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                                                                    EXHIBIT 10.1

                           GOLDEN STAR RESOURCES LTD.

               SECOND AMENDED AND RESTATED 1997 STOCK OPTION PLAN
                   (EFFECTIVE DATE OF AMENDMENT MAY 20, 2004)

1.       PURPOSE

1.1      The purpose of the 1997 Stock Option Plan (the "Plan") is to advance
         the interests of Golden Star Resources Ltd. (the "Corporation") by
         encouraging equity participation in the Corporation by selected key
         employees, consultants and directors of the Corporation or subsidiaries
         of the Corporation through the acquisition of common shares without par
         value ("Shares") in the Corporation. Any reference herein to the
         Corporation or any subsidiary of the Corporation shall be deemed to
         refer to any predecessor or successor corporation thereto.

         It is the further purpose of this Plan to permit the granting of awards
         that will constitute performance-based compensation for certain
         executive officers, as described in section 162(m) of the United States
         Internal Revenue Code of 1986, as amended (the "Code"), and regulations
         promulgated thereunder.

         As of the effective date of the Plan, the 1992 Employees' Stock Option
         Plan and the 1992 Non-Discretionary Directors' Stock Option Plan
         (collectively, the "1992 Plans") will be terminated subject to the
         assumption under the Plan of outstanding options granted under the 1992
         Plans.

2.       ADMINISTRATION OF THE PLAN

2.1      The Plan will be administered by a specifically designated independent
         committee ("Independent Committee") of the Board of Directors of the
         Corporation (the "Board of Directors"), except that with respect to
         options granted to non-employee directors of the Corporation, the Board
         of Directors shall serve as the Committee, and, where applicable, any
         reference herein to the Independent Committee shall be deemed to refer
         to the Board of Directors. The Independent Committee shall consist of
         such two or more directors of the Corporation as the Board of Directors
         may designate from time to time, all of whom shall be and remain
         directors of the Corporation. To the extent necessary to comply with
         Code section 162(m) or Rule 16b-3 under the Securities Exchange Act of
         1934 (the "Exchange Act"), as amended ("Rule 16b-3"), each member of
         the Independent Committee shall be intended to be an "outside director"
         within the meaning of Code section 162(m) or a "non-employee director"
         within the meaning of Rule 16b-3. The Independent Committee is
         authorized to interpret and to implement the Plan and all Plan
         agreements and may from time to time amend or rescind rules and
         regulations required for carrying out the Plan. The Independent
         Committee shall have the authority to exercise all of the powers
         granted to it under the Plan, to make any determination necessary or
         advisable in administering the Plan and to correct any defect, supply
         any

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         omission and reconcile any inconsistency in the Plan. Any such
         interpretation or construction of any provision of the Plan shall be
         final and conclusive. Notwithstanding the foregoing, the Board of
         Directors may resolve to administer the Plan with respect to all of the
         Plan or certain participants and/or awards made or to be made under the
         Plan. To the extent that the Board of Directors determines to
         administer the Plan, all references herein to the Independent Committee
         shall be deemed to refer to the Board of Directors.

         All administrative costs of the Plan shall be paid by the Corporation.
         No member of the Independent Committee shall be liable for any action
         or determination made in good faith with respect to the Plan or any
         option granted under it.

3.       PARTICIPATION

3.1      Options may be granted under the Plan to persons who are directors or
         key employees (including officers, whether or not directors, and
         part-time employees) of, or independent consultants to, the Corporation
         or any of its subsidiaries who, by the nature of their positions or
         jobs, are in the opinion of the Independent Committee in a position to
         contribute to the success of the Corporation or any of its subsidiaries
         or who, by virtue of their length of service to the Corporation or to
         any of its subsidiaries are, in the opinion of the Independent
         Committee, worthy of special recognition. Designation of a participant
         in any year shall not require the designation of such person to receive
         an option in any other year. The Independent Committee shall consider
         such factors as it deems pertinent in selecting participants and in
         determining the amount and terms of their respective options.

3.2      Subject to applicable regulatory approval, options may also be granted
         under the Plan in exchange for outstanding options granted by the
         Corporation, whether such outstanding options are granted under the
         Plan, under any other stock option plan of the Corporation or under any
         stock option agreement with the Corporation. Options granted under the
         1992 Plans which are outstanding upon the effectiveness of the Plan
         will be assumed and will be deemed to be governed by the Plan as of
         such date.

3.3      Options may also be granted under the Plan in substitution for
         outstanding options of another corporation in connection with a plan of
         arrangement, amalgamation, merger, consolidation, acquisition of
         property or shares, or other reorganization between or involving such
         other corporation and the Corporation or any of its subsidiaries.

4.       NUMBER OF SHARES RESERVED UNDER THE PLAN

4.1      The number of Shares reserved for issuance under the Plan is limited as
         follows:

         (a)      the maximum number of Shares issuable pursuant to the exercise
                  of options granted under the Plan shall be 15,000,000
                  (including such number of Shares issuable upon exercise of
                  options granted under the 1992 Plan as of the effective date
                  of the Plan) provided, however, if, after the effective date
                  of the Plan, any Shares covered by an option granted under the
                  Plan, or to which such an option

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                  relates, are forfeited, or if an option has expired,
                  terminated or been cancelled for any reason whatsoever (other
                  than by reason of exercise), then the Shares covered by such
                  option shall again be, or shall become, Shares with respect to
                  which options may be granted hereunder;

         (b)      the number of Shares that may be reserved from time to time
                  under the Plan for issuance to Insiders (as defined below) of
                  the Corporation shall be limited to that number which is equal
                  to the difference between (i) 10% of the outstanding number of
                  Shares from time to time, and (ii) the number of Shares that
                  are reserved for issuance to Insiders pursuant to stock
                  options granted under other stock option plans or arrangements
                  of the Corporation;

         (c)      the total number of Shares issuable within any one-year period
                  to all Insiders of the Corporation pursuant to the exercise of
                  vested options granted under the Plan or pursuant to any other
                  share compensation arrangements of the Corporation shall not
                  exceed 10% of the Outstanding Issue;

         (d)      the total number of Shares reserved for issuance to any one
                  optionee pursuant to options granted under the Plan or other
                  stock option plans or arrangements of the Corporation shall
                  not exceed 5% of the outstanding number of Shares from time to
                  time; and

         (e)      the total number of Shares issuable within any one-year period
                  to an Insider and, if applicable, such Insider's "associates"
                  (as defined under the Securities Act (Ontario) pursuant to the
                  exercise of vested options granted under the Plan or any other
                  share compensation arrangements of the Corporation shall not
                  exceed 5% of the Outstanding Issue.

         "Insiders" has the meaning set forth in the Toronto Stock Exchange's
         policy issued March 22, 1994 entitled "Employee Stock Option and Stock
         Purchase Plans, Options for Services and Related Matters."

         "Outstanding Issue", for the purposes of the Plan, is determined on the
         basis of the number of Shares that are outstanding immediately prior to
         the Shares issuance in question, excluding Shares issued pursuant to
         the Plan or the Corporation's other share compensation arrangements
         over the preceding one-year period. The maximum number of Shares set
         forth in Section 4.1(a) shall be appropriately adjusted in the event of
         any subdivision or consolidation of the Shares or in the discretion of
         the Independent Committee, to reflect any other corporate event or
         change in the Shares.

5.       NUMBER OF OPTIONED SHARES PER OPTIONEE

5.1      Subject to Section 4.1 hereof, the maximum number of Shares subject to
         options granted to any one participant under the Plan in any one
         calendar year shall not exceed 400,000 (subject to adjustment in the
         event of any subdivision or consolidation of the Shares). Subject to
         these limitations, however, the determination regarding the number of

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         optioned Shares that may be granted to each optionee pursuant to an
         option will be made by the Independent Committee and will take into
         consideration the optionee's present and potential contribution to the
         success of the Corporation.

6.       PRICE

6.1      The exercise price per optioned Share shall be determined by the
         Independent Committee at the time the option is granted, but such price
         shall not be less than the fair market value per Share on the date of
         grant. For the purposes of the Plan, "fair market value" per Share
         shall mean the closing price of the Shares on the stock exchange or
         other market on which the Shares principally traded on the day
         immediately preceding the date of grant.

7.       EXERCISE OF OPTIONS

7.1      The period during which an option may be exercised (the "Option
         Period") shall be determined by the Independent Committee at the time
         the option is granted and may be up to 10 years from the date the
         option is granted, except as the same may be reduced pursuant to the
         provisions of Sections 8 and 9 hereof.

7.2      In order to ensure that the Corporation will receive the benefits
         contemplated in exchange for the options granted hereunder, no option
         shall be exercisable until it has vested. The vesting schedule for each
         option shall be specified in an option agreement as provided for in
         Section 12 hereof; provided, however, that the Independent Committee
         shall have the right with respect to any one or more optionees to
         accelerate the time at which an option may be exercised.
         Notwithstanding the foregoing provisions of this Section 7.2, if there
         is a Change of Control, as defined below, then all options outstanding
         shall become immediately exercisable.

         For purposes of this Plan, a "Change of Control" shall mean the
         occurrence of any of the following: (i) the sale, lease, transfer,
         conveyance or other disposition, in one or a series of related
         transactions, of all or substantially all of the assets of the
         Corporation to any "person" or "group" (as such terms are used in
         Sections 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) any person or
         group, is or becomes the "beneficial owner" (as defined in Rules 13d-3
         and 13d-5 under the Exchange Act, except that a person shall be deemed
         to have "beneficial ownership" of all shares that any such person has
         the right to acquire, whether such right is exercisable immediately or
         only after the passage of time), directly or indirectly, of more than
         50% of the total voting power of the voting stock of the Corporation,
         including by way of merger, consolidation or otherwise or (iii) during
         any period of two consecutive years, individuals who at the beginning
         of such period constituted the Board of Directors (together with any
         new directors whose election by such Board of Directors whose
         nomination for election by the shareholders of the Corporation was
         approved by a vote of a majority of the directors of the Corporation,
         then still in office, who were either directors at the beginning of
         such period or whose election or nomination for election was previously
         so approved) cease for any reason to constitute a majority of the Board
         of Directors, then in office.

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7.3      Options shall be exercisable, either all or in part, at any time after
         vesting. If less than all of the Shares included in the vested portion
         of any option are purchased, the remainder may be purchased, subject to
         the option's terms, at any subsequent time prior to the expiration of
         the Option Period.

7.4      Except as set forth in Sections 8 and 9 hereof, no option may be
         exercised unless the optionee is at the time of such exercise an
         employee or director of, or consultant to, the Corporation or any of
         its subsidiaries and shall have continuously served in any one or more
         of such capacities since the grant of the option. Absence on leave,
         with the approval of the Independent Committee, shall not be considered
         an interruption of service for any purpose of the Plan.

7.5      The exercise of any option will be contingent upon receipt by the
         Corporation of payment for the full purchase price of the Shares being
         purchased in cash by way of certified cheque or bank draft or by way of
         proceeds of any loan made by the Corporation to the optionee pursuant
         to Section 10 hereof. No optionee or his or her legal representatives,
         legatees or distributees will be, or will be deemed to be, a holder of
         any Shares subject to an option under the Plan, unless and until
         certificates for such Shares are issued to him, her or them under the
         terms of the Plan.

7.6      No option granted under the Plan shall be an "incentive stock option"
         within the meaning of Code section 422.

8.       TERMINATION OF EMPLOYMENT

8.1      If an optionee ceases to be employed by, or provide services to, the
         Corporation or any of its subsidiaries for any reason (other than
         death), or shall receive notice from the Corporation or any of its
         subsidiaries of the termination of his or her employment or services
         (such optionee being referred to in this Section 8.1 as a "Former
         Optionee"), the Former Optionee may only exercise each option held, to
         the extent that it has vested and not been exercised before such
         termination, until the earlier of:

         (a)      the date which is 30 days after the Former Optionee ceased to
                  be employed by, or provide services to, the Corporation or any
                  of its subsidiaries; and

         (b)      the expiry of the Option Period for the option (the "Option
                  Expiry Date");

         provided, however, that:

         (c)      if the Former Optionee was a director of the Corporation or
                  any of its subsidiaries, each option held will continue to be
                  exercisable until the earlier of:

                  (i)      the date which is 12 months after the Former Optionee
                           ceases to be such a director for any reason (other
                           than death), and

                  (i)      the Option Expiry Date, and

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         (d)      each option held may continue to be exercisable for such
                  longer period than that provided for in this Section 8.1 if
                  and as may be determined by the Independent Committee and any
                  such determination by the Independent Committee may be made
                  retroactively effective in order to reinstate the
                  effectiveness of an option held by a Former Optionee that is
                  otherwise rendered unexercisable pursuant to the other
                  provisions of this Section 8.1; provided, however, that any
                  such determination by the Independent Committee shall be
                  subject to the following:

                  (i)      such determination shall be made within three months
                           after the date that the Former Optionee ceased to be
                           employed by, or provide services to, the Corporation
                           or any of its subsidiaries;

                  (ii)     such determination shall be subject to applicable
                           regulatory approvals; and

                  (iii)    such longer exercise period determined by the
                           Independent Committee for any option shall not extend
                           beyond the Option Expiry Date for such option.

9.       DEATH OF OPTIONEE

9.1      In the event of the death of an optionee while in service or in the
         post-termination period described in Section 8, each option theretofore
         granted to him or her shall be exercisable until the earlier of:

         (a)      the expiry of the period within which the option may be
                  exercised after such death, which period may be up to one year
                  after such death and is to be specified in his or her option
                  agreement, and

         (b)      the Option Expiry Date;

         provided, however, that the option is only exercisable in such event:

         (c)      by the person or persons to whom the optionee's rights under
                  the option shall pass by the optionee's will or by the laws of
                  descent and distribution, and

         (d)      to the extent that the option has vested and not been
                  exercised prior to the Optionee's death.

10.      LOANS TO EMPLOYEES

10.1     An interest free loan will be made available to optionees who are
         employees of the Corporation or any of its subsidiaries at the time the
         loan is made, the proceeds of which loan may only be used directly for
         the exercise of options granted under the Plan to the optionee.

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         The optionee shall pledge the subject shares as security for timely
         repayment of the loan and the Corporation's sole recourse for repayment
         and recovery of the loan shall be against the pledged shares. Until the
         loan is repaid, the pledged shares will be held by a trustee designated
         by the Corporation. The term of the loan shall be five years from the
         date of the loan, provided that the due date for the loan shall not in
         any event extend beyond that date which is ten years from the date of
         grant of the particular option, and, provided further, that the loan
         shall be repaid within 30 days of the earlier of the date upon which
         the optionee ceases to be an employee of the Corporation or any of its
         subsidiaries for any reason (other than death), or the date upon which
         the optionee receives notice from the Corporation or any of its
         subsidiaries of the termination of his or her employment. If the option
         has not been exercised by the optionee prior to his or her death, the
         loan provisions shall not be available for the exercise of the option
         pursuant to Section 9 hereof after his or her death.

11.      INTENTIONALLY OMITTED

12.      OPTION AGREEMENT

12.1     Upon the grant of an option to an optionee, the Corporation and the
         optionee shall enter into an option agreement setting out the number of
         optioned Shares granted to the optionee and incorporating the terms and
         conditions of the Plan and any other requirements of regulatory bodies
         having jurisdiction over the securities of the Corporation and such
         other terms and conditions as the Independent Committee may determine
         are necessary or appropriate, subject to the Plan's terms.

13.      ADJUSTMENT IN SHARES SUBJECT TO THE PLAN

13.1     The option exercise price and the number of Shares to be purchased by
         an optionee upon the exercise of an option will be adjusted, with
         respect to the then unexercised portion thereof, by the Independent
         Committee from time to time (on the basis of such advice as the
         Independent Committee considers appropriate, including, if considered
         appropriate by the Independent Committee, a certificate of auditors of
         the Corporation) in the event and in accordance with the provisions and
         rules set out in this Section 13. Any dispute that arises at any time
         with respect to any adjustment pursuant to such provisions and rules
         will be conclusively determined by the Independent Committee, and any
         such determination will be binding on the Corporation, the optionee and
         all other affected parties.

         (a)      In the event that a dividend is declared upon the Shares
                  payable in Shares (other than in lieu of dividends paid in the
                  ordinary course), the number of Shares then subject to any
                  option shall be adjusted by adding to each such Share the
                  number of Shares which would be distributable thereon if such
                  Share had been outstanding on the date fixed for determining
                  shareholders entitled to receive such stock dividend.

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         (b)      In the event that the outstanding Shares are changed into or
                  exchanged for a different number or kind of Shares or other
                  securities of the Corporation or of another corporation,
                  whether through an arrangement, amalgamation or other similar
                  procedure or otherwise, or a share recapitalization,
                  subdivision or consolidation, then there shall be substituted
                  for each Share subject to any option the number and kind of
                  Shares or other securities of the Corporation or another
                  corporation into which each outstanding Share shall be so
                  changed or for which each such Share shall be exchanged.

         (c)      In the event that there is any change, other than as specified
                  above in this Section 13, in the number or kind of outstanding
                  Shares or of any securities into which such Shares shall have
                  been changed or for which they shall have been exchanged,
                  then, if the Independent Committee, in its sole discretion,
                  determines that such change equitably requires an adjustment
                  to be made in the number or kind of Shares, such adjustment
                  shall be made by the Independent Committee and be effective
                  and binding for all purposes.

         (d)      In the event that the Corporation distributes by way of a
                  dividend, or otherwise, to all or substantially all holders of
                  Shares, property, evidences of indebtedness or shares or other
                  securities of the Corporation (other than Shares) or rights,
                  options or warrants to acquire Shares or securities
                  convertible into or exchangeable for Shares or other
                  securities or property of the Corporation, other than as a
                  dividend in the ordinary course, then, if the Independent
                  Committee, in its sole discretion, determines that such action
                  equitably requires an adjustment in the option exercise price
                  or number of Shares subject to any option, or both, such
                  adjustment shall be made by the Independent Committee and
                  shall be effective and binding for all purposes.

13.2     In the case of any such substitution or adjustment as provided for in
         this Section 13, the exercise price in respect of each option for each
         Share covered thereby prior to such substitution or adjustment will be
         proportionately and appropriately varied, such variation shall
         generally require that the number of Shares or securities covered by
         the option after the relevant event multiplied by the varied option
         exercise price be equal to the number of Shares covered by the option
         prior to the relevant event multiplied by the original option exercise
         price.

13.3     No adjustment or substitution provided for in this Section 13 shall
         require the Corporation to issue a fractional share in respect of any
         option. Fractional shares shall be eliminated.

13.4     The grant of an option shall not affect in any way the right or power
         of the Corporation to effect adjustments, reclassifications,
         reorganizations, arrangements or changes of its capital or business
         structure, or to amalgamate, merge, consolidate, dissolve or liquidate,
         or to sell or transfer all or any part of its business or assets.

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14.      TRANSFERABILITY

14.1     All benefits, rights and options accruing to any optionee in accordance
         with the terms and conditions of the Plan shall not be assignable other
         than as specifically provided in Section 9 in the event of the death of
         the optionee. During the lifetime of an optionee, all benefits, rights
         and options shall not be transferable and may only be exercised by the
         optionee.

15.      EMPLOYMENT

15.1     Nothing contained in the Plan shall confer upon any optionee any right
         with respect to employment or continuance of employment with, or the
         provision of services to, the Corporation or any of its subsidiaries,
         or interfere in any way with the right of the Corporation or any of its
         subsidiaries to terminate the optionee's employment or services at any
         time. Participation in the Plan by an optionee is voluntary.

16.      RECORD KEEPING

16.1     The Corporation shall maintain a register in which shall be recorded:

         (a)      the name and address of each optionee; and

         (b)      the number of Shares subject to an option granted to an
                  optionee and the number of Shares subject to the option
                  remaining outstanding.

17.      SECURITIES REGULATION AND TAX WITHHOLDING

17.1     Where the Independent Committee determines it is necessary or desirable
         to effect exemption from registration or distribution of the Shares
         under securities laws applicable to the securities of the Corporation,
         an optionee shall be required, upon the acquisition of any Shares
         pursuant to the Plan, to acquire the Shares with investment intent
         (i.e., for investment purposes) and not with a view to their
         distribution, and to present to the Independent Committee an
         undertaking to that effect in a form acceptable to the Independent
         Committee. The Board of Directors and the Independent Committee may
         take such other action or require such other action or agreement by
         such optionee as may from time to time be necessary to comply with
         applicable securities laws. This provision shall in no way obligate the
         Corporation to undertake the registration or qualification of any
         options or the Shares under any securities laws applicable to the
         securities of the Corporation.

17.2     The Board of Directors and the Corporation may take all such measures
         as they deem appropriate to ensure that the Corporation's obligations
         under the withholding provisions under income and tax laws applicable
         to the Corporation and other provisions of applicable laws are
         satisfied with respect to the issuance of Shares pursuant to the Plan
         or the grant or exercise of options under the Plan, including retention
         of Shares that would otherwise be issued to the optionee or requiring
         the optionee to fund the amount required to be withheld.

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17.3     Issuance, transfer or delivery of certificates for Shares purchased
         pursuant to the Plan may be delayed, at the discretion of the
         Independent Committee, until the Independent Committee is satisfied
         that the applicable requirement of securities and income tax laws have
         been met.

18.      AMENDMENT AND TERMINATION

18.1     The Board of Directors reserves the right to amend or to terminate the
         Plan at any time if and when it is advisable in the absolute discretion
         of the Board of Directors; provided, however, that no such amendment or
         termination shall adversely affect any outstanding options granted
         under the Plan without the consent of the optionee. Furthermore, to the
         extent any amendment would require shareholder approval under Code
         section 162(m), such amendment shall be effective upon the required
         approval of the shareholders of the Corporation. Any amendment to the
         Plan shall also be subject to any necessary approvals of any stock
         exchange or regulatory body having jurisdiction over the securities of
         the Corporation and, where applicable, shareholders approval.

18.2     Subject to regulatory approval, where applicable, the Independent
         Committee may waive any conditions or rights under, amend any terms of,
         or alter, suspend, discontinue, cancel or terminate, any option
         theretofore granted, prospectively or retroactively; provided, however,
         that any such waiver, amendment, alteration, suspension,
         discontinuance, cancellation or termination that would impair the
         rights of any optionee or any holder or beneficiary of any option
         theretofore granted shall not to that extent be effective without the
         consent of the affected optionee, holder or beneficiary.

19.      NO REPRESENTATION OR WARRANTY

19.1     The Corporation makes no representation or warranty as to the future
         market value of any Shares issued in accordance with the provisions of
         the Plan.

20.      NECESSARY APPROVALS

20.1     The obligation of the Corporation to issue and to deliver any Shares in
         accordance with the Plan is subject to any necessary or desirable
         approval of any regulatory authority having jurisdiction over the
         securities of the Corporation. If any Shares cannot be issued to any
         optionee for whatever reason, the obligation of the Corporation to
         issue such Shares shall terminate and any option exercise price paid to
         the Corporation shall be returned to the optionee.

21.      GENERAL PROVISIONS

21.1     Nothing contained in the Plan shall prevent the Corporation or any
         subsidiary thereof from adopting or continuing in effect other
         compensation arrangements, which may, but need not, provide for the
         grant of options (subject to shareholder approval if such

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         approval is required), and such arrangements may be either generally
         applicable or applicable only in specific cases.

21.2     The validity, construction, and effect of the Plan and any rules and
         regulations relating to the Plan and any option agreement shall be
         determined in accordance with the laws of the State of New York.

21.3     If any provision of the Plan or any option is or becomes or is deemed
         to be invalid, illegal, or unenforceable in any jurisdiction or as to
         any person or option, or would disqualify the Plan or any option under
         any law deemed applicable by the Independent Committee, such provision
         shall be construed or deemed amended to conform to the applicable laws,
         or if it cannot be construed or deemed amended without, in the
         determination of the Independent Committee, materially altering the
         intent of the Plan or the option, such provision shall be stricken as
         to such jurisdiction, person or option and the remainder of the Plan
         and any such option shall remain in full force and effect.

21.4     Neither the Plan nor any option shall create or be construed to create
         a trust or separate fund of any kind or a fiduciary relationship
         between the Corporation or any subsidiary thereof and an optionee or
         any other person.

21.5     Headings are given to the Sections of the Plan solely as a convenience
         to facilitate reference. Such headings shall not be deemed in any way
         material or relevant to the construction or interpretation of the Plan
         or any provision thereof.

22.      TERM OF THE PLAN

22.1     The Plan shall be effective as of the date of its approval by the
         shareholders of the Corporation, subject to receipt of all necessary
         regulatory approvals.

22.2     No option shall be granted under the Plan after June 10, 2007. Unless
         otherwise expressly provided in the Plan or in an applicable option
         agreement, any option granted hereunder may, and the authority of the
         Board of Directors or the Independent Committee to amend, alter,
         adjust, suspend, discontinue, or terminate any such option or to waive
         any conditions or rights under any such option shall, continue after
         June 10, 2007.

                                       11exv10w15w02

 

Exhibit 10.15.2

2002 REDWOOD TRUST, INC. INCENTIVE STOCK PLAN

(Last Amended May 6, 2004)

Section 1. General Purpose of Plan; Definitions.

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

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

     (1) “Administrator” means the Board, or as long as the Company is subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended, or as required under Section 162(m) of the Code, the Committee
appointed by the Board.

     (2) “Board” means the Board of Directors of the Company.

     (3) “Code” means the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto.

     (4) “Committee” means the Compensation Committee of the Board, which shall
be composed of not less than three Board members who must be (i) Independent as
defined by the rules of the New York Stock Exchange, as they may be amended
from time to time; (ii) a Non-Employee Director as defined in Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934, as
amended; and (iii) an Outside Director as defined under Section 162(m) of the
Internal Revenue Code of 1986, as amended, and rules promulgated thereunder.

     (5) “Company” means Redwood Trust, Inc., a corporation organized under the
laws of the State of Maryland (or any successor corporation).

     (6) “DERs” shall mean dividend equivalent rights, which are the right to
receive amounts on related Stock awards that are linked to dividends on the
Stock and that may be paid currently in cash or Stock, or accrued in shares of
deferred stock with or without compounding through subsequent payments or
accruals on the accrued shares. Payment of such deferred stock from DER
accruals on Stock Options and Stock Appreciation Rights may or may not be
contingent upon the exercise of the related award, as determined by the
Committee at the time of grant.

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     (7) “Deferred Stock” means an award granted pursuant to Section 7 of the
right to receive Stock at the end of a specified deferral period or on such
other bases as the Administrator may determine.

     (8) “Disability” means permanent and total disability as determined under
the Company’s disability program or policy.

     (9) “Effective Date” shall mean the date provided pursuant to Section 11.

     (10) “Eligible Employee” means an employee of the Company or any
Subsidiary, and any person to whom an offer of employment is made by the
Company or any Subsidiary, eligible to participate in the Plan pursuant to
Section 4.

     (11) “Eligible Non-Employee Director” means a member of the Board or the
board of directors of any Subsidiary who is not a bona fide employee of the
Company or any Subsidiary and who is eligible to participate in the Plan
pursuant to Section 4.

     (12) “Fair Market Value” means, as of any given date, with respect to any
awards granted hereunder, at the discretion of the Administrator and subject to
such limitations as the Administrator may impose, the closing sale price of the
Stock on the next preceding business day as reported in the Western Edition of
the Wall Street Journal Composite Tape.

     (13) “GAAP” means, for any day, generally accepted accounting principles,
applied on a consistent basis, stated in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants, or in statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by another entity or entities as
may be approved by a significant segment of the accounting profession, that are
applicable to the circumstances for that day.

     (14) “Incentive Stock Option” means any Stock Option intended to be
designated as an “incentive stock option” within the meaning of Section 422 of
the Code.

     (15) “Non-Employee Director” shall have the meaning set forth in Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended.

     (16) “Non-Qualified Stock Option” means any Stock Option that is not an
Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive Stock
Option.

     (17) “Parent Corporation” means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.

     (18) “Participant” means any Eligible Employee, Non-Employee Director, or
consultant or agent of the Company or any Subsidiary selected by the Committee,
pursuant to the Administrator’s authority in Section 2, to receive grants under
the Plan.

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     (19) “Performance Share” means an award of shares of Stock granted
pursuant to Section 7 that is subject to restrictions based upon the attainment
of specified performance objectives.

     (20) “Prior Plan” means the Company’s Amended and Restated 1994 Executive
and Non-Employee Director Stock Option Plan.

     (21) “Restricted Stock” means an award granted pursuant to Section 7 of
shares of Stock, subject to restrictions that will lapse with the passage of
time or on such other bases as the Administrator may determine.

     (22) “Stock” means the common stock, $0.01 par value, of the Company.

     (23) “Stock Appreciation Right” means the right pursuant to an award
granted under Section 6 to receive an amount equal to the difference between
(A) the Fair Market Value, as of the date such Stock Appreciation Right or
portion thereof is surrendered, of the shares of Stock covered by such right or
such portion thereof, and (B) the aggregate exercise price of such right or
such portion thereof.

     (24) “Stock Option” means an option to purchase shares of Stock granted
pursuant to Section 5.

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

Section 2. Administration.

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

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

     In addition, the Administrator shall have the authority:

     (a) to select those employees and prospective employees of the Company or
any Subsidiary who shall be Eligible Employees;

     (b) to determine whether and to what extent Stock Options (with or without
DERs), Stock Appreciation Rights, Restricted Stock, Deferred Stock, Performance
Shares or a combination of the foregoing, are to be granted to Participants
hereunder;

     (c) to determine the number of shares to be covered by each such award
granted hereunder;

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     (d) to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any award granted hereunder (including, but not limited to, (x)
the restricted period applicable to Restricted or Deferred Stock awards and the
date or dates on which restrictions applicable to such Restricted or Deferred
Stock shall lapse during such period, and (y) the performance goals and periods
applicable to the award of Performance Shares); and

     (e) to determine the terms and conditions, not inconsistent with the terms
of the Plan, which shall govern all written instruments evidencing the Stock
Options, DERs, Stock Appreciation Rights, Restricted Stock, Deferred Stock,
Performance Shares or any combination of the foregoing.

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

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

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

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

4

 

Section 3. Stock Subject to Plan.

     (1) Subject to the following provisions of this Section 3, the maximum
number of shares of Stock that may be issued with respect to awards granted
under the Plan subsequent to the approval of Plan amendments on March 4, 2004
shall be equal to the sum of: (i) 735,000 shares of Stock; (ii) 148,626 shares
of common stock previously authorized for future awards under the Plan which
remain available for grants; (iii) any shares of Stock that are represented by
awards granted under the Prior Plan which are (A) forfeited, expire, or are
canceled without delivery of shares of Stock or (B) settled in cash; and (iv)
any shares of Stock that are represented by awards granted under the Prior Plan
which are tendered to the Company (by either actual delivery or attestation) to
satisfy the exercise price of Stock Options or the applicable tax withholding
obligation.

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

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

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

          (a) The maximum number of shares of Stock that may be the subject of
awards granted as Incentive Stock Options under the Plan shall be 500,000
shares (regardless of whether the awards are canceled, forfeited, or materially
amended or the shares subject to any such awards are surrendered).

          (b) The maximum number of shares that may be the subject of awards granted
to any one individual pursuant to Sections 5 and 6 (relating to Stock Options
and Stock Appreciation Rights) shall be 500,000 shares during any calendar year
(regardless of whether such awards are canceled, forfeited, or materially
amended or the shares subject to any such award are surrendered).

          (c) No more than 500,000 shares of Stock may be the subject of awards
under the Plan granted to any one individual during any one-calendar-year
period (regardless of when such shares are deliverable or whether the awards
are forfeited, canceled or materially amended or the shares subject to any such
award are surrendered) if such awards are intended to be “performance-based
compensation” (as the term is used for purposes of Code Section 162(m)).

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

5

 

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

Section 4. Eligibility.

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

Section 5. Stock Options.

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

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

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

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

     (1) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Administrator in its sole discretion at
the time of grant but shall not be less than 100% of the Fair Market Value of
the Stock on such date, and shall not, in

6

 

any event, be less than the par value of the Stock. If an employee owns
or is deemed to own (by reason of the attribution rules applicable under
Section 425(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation or Subsidiary and an
Incentive Stock Option is granted to such employee, the option price of such
Incentive Stock Option (to the extent required by the Code at the time of
grant) shall be no less than 110% of the Fair Market Value of the Stock on the
date such Incentive Stock Option is granted.

     (2) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
employee owns or is deemed to own (by reason of the attribution rules of
Section 425(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation or Subsidiary and an
Incentive Stock Option is granted to such employee, the term of such Incentive
Stock Option (to the extent required by the Code at the time of grant) shall be
no more than five years from the date of grant.

     (3) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant. The Administrator may provide, in its
discretion, that any Stock Option shall be exercisable only in installments,
and the Administrator may waive such installment exercise provisions at any
time in whole or in part based on such factors as the Administrator may
determine, in its sole discretion. To the extent not exercised, installments
shall accumulate and be exercisable in whole or in part at any time after
becoming exercisable but not later than the date the Stock Option expires.

     (4) Method of Exercise. Subject to Section 5(3), Stock Options may be
exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash or its
equivalent as determined by the Administrator. The Administrator may also
permit a Participant to elect to pay the exercise price upon the exercise of a
Stock Option by irrevocably authorizing a third party to sell shares of Stock
(or a sufficient portion of the shares) acquired upon exercise of the Stock
Option and remit to the Company a sufficient portion of the sale proceeds to
pay the entire exercise price and any tax withholding resulting from such
exercise. As determined by the Administrator, in its sole discretion, payment
in whole or in part may also be made by surrendering unrestricted Stock already
owned by the optionee, or, in the case of the exercise of a Non-Qualified Stock
Option, Restricted Stock, or Performance Shares subject to an award hereunder
(based, in each case, on the Fair Market Value of the Stock on the date the
option is exercised); provided, however, that in the case of an Incentive Stock
Option, the right to make payment in the form of already owned shares may be
authorized only at the time of grant. Any payment in the form of stock already
owned by the optionee may be effected by use of an attestation form approved by
the Administrator. If payment of the option exercise price of a Non-Qualified
Stock Option is made in whole or in part in the form of Restricted Stock or
Performance Shares, the shares received upon the exercise of such Stock Option
(to the extent of the number of shares of Restricted Stock or Performance
Shares surrendered upon exercise of such Stock Option) shall be restricted in
accordance with the original terms of the Restricted Stock or Performance Share
award in question, except that the Administrator may direct that such
restrictions shall apply only to that number of shares equal to the number of
shares surrendered upon the exercise of such option. An optionee shall
generally have the rights to dividends and other rights of a stockholder with
respect to shares subject to the

7

 

option only after the optionee has given written notice of exercise, has
paid in full for such shares, and, if requested, has given the representation
described in paragraph (1) of Section 11.

     (5) Limits on Transferability of Options.

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

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

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

8

 

Section 6. Stock Appreciation Rights.

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

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

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

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

          (a) Stock Appreciation Rights that are Related Rights (“Related Stock
Appreciation Rights”) shall be exercisable only at such time or times and to
the extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6; provided,
however, that no Related Stock Appreciation Right shall be exercisable during
the first six months of its term, except that this additional limitation shall
not apply in the event of death or Disability of the optionee prior to the
expiration of such six-month period.

          (b) Upon the exercise of a Related Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash or
that number of shares of Stock (or in some combination of cash and shares of
Stock) equal in value to the excess of the Fair Market Value of one share of
Stock as of the date of exercise over the option price per share specified in
the related Stock Option multiplied by the number of shares of Stock in respect
of which the Related Stock Appreciation Right is being exercised, with the
Administrator having the right to determine the form of payment.

          (c) Related Stock Appreciation Rights shall be transferable or exercisable
only when and to the extent that the underlying Stock Option would be
transferable or exercisable under paragraph (5) of Section 5.

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          (d) Upon the exercise of a Related Stock Appreciation Right, the Stock
Option or part thereof to which such Related Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 on the number of shares of Stock to be issued
under the Plan.

          (e) A Related Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the Fair Market Value
of the Stock subject to the Incentive Stock Option exceeds the exercise price
of such Stock Option.

          (f) Stock Appreciation Rights that are Free Standing Rights (“Free
Standing Stock Appreciation Rights”) shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; provided, however, that no Free Standing Stock
Appreciation Right shall be exercisable during the first six months of its
term, except that this limitation shall not apply in the event of death or
Disability of the recipient of the Free Standing Stock Appreciation Right prior
to the expiration of such six-month period.

          (g) The term of each Free Standing Stock Appreciation Right shall be fixed
by the Administrator, but no Free Standing Stock Appreciation Right shall be
exercisable more than ten years after the date such right is granted.

          (h) Upon the exercise of a Free Standing Stock Appreciation Right, a
recipient shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Stock (or any combination of cash or shares of
Stock) equal in value to the excess of the Fair Market Value of one share of
Stock as of the date of exercise over the price per share specified in the Free
Standing Stock Appreciation Right (which price shall be no less than 100% of
the Fair Market Value of the Stock on the date of grant) multiplied by the
number of shares of Stock with respect to which the right is being exercised,
with the Administrator having the right to determine the form of payment.

          (i) Free Standing Stock Appreciation Rights shall be transferable or
exercisable subject to the provisions governing the transferability and
exercisability of Stock Options set forth in paragraphs (3) and (5) of Section
5.

          (j) In the event of the termination of an employee who has been granted
one or more Free Standing Stock Appreciation Rights, such rights shall be
exercisable to the same extent that a Stock Option would have been exercisable
in the event of the termination of the optionee.

          (k) For the purpose of the limitation set forth in Section 3 on the number
of shares to be issued under the Plan, the grant or exercise of Free Standing
Stock Appreciation Rights shall be deemed to constitute the grant or exercise,
respectively, of Stock Options with respect to the number of shares of Stock
with respect to which such Free Standing Stock Appreciation Rights were so
granted or exercised.

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

     (1) General. Restricted Stock, Deferred Stock, or Performance Share
awards may be issued either alone or in addition to other awards granted under
the Plan. The Administrator

10

 

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

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

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

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

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

          (a) Subject to the provisions of the Plan and the Restricted Stock,
Deferred Stock, or Performance Share award agreement, during such period as may
be set by the Administrator commencing on the grant date (the “Restricted
Period”), the Participant shall not be permitted to sell, transfer, pledge, or
assign shares of Restricted Stock, Performance Shares, or Deferred Stock
awarded under the Plan; provided, however, that the Administrator may, in its
sole discretion, provide for the lapse of such restrictions in installments and
may accelerate or

11

 

waive such restrictions in whole or in part based on such factors and such
circumstances as the Administrator may determine, in its sole discretion,
including, but not limited to, the attainment of certain performance related
goals, the Participant’s termination, death, or Disability or the occurrence of
a “Change of Control” (as defined by the Administrator at the time of grant).
Except for certain limited situations, the Restricted Period for awards subject
solely to continued employment restrictions shall be not less than three years
from the date of grant. The Restricted Period for awards subject to meeting
specified performance criteria shall generally not be shorter than twelve
months or longer than five years.

          (b) Except as provided in paragraph (3)(a) of this Section 7, the
Participant shall have, with respect to the shares of Restricted Stock or
Performance Shares, all of the rights of a stockholder of the Company,
including the right to vote the shares, and the right to receive any dividends
thereon during the Restricted Period. With respect to Deferred Stock awards,
the Participant shall generally not have the rights of a stockholder of the
Company, including the right to vote the shares during the Restricted Period;
provided, however, that, except as otherwise specified by the Administrator at
time of grant, dividends declared during the Restricted Period with respect to
the number of shares covered by a Deferred Stock award shall accrue to the
Participant. Certificates for shares of unrestricted Stock shall be delivered
to the Participant promptly after, and only after, the Restricted Period shall
expire without forfeiture in respect of such shares covered by the award of
Restricted Stock, Performance Shares, or Deferred Stock, except as the
Administrator, in its sole discretion, shall otherwise determine.

Section 8. Amendment and Termination.

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

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

12

 

Section 9. Unfunded Status of Plan.

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

Section 10. General Provisions.

     (1) The Administrator may require each person purchasing shares pursuant
to a Stock Option to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.

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

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

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

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

     (5) The Administrator may permit or require a Participant to subject any
award granted hereunder to any deferred compensation, deferred stock issuance,
or similar plan that may be made available to Participants by the Company from
time to time. The Administrator

13

 

may establish such rules and procedures for participation in such deferral
plans as it may deem appropriate, in its sole discretion.

Section 11. Effective Date of Plan.

     The Plan became effective (the “Effective Date”) on May 9, 2002, the date
the Company’s stockholders formally approved the Plan. The amended Plan became
effective on May 6, 2004, the date the Company’s stockholders formally approved
the amendment.

Section 12. Term of Plan.

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

14

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