Document:

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                                                                  EXHIBIT (10.9)

                            ADVANCED BIOTHERAPY, INC.

                            INVESTOR RIGHTS AGREEMENT

This Investor Rights Agreement (the "Agreement") is made as of the 15th day of
April, 2002, by and among Advanced Biotherapy, Inc., a Delaware corporation (the
"Company"), and the holders of 2002 Subordinated Convertible Pay-In-Kind Notes
due September 30, 2004, of the Company (each of whom is sometimes herein
referred to as an "Investor," and collectively as the "Investors") who have
executed, or may from time to time execute, an Investors Rights Agreement
Joinder, generally in the form attached hereto as Exhibit A. The Investors are
identified on Schedule A hereto, which will be amended from time to time to
update the parties to this Agreement.

                                    RECITALS

The Investors have subscribed for the Company's 2002 Subordinated Convertible
Pay-In-Kind Notes due September 30, 2004 ("Convertible Notes") evidenced by debt
instruments substantially in the form of Exhibit B pursuant to the Subscription
Agreement of even date herewith (the "Subscription Agreement"). The Company and
the Investors desire to enter into this Agreement in order to provide the
Investors with certain rights to register shares of the Company's common stock,
par value $0.001 ("Common Stock") underlying the Convertible Notes. The Company
desires to induce the Investors to purchase Convertible Notes by agreeing to the
terms and conditions set forth herein.

                                    AGREEMENT

The parties hereby agree as follows:

1.      REGISTRATION RIGHTS The Company and the Investors covenant and agree as
follows:

        1.1.   DEFINITIONS.  For purposes of this Agreement:

               (a) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended, or
successor statute, and applicable rules and regulations thereunder (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;

               (b) The term "Registrable Securities" means (i) the shares of
Common Stock issuable or issued pursuant to the conversion of the Company's
Convertible Notes and (ii) any other shares of the Company's Common Stock issued
as (or issuable upon the conversion or exercise of any Convertible Notes,
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares listed in (i); provided, however, that the foregoing definition shall
exclude in all cases

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any Registrable Securities sold by a person in a transaction in which such
person's rights under this Agreement are not assigned. Notwithstanding the
foregoing, neither the Company's Common Stock nor its other securities shall be
treated as Registrable Securities if they have been (A) sold to or through a
broker or dealer or underwriter in a public distribution or a public securities
transaction, or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;

               (c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;

               (d) The term "Holder" means any person owning, or having the
right to acquire, Registrable Securities or any assignee thereof in accordance
with Section 1.8 of this Agreement;

               (e) The term "SEC" means the Securities and Exchange Commission;
and

        1.2    REQUEST FOR REGISTRATION.

               (a) If the Company shall receive at any time after October 1,
2002, through December 31, 2004, inclusive, a written request from the Holders
of at least fifty percent (50%) of the Registrable Securities then outstanding
(the "Initiating Holders") that the Company file a registration statement under
the Securities Act covering the registration of at least such number of the
Registrable Securities then outstanding as would yield an aggregate offering
price of at least $500,000.00 before underwriting discounts and commissions,
then the Company shall, within thirty (30) days of the receipt thereof, give
written notice of such request to all Holders and shall, subject to the
limitations of subsection 1.2(b), use its reasonable best efforts to effect as
soon as practicable, the registration under the Securities Act of all
Registrable Securities which the Holders request to be registered by the Company
in accordance with Section 1.3.

               (b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter will be selected by a
majority in interest of the Initiating Holders and shall be reasonably
acceptable to the Company. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities

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through such underwriting shall (together with the Company as provided in
subsection 1.5(e)) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 1.2, if the underwriter advises the Company
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.

               (c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 180 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period, whether pursuant to this
Section 1.2(c) or pursuant to Section 1.4(b)(iii).

               (d) In addition and without limitation of Section 1.15 hereof,
the Company shall not be obligated to effect, or to take any action to effect,
any registration pursuant to this Section 1.2:

                   (i) After the Company has effected one (1) registration
pursuant to this Section 1.2 and such registration has been declared or ordered
effective;

                   (ii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.4 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;

                   (iii) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below;

                   (iv) If within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 1.2(a), the Company gives
notice to the Holders of the Company's intention to make a public offering
within ninety (90) days; or

                   (v) At any time after December 31, 2004.

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               (e) Notwithstanding the foregoing, a registration will not count
as the required registration under Section 1.2(d)(i) unless the Initiating
Holders were able to sell a minimum of fifty-percent (50%) of the shares sought
to be so registered in such registration.

        1.3    HOLDER PROCEDURES. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the notice from the Company described in
Section 1.2, above, so notify the Company in writing. Such notice shall state
the intended method of disposition of the Registrable Securities by such Holder.
If a Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder thereafter
shall have no further right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities.

        1.4    FORM S-3 REGISTRATION. In the event that the Company shall
receive, from any Holder or Holders of not less than fifty percent (50%) of the
Registrable Securities then outstanding, a written request or requests that the
Company effect a registration on Form S-3 with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company shall:

               (a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and

               (b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4:

                   (i) if Form S-3 is not available for such offering by the
Holders;

                   (ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public before deducting any underwriters' discounts or commissions)
of less than $500,000;

                   (iii) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than 180 days after receipt of the request of the Holder or Holders under this

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Section 1.4; provided, however, that the Company shall not utilize this right
more than once in any twelve (12) month period, whether pursuant to this Section
1.4(b)(iii) or pursuant to Section 1.2(c);

                   (iv) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 1.4, the Company gives
notice to the Holders of the Company's intention to make a public offering
within ninety (90) days;

                   (v) if the Company has, within the twelve (12) month period
preceding the date of such request, effected a registration on Form S-3 for the
Holders pursuant to this Section 1.4;

                   (vi) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance;
or

                   (vii) after the Company has effected one (1) registration
pursuant to Section 1.2 and such registration has been declared effective or
ordered effective.

               (c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. Registrations effected pursuant to this Section 1.4 shall not be
counted as demands for registration effected pursuant to Sections 1.2,
respectively.

        1.5    OBLIGATIONS OF THE COMPANY. When required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

               (a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective up to and including September 30,
2004 ("Expiration Date"). The Company shall be required to file, cause to become
effective or maintain the effectiveness of any registration statement that
contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, subject to such Expiration Date.

               (b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement through the Expiration Date, inclusive.

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               (c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

               (d) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders holding a majority of the Registrable Securities then outstanding,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.

               (e) Notify each Holder of Registrable Securities at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, such obligation to continue through the
Expiration Date, inclusive.

               (f) Cause all such Registrable Securities registered pursuant to
such registration statement to be listed on any securities exchange on which
similar securities issued by the Company are then listed.

               (g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.

        1.6    FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.

        1.7    EXPENSES OF REGISTRATION.

               (a) Demand Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2 , including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company (collectively "registration
expenses") shall be borne by the Holders and payable in advance upon demand by
the Company.

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               (b) Registration on Form S-3. All expenses other than
underwriting discounts and commissions incurred in connection with two (2)
registrations requested pursuant to Section 1.4, including (without limitation)
all registration, filing, qualification, printers' and accounting fees and the
fees and disbursements of counsel for the Company shall be borne by the Company.

               (c) Notwithstanding anything to the contrary herein, the Holders
shall bear full responsibility for all costs and expenses of any kind occurred
in connection with any underwriting, distribution, offer, sale or other
transfers of Registrable Securities, including, without limitation, underwriting
discounts and commissions.

        1.8    UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.2 or 1.4 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be first taken from the Holders of Registrable Securities and
apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders, but in no event shall any shares being sold by a
stockholder exercising registration rights pursuant to Section 1.2 be excluded
from such offering. For purposes of the preceding sentence concerning
apportionment, for any Holder which is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons, shall be deemed to be a single "selling
stockholder," and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.

        1.9    DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.

        1.10   INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:

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               (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder and, if applicable, any underwriter (as defined in
the Securities Act) for such Holder and each person, if any, who controls such
Holder, or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however , that the indemnity agreement contained in this
subsection 1.6(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable to any Holder, underwriter or controlling person
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.

               (b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, its officers and
each person who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.6(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder which consent shall not be unreasonably
withheld; further, that in no event shall the amounts payable in indemnity by a
Holder

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under this subsection 1.6(b) in respect of a Violation exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.

               (c) Promptly after receipt by an indemnified party under this
Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however , that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of liability to the indemnified
party under this Section 1.6 to the extent that the indemnifying party has been
prejudiced thereby, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.6.

               (d) If the indemnification provided for in this Section 1.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall the amounts payable in
contribution by a Holder under this subsection 1.6(d) in respect of a Violation
exceed the net proceeds received by such Holder in the registered offering out
of which Violation arises. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.

               (e) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.

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        1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to:

               (a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, so long as the Company remains
subject to the periodic reporting requirements under Sections 13 or 15(d) of the
Exchange Act;

               (b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and

               (c) furnish to any Holder, so long as accurate and so long as the
Holder owns any Registrable Securities, forthwith upon request a written
statement by the Company that it has complied with the reporting requirements of
SEC Rule 144, the Securities Act and the Exchange Act, and such information as
may be reasonably requested in availing any Holder of any rule or regulation of
the SEC which permits the selling of any such securities without registration or
pursuant to such form.

        1.12   ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations and together with the
Registrable Securities and related Convertible Notes as permitted pursuant to
and in accordance with the Convertible Notes), provided (i) the Company is,
within ten (10) days after such transfer, furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned; (ii) such transferee
agrees in writing to be subject to all restrictions set forth in this Agreement
and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act.

        1.13   TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any right provided for in this Section 1 (i) on or after December
31, 2004, or (ii) during such times as Rule 144 (or another similar exemption
under the Securities Act) is available for the sale of all of such Holder's
shares during a three (3) month period without registration.

2.      ARBITRATION. In the event of any controversy, dispute or claim arising
out of or related to this Agreement, the Subscription Agreement or the
Convertible Notes, or the interpretation, breach, termination or validity hereof
or thereof, the parties shall submit such controversy, dispute or claim to
binding arbitration hereunder. All arbitration proceedings pursuant to this
Section shall be before a retired judge of the United States District Court for
the Central District of California, Los Angeles Division, or the Los Angeles
County Superior Court or such other arbitrator as the parties shall mutually
agree upon. In the event that the parties are unable to agree upon the selection
of an arbitrator, any party may request the presiding judge of the United States
District Court for the Central District of California, Los

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Angeles Division, or the Los Angeles County Superior Court to appoint such
arbitrator. Arbitration of the dispute shall commence no later than thirty (30)
days after the selection or appointment of such arbitrator. The arbitrator shall
be bound by the express terms of this Agreement and shall endeavor to reach his
or her decision as quickly as possible, which decision shall be final and
binding on the parties to this Agreement. The arbitrator shall also have the
power to award costs and expenses (including, without limitation, reasonable
attorneys' fees) to the prevailing party. Application to enforce the
arbitrator's decision can be made in any court or other tribunal of competent
jurisdiction; any other application or dispute shall be submitted to the United
States District Court for the Central District of California, Los Angeles
Division, or the Los Angeles County Superior Court for determination. The rules
of discovery then pertaining to the United States District Court for the Central
District of California, Los Angeles Division, or a California Court of Law, as
the case may be, shall apply to any such arbitration, including, without
limitation, Sections 1283.01 and 1283.05 of the California Code of Civil
Procedure, the provisions of which are hereby incorporated herein and made a
part hereof by reference. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES
HEREBY IRREVOCABLY WAIVE ANY RIGHT THEY MAY HAVE TO JURY TRIAL OR TO ASSERT THE
DOCTRINE OF INCONVENIENT FORUM OR TO OBJECT TO VENUE TO THE EXTENT ANY ACTION
SUIT, ARBITRATION OR OTHER PROCEEDING IS BROUGHT IN THE COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA.

3.      MISCELLANEOUS.

        3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any Common Stock issued upon conversion or
exercise thereof). Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.

        3.2 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or
waived only with the written consent of the Company and the holders of at least
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.

        3.3 NOTICES. Unless otherwise provided, any notice required or permitted
by this Agreement shall be in writing and shall be deemed sufficient upon
delivery, when delivered personally or one (1) day after delivery by overnight
courier or sent by facsimile, or electronic mail provided that in each case, the
sender retains proof of receipt, or four (4) days after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, addressed to
the party to be notified at such party's address as set forth on the signature
pages hereto or as subsequently modified by written notice.

                                       11
<PAGE>

        3.4 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.

        3.5 GOVERNING LAW. This agreement and all acts and transactions pursuant
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
laws.

        3.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

        3.7 RECOVERY OF FEES AND COSTS. In the event that any legal, equitable,
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default, termination or
invalidity in connection with any provision of this Agreement, the successful or
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in such proceeding, in addition to any other relief to which such
party may be entitled.

        3.8 DRAFTING PRESUMPTION. It is acknowledged that the parties and their
respective agents have participated in an arms'-length negotiation in the
preparation of this Agreement. As a consequence, the parties agree that no
presumption shall be applied in any interpretation of this Agreement that the
terms hereof shall be more strictly construed against one party by reason of any
rule or construction that a document is to be construed more strictly against
the party who prepared the same, whether through such party's agents or
otherwise and the parties expressly waive the application of Section 1654 of the
California Civil Code.

        3.9 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein, constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.

        3.10 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

        The parties hereto have executed this Investor Rights Agreement as of
the date first written above.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       12
<PAGE>

<TABLE>
<S>                                                      <C>
COMPANY:                                                 INVESTORS:
ADVANCED BIOTHERAPY, INC.
a Delaware corporation                                   WITH RESPECT TO THE INVESTORS, THE
                                                         SIGNATURE PAGE TO THIS AGREEMENT
                                                         CONSISTS OF THE INVESTOR RIGHTS
                                                         AGREEMENT JOINDER, WHICH, IN SOME CASES,
By:                                                      WILL BE INCLUDED AS PART OF THE
         -----------------------------------             SUBSCRIPTION AGREEMENT SIGNATURE PAGE.
         Edmond F. Buccellato, President
         and Chief Executive Officer

Address:   Advanced Biotherapy Concepts, Inc.
           6355 Topanga Canyon Boulevard
           Suite 510
           Woodland Hills, CA 91367
Fax:       818-883-3353
</TABLE>

                                       13
<PAGE>

                                    EXHIBIT A
                          TO INVESTOR RIGHTS AGREEMENT

                        INVESTOR RIGHTS AGREEMENT JOINDER

        By signing and returning this Investor Rights Agreement Joinder, the
undersigned agrees to be a party to that certain Investor Rights Agreement, by
and between the Company and the Investors identified therein, a copy of which
has been presented to the undersigned along with the Investor Rights Agreement
Joinder. The undersigned shall have all rights, and shall observe all the
obligations, applicable to an "Investor" as set forth in the Investor Rights
Agreement. In order to give effect to this transaction, please add the
undersigned to the list of "Investors" as set forth in Schedule A to the
Investor Rights Agreement effective upon execution of this Investor Rights
Agreement Joinder and acceptance by the Company of the undersigned's
subscription.

Date:
     ----------------

INVESTOR:

-------------------------------
[Signature]

-------------------------------
[Print or Type Name]

Address:

-------------------------------

-------------------------------

-------------------------------

Social Security Number:

-------------------------------

                                       14
<PAGE>

                                   SCHEDULE A
                          TO INVESTOR RIGHTS AGREEMENT

                                    INVESTORS

Name/Address/Fax No.                       Principal Amount of Convertible Notes
--------------------                       -------------------------------------

                                       15Exhibit 10.14.5

 

EXHIBIT 10.14.5

REDWOOD TRUST, INC.

AMENDED AND RESTATED

1994 EXECUTIVE AND NON-EMPLOYEE DIRECTOR

STOCK OPTION PLAN

(Last Amended January 24, 2002)

Section 1. General Purpose of Plan; Definitions.

     The name of this plan is the Redwood Trust, Inc. Amended and Restated 1994
Executive and Non-Employee Director Stock Option Plan (the “Plan”). The Plan
was adopted by the Board on June 23, 1994, subject to the approval of the
Company stockholders, which approval was obtained on June 23, 1994. The Board
approved amendments to the Plan on March 8, 1996 which became effective upon
approval by the Company’s stockholders on June 14, 1996. The Board approved
additional non-material amendments on December 13, 1996, June 12, 1997 and June
4, 1998, all of which became effective on such respective dates. 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 directly to increases in stockholder value 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)  “Accrued DERs” means DERs with the accrual rights described in Section
5(11).

     (2)  “Administrator” means the Board, or if the Board does not administer
the Plan, the Committee in accordance with Section 2.

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

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

     (5) “Committee” means the Compensation Committee of the Board, which shall
be composed entirely of individuals who meet the qualifications to be a
“Non-Employee Director” as defined in Rule 16b-3 (“Rule 16b-3) as promulgated
by the Securities and Exchange Commission (the “Commission”) under the
Securities Exchange Act of 1934 (the “Act”), and as such Rule may be amended
from time to time, or any successor definition adopted by the Commission, or
any other Committee the Board may subsequently appoint to administer the Plan.
If at any time the Board shall not administer the Plan, then the functions of
the Board specified in the Plan shall be exercised by the Committee.

 

1

 

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

     (7)  “Current-pay DERs” means DERs with the current-pay rights described in
Section 5(11).

     (8)  “DERs” shall mean Accrued DERs and Current-pay DERs.

     (9)  “Deferred Stock” means an award granted pursuant to Section 7 of the
right to receive Stock at the end of a specified deferral period.

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

     (11)  “Effective Date” shall mean the date provided pursuant to Section 12.

     (12)  “Eligible Employee” means an employee of the Company or any
Subsidiary eligible to participate in the Plan pursuant to Section 4.

     (13)  “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 5A.

     (14)  “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, (A) 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, or (B) the average of the closing
price of the Stock on each day on which the Stock was traded over a period of
up to twenty trading days immediately prior to such date, or (C) if the Stock
is not publicly traded, the fair market value of the Stock as otherwise
determined by the Administrator in the good faith exercise of its discretion.

     (15)  “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.

     (16)  “Limited Stock Appreciation Right” means a Stock Appreciation Right
that can be exercised only in the event of a “Change of Control” (as defined in
Section 10 below).

     (17)  “Non-Employee Director” shall have the meaning set forth in Rule
16b-3.

     (18)  “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.

     (19) “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.

 

2

 

     (20)  “Participant” means any Eligible Employee or any 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 of Stock Options,
DERs, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted
Stock awards, Deferred Stock awards, Performance Shares or any combination of
the foregoing, or any Eligible Non-Employee Director eligible to receive grants
of Non-Qualified Stock Options and DERs pursuant to Section 5A below.

     (21)  “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.

     (22)  “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.

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

     (24)  “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.

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

     (26)  “Subsidiary” means (A) any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain or (B) except for purposes
of determining eligibility for receipt of Incentive Stock Options, any
corporation or other type of entity (a “company”) (other than the Company) in
an unbroken chain of companies beginning with the Company, if each of the
companies (other than the last company) in the unbroken chain owns stock or
other forms of equity investment (i) possessing 50% or more of the total
combined voting power of all classes of stock or other forms of equity in one
of the other companies in the chain or (ii) representing 50% or more of the
total value of all classes of stock or other forms of equity in one of the
other companies in the chain.

Section 2. Administration.

     The Plan shall be administered by the Board or by a Committee appointed by
the Board, which shall serve at the pleasure of the Board; provided, however,
that at all times when the Company is subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended, the Plan shall be administered
by the Committee appointed by the Board.

     The Administrator shall have the power and authority to grant to Eligible
Employees and consultants or agents of the Company or any Subsidiary, pursuant
to the terms of the Plan: (a) Stock Options (with or without DERs), (b) Stock
Appreciation Rights or Limited Stock Appreciation Rights, (c) Restricted Stock,
(d) Deferred Stock, (e) Performance Shares or (f) any combination of the
foregoing.

 

3

 

     In particular, the Administrator shall have the authority:

     (a)  to select those 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, Limited Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Performance Shares or a combination of the foregoing,
are to be granted to Eligible Employees or any consultant or agent of the
Company or any Subsidiary hereunder;

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

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

     (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, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares or any combination of the
foregoing.

     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 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) Stock Options, whether or not then exercisable, held by the
Participant to purchase additional such shares, (iii) Restricted Stock,
Deferred Stock and Performance Share awards to the Participant, whether or not
then vested, and (iv) Accrued DERs credited to the Participant) would
constitute more than 9.8% of the outstanding capital stock of the Company.

Section 3. Stock Subject to Plan.

     The total number of shares of Stock reserved and available for issuance
under the Plan shall be 500,000; provided, however, that from and after such
time as the number of outstanding shares of Stock as reflected on the Company’s
quarterly or year-end balance sheet exceeds 6,000,000 (including treasury
shares but not including adjustments in the event of changes in the corporate
structure of the Company as provided below in this Section 3), the total number
of shares of Stock reserved and available for issuance under the Plan shall
automatically be increased so as to equal

 

4

 

fifteen (15) percent of the number of then outstanding shares of Stock,
and provided further, that no more than 500,000 shares of Stock shall be
cumulatively available for Incentive Stock Options. At all times, the number
of shares reserved and available for issuance hereunder as so determined from
time to time shall be decreased by virtue of awards granted and outstanding or
exercised hereunder.

     To the extent that (i) a Stock Option or DER expires or is otherwise
terminated without being exercised, or (ii) any shares of Stock subject to any
Restricted Stock, Deferred Stock or Performance Share award granted hereunder
are forfeited, such shares shall again be available for issuance in connection
with future awards under the Plan. If any shares of Stock have been pledged as
collateral for indebtedness incurred by a Participant in connection with the
exercise of a Stock Option and such shares are returned to the Company in
satisfaction of such indebtedness, such shares shall again be available for
issuance in connection with future awards under the Plan.

     In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment may be made in (i) the
aggregate number of shares reserved for issuance under the Plan, and (ii) the
kind, number and option price of shares subject to outstanding Stock Options
and DERs granted under the Plan as may be determined by the Administrator, in
its sole discretion, provided that the number of shares subject to any award
shall always be a whole number. Such other substitutions or adjustments shall
be made as may be determined by the Administrator, in its sole discretion;
provided, however, that with respect to Incentive Stock Options, such
adjustment shall be made in accordance with Section 424 of the Code. An
adjusted option price shall also be used to determine the amount payable by the
Company upon the exercise of any Stock Appreciation Right or Limited Stock
Appreciation Right associated with any Stock Option.

     The aggregate number of shares of Stock for which Stock Options or Stock
Appreciation Rights may be granted to any individual during any calendar year
may not, subject to adjustment as provided in this Section 3, exceed 75% of the
shares of Stock reserved for the purposes of the Plan in accordance with the
provisions of this Section 3.

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 and consultants and agents of
the Company or its Subsidiaries, shall be eligible to be granted Stock Options,
DERs, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted
Stock awards, Deferred Stock awards 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 the Eligible Employees and
consultants and agents recommended by the senior management of the Company, and
the Administrator shall determine, in its sole discretion, the number of shares
covered by each award; provided, however, that Eligible Non-Employee Directors
shall only be eligible to receive Stock Options as provided in Section 5A.

Section 5. Stock Options.

     Stock Options may be granted alone or in addition to other awards granted
under the Plan, including DERs as described in Section 5(11). 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

 

5

 

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 of the option, the term of the
option and provisions regarding exercisability of the 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, Stock Appreciation Rights or Limited 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, in the case of Incentive Stock Options, be
less than 100% of the Fair Market Value of the Stock on such date, and shall
not, in any event, be less than the par value of the Stock. The option price
per share of Stock purchasable under a Non-Qualified Stock Option may be less
than 100% of such Fair Market Value. 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; provided, however, that, except as provided
herein or unless otherwise determined by the Administrator at or after grant,
Stock Options shall become exercisable as to 25% of the shares subject to such
Stock Option on the first anniversary of the date of grant of the Stock Option,
and as to an additional 25% on each of the next three anniversaries of the date
of grant. To the extent not exercised, installments

 

6

 

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. 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.

     (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. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made in the form of 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 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.

     The Administrator may require the voluntary surrender of all or a portion
of any Stock Option granted under the Plan as a condition precedent to a grant
of a new Stock Option. Subject to the provisions of the Plan, such new Stock
Option shall be exercisable at the price, during such period and on such other
terms and conditions as are specified by the Administrator at the time the new
Stock Option is granted; provided, however, that should the Administrator so
require, the number of shares subject to such new Stock Option shall not be
greater than the number of shares subject to the surrendered Stock Option.
Upon their surrender, Stock Options shall be canceled and the shares previously
subject to such canceled Stock Options shall again be available for grants of
Stock Options and other awards hereunder.

     (5) Loans. The Company may make loans available to Stock Option holders
in connection with the exercise of outstanding options granted under the Plan,
as the Administrator, in its discretion, may determine. Such loans shall (i)
be evidenced by promissory notes entered into by the Stock Option holders in
favor of the Company, (ii) be subject to the terms and conditions set forth in
this Section 5(5) and such other terms and conditions, not inconsistent with
the Plan, as the Administrator shall determine, and (iii) bear interest, if
any, at such rate as the Administrator shall determine. In no event may the
principal amount of any such loan exceed the sum of (x) the exercise price less
the par value of the shares of Stock covered by the option, or portion thereof,
exercised by the holder, and (y) any federal, state, and local income tax
attributable to such exercise.

 

7

 

     The initial term of the loan, the schedule of payments of principal and
interest under the loan, the extent to which the loan is to be with or without
recourse against the holder with respect to principal or interest and the
conditions upon which the loan will become payable in the event of the holder’s
termination of employment shall be determined by the Administrator; provided,
however, that the term of the loan, including extensions, shall not exceed
seven years. Unless the Administrator determines otherwise, when a loan is
made, shares of Stock having a Fair Market Value at least equal to the
principal amount of the loan shall be pledged by the holder to the Company as
security for payment of the unpaid balance of the loan, and such pledge shall
be evidenced by a pledge agreement, the terms of which shall be determined by
the Administrator, in its discretion; provided, however, that each loan shall
comply with all applicable laws, regulations and rules of the Board of
Governors of the Federal Reserve System and any other governmental agency
having jurisdiction.

     (6)  Limits on Transferability of Options.

          (a) Subject to Section 5(6)(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 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(6)(b), and (z) subsequent transfers of
transferred options shall be prohibited except those in accordance with Section
5(6)(a) or expressly approved by the Administrator. Following transfer, any
such 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(7), (8), (9), (10) and 11(3) hereof, the terms
“optionee,” “Stock Option holder” and “Participant” shall be deemed to refer to
the transferee. The events of termination of employment under Sections 5(7),
(8) and (9) hereof shall continue to be applied with respect to the original
optionee, following which the options shall be exercisable by the transferee
only to the extent, and for the periods specified under such sections unless
the option agreement governing such options otherwise provides.
Notwithstanding the transfer, the original optionee will continue to be subject
to the provisions of Section 11(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(6)(b) shall
mean a domestic partner living in the same household as the optionee and

 

8

 

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.
Stock options granted prior to December 1, 1996 may be amended to provide for
their transferability, subject to the foregoing conditions.

     (7)  Termination by Death. If an optionee’s employment with the Company or
any Subsidiary terminates by reason of death, the Stock Option may thereafter
be immediately exercised, to the extent then exercisable (or on such
accelerated basis as the Administrator shall determine at or after grant), by
the legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of twelve months (or such shorter period
as the Administrator shall specify at grant) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is shorter.

     (8)  Termination by Reason of Disability. If an optionee’s employment with
the Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such optionee may thereafter be exercised, to the extent it was
exercisable at the time of such termination (or on such accelerated basis as
the Administrator shall determine at the time of grant), for a period of twelve
months (or such shorter period as the Administrator shall specify at grant)
from the date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter; provided,
however, that, if the optionee dies within such twelve-month period (or such
shorter period as the Administrator shall specify at grant) and prior to the
expiration of the stated term of such Stock Option, any unexercised Stock
Option held by such optionee shall thereafter be exercisable to the extent to
which it was exercisable at the time of termination for a period of twelve
months (or such shorter period as the Administrator shall specify at grant)
from the time of death or until the expiration of the stated term of such Stock
Option, whichever period is shorter. In the event of a termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the applicable exercise periods under Section 422 of
the Code, such Stock Option shall thereafter be treated as a Non-Qualified
Stock Option.

     (9)  Other Termination. Except as otherwise determined by the
Administrator, if an optionee’s employment with the Company or any Subsidiary
terminates for any reason other than death or Disability, the Stock Option may
be exercised for a period of three months from the date of such termination, or
until the expiration of the stated term of such Stock Option, whichever period
is shorter.

     (10)  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.

     (11)  DERs. The Administrator shall have the discretion to grant DERs in
conjunction with grants of Stock Options pursuant to this Section 5. DERs may
be granted in either of two forms, “Current-pay DERs” and “Accrued DERs” and
the Administrator may condition the payment or accrual of amounts in respect
thereof subject to satisfaction of such performance objectives as the
Administrator may specify at the time of grant. Assuming satisfaction of any

 

9

 

applicable conditions, Current-pay DERs shall be paid concurrently with
any dividends or distributions paid on the Stock during the time the related
Stock Options are outstanding, or such portion of such time as the
Administrator may determine, in an amount equal to the value of the cash
dividend (or Stock or other property being distributed) per share being paid on
the Stock times the number of shares subject to the related Stock Options.
Current-pay DERs are payable in cash, Stock or other such property as may be
distributed to stockholders, as the Administrator shall determine at the time
of grant. Accrued DERs may be accrued in respect of cash dividends only or
cash dividends and the value of any Stock or other property distributed to
stockholders, as the Administrator shall determine at the time of grant.
Assuming satisfaction of any applicable conditions, Accrued DERs shall be
accrued with respect to the related Stock Options outstanding as of the date
dividends are declared on the Company’s Stock in accordance with the following
formula:

(A x B) / C

under which “A” equals the number of shares subject to such Stock Options, “B”
equals the cash dividend per share or the value per share of the Stock or other
property being distributed, as the case may be, and “C” equals the Fair Market
Value per share of Stock on the dividend payment date. The Accrued DERs shall
represent shares of Stock which shall be issuable to the holder of the related
Stock Option proportionately as the holder exercises the Stock Option to which
the Accrued DERs relate, rounded down to the nearest whole number of shares.
DERs shall expire upon the expiration of the Stock Options to which they
relate. The Administrator shall specify at the time of grant whether dividends
shall be payable or credited on the shares of Stock represented by Accrued
DERs. Notwithstanding anything to the contrary herein, Accrued DERs granted
with respect to Stock Options shall be accrued only to the extent of the number
of shares of stock then reserved and available for issuance under the Plan in
excess of the number of shares subject to issuance pursuant to outstanding
Stock Option, Accrued DER, Stock Appreciation Right, Limited Stock Appreciation
Right, Deferred Stock or Performance Share Awards.

Section 5A. Stock Options For Eligible Non-Employee Directors.

     This Section 5A shall apply only to automatic grants of Stock Options to
Eligible Non-Employee Directors.

     (1)  Each Eligible Non-Employee Director shall automatically be granted,
upon first becoming a director of the Company or any Subsidiary, a
Non-Qualified Stock Option to purchase 5,000 shares of Stock, provided that no
Eligible Non-Employee Director may receive more than one such grant for serving
as a director of the Company and one or more Subsidiaries. In addition, on the
day after the annual meeting of stockholders of the Company to be held in the
calendar year 1998, and on the day after each annual stockholders’ meeting of
the Company thereafter during the term of the Plan, each Eligible Non-Employee
Director of the Company shall be granted a Non-Qualified Stock Option to
purchase such number of shares of Stock that the aggregate of the option prices
thereof equals $20,000.00, rounded up to the nearest 100 shares. The option
price per share of Stock purchasable under such Stock Option shall be 100% of
the Fair Market Value on the date of grant. Such Stock Option shall become
exercisable as to 25% of the shares subject to such Stock Option on the first
anniversary of the date of grant of the Stock Option or such other date as the
Board may approve, and as to an additional 25% of the shares subject to such
Stock Option on each

 

10

 

of the next three anniversaries of the first vesting date. 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. Exercise shall be by payment in full of the purchase
price in cash and no stock option shall be exercisable more than ten years
after the date of grant. The aggregate number of shares of Stock that may be
granted to Eligible Non-Employee Directors pursuant to the Plan may not exceed
180,000 shares.

     (2)  Eligible Non-Employee Directors who receive grants of Stock Options
shall enter into a stock option agreement with the Company, which agreement
shall set forth, among other things, the exercise price of the option, the term
of the option and provisions regarding exercisability of the option granted
thereunder. The Stock Options granted under this section shall be
Non-Qualified Stock Options.

     (3)  Non-Qualified Stock Options granted to Eligible Non-Employee Directors
hereunder shall be transferable only to the extent provided in Sections 5(6)(a)
and (b).

     (4)  The Board may not amend, alter or discontinue the provisions of this
Section 5A more than once every six months other than to comport with changes
in the Code, ERISA or the rules thereunder.

Section 6. Stock Appreciation Rights and Limited Stock Appreciation Rights.

     (1)  Grant and Exercise. Stock Appreciation Rights and Limited 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.

 

11

 

     (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 (6) of Section 5.

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

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

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

          (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

 

12

 

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 (6) 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) Limited Stock Appreciation Rights may only be exercised within the
30-day period following a “Change of Control” (as defined in Section 10 below),
and, with respect to Limited Stock Appreciation Rights that are Related Rights
(“Related Limited Stock Appreciation Rights”), only 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
Limited 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.

          (l) Upon the exercise of a Limited Stock Appreciation Right, the recipient
shall be entitled to receive an amount in cash equal in value to the excess of
the “Change of Control Price” (as defined in Section 10) of one share of Stock
as of the date of exercise over (A) the option price per share specified in the
related Stock Option, or (B) in the case of a Limited Stock Appreciation Right
which is a Free Standing Stock Appreciation Right, the price per share
specified in the Free Standing Stock Appreciation Right, such excess to be
multiplied by the number of shares in respect of which the Limited Stock
Appreciation Right shall have been exercised.

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

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

     (1)  General. Restricted Stock, Deferred Stock or Performance Share awards
may be issued either alone or in addition to other awards granted under the
Plan. The Administrator shall determine the Eligible Employees 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 or Deferred Stock awards; the performance
objectives applicable to Performance Share 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 awards or Performance Shares upon the

 

13

 

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 Redwood Trust, Inc. Amended and
Restated 1994 Executive and Non-Employee Director Stock Option
Plan and a Restricted Stock Award Agreement or Performance Share
Award Agreement entered into between the registered owner and
Redwood Trust, Inc. Copies of such Plan and Agreement are on file
in the offices of Redwood Trust, Inc.”	 

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

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

          (a) Subject to the provisions of the Plan and the Restricted Stock,
Deferred Stock or Performance Share award agreement, during such period as may
be set by the Administrator commencing on the grant date (the “Restricted
Period”), the Participant shall not be permitted to sell, transfer, pledge or
assign shares of Restricted Stock, Performance Shares or Deferred Stock awarded
under the Plan; provided, however, that the Administrator may, in its sole
discretion, provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions in whole or in part based on such factors
and such circumstances as the Administrator may determine, in its sole
discretion, including, but not limited to, the attainment of certain
performance related goals, the Participant’s termination, death or Disability
or the occurrence of a “Change of Control” as defined in Section 10.

          (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

 

14

 

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 dividends declared during the
Restricted Period with respect to the number of shares covered by a Deferred
Stock award shall be paid 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.

          (c) Subject to the provisions of the Restricted Stock, Deferred Stock or
Performance Share award agreement and this Section 7, upon termination of
employment for any reason during the Restricted Period, all shares subject to
any restriction as of the date of such termination shall be forfeited by the
Participant, and the Participant shall only receive the amount, if any, paid by
the Participant for such Restricted Stock or Performance Shares, plus simple
interest on such amount at the rate of 8% per year.

Section 8. Amendment and Termination.

     Subject to the provisions of Section 5A(5), the Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of a Participant under any award theretofore
granted without such Participant’s consent, or that without the approval of the
stockholders (as described below) would:

     (1)  except as provided in Section 3, increase the total number of shares
of Stock reserved for the purpose of the Plan;

     (2)  change the employees or class of employees eligible to participate in
the Plan; or

     (3)  extend the maximum option period under paragraph (2) of Section 5 of
the Plan.

     Notwithstanding the foregoing, stockholder approval under this Section 8
shall only be required at such time and under such circumstances as stockholder
approval would be required under Rule 16b-3 of the Act with respect to any
material amendment to any employee benefit plan of the Company.

     The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 3, no such amendment
shall impair the rights of any holder without his or her consent.

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.

 

15

 

Section 10. Change of Control.

     The following acceleration and valuation provisions shall apply in the
event of a “Change of Control” as defined in paragraph (2) of this Section 10:

     (1)  In the event of a “Change of Control,” unless otherwise determined by
the Administrator or the Board in writing at or after grant (including under
any individual agreement), but prior to the occurrence of such Change of
Control:

          (a) any Stock Appreciation Rights outstanding for at least six months and
any Stock Options, including Stock Options granted under Section 5A, awarded
under the Plan not previously exercisable and vested shall become fully
exercisable and vested;

          (b) the restrictions applicable to any Restricted Stock, Deferred Stock or
Performance Share awards under the Plan shall lapse, and such shares and awards
shall be deemed fully vested;

          (c) any indebtedness incurred pursuant to Section 5(5) shall be forgiven
and the collateral pledged in connection with any such loan shall be released;
and

          (d) the value of all outstanding Stock Options (except Stock Options
granted under Section 5A), DERs (except DERs granted in conjunction with Stock
Options granted under Section 5A), Stock Appreciation Rights, Limited Stock
Appreciation Rights, and Restricted Stock, Deferred Stock and Performance Share
awards shall, to the extent determined by the Administrator at or after grant,
be cashed out by a payment in cash or other property, as the Administrator may
determine, on the basis of the “Change of Control Price” (as defined in
paragraph (3) of this Section 10) as of the date the Change of Control occurs
or such other date as the Administrator may determine prior to the Change of
Control.

     (2)  For purposes of paragraph (1) of this Section 10, a “Change of
Control” shall be deemed to have occurred if:

          (a) any “person,” as such term is used in Sections 13(d) and 14(d) of the
Act (other than the Company; any trustee or other fiduciary holding securities
under an employee benefit plan of the Company; or any company owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Stock of the Company) is or becomes after the
Effective Date the “beneficial owner” (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities acquired directly
from the Company or its affiliates) representing 25% or more of the combined
voting power of the Company’s then outstanding securities; or

          (b) during any period of two consecutive years (not including any period
prior to the Effective Date), individuals who at the beginning of such period
constitute the Board, and any new director (other than a director designated by
a person who has entered into an agreement with the Company to effect a
transaction described in clause (a), (c) or (d) of this Section 10(2)) whose
election by the Board or nomination for election by the Company’s stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the

 

16

 

beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof; or

          (c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company’s then
outstanding securities; or

          (d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s assets.

     (3)  For purposes of this Section 10, “Change of Control Price” means the
higher of (i) the highest price per share paid or offered in any transaction
related to a Change of Control of the Company or (ii) the highest price per
share paid in any transaction reported on the exchange or national market
system on which the Stock is listed, at any time during the preceding sixty day
period as determined by the Administrator, except that, in the case of
Incentive Stock Options and Stock Appreciation Rights or Limited Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on transactions reported for the date on which the Administrator
decides to cash out such options.

Section 11. General Provisions.

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

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

     (2)  Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan
shall not confer upon any employee of the Company or any

 

17

 

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.

Section 12. Effective Date of Plan.

     The Plan became effective (the “Effective Date”) on June 23, 1994, the
date the Company’s stockholders formally approved the Plan.

Section 13. Term of Plan.

     No Stock Option, Stock Appreciation Right, Limited Stock Appreciation
Right, Restricted Stock, Deferred Stock or Performance Share award shall be
granted pursuant to the Plan on or after the tenth anniversary of the Effective
Date, but awards theretofore granted may extend beyond that date.

 

18

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