    (a) All
or any portion of the Employee’s Annual Base Salary.

     

    (b) All
or any portion of the Employee’s Annual Performance Based Bonus or Annual
Non-Performance Based Bonus.

     

    (c) All
or any portion of Cash DERs payable to the Participant.

     

    (d) All
or any portion of a Deferred Stock Award payable to the
Participant.

     

    (e) All
or any portion of the Director’s Retainer or Fees.

     

    (f) Such
other payments under any plan or arrangement of compensation for Employees or
Directors established by the Company or such other compensation as the Committee
may designate as eligible for deferral under this Plan in such increments and
subject to such limitations and restrictions as the Committee may
establish.

     

    
      6.
Deferral Accounts

    

     

    6.1.
Deferral
Accounts.  All amounts deferred pursuant to a Participant’s
Deferral Elections under the Plan shall be allocated to a bookkeeping account in
the name of the Participant (“Deferral Account”) and the
Committee shall maintain a separate subaccount under a Participant’s Deferral
Account for each Deferral.  Deferrals shall be credited to the
Deferral Account as of the Deferral Crediting Date coinciding with or next
following the date on which, in the absence of a Deferral Election, the
Participant would otherwise have received the Compensation that was deferred
(based on any vesting schedule or other payment conditions applicable to the
that type of Compensation).  No Deferral made with respect to
Compensation that is subject to a vesting requirement or other payment condition
shall be credited to a Deferral Account prior to satisfaction of any such
vesting or other condition.

     

    6.2.
Investment
Alternatives.  A Participant must make an investment election
at the time of each Deferral Election.  The investment election must
be made in writing on such forms and pursuant to such rules as the Committee may
prescribe, subject to paragraph 6.3, and shall designate the portion of the
Deferral which is to be treated as if invested in each investment
alternative.  The two investment alternatives shall be as
follows:

     

    (a) Stock Equivalent
Account.  The value of a Participant’s Deferrals credited to
the Stock Equivalent Account shall be determined as if the Deferral were
invested in the Company’s common stock as of the Deferral Crediting
Date.  For all Deferrals other than Deferrals of Deferred Stock
Awards, the number of shares of common stock equivalents to be credited to the
Participant’s Deferral Account and appropriate subaccounts on each Deferral
Crediting Date shall be determined by dividing the Deferral to be “invested” on
that date by the closing price of the Company’s common stock on the New York
Stock Exchange Composite Transaction Tape on the business day preceding the
Deferral Crediting Date (“Market
Value”).  Fractional stock equivalents will be computed to two
decimal places.  In the case of Deferrals of Deferred Stock Awards,
the number of shares of common stock equivalent shares to be credited to the
Deferral Account shall be the number of shares of common stock which would
otherwise have been payable under the Deferred Stock Award to the Participant on
or prior to the Deferral Crediting Date but as to which the Participant has
elected to defer delivery pursuant to the terms of the Plan.  An
amount equal to the number of common stock equivalents multiplied by the
dividend paid per share on the Company’s common stock on each dividend record
date shall be payable in cash to the Participant on the related dividend payment
date.  The Participant may elect at the time of the Deferral Election
to have such amount credited to the Interest Account.  Except as the
Committee may otherwise permit upon request of the Participant, the number of
shares of the Company’s common stock to be paid to a Participant on a
Distribution Date with respect to any Deferral subaccount in the Stock
Equivalent Account shall be equal to the number of common stock equivalents
accumulated in the Deferral subaccount as of such Distribution Date divided by
the total number of payments remaining to be made from such Deferral
subaccount.  Shares of common stock paid in respect of a Deferred
Stock Award or other balance in the Stock Equivalent Account shall be deemed to
be issued and delivered pursuant to the 2002 Redwood Trust, Inc. Incentive
Plan as an award thereunder (or such successor incentive stock plan of the
Company as is in effect at the time of the award).  All payments from
the Stock Equivalent Account shall be made in whole shares of the Company’s
common stock with fractional shares credited to federal income taxes
withheld.

     

    
      
        
        

      

      
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    (b) Interest
Account.  A Participant’s Deferrals credited to the Interest
Account shall be deemed to accrue interest at an annual rate equal to the
applicable Rate of Return.  Applicable Rates of Return shall be
computed for each calendar year and shall be credited in arrears to the Interest
Account subaccount of the Participant’s Deferral Account, effective as of each
Valuation Date.  The Rate of Return shall be applied to the average
balance in each subaccount during such calendar year (or shorter interim period,
if applicable), such average balance to be computed on an actual daily basis and
excluding any amounts distributed to the Participant since the last Valuation
Date.  Calculation of the interest credits shall be made as soon as
practicable following the completion of the independent accountant’s audit of
the Company’s financial statements each year and the Committee’s determination
of the proper Rate(s) of Return for that year, and application of the interest
credits will be effective as of the applicable Valuation Date.  Any
Participant’s distributions made prior to the completion of the Committee’s
determination of the Rate(s) of Return shall be based upon the conservative
estimate by the Chief Financial Officer of the Company of the credits to be
applied, if any, and following the Committee’s determination of the Rate of
Return and any adjustments necessary to reflect the same, proper credits will be
made with the Participant on May 1 of that year.  

     

    Pre-July 2004 Deferrals credited to the
Interest Account, along with all interest accrued thereon, shall accrue interest
under the Plan at the Original Default Rate of Return until the earlier of (i)
the Distribution Date(s) on which such Pre-July 2004 Deferrals were scheduled to
be distributed in accordance with the related Deferral Elections as in effect on
July 1, 2004, (ii) the date(s) the Participant actually received
distribution of such Pre-July 2004 Deferrals pursuant to the terms of this Plan
and (iii) June 30, 2007, after which such Deferrals and related interest
accruals shall accrue interest at the AFR Rate.

     

    
      
        
        

      

      
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    Pre-2007 Deferrals credited to the
Interest Account, along with all interest accrued thereon, shall accrue interest
under the Plan at the Mutual Fund Rate, if any, specified in the applicable
Deferral Election until the earlier of (i) the Distribution Date(s) on which
such Pre-2007 Deferrals were scheduled to be distributed in accordance with the
related Deferral Elections as in effect on January 1, 2007, (ii) the date(s) the
Participant actually received distribution of such Pre-2007 Deferrals pursuant
to the terms of this Plan and (iii) June 30, 2007, after which such
Deferrals and related interest accruals shall accrue interest at the AFR
Rate.

     

    With respect to distribution of a
Deferral Account deemed invested in an Interest Account, the amount to be paid
to the Participant from such subaccount on a Distribution Date shall be an
amount determined by dividing the balance in such subaccount as of the
Distribution Date by the total number of payments remaining to be paid with
respect to such subaccount of the Participant’s Deferral
Account.  Each lump sum payment, each installment payment and any
other payment of balances credited to the Participant’s Interest Account shall
be accompanied by an amount of accrued interest on such payment at the AFR Rate
(or, for payments made prior to July 1, 2007, the Interim Rate of Return for the
Interim Period).  All payments of amounts credited to the Interest
Account shall be made in cash.

     

    6.3.
Investment
Elections.  A Participant’s investment elections shall be
subject to the following rules:

     

    (a) Except as provided in
subsection (b) below with respect to Deferred Stock Awards that would have
been paid in the form of the Company’s common stock, if the Participant fails to
make an investment election with respect to a Deferral, the Deferral shall be
deemed to be invested in the Interest Account.

     

    (b) Any Deferral attributable to a
Deferred Stock Award in the form of the Company’s common stock, restricted or
otherwise, shall automatically be deemed to be invested in the Stock Equivalent
Account.

     

    6.4.
Matching, Vesting and Other
Conditions.  

     

    (a) The
Committee may condition awards of Compensation from time to time on the
Participant’s consent to defer all or a portion thereof under the
Plan.  The Committee may also establish vesting requirements or other
conditions with respect to awards of Compensation to be deferred under the
Plan.  All such vesting requirements or other conditions shall be
specified in the Deferral Election form or other related award
agreement.  The Committee may authorize matching of Compensation that
is subject to a Deferral, in which case such matched Compensation shall be
treated as a Deferral for all purposes of this Plan (including but not limited
to all restrictions applicable to distributions and changes to distributions of
Deferrals).  However such matching Compensation shall, unless
otherwise expressly stated in the applicable Deferral Election, be subject to
vesting on the same terms as matching contributions made under the Company’s
401K Plan (as in effect on the date of the Deferral Election applicable to the
Compensation being matched).

     

    
      
        
        

      

      
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    (b) Except as otherwise provided above
with respect to matching Compensation or in the Deferral Election or the related
award agreement, a Participant shall be fully vested at all times in the balance
that has been credited to his Deferral Account in accordance with Section
6.1.  If a Deferral (or any portion thereof) is subject to any vesting
or performance condition and such Participant’s service with the Company is
terminated for any reason prior to the satisfaction or lapse of such vesting or
performance condition, then the portion of such Deferral that is not yet vested
or for which performance conditions are not yet satisfied, along with any
interest, dividend or stock equivalent payments accrued thereon, shall be
forfeited and no amounts shall be distributed in respect thereof.

     

    
      7.
Effect on Employee Benefits

    

     

    Amounts
deferred under this Plan or distributed pursuant to the terms of this Plan are
not taken into account in the calculation of an Employee’s benefits under any
employee pension or welfare benefit program or under any other compensation
practice maintained by the Company, except to the extent provided in such
program or practice.

     

    
      8.
Payment of Deferral Accounts

    

     

    8.1.
Time of
Payment.  Payment of amounts credited to a Participant’s
Deferral account shall be made in a single lump sum or in installments, as
elected by the Participant in the Deferral Election in accordance with
Section 5.1(c) above.  If no form of distribution is specified,
the distribution shall be made in a single lump sum.  If a
Participant’s Deferral Account is payable in a single lump sum, the payment
shall be made as soon as practicable following the Distribution Date specified
by the Participant in the applicable Deferral Election.  If a
Participant’s Deferral is payable in installments, then, subject to Section
8.12, the Participant’s Deferral shall be paid in annual installments as
determined under Section 6.2 over the period elected by the Participant in
the Deferral Election, commencing as soon as practicable following the
Distribution Date specified by the Participant in the applicable Deferral
Election.  No payment of a Participant’s Deferrals shall be made
earlier than the date specified in the applicable Deferral Election except as
otherwise provided herein or as otherwise permitted under
Section 409A.

     

    8.2.
Payment Upon Total
Disability.  If a Participant suffers a total Disability before
all amounts credited to his Deferral Account have been paid out, payment of
amounts credited to the Participant’s Deferral Account shall be made pursuant to
the distribution arrangements, if any, specified by such Participant for such
event in the applicable Deferral Election (and using the normal distribution
provisions of the Plan to the extent not otherwise specified).  

     

    
      
        
        

      

      
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    8.3.
Payment Upon Retirement or
Other Termination of Employment.   Following Retirement, a
Participant’s Deferral Account shall continue to be maintained for the benefit
of the Participant and amounts credited to such Participant’s Deferral Account
shall continue to be paid in accordance with the Participant’s Deferral
Elections.  A Participant will continue to have the right following
Retirement to make Re-Deferral Elections as provided herein, subject to the
limitations provided herein.  If the Participant terminates employment
with the Company for any reason other than Retirement, becoming totally
Disabled, or death before the entire balance credited to the Participant’s
Deferral Account has been paid, and such termination constitutes a Separation
from Service, then subject to Section 8.12, the balance credited to such
Participant’s Deferral Account shall be distributed in a single lump sum as soon
as practicable.  

     

    8.4.
Payment Upon Death of a
Participant.  If a Participant dies before all amounts credited
to his Deferral Account have been paid out, payment of the Participant’s
Deferral Account shall be made pursuant to the distribution arrangements, if
any, specified by such Participant in the applicable Deferral Election (using
the normal distribution provisions of the Plan to the extent not otherwise
specified). 

     

    8.5.
Beneficiary.  A
Participant’s Beneficiary shall mean the individual(s) or entity designated by
the Participant to receive the balance of the Participant’s Deferral Account in
the event of the Participant’s death prior to the payment of his entire Deferral
Account.  To be effective, any Beneficiary designation shall be filed
in writing with the Committee.  A Participant may revoke an existing
Beneficiary designation by filing another written Beneficiary designation with
the Committee.  The latest Beneficiary designation received by the
Committee shall be controlling.  In the event a married Participant
designates someone other than his or her spouse as sole, primary beneficiary,
such initial designation or subsequent change shall be invalid unless the spouse
consents in a writing which names the designated Beneficiary.  If no
Beneficiary is named by a Participant or if he survives all of his named
Beneficiaries, the Deferral Account shall be paid in the following order of
precedence:

     

    (a) the
Participant’s spouse or qualified domestic partner;

     

    (b) the
Participant’s children (including adopted children), per stirpes; or

     

    (c) the
Participant’s estate.

     

    8.6.
Form of
Payment.   Payment of that portion of a Participant’s
Deferrals deemed to be invested in the Interest Account shall be made in
cash.  Payment of that portion of a Participant’s Deferrals deemed to
be invested in the Stock Equivalent Account shall be made by distribution in
whole shares of the Company’s common stock with fractional shares credited to
federal income taxes withheld.

     

    8.7.
Unforeseeable Financial
Emergency.  If the Committee or its designee determines that a
Participant has incurred an Unforeseeable Financial Emergency, the Participant
may withdraw in cash and/or stock the portion of the balance credited to his
Deferral Account needed to satisfy the Unforeseeable Financial Emergency plus
any taxes on the amounts so distributed.  A withdrawal on account of
an Unforeseeable Financial Emergency shall not exceed the amount reasonably
needed to satisfy the emergency, computed after taking into account any other
sources of funds, including reimbursements, compensation by insurance,
liquidation of the Participant’s assets (to the extent the liquidation of such
assets would not itself cause severe financial hardship) or by cessation of
future deferrals under the Plan.  Withdrawals shall be paid as soon as
possible following the date on which the withdrawal is approved in writing by
the Committee setting forth the grounds therefor.

     

    
      
        
        

      

      
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    8.8.
Withholding of
Taxes.  The Company shall withhold any applicable Federal,
state or local income tax from payments due under the Plan.  The
Company shall also withhold any applicable Social Security taxes, including the
Medicare portion of such taxes, and any other employment taxes as necessary in
its view based on the advice of counsel to comply with applicable laws and the
Company’s standard practices.  The Committee may in its sole
discretion and in satisfaction of the foregoing withholding requirements allow a
Participant to elect to have the Company withhold shares of the Company’s Common
Stock otherwise payable to the Participant.  The number of shares of
the Company’s Common Stock which may be so withheld shall be limited to the
number of shares which have a Market Value on the date of withholding equal to
the aggregate amount of such withholding tax liabilities based on the minimum
statutory withholding rates for Federal, state and local income tax and payroll
tax purposes. 

     

    8.9.
Small
Amounts.  Notwithstanding any election by a Participant
regarding the timing and manner of payment of amounts credited to his Deferral
Account, in the event of a Participant’s Retirement, death or total Disability, the
Employer shall pay the Participant (or the Participant’s Beneficiary) a lump sum
distribution of the entire value of the Participant’s Deferral Account if the
value of such account is less than ten thousand dollars ($10,000) determined as
of the Valuation Date coinciding with or immediately following the Participant’s
Retirement, death or total Disability.  

     

    8.10.
Income Tax
Obligations.  If a Participant is assessed Federal, state or
local income or FICA taxes by reason of, and computed on the basis of, his or
her undistributed deferred Compensation or undistributed interest accrued on his
or her Deferral Account (based on an assertion that the Plan does not comply
with Section 409A of the Code or otherwise), the Participant shall notify
the Committee in writing of such assessment and there shall be distributed from
the Participant’s Deferral Account deferred Compensation or accrued interest in
an amount equal to the taxes so assessed, together with any interest due and
penalties assessed thereupon within 30 days following such notice; provided however, that if the
Committee determines that such assessment is improper, it may request that the
Participant contest the assessment, at the expense of the Company (which expense
shall include all costs of appeal and litigation, including legal and accounting
fees, and any additional interest assessed on the deficiency from and after the
date of the Participant’s notice to the Committee); and during the period such
contest is pending, the sums otherwise distributable pursuant to this
Section 8.10 shall not be distributed.  

     

    
      
        
        

      

      
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    8.11.
Capital
Changes.  In the event that at any time or from time to time a
stock dividend, stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to stockholders other than
a normal cash dividend, or other change in the Company’s corporate or capital
structure results in (a) the outstanding shares of common stock or any
securities exchanged therefor or received in their place being exchanged for a
different number or class of securities of the Company or of any other
corporation or (b) new, different, or additional securities of the Company
or of any other corporation being received by the holders of shares of common
stock, then the Committee, in its sole discretion, shall make such equitable
adjustments as it shall deem appropriate in the circumstances in the number and
kind of shares of stock equivalents credited or to be credited to each
Participant’s Stock Equivalent Account.

     

    8.12.
Six-Month
Delay.  Notwithstanding any of the foregoing or any other
provision of the Plan to the contrary, if a distribution of a Participant’s
Deferral Account is to be made as a result of a Separation from Service of a
Participant who is a “specified employee” (as determined in accordance with
Treasury Regulation
Section 1.409A-1(i)) on the date his Separation from Service occurs, to
the extent delayed commencement of any portion of the benefits to which the
Participant is entitled hereunder is required in order to avoid a prohibited
distribution under Code Section 409A(a)(2)(B)(i), such portion of the
Participant’s benefits shall not be provided prior to six (6) months and one (1)
day following the date of the Participant’s Separation from Service (or if
earlier, upon death), and upon the first business day following the applicable
date, all payments deferred pursuant to this sentence shall be paid in a lump
sum, and any remaining payments due under the Plan shall be paid as otherwise
provided herein.  For purposes of Section 409A of the Code, a
Participant’s right to receive more than one payment pursuant to the Plan shall
be treated as a right to receive a series of separate payments and accordingly,
each payment shall at all times be considered a separate and distinct
payment.

     

    
      9.
Funding

    

     

    Benefits
payable under the Plan to any Participant shall be paid directly by the
Company.  The Company shall not fund, or otherwise segregate assets to
be used for payment of benefits under, the Plan.  Participants
acknowledge that the Company intends to use the amounts deferred under this Plan
as capital.

     

    
      10.
Account Statements

    

     

    As soon
as practical after May 1 of each calendar year (or after such other date or
dates as the Committee, in its discretion, may designate but at least annually),
each Participant shall be provided with a statement of the balance of his
Deferral Account as of the most recent Valuation Date.  If any such
statement identifies both vested and unvested balances in the Participant’s
Deferral Account, such information shall be presented solely as a courtesy and
is not intended to constitute crediting of unvested amounts to such Deferral
Account.

     

    
      
        
        

      

      
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      11.
Employment Rights

    

     

    Establishment
of the Plan shall not be construed to give any Employee the right to be retained
in the Company’s service or to any benefits not specifically provided by the
Plan.  An Employee’s election to participate in the Plan shall not
affect the rights of the Employee under any employee agreement, stock option, or
other incentive compensation agreement or to any other benefits to which the
Employee is entitled.

     

    
      12.
Interests Not Transferable

    

     

    Except as
to withholding of any tax under the laws of the United States or any state or
locality and the provisions of Section 13, no benefit payable at any time
under the plan shall be subject in any manner to alienation, sale, transfer,
assignment, pledge, attachment or other legal process, or encumbrance of any
kind.  Any attempt to alienate, whether currently or thereafter
payable, shall be void.  No person shall, in any manner, be liable for
or subject to the debts or liabilities of any person entitled to such
benefits.  If any person shall attempt to, or shall alienate, sell,
transfer, assign, pledge or otherwise encumber his benefits under the Plan, or
if by any reason of his bankruptcy or other event happening at any time, such
benefits would devolve upon any other person or would not be enjoyed by the
person entitled thereto under the Plan, then the Committee, in its discretion,
may terminate the interest in any such benefits of the person entitled thereto
under the Plan and hold or apply them for or to the benefit of such person
entitled thereto under the terms of this Plan or his spouse, children or other
dependents, or any of them, in such manner as the Committee may deem
proper.

     

    
      13.
Forfeiture

    

     

    Unclaimed
amounts shall consist of the amounts of the Deferral Account of a Participant
that are not distributed because of the Committee’s inability, after a
reasonable search, to locate a Participant or his Beneficiary, as applicable,
within a period of two (2) years after the Distribution Date upon which the
payment of any benefits becomes due.  No interest will be credited on
such amounts invested in the Interest Account following such Distribution Date
and no dividend equivalent payments will accrue on such amounts invested in the
Stock Equivalent Account after such Distribution Date.  Unclaimed
amounts shall be forfeited at the end of such two-year period.  These
forfeitures will reduce the obligations of the Company under the Plan and the
Participant or Beneficiary, as applicable, shall have no further right to his
Deferral Account.

     

    
      14.
Controlling Law

    

     

    This plan
shall be construed in accordance with the laws of the State of California
(exclusive of its rules regarding conflicts of law) to the extent that such laws
are not preempted by ERISA or other federal laws.  If any provision of
this Plan shall be held illegal or invalid for any reason, such determination
shall not affect the remaining provisions of this Plan which shall be construed
as if said illegal or invalid provision had never been included.

     

    
      
        
        

      

      
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      15.
Action by the Company

    

     

    Except as
otherwise specifically provided herein, any action required of or permitted by
the Company under the Plan shall be by resolution of the Board of Directors of
the Company or by action of any member of the committee or person(s) authorized
by resolution of the Committee.

     

    
      16.
Amendment or Termination of Plan

    

     

    (a) The
Company intends the Plan to be permanent, but reserves the right at any time by
action of its Board of Directors to terminate the Plan.  The Board of
Directors may also modify or amend the Plan and outstanding Deferral Elections,
provided, however, that
any such modification or amendment shall not reduce or eliminate any Deferral
Account accrued through the date of such modification or amendment or otherwise
impair the rights of a Participant under any Deferral Elections made prior to
the date of such modification or amendment without such Participant’s
consent.  The Committee shall have the same authority to modify or
amend the Plan and outstanding Deferral Elections as the Board of Directors of
the Company in the following circumstances:

     

    (i) to adopt amendments to the Plan and
outstanding Deferral Elections which the Committee determines are necessary or
desirable for the Plan and outstanding Deferral Elections to comply with or to
obtain (or maintain) benefits or advantages under the provisions of Section 409A
of the Code or other applicable law, regulations or rulings or requirements of
the Internal Revenue Service or other governmental or administrative agency or
changes in such law, regulations, rulings or requirements; and

     

    (ii) to adopt any other procedural or
cosmetic amendment that the Committee determines to be necessary or desirable
that does not materially change benefits to Participants or their Beneficiaries
or materially increase the Company’s obligations under the Plan.

     

    (b) The
Committee shall provide notice of amendments adopted by the Committee to the
Board of Directors of the Company on a timely basis.

     

    (c) This
Plan shall terminate immediately if a court of competent jurisdiction determines
that this Plan is not exempt from the fiduciary provisions of Part 4 of Title I
of ERISA.  To the extent practicable and not inconsistent with the
limitations of Section 409A of the Code, the Plan shall be deemed to have
terminated as of the date it ceased to be exempt.

     

    (d) The
Committee may, in its discretion, terminate the Plan in connection with a Change
of Control or other determination that doing so is in the best interests of the
Company or the Participants.

     

    (e) Upon
termination of the Plan, whether as a result of a Change of Control or
otherwise, the Committee shall distribute all amounts due with respect balances
credited to all Deferral Accounts as soon as practicable following such
termination.  Such distributions shall be made in accordance with the
rules for plan terminations specified in Treasury Regulations or other guidance
promulgated under Section 409A of the Code.

     

    
      
        
        

      

      
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      17.
Miscellaneous

    

     

    17.1.
Alternative Acts and
Times.  If it becomes impossible or burdensome for the Company
or the Committee to perform a specific act at a specific time required by this
Plan, the Company or Committee may perform such alternative act which most
nearly carries out the intent and purpose of this Plan and may perform such
required or alternative act at a time as close as administratively feasible to
the time specified in this Plan for such performance.  Nothing in the
preceding sentence shall allow the Company or Committee to accelerate or defer
any payments to Participants or Inactive Participants under this Plan, except as
otherwise expressly permitted herein.

     

    17.2.
Masculine and Feminine,
Singular and Plural.  Whenever used herein, pronouns shall
include both genders, and the singular shall include the plural, and the plural
shall include the singular, whenever the context shall plainly so
require.

     

    17.3.
Notices.  Any
notice from the Company or the Committee to an Employee, Participant, Inactive
Participant or Beneficiary regarding this Plan may be addressed to the last
known residence of said person as indicated in the records of the
Company.  Any notice to, or any service of process upon, the Company
or the Committee with respect to this Plan may be addressed as
follows:

     

    Chief
Financial Officer

    Redwood
Trust, Inc.

    One
Belvedere Place, Suite 300

    Mill
Valley, CA  94941

     

    17.4.
Facility of
Payment.  If the Committee, in its sole discretion, determines
that any Employee, Participant, Inactive Participant or Beneficiary by reason of
infirmity, minority or other disability, is physically, mentally or legally
incapable of giving a valid receipt for any payment due him or her or is
incapable of handling his or her own affairs and if the Committee is not aware
of any legal representative appointed on his or her behalf, then the Committee,
in its sole discretion, may direct (a) payment to or for the benefit of the
Employee, Director, Participant, Inactive Participant or Beneficiary;
(b) payment to any person or institution maintaining custody of the
Employee, Director, Participant, Inactive Participant or Beneficiary; or
(c) payment to any other person selected by the Committee to receive,
manage and disburse such payment for the benefit of the Employee, Director,
Participant, Inactive Participant or Beneficiary.  The receipt by any
such person of any such payment shall be a complete acquittance therefore; and
any such payment, to the extent thereof, shall discharge the liability of the
Company, the Committee, and the Plan for any amounts owed to the Employee,
Director, Participant, Inactive Participant or Beneficiary
hereunder.  In the event of any controversy or uncertainty regarding
who should receive or whom the Committee should select to receive any payment
under this Plan, the Committee may seek instruction from a court of proper
jurisdiction or may place the payment (or entire Deferral Account) into such
court with final distribution to be deemed by such court.

     

    
      
        
        

      

      
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    17.5.
Correction of
Errors.  Any crediting of Compensation or interest accruals to
the Deferral Account of any Employee, Director, Participant, Inactive
Participant or Beneficiary under a mistake of fact or law shall be returned to
the Company.  If an Employee, Director, Participant, Inactive
Participant or Beneficiary in an application for a benefit or in response to any
request by the Company or the Committee for information, makes an erroneous
statement, omits any material fact, or fails to correct any information
previously furnished incorrectly to the Company or the Committee, of if the
Committee makes an error in determining the amount payable to an Employee,
Director, Participant, Inactive Participant or Beneficiary, the Company or the
Committee may correct its error and adjust any payment on the basis of correct
facts.  The amount of any overpayment or underpayment may be deducted
from or added to the next succeeding payments, as directed by the
Committee.  The Committee and the Company reserve the right to
maintain any action, suit or proceeding to recover any amounts improperly or
incorrectly paid to any person under the Plan or in settlement of a claim or
satisfaction of a judgment involving the Plan.

     

    17.6.
Status of
Participants.  In accordance with Revenue Procedure 92-65
Section 3.01, this Plan hereby provides:

     

    (a) Employees, Directors, Participants
and Inactive Participants under this Plan shall have the status of general
unsecured creditors of the Company;

     

    (b) This plan constitutes a mere
promise by the Company to make benefit payments in the future; and

     

    (c) It is the intention of the parties
that the arrangements under this plan shall be unfunded for tax purposes and for
purposes of Title I of ERISA.

     

    17.7.
Employee and Spouse
Acknowledgement.  By executing this Plan document or related
enrollment or election form, the undersigned Employee or Director and, if
Employee or Director is married, Employee’s or Director’s spouse hereby
acknowledge that each of them has read and understood this Plan
document.  Employee or Director and his or her spouse also acknowledge
that they knowingly and voluntarily agree to be bound by the provisions of the
Plan, as amended from time to time, including those Plan provisions which
require the resolution of disputes by binding out-of-court
arbitration.  Employee or Director and his or her spouse further
acknowledge that they have had the opportunity to consult with counsel of their
own choosing with respect to all of the financial, tax and legal consequences of
participating in this Plan, including in particular the effects of participation
of any community property or other interest which the Employee’s spouse may have
in the Compensation deferred under this Plan.

     

    17.8.
Arbitration.  Any
claim or controversy between the parties which the parties are unable to resolve
themselves, including any claim arising out of a Participant’s employment or the
termination of that employment, and including any claim arising out of,
connected with, or related to the formation, interpretation, performance or
breach of any provision of this Plan, and any claim or dispute as to whether a
claim is subject to arbitration, shall be submitted to and resolved exclusively
by expedited arbitration by a single arbitrator in accordance with the following
procedures:

     

    
      
        
        

      

      
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    (a) In the event of a claim or
controversy subject to this arbitration provision, the complaining party shall
promptly send written notice to the other party identifying the matter in
dispute and the proposed remedy.  Following the giving of such notice,
the parties shall meet and attempt in good faith to resolve the
matter.  In the event the parties are unable to resolve the matter
within 21 days, the parties shall meet and attempt in good faith to select
a single arbitrator acceptable to both parties.  If a single
arbitrator is not selected by mutual consent within 10 business days
following the giving of the written notice of dispute, an arbitrator shall be
selected from a list of nine persons each of whom shall be an attorney who is
either engaged in the active practice of law or a recognized arbitrator and who,
in either event, is experienced in serving as an arbitrator in disputes between
employers and employees, which list shall be provided by the main office of the
American Arbitration Association (“AAA”) located in Marin
County, California, or the nearest office of the Federal Mediation and
Conciliation Service.  If, within three business days of the parties’
receipt of such list, the parties are unable to agree upon an arbitrator from
the list, then the parties shall each strike names alternatively from the list,
with the first to strike being determined by the flip of a
coin.  After each party has had four strikes, the remaining name on
the list shall be the arbitrator.  If such person is unable to serve
for any reason, the parties shall repeat this process until an arbitrator is
selected.

     

    (b) Unless the parties agree otherwise,
within 60 days of the selection of the arbitrator, a hearing shall be
conducted before such arbitrator at a time and a place in Marin County agreed
upon by the parties.  In the event the parties are unable to agree
upon the time or place of the arbitration, the time and place within Marin
County shall be designated by the arbitrator after consultation with the
parties.  Within 30 days of the conclusion of the arbitration
hearing, the arbitrator shall issue an award, accompanied by a written decision
explaining the basis for the arbitrator’s award.

     

    (c) In any arbitration hereunder, the
Company shall pay all administrative fees of the arbitration and all fees of the
arbitrator, except that the Participant or Beneficiary may, if he or she wishes,
pay up to one-half of those amounts.  Each party shall pay its own
attorneys’ fees, costs, and expenses, unless the arbitrator orders
otherwise.  The prevailing party in such arbitration, as determined by
the arbitrator, and in any enforcement or other court proceedings, shall be
entitled, to the extent permitted by law, to reimbursement from the other party
for all of the prevailing party’s costs (including but not limited to the
arbitrator’s compensation), expenses, and attorneys’ fees.  The
arbitrator shall have no authority to add to or to modify this Plan, shall apply
all applicable law, and shall have no lesser and no greater remedial authority
than would a court of law resolving the same claim or
controversy.  The arbitrator shall, upon an appropriate motion,
dismiss any claim without an evidentiary hearing if the party bringing the
motion establishes that it would be entitled to summary judgment if the matter
had been pursued in court litigation.  The parties shall be entitled
to reasonable discovery subject to the discretion of the
arbitrator.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (d) The decision of the arbitrator
shall be final, binding, and non-appealable, and may be enforced as a final
judgment in any court of competent jurisdiction.

     

    (e) This arbitration provision of the
Plan shall extend to claims against any parent, subsidiary, or affiliate of each
party, and, when acting within such capacity, any officer, director,
shareholder, Participant, Beneficiary, or agent of each party, or of any of the
above, and shall apply as well to claims arising out of state and federal
statutes and local ordinances as well as to claims arising under the common law
or under this Plan.

     

    (f) Notwithstanding the foregoing, and
unless otherwise agreed between the parties, either party may, in an appropriate
matter, apply to a court for provisional relief, including a temporary
restraining order or preliminary injunction, on the ground that the arbitration
award to which the applicant may be entitled may be rendered ineffectual without
provisional relief.

     

    (g) Any arbitration hereunder shall be
conducted in accordance with the employee benefit plan claims rules and
procedures of the AAA then in effect; provided, however, that
(i) all evidence presented to the arbitrator shall be in strict conformity
with the legal rules of evidence, and (ii) in the event of any
inconsistency between the employee benefit plan claim rules and procedures of
the AAA and the terms of this Plan, the terms of this Plan shall
prevail.

     

    (h) If any of the provisions of this
Section 17.8 are determined to be unlawful or otherwise unenforceable, in
whole or in part, such determination shall not affect the validity of the
remainder of this Section 17.8, and this Section 17.8 shall be
reformed to the extent necessary to carry out its provisions to the greatest
extent possible and to insure that the resolution of all conflicts between the
parties, including those arising out of statutory claims, shall be resolved by
neutral, binding arbitration.  If a court should find that the
provisions of this Section 17.8 are not absolutely binding, then the
parties intend any arbitration decision and award to be fully admissible in
evidence in any subsequent action, given great weight by any finder of fact, and
treated as determinative to the maximum extent permitted by law.

     

    (i) Arbitration of a Disability claim
under this Section 17.8 shall (i) be considered one of the two levels
of mandatory appeals permitted under Department of Labor Regulation
Section 2560.503-1 and (ii) shall not preclude the claimant from
challenging the decision of the arbitrator under Section 502(a) of
ERISA.

     

    17.9.
Performance Based
Compensation.  It is intended that all Deferrals that would
have qualified as performance based compensation for purposes of
Section 162(m) of the Code if paid when originally due (without regard to
the Deferral Election), and all earnings on such Deferrals that are paid or
credited to accounts under this Plan, qualify as performance based compensation
under Section 162(m) of the Code when and as actually paid in accordance
with this Plan.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    17.10.
Section 409A
Compliance.  The terms and operation of this Plan are intended
to comply with the provisions of Section 409A of the Code.  The
Plan shall be administered in a manner consistent with this intent, and any
provision that would cause the Plan to fail to satisfy Section 409A of the
Code shall have no force and effect until amended to comply with
Section 409A of the Code (which amendment may be retroactive to the extent
permitted by Section 409A of the Code) and may be made by the Company
without the consent of the Participants.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

     

    

    Exhibits -
Forms to be Used with Plan

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Annual
Compensation Deferral Election

    

    

    PARTICIPANT
NAME  : _____________________________

     

     

    

    Please
complete all sections.

     

    SECTION 1:   ELECTION TO DEFER
COMPENSATION

    

     

    I hereby
elect to defer the following amount(s) paid for calendar year
20____.  1

     

    (Check all that apply and where
applicable, circle the appropriate quarters):

     

    

     

    
      	
              q  

            	
              Salary
      2                                         _______%      OR                $_________

            

    

    

     

    
      	
              q  

            	
              Bonus                                           _______%      OR                $_________

            

    

    

     

    
      	
              q  

            	
              Director’s
      Retainer                  
         _______%      OR                $_________                                Q1    
      Q2     Q3    
  Q4

            

    

    

     

    
      	
              q  

            	
              Director’s
      Fees                         
        
      _______%      OR               $_________                                Q1    
      Q2     Q3    
  Q4

            

    

    

     

    
      	
              q  

            	
              Cash
      DERs                                   _______%      OR              
      $_________                                Q1    
      Q2     Q3    
  Q4

            

    

    

     

    

    MATCHING:

    

    Deferrals
are subject to Matching 3  
Yes:_______No:_______

     

     

     

    
      
        

      

    

    
      (________
Initial)

    

     

    
      
        
          
            
              	
                      1

                    	
                      Elections must
      be as to amounts scheduled to be paid in the calendar year after the year
      of
election.

                    

            

          

        

      

        

      
        
          
            
              
                	
                        
                          2

                        

                      	
                        Such deferrals will be made in
      equal installments throughout the year on regular pay dates unless a
      separate schedule is provided as part of this form and attached
      hereto.

                      

              

            

          

        

          

      

      
        
          
            
              	
                      
                        3

                      

                    	
                      Company to specify and
      describe which types of Compensation are subject to matching and at what
      rates.

                    

            

          

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Annual
Compensation Deferral Election

     

    SECTION
2:   INVESTMENT OPTIONS

    

     

    I
WISH TO HAVE MY DEFERRALS CREDITED TO THE FOLLOWING ACCOUNT AS DESCRIBED IN AND
SUBJECT TO THE TERMS OF THE EXECUTIVE DEFERRED COMPENSATION PLAN:

     

    

    
      	
              q  

            	
              Stock
      Equivalent Account – treated as Deferred Stock
  Units

            

    

    

     

    
      	
              q  

            	
              Interest
      Equivalent Account - earns Rate of Return equivalent to 120% of the
      long-term Applicable Federal Rate, compounded
  monthly.

            

    

     

     

    

      (________
Initial)

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Annual
Compensation Deferral Election

     

    SECTION
3:   SPECIFIED DISTRIBUTION REQUEST

    

    The
earliest date for any distribution of any amount deferred is the May 1 that
occurs 16 months after the end of the Plan year during which the Deferral
Crediting Date for such deferred amount occurs.

    

    For this
deferral election, the earliest permitted distribution date is
_______________

    

    I wish to
have my distributions commence as noted below (check all that
apply):

     

    
      a) Distribution
Date

    

    
       

      
        	
                q  

              	Specific Date - please
specify

      

    

    
      	
              q  

            	
              Earliest
      permitted distribution date specified
above

            

    

    
      	
              q  

            	
              Other
      later date (please specify year) May 1,
________

            

    

     

    
      	
              q  

            	
              Retirement
      (Beginning with the first May 1 following my Retirement from the
      Company)

            

    

     

    
      	
              q  

            	
              Disability
      (as defined in the Plan)

            

    

     

    
      	
              q  

            	
              Death

            

    

     

    
      	
              q  

            	
              The
      earliest of each of the dates checked
above

            

    

     

    
      b) Distribution
Method

    

     

    
      	
              q  

            	
              Lump
      Sum

            

    

     

    
      	
              q  

            	
              _____
      Annual Installments* (Must be at least 2 and not exceed
  15)

            

    

     

    *The
installments will be calculated in accordance with the terms of the Plan unless
another payout schedule is specified and attached hereto.

    

     

    SECTION
4:   VESTING REQUIREMENTS OR OTHER CONDITIONS ON
DISTRIBUTIONS

     

    All
vesting requirements or other conditions with respect to the Compensation being
deferred must be satisfied prior to any crediting of such Compensation, or any
accruals thereon, to your account or distribution of amounts or delivery of
shares in respect of your account balance.  Any vesting requirements
or other conditions with respect to the Compensation being deferred that were
established by the Committee are attached hereto.

     

    Any
matching of Compensation that is deferred and which is subject to vesting shall
not be distributable until such matching Compensation is fully vested, at which
point it will be distributed in accordance with Section 3; notwithstanding the
foregoing, upon a separation from service, all vested matching Compensation
shall be available for distribution.

     

    (________
Initial)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Annual
Compensation Deferral Election

     

    
      
        	
                1. 

              	
                I
      understand that I may discontinue deferral of unearned future Compensation
      at any time during the Plan Year.  I also understand that if I
      discontinue deferral of unearned future Compensation during the year, I
      cannot restart deferral until the beginning of the succeeding calendar
      year.  The foregoing election is voluntarily made by me after
      reviewing the terms of the Plan and with knowledge that this Deferral
      Election is otherwise irrevocable except to the limited extent permitted
      under the terms of the Plan.

              

      

    

     

    
      
        	
                2. 

              	
                I
      acknowledge that the terms and conditions of the Redwood Trust, Inc. EXECUTIVE DEFERRED
      COMPENSATION PLAN have been explained to me, including the tax
      consequences of my decision to participate in the Plan.  I
      understand that no ruling or determination letter has been obtained from
      the Internal Revenue Service that guarantees the deferral of income taxes
      on amounts deferred under the Plan.  I agree that my election to
      defer distribution of Compensation is intended to comply with Section 409A
      of the Code and authorize the Company to interpret the Plan and this
      Deferral Election in a manner appropriate to qualify for deferral of
      income under Section 409A of the
Code.

              

      

    

    

    
      
        	
                3. 

              	
                I
      agree to defer a portion of my Compensation (as defined in the Plan) and
      to have that income distributed to me at a later date pursuant to the
      terms and conditions of the Plan, which is incorporated by reference, in
      its entirety, in this Deferral Election
Form.

              

      

    

    

    
      
        	
                4. 

              	
                I
      understand that this Deferral Election Form is not an employment
      agreement, does not guarantee that I will receive any predetermined amount
      of compensation, and does not guarantee that I will receive any bonus, or
      incentive compensation.

              

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
                5.

              	
                I
      understand that any Compensation I defer will be held as an asset of
      Redwood Trust, Inc., and will remain subject to the claims of the general
      creditors of Redwood Trust, Inc.  I understand that I could lose
      all amounts deferred and I accept that
risk.

              

      

    

    

    This
Deferral Election is executed and agreed:

    

    __________________________________                                   _____________________________________

    (Signature)                                                                                                    
(Election Date)

     

    

    _________________________________                                     _____________________________________

    (Name)                                                                                                           
(SSN)

    

    Agreed:

    

    Redwood
Trust, Inc.

    

    Name: _____________________________

    

    Title:   _____________________________

    

    Date:  _____________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Deferred
Stock Deferral Election

    

    (Page 1
of 4)

    

     

    PARTICIPANT
NAME : _______________________________

     

     

     

    
      Please
complete all sections

    

     

     

    SECTION
1:  
ELECTION TO DEFER STOCK
UNITS 4

    

     

    
      a) I
hereby elect to defer the following:

    

     

    
      	
              q  

            	
              Deferred
      Stock Units

            

    

     

                        
__________ Award
Shares                                           Grant
Date:
__________

     

     

    
      b) I wish to receive dividend equivalent
rights (DERs) on the above deferrals:

    

    

    
      	
              q  

            	
              In
      Cash 5

            

    

    

    
      	
              q  

            	
              Deferred
      and Credited to

            

    

    

    ____  Stock
Equivalent Account - paid in additional deferred shares

    

    ____  Interest
Account -  earns Rate of Return equivalent to 120% of the long-term
Applicable Federal Rate compounded monthly.

     

     

    

    (________
Initial)

     

     

    
      
        

      

    

    
      
        
          
            	
                    4

                  	
                    Election to defer may be made
      on date of award if award does not vest for at least one
      year.  If award is not subject to vesting, then election must be
      made at same time as elections for equivalent cash bonus (in advance of
      award).

                  

          

        

      

    

      
      
        
          
            	
                    5

                  	
                    This choice
      may not be available under terms of
  award.

                  

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Deferred
Stock Deferral Election

    

    (Page 2
of 4)

     

    SECTION
2:   SPECIFIED DISTRIBUTION REQUEST

    

    The
earliest date for any distribution of any amount deferred is the May 1 that
occurs 16 months after the end of the Plan year during which the Deferral
Crediting Date for such deferred amount occurs.

    

    For this
grant, the earliest permitted distribution date is _______________

    

    I wish to
have my distributions commence as noted below (check all that
apply):

     

    
      a)
Distribution
Date

    

    
       

      
        	
                q  

              	
                Specific
      Date - please specify

              

      

       

    

    
      	
              q  

            	
              Earliest
      permitted distribution date specified
above

            

    

    
      	
              q  

            	
              Other
      later date (please specify year) May 1,
________

            

    

     

    
      	
              q  

            	
              Retirement
      (Beginning with the first May 1 following my Retirement from the
      Company)

            

    

     

    
      	
              q  

            	
              Disability
      (as defined in the Plan)

            

    

     

    
      	
              q  

            	
              Death

            

    

     

    
      	
              q  

            	
              The
      earliest of each of the dates checked
above

            

    

     

    b)
Distribution Method

    

    
      	
              q  

            	
              Lump
      Sum

            

    

     

    
      	
              q  

            	
              _____
      Annual Installments* (Must be at least 2 and not exceed
  15)

            

    

    

    *
The installments will be calculated in accordance with the terms of the Plan
unless another payout schedule is specified and attached hereto.

    
 

    

    (________
Initial)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Deferred
Stock Deferral Election

    

    (Page 3
of 4)

    

     

    SECTION 3: 
 VESTING REQUIREMENTS OR OTHER CONDITIONS ON DISTRIBUTIONS

     

     

    All
vesting requirements or other conditions established by the Committee with
respect to the award that is the subject of this Deferral Election must be
satisfied prior to any crediting of the Award Shares and related DERs to your
account or delivery of shares in respect of your account
balance.  Unless elsewhere expressly provided, all accruals with
respect to unvested Award Shares will be forfeited, along with the unvested
Award Shares, if employment is terminated prior to vesting dates.

     

    

     

     

    

     

    

     

    

     

    

     

    (________
Initial)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Deferred
Stock Deferral Election

    

    (Page 4
of 4)

    

     

    
      	
              1.

            	
              I
      acknowledge that the terms and conditions of the Redwood Trust, Inc. EXECUTIVE DEFERRED
      COMPENSATION PLAN and the 2002 Redwood Trust, Inc. INCENTIVE PLAN have
      each been explained to me, including the tax consequences of my decision
      to participate in the Plans.  I understand that no ruling or
      determination letter has been obtained from the Internal Revenue Service
      that guarantees the deferral of income taxes on amounts deferred under the
      Plans.  I agree that the Award and my election to defer
      distribution thereof are intended to comply with Section 409A of the Code
      and authorize the Company to interpret my Award Agreement, the Plans and
      this Deferral Election in a manner appropriate to qualify for deferral of
      income under Section 409A of the
Code.

            

    

    

    
      	
              2.

            	
              I
      agree to defer a portion of my Compensation (as defined in the EXECUTIVE DEFERRED
      COMPENSATION PLAN) and to have that income distributed to me at a
      later date pursuant to the terms and conditions of the EXECUTIVE DEFERRED
      COMPENSATION PLAN, which is incorporated by reference, in its
      entirety, in this Deferral Election Form.  I understand that the
      elections made herein are irrevocable (except to the limited extent
      otherwise permitted under EXECUTIVE DEFERRED
      COMPENSATION PLAN).

            

    

     

    
      	
              3.

            	
              I
      understand that this Deferral Election Form is not an employment
      agreement, does not guarantee that I will receive any predetermined amount
      of compensation, and does not guarantee that I will receive any bonus, or
      incentive compensation.

            

    

    

    
      	
              4.

            	
              I
      understand that any Compensation I defer will be held as an asset of
      Redwood Trust, Inc., and will remain subject to the claims of the general
      creditors of Redwood Trust, Inc.  I understand that I could lose
      all amounts deferred and I accept that
risk.

            

    

     

    This
Deferral Election is executed and agreed:

     

    
      

      __________________________________                                   _____________________________________

      (Signature)                                                                                               (Election
Date)

       

      

      _________________________________                                     _____________________________________

      (Name)                                                                                                      (SSN)

    

    
 

    Agreed:

    

    Redwood
Trust, Inc.

    

    Name:   _____________________________

    

    Title:     _____________________________

    

    Date:     _____________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Beneficiary
Designation

     

    
      	
              I.

            	
              _______________________________________
      (Insert Employee’s/Director’s name)

            

    

     

    
      	
              II.

            	
              The
      above-named Participant’s Beneficiary under the Executive Deferred
      Compensation Plan is set forth
below:

            

    

     

    
      	
                              Primary
      Beneficiary(ies):

            	
              ________________________________________________

            

    

     

    
      	
               
      

            	
              Relationship:

            	
              ________________________________________________

            

    

     

    
      	
               
      

            	
              Address:

            	
              ________________________________________________

            

    

     

    
      	
                             
      Social Security Number:

            	
              ________________________________________________

            

    

     

    
      	
                             
      Contingent Beneficiary(ies):

            	
              ________________________________________________

            

    

     

    
      	
               
      

            	
              Relationship:

            	
              ________________________________________________

            

    

     

    
      	
               
      

            	
              Address:

            	
              ________________________________________________

            

    

     

    
      	
              Social
      Security Number:

            	
              ________________________________________________

            

    

     

    
      	
              III.

            	
              If
      no individual beneficiary named is living at the Participant’s death, the
      Beneficiary shall be the executor(s) or administrator(s) of the
      Participant’s estate.

            

    

     

    
      	
              IV.

            	
              This
      Beneficiary Designation revokes all prior designations and shall be
      effective as of the date it is filed with the Company.  The
      Participant retains the right to revoke this Beneficiary
      Designation.

            

    

     

    
      	
              V.

            	
              If
      the above-named Primary Beneficiary is someone other than the spouse of a
      married Participant, the spouse of such Participant must execute this
      Beneficiary Designation below.

            

    

     

    Dated at
______________________, State of ______________________, on __________,
20__.

     

     

    
      
        	___________________________________	___________________________________
	
                Signature
      of Participant

              	
                Witness

              

      

    

    
       

       

      
        
          	___________________________________	___________________________________
	
                  
                    Signature
      of Spouse (if not the Primary 

                    Beneficiary)

                  

                	
                  Witness

                

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Re-Deferral
Election 6

    

     

    I wish to
change the distribution election previously set forth under my Deferral Election
dated ___________, 2_______.  I understand that I can make only one
change to extend the Distribution Date or Dates I initially selected and only
one change to the initial method of payment (lump sum or installments) that I
selected.  I also understand that I can only make this change if the
original Distribution Date is at least 12 months from the date of this election
and the new Distribution Date is at least five years later than the original
Distribution Date.  All other terms of the Deferral Election will
remain in effect.  The following is my requested amendment to my
original distribution election.

     

    
      	
              ___

            	
              Specified
      Distribution Date Amendment Request 7

            

    

     

    I wish to
receive payment in respect of all deferrals made pursuant to this Re-Deferral
Election in the following form:

     

    
      	
               
      

            	
              ___

            	
              (i)

            	
              lump
      sum, payable on May 1, ____;

            

    

    
      	
               
      

            	
              ___

            	
              (ii)

            	
              in
      annual installments beginning on May 1, ____.  The number of
      installments is ___ (must be at least 2 and not exceed 15).  The
      installments will be calculated in accordance with the terms of the Plan
      unless another payout schedule is specified and attached
      hereto.

            

    

     

    
      	
              ___

            	
              Retirement
      Related Distribution Date Amendment Request 8

            

    

     

    I wish to
receive payment in respect of all deferrals made pursuant to this Re-Deferral
Election in the following form:

     

    
      	
               
      

            	
              ___

            	
              (i)

            	
              lump
      sum, payable as soon as practicable following Retirement from the
      Company;

            

    

    
      	
               
      

            	
              ___

            	
              (ii)

            	
              lump
      sum, payable on the first May 1 following my Retirement from the
      Company;

            

    

    
      	
               
      

            	
              ___

            	
              (iii)

            	
              in
      annual installments beginning on the first May 1 following Retirement from
      the Company.  The number of installments is ___ (must be at
      least 2 and not exceed 15).  The installments will be calculated
      in accordance with the terms of the Plan unless another payout schedule is
      specified and attached hereto.

            

    

     

    
      
         

         

          
            

          

        

         

        
          
            
              	
                      
                        6

                      

                    	
                      Check for further guidance
      under 409A prior to completion if original deferral was
      pre-2005.

                    

            

          

        

      

      
         

        
          
            
              	
                      
                        7

                      

                    	
                      These changes permissible only
      if specified date was elected as a date for distribution in the original
      Deferral
Election.

                    

            

          

        

      

      
         

        
          
            
              	
                      
                        8

                      

                    	
                      These changes permissible only
      if retirement was elected as a date for distribution in the original
      Deferral
Election.

                    

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Redwood
Trust, Inc.

    Executive
Deferred Compensation Plan

    Re-Deferral
Election

     

    This
Re-Deferral Election is executed and agreed:

     

     

    
      
        	___________________________________	___________________________________
      (Election
      Date)
	
                (Signature)

              	
                (Date)

              

      

    

     

     

    
      
        	___________________________________	___________________________________
	
                (Print
      Name)

              	
                (Social
      Security Number)

              

      

    

     

    Agreed:

     

    Redwood
Trust, Inc.

     

     

    Name: ____________________________                                                              

    Title:__________________________

    Date:__________________________Exhibit 4.98

Exhibit 4.98

Revised April, 2003

NOTE: This form contract is a suggested guide only and use of this form or any variation thereof shall be al the sole discretion and risk of the user parties. Users of the form contract or any portion or variation thereof are encouraged to seek the advice of counsel in ensure that their contract reflects the complete agreement of the parties and applicable law. The International Association of Drilling Contractors disclaims any liability whatsoever for loss or damages which may result from use of the form contract or portions or variations thereof. Computer generated form, reproduced under license from IADC.

			
	

	INTERNATIONAL ASSOCIATION OF DRILLING CONTRACTORS

DRILLING BID PROPOSAL

AND

DAYWORK DRILLING CONTRACT - U.S.

THIS CONTRACT CONTAINS PROVISIONS RELATING TO INDEMNITY,

RELEASE OF LIABILITY, AND ALLOCATION OP RISK -

SEE PARAG RAPHS 4.9, 6.3(c), 10, 12, AND 14

	 

This Contract is made and entered into on the date hereinafter set forth by and between the parties herein designated as “Operator” and  Contractor”.

		
	OPERATOR:

	NGP Blue Mountain 1, LLC

	Address:

	409 Granville St. Suite 900

	 
	Vancouver, BC V6C 1T2

	CONTRACTOR:

	ThermaSource Inc.

	Address:

	3883 Airway Dr, Suite 340

	 
	Santa Rosa, CA 95403

 

IN CONSIDERATION of the mutual promises, conditions and agreements herein contained and the specifications and special provisions net forth in Exhibit `A' and Exhibit 'B' attached hereto and made a part hereof (the 'Contract.), Operator engages Contractor as an independent contractor to drill the hereinafter designated well or wells in search of oil, gas or geothermal resource on a Daywork Basis.

For purposes hereof, the term 'Daywork' or 'Daywork Basis' means Contractor shall furnish equipment, labor, and perform services as herein provided, for a specified sum per day under the direction, supervision and control of Operator (Inclusive of any employee, agent, consultant or subcontractor engaged by Operator to direct drilling operations). When operating on a Daywork Basis, Contractor shall be fully paid at the applicable rates of payment and assumes only the obligations and liabilities stated herein. Except for such obligations and liabilities specifically assumed by Contractor, Operator shalt be solely responsible and assumes liability for all consequences of operations by both parties while on a Daywork Basis, including results and all other risks or liabilities Incurred in or Incident to such operations.

1.  LOCATION OF WELL:

Well Name

and Number. 25-14, 44-14, 42-14 and any additional wells as directed by Operator.                          

				
	 
	Parish/

	 
	Field

	 
	County: Humboldt                    

	State: Nevada                        

	Name: Blue Mountain                

Well location and

land description: Township 36N, Range 34E, M.D. B&M. 23 miles West of Winnemucca, NV.          

______________________________________________________________________________________________________

1.1 Additional Well Locations or Areas: As directed by Operator                                                           _________________________________________________________________________________________

Locations described above are for well and Contract identification only and Contractor assumes no liability whatsoever for a proper survey or location stake an Operator's lease.

2.  COMMENCEMENT DATE: 

Contractor agrees to use reasonable efforts to commence operations for the drilling of the well by the day 1 of December, 20 07,

or _______________________________________________________________________________

_______________________________________________________________________________

3.  DEPTH:

3.1 Well Depth: The well (s) shall be drilled to a depth of approximately              4,000              feel, or to the N/A                                                       

formation, whichever is deeper, but the Contractor shall not be required hereunder to drill said well(s) below a maximum depth of 6,000                        feet, unless Contractor and Operator mutually agree to drill to a greater depth.

4.   DAYWORK RATES:

Contractor shall he paid at the following rates for the work performed hereunder.

4.1 Mobilization: Operator shall pay Contractor the lesser of a mobilization fee of $ 120,000       or a mobilization day rate of $ 18,000              per day. The total mobilization cost shall include:

The flat fee plus the rig mobilization day rate for the actual days the move requires. The mobilization fee represents the estimated cost of trucks and cranes needed to move the rig. The rig rate represents the charge for the rig and 2 crews worth of labor to transport the rig from Fort Bidwell, CA to Blue Mountain. The Contractor will send third party invoices to the Operator for the actual cost of trucks and cranes to the Operator. The fee will be applied to this balance.

4.2 Demobilization: Operator shall pay Contractor the lesser of a demobilization fee of $ 190,000     or a demobilization day rate during tear down of $ 18,000       per day, provided however that no demobilization fee shall be payable if the Contract is terminated due to the total loss or destruction of the rig. The total demobilization fee shall include: The actual costs of trucks, crane and crews from the time when the rig is released to the                                   time when the rig is stacked at a location agreed to by Contractor. The Contractor will send third party invoices to the Operator for  the actual cost of trucks and cranes and will apply the demobilization fee to this balance.

4.3  Moving Rate: During the time the rig is in transit to or from a drill site, or between drill sites, commencing on  Release of rig, , Operator shall pay Contractor a sum of $ 18,000       per Twenty-four (24) hour day, to a maximum of 5 days per move from site to site.

4.4 Operating Day Rate: For work performed per twenty-four (24) hour day with A minimum of a 5      man crew the operating day rate shall be:

								
	From

	Depth Intervals
T0

	 
	Without Drill Pipe

	 
	With Drill Pipe for Drilling with Air or Aerated Fluids

	 
	0

	6,000

	 
	$ 20,500

	perday

	$ 20,500

	perday

	 
	 
	 
	$

	perday

	$

	perday

	 
	 
	 
	$

	perday

	$

	perday

	Using Operators drill pipe $ 20,500

	per day.

	 
	 
	 
	 
	 

The rate will begin when the drilling unit is rigged up at the drilling location, or positioned over the location during marine work, and ready to commence operations; and will cease when the rig is ready to be moved off the location.

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 1 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

If under the above column "With Drill Pipe" no rates are specified, the rate per twenty-four hour day when drill pipe is in use shall be the applicable rate specified in the column 'Without Drill Pipe" plus compensation for any drill pipe actually used at the rates specified below, computed on the basis of the maximum drill pipe in use at any time during each twenty-four hour day.

DRILL PIPE RATE PER 24-HOUR DAY

											
	Straight Hole

	 
	Size

	 
	Grade

	 
	Directional or Uncontrollable Deviated Hole

	 
	Size

	 
	Grade

	$ N/A

	per ft.

	 
	 
	 
	$

	 
	per ft.

	 
	 
	 

	$

	per ft.

	 
	 
	 
	$

	 
	per ft.

	 
	 
	 

	$

	per ft.

	 
	 
	 
	$

	 
	per ft.

	 
	 
	 

Directional or uncontrolled deviated hole will be deemed to exist when deviation exceeds ____ degrees or when the change of angle exceeds ___________________________ degrees per one hundred feet.

Drill pipe shall be considered in use not only when in actual use but also while it is being picked up or laid down. When drill pipe is standing in the derrick, it shall not be considered in use, provided, however, that if Contractor furnishes special strings of drill pipe, drill collars, and handling tools as provided for in Exhibit "A", the same shall be considered in use at all times when on location or until released by Operator. In no event shall fractions of an hour be considered in computing the amount of  time drill pipe is in use but such time shall be computed to the nearest hour, with thirty minutes or more being considered a full hour and less than thirty minutes not to be counted.

4.5 Repair Time: In the event it is necessary to shut down Contractors rig for repairs, excluding routine rig servicing, Contractor shall be allowed compensation at the applicable rate for such shut down time up to a maximum of __Four (4)_hours for any one rig repair job, but not to exceed __24__hours of such compensation for any calendar month. Thereafter, Contractor shall ha compensated at a rate of $ __Zero(0)   per twenty-four (24) hour day. Routine rig servicing shall include, but not be limited to, cutting and slipping drilling line, changing pump or swivel expendables, testing BOP equipment, lubricating rig, and 

4.6 Standby Time Rate: $   16,000    per twenty-four(24) day. Standby time shall be defined to include time when the rig is shut down although in readiness to begin or resume operations but Contractor is waiting on orders of Operator or on materials, services or other items to be furnished by Operator.

4.7 Drilling Fluid Rates: When drilling fluids of a type and characteristic that increases Contractors cost of performance hereunder, including, but not limited to, oil-based mud or potassium chloride, are in use, Operator shall pay Contractor in addition to the operating rate specified above:

					
	 
	(a)

	$  75          

	per man per day for Contractor's rig-site personnel.

	 
	(b)

	$  1000      

	per day additional operating rate; and

	 
	(c)

	Cost of all labor, material and services plus

	       24         hours operating rate to clean rig and related equipment.

4.8 Force Majeure Rate: $                           11,000               per twenty-four(24) hour day for any continuous period that normal operations are suspended or cannot be carried on due to conditions of Force Majeure as defined in Paragraph 17 hereof. It is, however, understood that subject to Subparagraph 6.3 below, Operator can release the rig in accordance with Operators right to direct stoppage of the work,effective when conditions will permit the rig to be moved from the location.

4.9 Reimbursable Costs: Operator shall reimburse Contractor for the costs of material, equipment, work or services which are to be furnished by Operator as provided for herein but which for convenience are actually furnished by Contractor at Operators request, plus.   5      percent for such cost of handling. When, at Operator's request and with Contractor's agreement, the Contractor furnishes or subcontracts for certain items or services which Operator is required herein to provide, for purposes of the Indemnity and release provisions of this Contract, said items or services shall be deemed to be Operator furnished Items or services. Any subcontractors so hired shall be deemed to be Operator's contractor, and Operator shall not be relieved of any of its liabilities in connection therewith.

4.10 Revision in Rates: The rates and/or payments herein set forth due to Contractor from Operator shall be revised to reflect the change in costs if the costs of any of the items hereinafter listed shall vary by more than ______10______percent from the costs thereof on the date of this Contract or by the same percent after the date of any revision pursuant to this Subparagraph:

(a)

 Labor costs, including all benefits, of Contractors personnel; 

(b)

 Contractors cost of insurance premiums;

(c)

 Contractors cost of  fuel, including all taxes and fees; the cost per gallon/MCF being $ ___N/A______ ; 

(d) 

Contractor's cost of catering. When applicable; 

(e)  

If Operator requires Contractor to increase or decrease the number of Contractor's personnel;

(f)  

Contractor's cost of spare parts and supplies with the understanding that such spare parts and supplies constitute ___15___ percent of the operating rate and that the parties shall use the U.S. Bureau of Labor Statistics Oil Field and Can Field Drilling Machinery Producer Price Index (Series ID WPU119102) to determine to what extent a price variance has occurred in said spare parts and supplies;

(g) 

If there is any change in legislation or regulations in the area in which Contractor is working or other unforeseen, unusual event that alters Contractors financial burden.

5.  TIME OF PAYMENT

Payment is due by Operator to Contractor as follows;

5.1 Payment for mobilization, drilling and other work performed at applicable rates, and all other applicable charges shall be due, upon presentation of invoice therefore, upon completion of mobilization, demobilization, rig release or at the end of each 15 day period in which such work was performed or other charges are incurred, whichever shall first occur. All invoices may be mailed to Operator at the address hereinabove shown, unless Operator does hereby designate that such Invoices shall be mailed as follows: Every 15 days. In advanced payment of $600,000 shall be made immediately upon execution of this Contract.

5.2 Disputed Invoices and Late Payment: Operator shall pay all invoices within ___30___ days after receipt by Operator of the original invoice (with all

supporting documents} except that if Operator disputes an invoice or any part thereof, Operator shall, within fifteen days after receipt of the invoice, notify Contractor of the item disputed, specifying the reason therefor, and payment of the disputed item may be withheld until settlement of the dispute, but timely payment shall be made of any undisputed portion. Any sums (including amounts ultimately paid with respect to a disputed invoice) not paid within the above specified days shall bear interest at the rate of ____6____ percent per annum from the due date until paid. If Operator does not pay undisputed items within the above stated time, Contractor may suspend operations or terminate this Contract as specified under Subparagraph 6.3.

6.

TERM:

6.1 Duration of Contract: This Contract shall remain in full force and effect until drilling operations are completed an the well or wells specified in Paragraph 1 above commencing on the date specified in Paragraph 2 above or completion of drilling program.

6.2 Extension of Term: Operator may extend the term of this Contract far, ___N/A       well(s) or for a period of ___365 days__________________

by giving notice to Contractor at least __10___, days prior to completion of the well then being drilled and with Contractor approval. The operator will have first right of refusal for the rig within the 10 day time limit, 

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 2 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

6.3 Early Termination:

(a)   By Either Party: Upon giving of written notice, either party may terminate this Contract when total loss or destruction of the rig, or a major breakdown with indefinite repair time necessitates stopping operations hereunder.

(b)   By Operator: Notwithstanding the provisions of Paragraph 3 with respect to the depth to be drilled, Operator shall have the right to direct the stoppage of the work to be performed by Contractor hereunder at any time prior to reaching the specified depth, and even though Contractor has made no default hereunder. In such event, Operator shall reimburse Contractor as set forth in Subparagraph 6.4 hereof.

(c)    By Contractor: Notwithstanding the provisions of Paragraph 3 with respect to the depth to be drilled, in the event Operator shall become insolvent, or be adjudicated a bankrupt, or file, by way of petition or answer, a debtor's petition or other pleading seeking adjustment of Operators debts, under any bankruptcy or debtors relief laws now or hereafter prevailing, or if any such be filed against Operator, or in case a receiver be appointed of Operator or Operators property, or any part thereof, or Operator's affairs be placed in the hands of a Creditor's Committee, or, following three business days prior written notice to Operator if Operator does not pay Contractor within the time specified in Subparagraph 5.2 all undisputed items due and owing, Contractor may, at Its option, (1) elect to terminate further performance of any work under this Contract and Contractors right to compensation shall be as set forth in Subparagraph 6.4 hereof, or (2) suspend operations until payment is made by Operator in which event the standby time rate contained in Subparagraph 4.6 shall apply until payment is made by Operator and operations are resumed. In addition to Contractors rights to suspend operations or terminate performance under this Paragraph, operator hereby expressly agrees to protect, defend and Indemnify Contractor from and against any claims, demands and causes of action, including all costs of defense, in favor of Operator, Operator's co-venturers, co-lessees and joint owners, or any other patties arising out of any drilling commitments or obligations contained in any lease, farmout agreement or other agreement, which may be affected by such suspension of operations or termination of performance hereunder.

6.4 Early Termination Compensation:

(a)  Prior to Commencement: In the event Operator terminates this Contract prior to commencement of operations hereunder, Operator shall pay Contractor as liquidated damages and not as a penalty a sum equal to the standby time rate (Subparagraph 4.6) for a period of 10 days or a lump sum of   $ ___160,000___.

(b) Prior to Spudding: If such termination occurs after commencement of operations but prior to the spudding of the well, Operator shall pay to Contractor the sum of the following: (1) all expenses reasonably and necessarily incurred and to be incurred by Contractor by reason of the Contract and by reason of the premature termination of the work, including the expense of drilling or other crew members and supervision directly assigned to the rig; (2) ten percent (10%) of the amount of such reimbursable expenses: and (3) a sum calculated at the standby time rate for all time from the date upon which Contractor commences any operations hereunder down to such date subsequent to the date of termination as will afford Contractor reasonable time to dismantle its rig and equipment provided, however, if this Contract is for a term of more than one well or for a period of time, Operator shall pay Contractor, in addition to the above, the Force Majeure Rate, less any unnecessary labor, from that date subsequent to termination upon which Contractor completes dismantling its rig and equipment until the end of the term, or for 20 days, whichever is less.__________________________________________________________

(c) Subsequent to spudding: If such termination occurs after the spudding of the well, Operator shall pay Contractor (1) the amount for all applicable rates and all other charges and reimbursements due to Contractor, but in no event shall such sum, exclusive of reimbursements due, be less than would have been earned for _______15  ______days at the applicable rate "Without Drill Pipe" and the actual amount due for drill pipe used in accordance with the above rates; or (2) at the election of Contractor and in lieu of the foregoing, Operator shall pay Contractor for all expenses reasonably and necessarily incurred and to be incurred by reason of this Contract and by reason of such premature termination plus a lump sum of $ ___  240,000 after drilling to 3000 feet or encountering a suitable production zone there will be no penalty for early termination.

7. CASING PROGRAM

Operator shall have the right to designate the points at which casing will be set and the manner of setting, cementing and testing. Operator may modify the casing program, however, any such modification which materially increases Contractors hazards of costs can only be made by mutual consent of Operator and Contractor and upon agreement as to the additional compensation to be paid Contractor as a result thereof.

8. DRILLING METHODS AND PRACTICES:

8.1 Contractor shall maintain well control equipment in good condition at all times and shall use all reasonable means to prevent and control fires and blowouts and to protect the hole.

8.2 Subject to the terms hereof, and at Operators cost, at all times during the drilling of the well, Operator shall have the right to control the mud program, and the drilling fluid must be of a type and have characteristics and be maintained by Contractor in accordance with the specifications shown in Exhibit "A".

8.3 Each party hereto agrees to comply with all laws, rules, and regulations of any federal, state or local governmental authority which are now or may become applicable to that party's operations covered by or arising out of the performance of this Contract. When required by law, the terms of Exhibit "A" shall apply to this Contract. In the event any provision of this Contract is inconsistent with or contrary to any applicable federal, state or local law, rule or regulation, said provision shall be deemed to be modified to the extent required to comply with said law, rule or regulation, and as no modified said provision and this Contract shall continue in full force and effect.

8.4 Contractor shall keep and furnish to Operator an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report Form or other form acceptable to Operator. A legible copy of said form shall be furnished by Contractor to Operator.

8.5 If requested by Operator, Contractor shall furnish Operator with a copy of delivery tickets covering any material or supplies provided by Operator and received by Contractor.

9. INGRESS, EGRESS, AND LOCATION:

Operator hereby assigns to Contractor all necessary rights of ingress and egress with respect to the tract on which the well is to be located for the performance by Contractor of all work contemplated by this Contract. Should Contractor be denied free access to the location for any reason not reasonably within Contractors control, any time lost by Contractor as a result of such denial shall be paid for at the standby time rate. Operator agrees at all times to maintain the road and location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. If Contractor is required to use bulldozers, tractors, four-wheel drive vehicles, or any other specialized transportation equipment for the movement of necessary personnel, machinery, or equipment over access roads or on the drilling location, Operator shall furnish the some at its expense and without cost to Contractor. The actual cost of repairs to any transportation equipment furnished by Contractor or its personnel damaged as a result of improperly maintained access roads or location will be charged to Operator. Operator shall reimburse Contractor for all amounts reasonably expended by Contractor for repairs and/or reinforcement of roads, bridges and related or similar facilities (public and private) required as a direct result of a rig move pursuant to performance hereunder. Operator shall be responsible for any costs associated with leveling the rig because of location settling. 

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 3 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

10. SOUND LOCATION:

Operator shall prepare a sound location adequate in size and capable of properly supporting the drilling rig, and shall be responsible for a casing and cementing program adequate to prevent soil and subsoil wash out. It is recognized that Operator has superior knowledge of the location end access routes to the location, and must advise Contractor of any subsurface conditions, or obstructions (including, but not limited to, mines, caverns, sink holes, streams, pipelines, power lines and communication lines) which Contractor might encounter while en route to the location or during operations hereunder. In the event subsurface conditions cause a cratering or shifting of the location surface, or if seabed conditions prove unsatisfactory to properly support the rig during marine operations hereunder, and loss or damage to the rig or its associated equipment results therefrom, Operator shall, without regard to other provisions of this Contract, Including Subparagraph 14.1 hereof, reimburse Contractor for all such loss or damage including removal of debris and payment of Force Majeure Rate during repair and/or demobilization if applicable.

11. EQUIPMENT CAPACITY

Operations shall not be attempted under any conditions which exceed the capacity of the equipment specified to be used hereunder or where canal or water depths are in excess of   N/A                        feet. Without prejudice to the provisions of Paragraph 14 hereunder, Contractor shall have the right to make the final decision as to when are operation or attempted operation would exceed the capacity of specified equipment.

12. TERMINATION OF LOCATION LIABILITY:

When Contractor has concluded operations at the well location, Operator shall thereafter be liable for damage to property, personal injury or death of any person which occurs as a result of conditions of the location and Contractor shall ha relieved of such liability; provided, however, if Contractor shall subsequently reenter upon the location for any reason, including removal of the rig, any term of the Contract relating to such reentry activity shall become applicable during such period.

13. INSURANCE

During the life of this Contract, Contractor shall at Contractor's expense maintain, with an insurance company at companies authorized to do business in the state where the work is to be performed or through a self-insurance program, insurance coverages of the kind and in the amount net forth in Exhibit "A', insuring the liabilities specifically assumed by Contractor in Paragraph 14 of this Contract. Contractor shall procure from the company or companies writing said insurance a certificate or certificates that said insurance is in full force and effect and that the some shall not be canceled or materially changed without ten (10) days prior written notice to Operator. For liabilities assumed hereunder by Contractor, its insurance shall be endorsed to provide that the underwriters waive their right of subrogation against Operator. Operator will, as well, cause its insurer to waive subrogation against Contractor for liability it assumes and shall maintain, at Operators expense, or shall self insure, insurance coverage as set forth in Exhibit 'A' of the same kind and in the same amount as is required of Contractor, insuring the liabilities specifically assumed by Operator in Paragraph 14 of this Contract. Operator shall procure from the company or companies writing said insurance a certificate or certificates that said insurance is in full force and effect and that the same shall not be canceled or materially changed without ten (10) days prior written notice to Contractor. Operator end Contractor shall cause their respective underwriters to name the other additionally insured but only to the extend of the indemnification obligations assumed herein.

14. RESPONSIBILITY FOR LOSS OR DAMAGE, INDEMNITY, RELEASE OF LIABILITY AND ALLOCATION OF RISK:

14.1 Contractors Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor’s surface equipment, regardless of when or how such damage or destruction occurs, and Contractor shall release Operator of any liability for any such loss, except loss or damage under the provisions of Paragraph 10 or Subparagraph 14.3.

14.2 Contractor's In-Hole Equipment: Operator shall assume liability at all times for damage to or destruction of Contractor’s in-hole equipment including, but not limited to, drill pipe, drill collars, and tool joints, and Operator shall reimburse Contractor for the value of any such lose or damage; the value to be determined by agreement between Contractor and Operator as current repair costs or     100          percent of current new replacement cost of such equipment delivered to the well site.

14.3 Contractors Equipment - Environmental Loss or Damage: Notwithstanding the provisions of Subparagraph 14.1 above, Operator shaft assume liability at all times for damage to or destruction of Contractors equipment resulting from the presence H2S, CO2, or other corrosive elements that enter the drilling fluids from subsurface formations or the use of corrosive, destructive or abrasive additives in the drilling fluids.

14.4 Operator's Equipment Operator shall assume liability at all times for damage to or destruction of Operator's or its co-venturers, co-lessees' joint owners' equipment, including but not limited to, casing, tubing well head equipment, and platform if applicable, regardless of when or how such damage or destruction occurs, and Operator shell release Contractor of any liability for any such loss or damage.

14.5 Underground Damage: Operator shall release Contractor and its suppliers, contractors and subcontractors of any tier of any liability for, and shall protect defend and indemnify Contractor and its suppliers, contractors and subcontractors of any tier from and against any and all claims, liability, and expense resulting from operations under this Contract on account of injury to, destruction of, or loss or impairment of any property right in or to oil, gas, or other mineral substance or water, If at the time of the act or emission causing such injury, destruction, loss, or impairment, said substance had not been reduced to physical possession above the surface of the earth, and for any loss or damage to any formation, strata, or reservoir beneath the surface of the earth.

14.6 Inspection of Materials Furnished by Operator Contractor agrees to visually inspect all materials furnished by Operator before using same and to notify Operator of any apparent defects therein. Contactor shall not be liable for any loss or damage resulting from the use of materials furnished by Operator, and Operator shall release Contractor from, and shall protect, defend and indemnify Contractor from and against, any such liability.

14.7 Contractor's indemnification of Operator. Contractor shall release Operator of any liability for, and shall protect defend and indemnify Operator from and against all claims, demands, and causes of action of every kind and character, without limit and without regard to the cause or causes thereof or the negligence of any party or parties, arising in connection herewith in favor of Contractor's employees or Contractors subcontractors of any tier (inclusive of any agent or consultant engaged by Contractor) or their employees, or Contractors invitees, on account of bodily injury, death or damage to property. Contractor's indemnity under this Paragraph shall be without regard to and without any right to contribution from any insurance maintained by Operator pursuant to Paragraph 13. If it is judicially determined that the monetary limits of insurance required hereunder or of the indemnities voluntarily assumed under Subparagraph 14.8 (which Contractor and Operator hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the indemnity, or voluntarily self-insured, In part or whole) exceed the maximum limits permitted under applicable law, it is agreed that said insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under such law.

14.8 Operator's Indemnification of Contractor. Operator shall release Contractor of any liability for, and shall protect defend and indemnify Contractor from and against all claims, demands, and causes of action of every kind and character, without limit and without regard to the cause or causes thereof or the negligence of any party or parties, arising in connection herewith in favor of Operator's employees or Operator's contractors of any tier (inclusive of any agent, consultant or subcontractor engaged by Operator) or their employees, or Operators invitees, other than  those parties identified in Subparagraph 14.8 on account of bodily injury, death or 

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 4 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

damage to property. Operator’s indemnity under this Paragraph shall be without regard to and without any right to contribution from any insurance maintained by Contractor pursuant to Paragraph 13. If it is judicially determined that the monetary limits of insurance required hereunder or of the indemnities voluntarily assumed under Subparagraph 14.8 (which Contractor and Operator hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the indemnities, or voluntarily self-insured, in part or whole) exceed the maximum limits permitted under applicable law, it is agreed that said insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under such law.

14.9 Liability for Wild Well. Operator shall be liable for the cost of regaining control of any wild well, as well as for cost of removal of any debris and cost of property remediation and restoration, and Operator shall release, protect defend and indemnify Contractor and its suppliers, contractors and subcontractors of any tier from and against any liability for such cost.

14.10 Pollution or Contamination: Notwithstanding anything of the contrary contained herein, except the provisions of Paragraphs 10 and 12, it is understood and agreed by and between Contractor and Operator that the responsibility for pollution or contamination shall be as follows:

(a)  Contractor shall assume all responsibility for, including control and removal of, and shall protect defend and indemnify Operator from and against all claims, demands and causes of action of every kind and character arising from pollution or contamination, which originates above the surface of the land or water from spills of fuels, lubricants, motor oils, pipe dope, paints, solvents, ballast, bilge and garbage, except unavoidable pollution from reserve pits, wholly in Contractor’s possession and control and directly associated with Contractor's equipment and facilities.

(b)

  Operator shall assume all responsibility for, including control and removal of and shall protect defend and indemnify Contractor and its suppliers, contractors and subcontractors of any tier from and against all claims, demands, and causes of action of every kind and character arising directly or indirectly from all other pollution or contamination which may occur during the conduct of operations hereunder, including, but not limited to, that which may result from fire, blowout cratering, seepage or any other uncontrolled flow of oil, gas, water or other substance, as well as the use or disposition of all drilling fluids, including, but not limited to, all emulsion, oil base or chemically treated drilling fluids, contaminated cuttings or cavings, lost circulation and fish recovery materials end fluids. Operator shall release Contractor and its suppliers, contractors and subcontractors of any tier of any liability for the foregoing.

(c)  In the event a third party commits an act or omission which results in pollution or contamination for which either Contractor or Operator, for whom such party is performing work, is held to be legally liable, the responsibility therefor shall be considered, as between Contractor and Operator, to be the same as if the party for whom the work was performed had performed the same and all of the obligations respecting protection, defense, indemnity and limitation of responsibility and liability, as set forth in (a) and (b) above, shall be specifically applied.

14.11 Consequential Damages: Subject to and without affecting file provisions of this Contract regarding the payment rights and obligations of the parties or the risk of loss, release and indemnity rights and obligations of the parties, each party shall at all times be responsible for and hold harmless and indemnify the other party from and against its own special, indirect or consequential damages, and the parties agree that special, indirect or consequential. damages shall be deemed to include, without, the following: loss of profit or revenue; costs and expenses resulting from business interruptions; loss of or delay in production; loss of or damage to the leasehold; loss of or delay in drilling or operating rights; cost of or loss of use of properly, equipment materials and services, including without limitation those provided by contractors or subcontractors of every tier or by third parties. Operator shall at all times be responsible for and hold harmless and indemnify Contractor and its suppliers, contractors and subcontractors of any tier from and against all claims, demands and causes of action of every kind and character in connection with such special, indirect or consequential damages suffered by Operator's co-owners, co-venturers, co-lessees, farmors, farmees, partners and joint owners.

14.14 Indemnity Obligation: Except as otherwise expressly limited in this Contract it is the intent of parties hereto that all releases, indemnity obligations and/or liabilities assumed by such parties under terms of this Contract, including, without limitation, Subparagraphs 4.9 and 6.3(c), Paragraphs 10 and 12, and Subparagraphs 14.1 through 14.11 hereof, be without limit and without regard to the cause or causes thereof, including, but not limited to, pre-existing conditions, defect or ruin of premises or equipment, strict [liability, regulatory or statutory liability, products liability, breach of representation or warranty (express or implied), breach of duty (whether statutory, contractual or otherwise) any theory of tort, breach of contract, fault, the negligence of any degree or character (regardless of whether such negligence is sole, joint or concurrent, active, passive or gross) of any party or parties, including the party seeking the benefit of the release, indemnity or assumption of liability, or any other theory of legal liability. The indemnities, and releases and assumptions of liability extended by the parties hereto under the provisions of Subparagraphs 4.9 and 6.3 and Paragraphs 10, 12 and 14 shall inure to the benefit of such parties, their co-venturers, co-lessees, joint owners, their parent holding and affiliated companies and the officers, directors, stockholders, partners, managers, representatives, employees, consultants, agents, servants and insurers of each. Except as otherwise provided herein, such indemnification and assumptions of liability shall not be deemed to create any rights to indemnification in any person or entity not a party to this Contract either as a third party beneficiary or by reason of any agreement of indemnity between one of the parties hereto and another person or entity not a party to this Contract.

15. AUDIT

If any payment provided for hereunder is made on the basis of Contractor’s costs, Operator shall have the right to audit Contractor’s books and records relating to such costs. Contractor agrees to maintain such books and records for a period of two (2) years from the date such costs ware incurred and to make such books and records readily available to Operator at any reasonable time or times within the period.

16. NO WAIVER EXCEPT IN WRITING

It is fully understood and agreed that none of the requirements of this Contract shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Contract, or other duly authorized agent or representative of the party.

17. FORCE MAJEURE

Except as posited in this Paragraph 17 and without prejudice to the risk of loss, release and indemnity obligations under this Contract, each party to this Contract shall be excused from complying with the terms of this Contract, except for the payment of monies when due, if and for no long as such compliance is hindered or prevented by a Force Majeure Event. As used in this Contract, "Force Majeure Event" includes: acts of God, action of the elements, wars (declared or undeclared), insurrection, revolution, rebellions or civil strife, piracy, civil war or hostile action, terrorist acts, riots, strikes, acts of public enemies, federal or state laws, rules, regulations dispositions or orders of any governmental authorities having jurisdiction in the premises or of any other group, organization or informal association (whether or not formally recognized as a government), inability in procure material, equipment, fuel or necessary labor in the open market, acute and unusual labor or material, equipment or fuel shortages, or any other causes (except financial) beyond the control of either party. Neither Operator nor Contractor shall be required against its will to adjust any labor or similar disputes except in accordance with applicable law. In the event that either party hereto is rendered unable, wholly or in part, by any of these causes to carry out its obligation under this Contract, it is agreed that such party shall give notice and details of Force Majeure in writing to the other party as promptly as possible after its occurrence. In such cases, the obligations of the party giving the notice shall be suspended during the continuance of any inability so caused except that Operator shall he obligated to pay to Contractor the Force Majeure Rate provided for in Subparagraph 4.8 above.

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 5 -

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

18. GOVERNING LAW:

This Contract shall be construed, governed, interpreted, enforced and litigated, and the relations between the parties determined in accordance with the laws of The State of Nevada

19. INFORMATION CONFIDENTIAL:

Upon written request by Operator, information obtained by Contractor in the conduct of drilling operations on this well, including, but not limited to, depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm, or corporation other than Operator's designated representatives.

20. SUBCONTRACTS:

Either party may employ other contractors to perform any of the operations or services to be provided or performed by it according to Exhibit "A".

21. See Part 7 - Other Provisions

22. CLAIMS AND LIENS:

Contractor agrees to pay all valid claims for labor, material, services, and supplies to be furnished by Contractor hereunder, and agrees to allow no lien by such third parties to be fixed upon the lease, the well, or other property of the Operator or the land upon which said well is located.

23. ASSIGNMENT:

Neither party may assign this Contract to a third party other than an equity investor or lender without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. In the event of such assignment, the assigning party shall remain liable to the other party as a guarantor of the performance by the assignee of the terns of this Contract. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effecto any increase or decrease in Contractors operating costs.

24. NOTICES AND PLACE OF PAYMENT:

Notices, reports, and other communications required or permitted by this Contract to be given or sent by one party to the other shall be delivered by hand, mailed, digitally transmitted or telecopied to the address hereinabove shown. All sums payable hereunder to Contractor shall be payable at its address hereinabove shown unless otherwise specified herein.

25. CONTINUING OBLIGATIONS:

Notwithstanding the termination of this Contract, the parties shall continue to be bound by the provisions of this Contract that reasonably require some action or forbearance after such termination.

26. ENTIRE AGREEMENT:

This Contract constitutes the full understanding of the parties, and a complete and exclusive statement of the terms of their agreement, and shall exclusively control and govern all work performed hereunder. All representations, offers, and undertakings of the parties made prior to the effective date hereof, whether oral or in writing, are merged herein, and no other contracts, agreements or work orders, executed prior to the execution of this Contract, shall in any way modify, amend, alter or change any of the terms or conditions net out herein.

27. SPECIAL PROVISIONS:

27.1 Exhibit "C" -Contractor's Special Provisions is attached hereto and made a part hereof.

27.2 For periods of delay during the rig move from Fort Bidwell CA, caused by circumstances beyond Contractor's control but under the control of the operator, including but not limited to lack of availability of roads, location, transportation equipment or permits, Operator shall pay Contractor a delay rate of $16,000 per day. If delay occurs due to inclement weather a Force Majeure rate of $11,000 per day of dayrate will be charged for a maximum 2 days

27.3 In addition to the terms of Sub-paragraph 5.2 the following will apply:

(a) Upon execution of this contract an advanced payment of $ 600,000 shall be made by the Operator, prior to rig mobilization, to the Contractor. The actual cost of mobilization will be deducted from these funds and the balance will be retained by the Contractor to cover costs of demobilization. Any positive balance at the end of demobilization will be returned to the Operator and any negative balance will be invoiced to the Operator.

(b) If Contractor terminates, Contractor shall have the right to remove its rig, equipment, and personnel from the location. Operator agrees to file all necessary documents with any state or Federal agency having jurisdiction to gain consent for Con-tractor to remove its rig and equipment from the location and, if required, plug an abandon the well in accordance with the requirements of the state or Federal agency having jurisdiction.

27.4

(a) Operator shall provide certificates of insurance to Contractor in evidence of Operator complying with those requirements that apply to the Operator which are listed in Exhibit "A” Paragraph 3 not later than 1 month prior to mobilization, If certificates of insurance are not provided to Contractor by said date, Contractor may at any time thereafter terminate this contract with immediate effect and the terms of Sub-paragraph 6.4 shall apply as though such termination was at Operator's election, if Contractor terminates in accordance with this Sub-paragraph, Contractor shall have the right to remove its rig, equipment, and personnel from the location. Operator agrees to file all necessary documents with any state or Federal agency having jurisdiction to gain consent for Contractor to remove its rig and equipment from the location and, if required, plug and abandon the well in accordance with the requirements of the State or Federal agency having jurisdiction. In addition to Contractor’s rights to terminate performance under this Paragraph, Operator hereby expressly agrees to PROTECT, DEFEND, and INDEMNIFY Contractor from and against any claims,  demands and causes of action, including all costs of defense, in favor of Operator, Operator’s co-ventures, co-leasees and joint owners, or any other parties arising out of any drilling commitments or obligations contained in any lease, farmout agreement or other agreement, which many be affected by such suspension 

(b) Contractor shall provide certificates of insurance to Operator in evidence of Contractor complying with the requirements listed in Exhibit “A”, Paragraph 3 not later than 1 month prior to mobilization. If certificates of insurance are not provided to the Operator by said date, Operator may at any time thereafter terminate this contract with immediate effect and the terms of Sub-Paragraph 6.4 shall apply as though such termination was at the Contractor’s election. If Operator terminates in accordance with this Sub-Paragraph, the Contractor shall have the right to remove its rig, equipment , and personnel from the location. Operator agrees to file all necessary documents with any state or Federal agency having jurisdiction to gain consent for Contractor to remove its rig and equipment from the location and, if required, plug and abandon the well in accordance with the requirements of the state or federal agency having jurisdiction. In addition to the Operator’s rights to terminate performance under this Paragraph, Contractor hereby expressly agrees to PROTECT, DEFEND, and INDEMNIFY Operator from and against any claims, demands and causes of action, including all costs of defense, in favor of Contractor, Contractor’s co-ventures, co-leasees, and joint owners, or any other parties arising out of any drilling commitments or obligations contained in any lease, farmout agreement or other agreement, which may  be affected by such suspension of operations or termination of performance hereunder. 

27.5 Exhibit "D" - Operator's Special Provisions is attached hereto and made a part hereof.

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 6 -

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

28. ACCEPTANCE OF CONTRACT:

The foregoing Contract including the provisions relating to indemnity, release of liability and allocation of risk of Subparagraphs 4.9 and 6.3(c), Paragraphs 10 and 12, and Subparagraphs 14.1 through 14.12, is acknowledged, agreed to and accepted by Operator this29 day of Nov , 2007 

		
	OPERATOR:

	Signed

	By:

	Brian Fairbank

	Title:

	President

The foregoing Contract, including the provisions relating to indemnity, release of liability and allocation or risk of, Subparagraphs 4.9, 6.3 (c), Paragraphs 10 and 12, and Subparagraphs 14.1 through 14.12, is acknowledged, agreed to and accepted by Contractor this 30 day of Nov, 2007 which is the effective date of this Contract, subject to rig availability, and subject to all of its terms and provisions, with the understanding that it will not be binding upon Operator until Operator has noted its acceptance, and with the further understanding that unless said Contract is thus executed by Operator within ___15___ days of the above date Contractor shall be in no manner bound by its signature thereto.

		
	CONTRACTOR:

	Signed

	By:

	Louis Capuano

	Title:

	CEO

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 7 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

EXHIBIT "A"

To Daywork Contract dated ____ November 15, 2007_____

Operator ____ NGP Blue Mountain 1, LLC___________Contractor ______ThermaSource Inc. ________________________

Well Name and Number

As directed by Operator

_________________________                                                       

SPECIFICATIONS AND SPECIAL PROVISIONS

1.  CASING PROGRAM (See Paragraph 7)

														
	 
	 
	Hole

Size

	 
	Casing

Size

	 
	Weight

	 
	Grade

	 
	Approximate

Setting Depth

	 
	Wait on Cement 

Time

	 

	Conductor

	 
	As Directed

	in.

	By Operator

	in.

	 
	lbs/ft.

	 
	 
	 
	ft.

	 
	hrs

	Surface

	 
	 
	in.

	 
	in.

	 
	lbs/ft.

	 
	 
	 
	ft.

	 
	hrs

	Protection

	 
	 
	in.

	 
	in.

	 
	lbs/ft.

	 
	 
	 
	ft.

	 
	hrs

	 
	 
	 
	in.

	 
	in.

	 
	lbs/ft.

	 
	 
	 
	ft.

	 
	hrs

	Production

	 
	 
	in.

	 
	in.

	 
	lbs/ft.

	 
	 
	 
	ft.

	 
	hrs

	Liner

	 
	 
	in.

	 
	in.

	 
	lbs/ft.

	 
	 
	 
	ft.

	 
	hrs

	 
	 
	 
	in.

	 
	in.

	 
	lbs/ft.

	 
	 
	 
	ft.

	 
	hrs

2. MUD CONTROL PROGRAM (See Subparagraph 8.2)

											
	Depth Interval

(ft)

	 

	 
	 
	 
	 
	 
	 
	 

	

From

 

	 

	

To

 

	 
	

Type Mud

 

	 

	Weight

(lbs./gal.)

 

	 

	Viscosity

(Secs)

 

	 

	Water Loss

(cc)

 

	As Directed

	 
	By Operator

	 
	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

Other Mud Specifications: Operator reserves the right to use Calcium Carbonate at no additional charge by Contractor______________________________________

______________________________________________________________________________________________________________________________________

_____________________________________________________________________________________________________________________________________

______________________________________________________________________________________________________________________________________

3. INSURANCE (See Paragraph 13)

3.1 Adequate Workers' Compensation Insurance complying with State Laws applicable or Employers' Liability Insurance with limits of $__  1,000,000  

covering all of Contractors employees working under this Contract.

3.2 Commercial (or Comprehensive) General Liability Insurance, including contracted obligations as respects this Contract and proper coverage for all other obligations assumed in this Contract. The limit shall be $  2,000,000  combined single limit per occurrence for Bodily Injury and

Property Damage.

3.3 Automobile Public Liability Insurance with limits of $_

1,000,000

for the death or  injury of each person and $__1,000,000  for each

accident; and Automobile Public Liability Property Damage Insurance with limits of $__1,000,000______  for each accident.

3.4 In the event operations are over water, Contractor shall carry in addition to the Statutory Workers' Compensation Insurance, endorsements covering liability under the Longshoremen's & Harbor Workers' Compensation Act and Maritime liability including maintenance and cure with limits of $  N/A  

for each death or injury to one person and $____N/A_____ for any one accident.

3.5

Other Insurance: General Liability Umbrella of $5,000,000 for any one occurrence. Such policy should be written on an occurrence basis and not a claims basis._________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________________

4. EQUIPMENT, MATERIALS AND SERVICES TO BE FURNISHED BY CONTRACTOR:

The machinery, equipment, tools, materials, supplies, instruments, services and labor hereinafter listed, including any transportation required for such items, shall be provided at the well location at the expense of Contractor unless otherwise noted by this Contract.

4.1 Drilling Rig

Complete drilling rig, designated by Contractor as its Rig No. ____TSL Rig 101___, the major items of equipment being:

Drawworks: Make and Model

Per rig inventory attached hereto and made a part hereof.  

Engines: Make, Model, and H.P.                                                                                                             

No. on Rig                                                                                                                                    

Pumps: No. 1 Make, Size, and Power                                                                                                      

No. 2 Make, Size, and Power                                                                                                          

Mud Mixing Pump: Make, Size, and Power _______________________________________________________________________________________________

Boilers: Number, Make, H. P. and W.P.

Derrick or Mast: Make, Size, and Capacity________________________________________________________________________________________________

Substructure: Size and Capacity ________________________________________________________________________________________________________

Rotary Drive: Type _______________________________________________________________________________________________________________  

Drill Pipe: Size 4-1/2 in. 6000__ ft.; Size:                            

 in.

 ft.

Drill Collars: Number and Size     10 x 6-1/2' and 6x8'______________________________________________________

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 8 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

							
	Size

	 
	Series or Test Pr.

	 
	Make & Model

	 
	Number

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

			
	B.O.P. Closing Unit:

	 
	 

	P.O.P. Accumulator

	 
	 

4.2 Derrick timbers.

4.3 Normal strings of drill pipe end drill collars specified above. 

4.4 Conventional drift indicator.

4.5 Circulating mud pits.

4.6 Necessary pipe racks and rigging up materiel.

4.7 Normal storage for mud and chemicals,

4.8  _______________________________________________________________________________________________________________________________

4.9 ________________________________________________________________________________________________________________________________

4.10 _______________________________________________________________________________________________________________________________

4.11_______________________________________________________________________________________________________________________________

4.12_______________________________________________________________________________________________________________________________

4.13_______________________________________________________________________________________________________________________________

4.14_______________________________________________________________________________________________________________________________

4.15_______________________________________________________________________________________________________________________________

4.16_______________________________________________________________________________________________________________________________

4.17_______________________________________________________________________________________________________________________________

5. EQUIPMENT, MATERIALS AND SERVICES TO BE FURNISHED BY OPERATOR;

The machinery, equipment, tools, materials, supplies, instruments, services and labor hereinafter listed, including any transportation required for such items, shall be provided at the well location at the expense of Operator unless otherwise noted by this Contract.

5.1 Furnish and maintain adequate roadway and/or canal to location, right-of-way, including rights-of-way for fuel and water lines, river crossings, highway crossings, gates and cattle guards.

5.2 Stake location, clear and grade location, and provide turnaround, including surfacing when necessary.

5.3 Test tanks with pipe and fittings.

5.4 Mud storage tanks with pipe and fittings.

5.5 Separator with pipe and fittings.

5.6 Labor and materials to connect and disconnect mud tank, test tank, and mud gas separator. 

5.7 Labor to disconnect and clean test tanks and mud gas separator.

5.8 Drilling mud, chemicals, lost circulation materials and other additives.

5.9 Pipe and connections for oil circulating lines.

5.10 Labor to lay, bury and recover oil circulating lines.

5.11 Drilling bits, reamers, reamer cutters, stabilizers and special tools.

5.12 Contract fishing tool services and tool rental.

5.13 Wire line core bits or heads, core barrels and wire line care catchers if required.

5.14 Conventional core bits, core catchers and core barrels.

5.15 Diamond core barrel with head.

5.16 Cement and cementing service.

5.17 Electrical wireline logging services.

5.18 Directional, caliper, or other special services.

5.19 Gun or jet perforating services.

5.20 Explosives and shooting devices.

5.21 Formation testing, hydraulic fracturing, acidizing and other related services.

5.22 Equipment for drill stern testing. 

5.23 Mud logging services.

5.24 Sidewall coring service-

5.25 Welding service for welding bottom joints of casing, guide shoe, float shoe, float collar and in connection with installing of well head equipment if required. 

5.26 Casing, tubing, liners, screen, float collars, guide and float shoes and associated equipment

5.27 Casing scratchers and centralizers.

5.28 Well head connections and all equipment to be installed in or on well or on the premises for use in connection with testing, completion and operation of well. 

5.29 Special or added storage for mud and chemicals.

5.30 Casingheed, API series, to conform to that shown for the blowout preventers specified in Subparagraph 4.1 above.

5.31 Blowout preventer testing packoff and testing services.

5.32 Replacement of BOP rubbers, elements and seals, if required, after initial test.

5.33 Casing Thread Protectors and Casing Lubricants.

5.34 H2S training and equipment as necessary or as required by law.

5.35 Site septic systems.

5.36 The cost of heater and fuel for winterization of the rig will be billed to the Operator directly.

5.37                                                                                                                                        

5.38                                                                                                                                        

5.39                                                                                                                                        

5.40                                                                                                                                        

5.41                                                                                                                                        

5.42                                                                                                                                        

5.43                                                                                                                                        

5.44                                                                                                                                        

5.45                                                                                                                                        

5.46                                                                                                                                        

5.47                                                                                                                                        

5.48                                                                                                                                        

5.49                                                                                                                                        

5.50                                                                                                                                        

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 9 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

EQUIPMENT MATERIALS AND SERVICES TO BE FURNISHED BY DESIGNATED PARTY:

The machinery, equipment, tools, materials, supplies, instruments, services, and labor listed as the following numbered items, including any transportation required for such items unless otherwise specified, shall be provided at the well location and at the expense of the party hereto as designated by an X mark in the appropriate column.

						
	 
	 
	 
	To Be Provided By and

At The Expense Of

	 
	Item

	 
	Operator

	 
	Contractor

	6.1

	Cellar and Runways..........................................................................................

	 
	X

	 
	 

	6.2

	Ditches and sumps...........................................................................................

	 
	X

	 
	 

	6.3

	Fuel (located at

).....................................................

	 
	X

	 
	 

	6.4

	Fuel Lines (length  50°)  ....................................................................................

	 
	 
	 
	X

	6.5

	Water at source, including required permits.....................................................

	 
	X

	 
	 

	6.6

	Water Well, including required permits...........................................................

	

	X

	 
	 

	6.7

	Water lines, including required permits................................................................

	 
	X

	 
	 

	6.8

	Water storage tanks

capacity – extra..................................

	 
	 
	 
	X

	6.9

	Potable water........................................................................................................

	 
	X

	 
	 

	6.10

	Labor to operate water well or water pump..................................................

	 
	X

	 
	 

	6.11

	Maintenance of water well, if required..........................................................

	 
	X

	 
	 

	6.12

	Water pump......................................................................................................

	

	X

	 
	 

	6.13

	Fuel for water pump.........................................................................................

	

	X

	 
	 

	6.14

	Mats for engines and boilers, or motors and mud pumps..............................

	 
	 
	 
	X

	6.15

	Transportation of Contractors property:

Move in................................................................................................................

	 
	X

	 
	 

	 
	Move out.............................................................................................................

	 
	X

	 
	 

	6.16

	Materials for "boxing in" rig and derrick

	 
	X

	 
	 

	6.17

	Special strings of drill pipe and drill collars as follows:

Air Drill Pipes

	

	X

	 
	 

	6.18

	Kelly joints, subs, elevators, tongs, slips and BOP rams for use with special

drill pipe...............................................................................................................

	 
	X

	 
	 

	6.19

	Drill pipe protectors for Kelly joint and each joint

of drill pipe running inside of Surface Casing as required,

for use with normal strings of drill pipe................................................................

	 
	X

	 
	 

	6.20

	Drill pipe protectors for Kelly joint and drill pipe running

inside of Protection Casing...................................................................................

	 
	X

	 
	 

	6.21

	Rate of penetration recording device...................................................................

	 
	X

	 
	 

	6.22

	Extra labor for running and cementing casing (Casing crews)............................

	 
	X

	 
	 

	6.23

	Casing tools...........................................................................................................

	 
	X

	 
	 

	6.24

	Power casing longs..........................................................................................

	 
	X

	 
	 

	6.25

	Laydown and pickup machine..............................................................................

	 
	X

	 
	 

	6.26

	Tubing tools..........................................................................................................

	 
	X

	 
	 

	6.27

	Power tubing tong...............................................................................................

	 
	X

	 
	 

	6.26

	Crew floats, Number...........................................................................................

	 
	 
	 
	 

	6.29

	Service Barge......................................................................................................

	 
	 
	 
	 

	6.30

	Service Tug Boat..................................................................................................

	 
	 
	 
	 

	6.31

	Rat Hole °............................................................................................................

	 
	X

	 
	 

	6.32

	Mouse Hole.........................................................................................................

	 
	N/A

	 
	 

	6.33

	Reserve Pits........................................................................................................

	

	X

	 
	 

	6.34

	Upper Kelly Cock................................................................................................

	 
	 
	 
	X

	6.35

	Lower Kelly Valve..................................................................................................

	

	X

	 
	 

	6.36

	Drill Pipe Safety Valve..........................................................................................

	

	X

	 
	 

	6.37

	Inside Blowout Preventer....................................................................................

	

	X

	 
	 

	6.36

	Drilling hole for or driving for conductor pipe....................................................

	

	X

	 
	 

	6.39

	Charges, cost of bonds for public roads............................................................

	

	X

	 
	 

	6.40

	Portable Toilet....................................................................................................

	

	X

	 
	 

	6.41

	Trash Receptacle................................................................................................

	

	X

	 
	 

	6.42

	Linear Motion Shale Shaker..............................................................................

	

	X

	 
	 

	6.43

	Shale Shaker Screens.......................................................................................

	

	X

	 
	 

	6.44

	Mud Cleaner.....................................................................................................

	

	X

	 
	 

	6.45

	Mud/Gas Separator...........................................................................................

	

	X

	 
	 

	6.46

	Desander..........................................................................................................

	

	X

	 
	 

	6.47

	Desilter..............................................................................................................

	

	X

	 
	 

	6.48

	Degasser.............................................................................................................

	

	X

	 
	 

	6.49

	Centrifuge..........................................................................................................

	

	X

	 
	 

	6.50

	Rotating Head...................................................................................................

	

	X

	 
	 

	6.51

	Rotating Head Rubbers....................................................................................

	

	X

	 
	 

	6.52

	Hydraulic Adjustable Choke..............................................................................

	

	X

	 
	 

	6.53

	Pit Volume Totalizer.........................................................................................

	

	X

	 
	 

	6.54

	Communication, type.......................................................................................

	

	X

	 
	 

	6.55

	Forklift, capacity..............................................................................................

	

	X

	 
	 

	6.56

	Corrosion inhibitor for protecting drill string..................................................

	

	X

	 
	 

	6.57

	 
	 
	 
	 
	 

	6.58

	 
	 
	 
	 
	 

	6.59

	 
	 
	 
	 
	 

	6.60

	 
	 
	 
	 
	 

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -       - 10 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

EXHIBIT "B"

(See Subparagraph 8.3)

The following clauses, when required by law, are incorporated in the Contract by reference as if fully set out:

(1)       The Equal Opportunity Clause prescribed In 41 CFR 60-1.4.

(2)

The Affirmative Action Clause prescribed in 41 CFR 80-250.4 regarding veterans and veterans of the Vietnam era.

(3)

The Affirmative Action Clause for handicapped workers prescribed in 41 CFR 60-741.4.

(4)

The Certification of Compliance with Environmental Laws prescribed in 40 CFR 15.20.

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 11 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

EXHIBIT "C"

(see sub-paragraph 27.1)

1) Operator agrees that Operator's personnel as well as third party personnel shall be subject to ThermaSource's policies and regulations regarding safety, environmental and health protection a copy of which shall be provided to the Operator. This includes the full use of PPE and rules regarding drug and alcohol use. Operations may be suspended if no corrective action is taken and billed out to the Operator as dayrate. Prior suspending any operations the Contractor's management will contact the Operator's management to resolve the situation in an effort to forgo any suspension.

2) Inspection of downhole tools and collars will be at the expense of the Operator at the end of the well and as specified by the Operator (every 200 hrs while drilling with air) when drilling with air or aerated fluid. Repairs and inspection, re-works and new joints cut including hardbanding of tool joints will be at the expense of the Operator. An additional charge for drill pipe usage during air or aerated fluid drilling is added to daily rig rental rate if Contractor's drill pipe is used.

3) Rental items and third party charges that are billed to ThermaSource will be provided to the Operator for approval. Prior to commencing work under this contract, Contractor shall provide Operator with an inventory of all consumable pump and engine parts or other drilling replacement equipment and materials that are attributed to excessive temperature (above 180°F) or excessive abrasive wear, due to Operator drilling conditions, may be billed back to the Operator, subject to Operator's approval.

4) Crew lodging and subsistence will be billed to Operator at actual cost (double occupancy for crew, single occupancy for tool pusher with a maximum cost of $600/day).

5) When running or pulling casing with the well flowing (Hot Liners), the bonus payment (double time) to the crews will be billed to the Operator,

6) Additional labor casts to Contractor to work on the following holidays will be charged to Operator: January 1, July 4, Labor Day, Thanksgiving and Christmas.

a. Holiday Labor rates are as follows

i.   Tool Pusher = $202.11/hr

ii.   Driller = $52.73/hr

iii.  Derrickman = $47.34/hr

iv.  Motorman = $45.63/hr

v.   Floorman = $45.63/hr

b. So the extra cost for labor on a holiday is $3,147.601day,

7) The Operator will supply the drill pipe used for Air Drilling procedures.

8) The Operator will pay for the winterization of the rig. The rig insulation and covering will be supplied by the Contractor. The heater rental plus fuel for the unit will be billed directly back to the Operator at cost.

9) A forklift, man lift and a combined accommodation and office trailer for the tool pusher will be provided for an additional charge of $300 to all daily rates. Operator shall be charged for any costs related to either mobilization or demobilization of the trailer.

10) An extra night tool pusher will be added at a daily fee of $1450 that will be invoiced to the Operator.

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 12 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

EXHIBIT D

DRILL CONTRACT

THERMASOURCE AND NGP BLUE MOUNTAIN 1, LLC

(See subparagraph 27.5)

1.   It is agreed that all disputed invoices and other disagreements concerning the respective obligations of the parties under the Contract shall be resolved in accordance with the rules of the American Arbitration Association, and that both parties will act in good faith and use their best efforts to appoint an arbitrator within 30 days after completion or termination of the work contemplated by the Contract. Each party shall bear its own attorney's fees and costs in connection resolving such disputes unless a specific award for costs is made in favour of one party under a decision of a duly appointed arbitrator or a court of competent jurisdiction.

2.   Contractor agrees that it shall not have the right to file a lien against the property in connection with any disputed invoices, or any part thereof, described in section 5.2 of the Contract.

3.   Operator shall not be responsible for any costs incurred by the Contractor under the terms of the Contract with any third party providers of materials or services ("Other Contractors") unless such costs or services to be performed by Other Contractors have been authorized by the prior written consent of the Operator.

4.   Contractor shall ensure that the drilling rig and all related equipment necessary to complete the work contemplated by the Contract is supplied in good working order, and shall conduct regular maintenance and repairs upon such equipment for wear and tear in accordance with reasonable industry practices.

5.   Contractor shall provide duly qualified and/or trained personnel necessary to conduct the drilling operations contemplated by the Contract and shall ensure that all such personnel have received adequate instruction and/or completed training courses concerning safety programs and procedures.

6.   Contractor holds a valid and current contractor's license issued by the State of Nevada.

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 13 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

ThermaSource

Rig #101

Drilling Depth Rating: 6,000

feet with 4-1/2" DP 9,000

feet with 3-1/2" DP

Drawworks

OILWELL 52 T, double drum, mechanical Drawworks, with 2 engine compound, rated at 400 Input HP. Powered by 2 x New Caterpillar C15 ACERT, EPA Tier 3 certified engine, rated at 475 HP @ 1800 RPM, complete with OWI C195-100 torque converters. Main drum is LEBUS grooved for 1-1/8" line. Compete with 2 x rebuilt air operated catheads, rebuilt 15" triple hydro-matic brake, new brake bands and rebuilt air compressor.

Mast

Lee C. Moore 127' x 15' Cantilever mast, completely recertified (Oct 2006). Maximum hook load with 8 lines 300,000 Ibs. Mast includes API 4-F certification plate on leg. Crown block includes 4 x 30" sheaves grooved for 1-1/8" wire line & 1 x 36" fast line sheave. Racking board with fingers to rack 5" DP, new electric wiring & lighting.

Sub-Structure

Completely rebuilt 27.5' high x 36' long x 19' wide, with clear height under rotary beams of 24'. Rated maximum rotary load 300,000 simultaneously with 200,000 DP setback. Note Sub height can be reduced to 18.5' with 15 clear height by removing 9' pony sub.

Mud Pumps

2 x New EMSCO F-1000 triplex rated at 1000 HP, Chinese manufacture powered by 2 x New Caterpillar C27 ACERT, EPA Tier 2 certified engines rated at 950 HP @ 1800 RPM complete with National C245-64F torque converters. Pumps mounted on oilfield skids complete with pulsation dampeners, pressure gauge, pressure relief valves, and electric driven 5" x 6" mission centrifugal pre-charge pumps. Stand pipe & mud lines rated at 5000 psi.

Mud System

2 pits with 785 bbls total capacity. One suction pit with 405 bbls capacity 12' wide x 6' high x 50' long, complete with 2 x new 5" x 6" mission centrifugal pumps driven by 60 HP electric motors, mud hopper, mud agitators, gun lines, completely covered in grating with hand rails.

One Shaker pit with 380 bbls capacity, 11' x 6' high x 43'

Completely cover in grating with hand rails.

Note: shakers and any required mud cleaning equipment to be third party rental.

Rotary Table

One new SJ-Petro 27-1/2 rotary table, Chinese manufacture, complete with master bushings & locks. Rotary table is chain driven from drawworks.

Traveling Blocks

One new Sentry YG 135 hook/block combination rated at 150 tons API with 4 x 36" sheaves grooved for 1-118" wire line. Chinese manufacture.

Drillinq Line

One new 1-1/8" x 5000' EIPS 6 x 19 IWRC, USA manufacture.

Swivel

One model SL 170 rotary swivel rated at 187 tons API with quick change packing assembly. Chinese manufacture.

Kelly & Bushings

One new 5-1/4" x 40' Hex complete with square drive bushings & Hex rollers, with 6-5/8" Reg LH box & 4-1/2" XH pin.

Air Winches

One new IR K6UL rated at 10,000 lbs complete with muffler. One New IR K5UL rated at 5,000 lbs complete with muffler.

Accumulator

One new Type-80 (Koomey style) 5 station 80 gallon accumulator, complete with one triplex & 2 x air operated pumps. US manufactured complete with all valves, gauges & annular regulator.

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 14 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

Revised April, 2003

Air Compressors

One new Sullivan - Palatek 30G rotary screw air compressor with 30 Hp electric motor & tank. One rebuilt 2 stage compound driven air compressor.

Generators

2 new Caterpillar 455 KW 480 volt AC generators mounted in completely new 8' x 40' Generator house complete with all control panels & plugs.

Water Tank

One 300 bbls capacity 8' high x 8' wide x 38' long with 1 - 4" x 5" centrifugal pump powered by 40 HP electric motor and 1 - 2" x 3" centrifugal pump powered by 20 HP electric motor.

Drillers Don House

One new 10' x 31' complete with knowledge box, storage & benches. Electric heater & lighting panel provided.

Crew Change House

One Rebuilt 8' x 36' skid mounted with lockers, electric heater & lighting.

Tool House

One 8' x 31' Skid mounted tool house with integrated lube oil storage tanks with drip pan.

Cat Walk

New safety style catwalk & 2 sets pipe racks. Catwalk dimensions 6' wide x 50' long x 1.5' high with pipe racks to match.

Instrumentation

TOTCO type clip on weight indicator, Rotary torque indicator, Tong Line indicator.

Tubulars

6000 feet of new 4-1/2" 16.6# Grade "G" drill pipe with Geothermal hard banding

3000 feet 4-1/4" 22.82# Grade "X" drill pipe (API premium) 10 each 6-1/2" X 31' DC with 4-1/2 XH cons

			
	TSL Rig 101 

	 
	 

	Blue Mountain

	(U.S. Daywork Contract -      - 15 -)

	Form Provided by Forms On-A-Disk

	 
	Copyright® 2003 International Association of Drilling Contractors

	(214) 340 – 9429 * FormsOnADisk.com

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