Document:

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                                                                     Exhibit 4.2

                          ACCREDITED HOME LENDERS, INC.

                           SECOND AMENDED AND RESTATED

                           INVESTORS' RIGHTS AGREEMENT

                                 March 17, 1999

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                               TABLE OF CONTENTS
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                                                                            Page
                                                                            ----

<S>       <C>                                                               <C>
1.        Registration Rights ..............................................   2
          1.1    Definitions ...............................................   2
          1.2    Request for Registration ..................................   3
          1.3    Company Registration ......................................   7
          1.4    Obligations of the Company ................................   7
          1.5    Furnish Information .......................................  10
          1.6    Expenses of Demand Registration ...........................  11
          1.7    Expenses of Company Registration ..........................  11
          1.8    Underwriting Requirements - Company Registration ..........  11
          1.9    Delay of Registration .....................................  12
          1.10   Indemnification ...........................................  12
          1.11   Reports Under Securities Exchange Act of 1934 .............  14
          1.12   Form S-3 Registration .....................................  15
          1.13   Assignment of Registration Rights .........................  16
          1.14   Limitations on Subsequent Registration Rights .............  17
          1.15   "Market Stand-Off" Agreement ..............................  17
          1.16   Termination of Registration Rights ........................  18

2.        Covenants of the Company .........................................  18
          2.1    Delivery of Financial Statements ..........................  18
          2.2    Inspection ................................................  19
          2.3    Observation Rights ........................................  19
          2.4    Right of First Offer ......................................  19
          2.5    Termination of Company Covenants ..........................  21

3.        Covenants of Investors ...........................................  21

4.        Miscellaneous ....................................................  21
          4.1    Successors and Assigns ....................................  21
          4.2    Governing Law .............................................  22
          4.3    Counterparts ..............................................  22
          4.4    Titles and Subtitles ......................................  22
          4.5    Notices ...................................................  22
          4.6    Expenses ..................................................  22
          4.7    Amendments and Waivers ....................................  22
          4.8    Severability ..............................................  23
          4.9    Aggregation of Stock ......................................  23
          4.10   Entire Agreement ..........................................  23
</TABLE>

Schedule A       Schedule of Investors

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                          SECOND AMENDED AND RESTATED
                           INVESTORS' RIGHTS AGREEMENT

     THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is entered into as of March 17 1999, by and among Accredited Home
Lenders, Inc., a California corporation (the "Company"), the investors listed on
Schedule A attached hereto, each of which is herein referred to as an
"Investor", Ray W. McKewon and James A. Konrath (Messrs. Konrath and McKewon
are collectively referred to herein as the "Founders").

                                    RECITALS

     WHEREAS, the Company, all of the Investors other than Residential Funding
Corporation ("RFC"), and the Founders have previously entered into that certain
First Amended and Restated Investors' Rights Agreement dated as of November 30,
1995, (the "Original Agreement") as amended by that certain Amendment No. 1 to
First Amended and Restated Investors' Rights Agreement dated as of November 18,
1996, among the Company, the Founders and the Investors listed on Schedule A
attached thereto, that certain Amendment No. 2 to First Amended and Restated
Investors' Rights Agreement dated as of October 1, 1997, among the Company, the
Founders and the Investors listed on Schedule A attached thereto ("Amendment No.
2"), and that certain Amendment No. 3 to First Amended and Restated Investors'
Rights Agreement dated as of March 1, 1998, among the Company, the Founders and
the Investors listed on Schedule A attached thereto;

     WHEREAS, Cargill Financial Services Corporation, ("Cargill), pursuant to
that certain Facility Agreement dated as of November 30, 1995, among Cargill,
the Company, Accredited Home Capital, Inc. ("AHC"), and Bankers Trust Company of
California, N.A. ("BT"), as amended by that certain Amended and Restated
Facility Agreement dated as of October 1, 1997, among Cargill, the Company, AHC
and BT and that certain Amendment No. 1 to Amended and Restated Facility
Agreement dated as of January 30, 1998, among Cargill, the Company, AHC and BT
(collectively, the "Cargill Agreement"), (1) was issued that certain Cargill
Warrant Agreement dated November 30, 1995 by the Company, as amended by that
certain Amended and Restated Cargill Warrant Agreement dated January 30, 1998
between the Company and Cargill (collectively, the "Cargill Warrant"), pursuant
to which Cargill is entitled to acquire shares of the Company's common stock
(the "Common Stock"), and (2) was included as a party to the Original Agreement
as an Investor thereunder;

     WHEREAS, Lehman Commercial Paper Inc. ("Lehman"), pursuant to that certain
Master Repurchase Agreement Governing the Purchase and Sale of Mortgage Loans
dated as of October 1, 1997 between Lehman and the Company (the "Lehman
Agreement"), (1) was issued that certain Common Stock Purchase Warrant dated
October 1, 1997 by the Company (the "Lehman Warrant"), pursuant to which Lehman
is entitled to acquire shares of Common Stock, and (2) was included as a party
to the Original Agreement as an Investor thereunder pursuant to Amendment No. 2;

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     WHEREAS, RFC, pursuant to that certain Loan and Security Agreement
(Convertible Debt) of even date herewith between RFC and the Company (the "RFC
Agreement"), (1) has been issued, concurrently with the execution hereof, that
certain Floating-Rate Convertible Debenture of even date herewith executed by
the Company (the "Convertible Debenture"), pursuant to which RFC is entitled to
acquire shares of Common Stock, and (2) is entitled to be included as a party to
the Original Agreement, as amended to date, as an Investor thereunder;

     WHEREAS, this Agreement is intended to include RFC as an Investor and to
amend, restate and supersede the Original Agreement, as amended to date;

     WHEREAS, the Company may from time to time after the date of this Agreement
enter into agreements with certain other parties to acquire capital stock or
convertible securities of the Company each of which may be made a party to this
Agreement and each of which shall be deemed an Investor by obtaining any
necessary consents of the Holders pursuant to Section 1.14 hereof and by
amending Schedule A hereto to include such subsequent Investor(s); and

     WHEREAS, the Investors and the Company hereby agree that this Agreement
shall govern the rights of the Investors to cause the Company to register shares
of Common Stock issuable to the Investors and certain other matters as set forth
herein;

     NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

     1. Registration Rights. The Company covenants and agrees as follows:

          1.1 Definitions. For purposes of this Section 1:

          (a) The term "Act" means the Securities Act of 1933, as amended.

          (b) The term "Affiliate" of a Person means a Person controlling,
     controlled by or under common control with such Person.

          (c) The term "Form S-3" means such form under the Act as in effect on
     the date hereof or any registration form under the Act subsequently adopted
     by the SEC which permits inclusion or incorporation of substantial
     information by reference to other documents filed by the Company with the
     SEC.

          (d) The term "Holder" means any person owning or having the right to
     acquire Registrable Securities or any assignee thereof in accordance with
     Section 1.13 hereof.

          (e) The term "Initiating Holders" means Holders, excluding Founders
     and RFC, who hold at least 50% of the Registrable Securities then
     outstanding (excluding Registrable Securities held by Founders and RFC).

          (f) The term "1934 Act" shall mean the Securities Exchange Act of
     1934, as amended.

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         (g) The term "Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, government entities and authorities and
other organizations, whether or not legal entities.

         (h) The term "register", "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.

         (i) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Company's Series A Preferred Stock
(the "Series A Preferred Stock"), (ii) the Common Stock issuable or issued upon
the exercise or conversion of the Cargill Warrant, the Lehman Warrant or the
Convertible Debenture, (iii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any 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 referenced in (i) and (ii) above,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which such person's rights under this Section 1 are not
assigned, and (iv) all Common Stock held by the Founders and the Investors.

         (j) 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.

         (k) The term "SEC" shall mean the Securities and Exchange Commission.

     1.2 Request for Registration.

         (a) By RFC.

             (i)  If the Company shall receive at any time after the earlier of
(x) January 1, 2000, or (y) six months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from RFC that the Company
file a registration statement under the Act covering the registration of the
Registrable Shares held by RFC, then the Company shall: effect as soon as
practicable, and in any event within 60 days after the receipt of such request,
the registration under the Act of all Registrable Securities held by RFC which
RFC requests to be registered, subject to the limitations of subsection
1.2(a)(ii).

             (ii) If RFC intends to distribute the Registrable Securities
covered by its request by means of an underwriting, it shall so advise the
Company as part of

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its request made pursuant to subsection 1.2(a)(i). For so long as the Lehman
Agreement obligates the Company to offer Lehman Brothers Inc. the right to be
the underwriter of the Company's registrations, such right shall be offered to
Lehman Brothers Inc. Subject to the foregoing, the underwriter will be selected
by RFC and shall be reasonably acceptable to the Company, and must be at least a
regional firm with a history of leading or co-leading securities issuances with
major or bulge bracket firms. RFC shall (together with the Company as provided
in subsection 1.4(e)) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this subsection 1.2(a), if, in connection
with the Company's initial public offering, the underwriter advises RFC in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the number of shares of Registrable Securities that may be
included in the underwriting shall be so limited.

                         (iii)   Notwithstanding the foregoing, if the Company
shall furnish to RFC a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, such registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company (A) to engage in any
acquisition of assets (other than in the ordinary course of business) or any
stock purchase, merger, consolidation, tender offer, reorganization or similar
transaction, or (B) to execute transactions of private or publicly traded
asset-backed issuances or commercial paper offerings, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than 90 days after receipt of the request of RFC; provided, however, that
the Company may not utilize this right more than once in any twelve-month
period.

                         (iv)    In addition, the Company shall not be obligated
to effect, or to take any action to effect, any registration pursuant to this
subsection 1.2(a):

                                 (A) If the total value of the Registrable
Securities to be offered to the public is less than $5,000,000, (unless the
total value of RFC's remaining Registrable Securities is less than $ 5,000,000
in which case this provision 1.2(a)(iv)(A) shall not apply to RFC);

                                 (B) During the period starting with the date 30
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date 180 days after the effective date of, a registration subject to
Section 1.3 hereof; provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or

                                 (C) If RFC proposes to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.

                         (v)     No other Person shall have any right to
participate in a registration requested by RFC pursuant to this subsection
1.2(a).

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                    (vi) If the Company shall receive at any time after the
occurrence of an Event of Default (as such term is defined in the RFC
Agreement), a written request from RFC that the Company file a registration
statement under the Act covering the registration of the Registrable Securities
held by RFC, then the Company shall effect as soon as practicable, and in any
event within sixty (60) days after the receipt of such request, the registration
under the Act of all Registrable Securities held by RFC which RFC requests to be
registered. Notwithstanding anything to the contrary set forth in this
Agreement, none of the other Holders, the Founders or the Company shall have any
right to have their Registrable Securities covered by such Registration
Statement and subsections 1.2(a)(iv)(A) and (B) shall not apply to a RFC written
request under this subsection 1.2(a)(vi), but subsections 1.2 (a)(iv)(C) shall
apply. If RFC intends to distribute the Registrable Securities covered by its
request by means of an underwriting, it shall so advise the Company as a part
of its request made pursuant to subsection 1.2(a)(vi). The underwriter will be
selected by the Company, shall be reasonably acceptable to RFC, and must be at
least a regional firm with a history of leading or co-leading securities
issuances with major or bulge bracket firms. RFC shall (together with the
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting.

               (b)  By Initiating Shareholders.

                    (i)  If the Company shall receive at any time after the
earlier of (x) January 1, 2000, or (y) six months after the effective date of
the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
the Initiating Holders that the Company file a registration statement under the
Act covering the registration of the Registrable Shares held by such Initiating
Holders, then the Company shall:

                         (A) within ten days after the receipt thereof, give
written notice of such request to all Holders; and

                         (B) effect as soon as practicable, and in any event
within 60 days after the receipt of such request, the registration under the
Act of all Registrable Securities held by such Holders which the Holders request
to be registered, subject to the limitations of subsection 1.2(b)(ii), within
20 days after the mailing of such notice by the Company in accordance with
Section 4.5.

                    (ii) If the Initiating Holders intends 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
subsection 1.2(b)(ii) and the Company shall include such information in the
written notice referred to in subsection 1.2(b)(ii). The underwriter will be
selected by the Company and shall be reasonably acceptable to a majority in
interest of the Initiating Holders. In such event, the right of any Holder to
include such Holder's 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

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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 through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
subsection 1.2(b), if the underwriter advises the Initiating Holders in writing
that marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders 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; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting and provided further that Registrable Securities
to be registered on behalf of the Founders shall be excluded in their entirety
from such underwriting prior to the securities of any other Holder being
excluded.

                    (iii) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
subsection 1.2(b), a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, such registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company (A) to engage in any
acquisition of assets (other than in the ordinary course of business) or any
stock purchase, merger, consolidation, tender offer, reorganization or similar
transaction, or (B) to execute transactions of private or publicly traded
asset-backed issuances or commercial paper offerings, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than 90 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.

                    (iv)  In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
subsection 1.2(b):

                          (A) After the Company has effected two registrations
pursuant to this subsection 1.2(b) and such registrations have been declared or
ordered effective;

                          (B) If the total value of the Registrable Securities
to be offered to the public is less than $5,000,000;

                          (C) During the period starting with the date 30 days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date 180 days after the effective date of, a registration subject to
Section 1.3 hereof; provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or

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                (D) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registrered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.

         (c) By Cargill. If the Company shall receive at any time after the
occurrence of an Exercisable Termination Event (as such term is defined in the
Cargill Agreement), a written request from Cargill that the Company file a
registration statement under the Act covering the registration of the
Registrable Securities held by Cargill, then the Company shall effect as soon as
practicable, and in any event within sixty (60) days after the receipt of such
request, the registration under the Act of all Registrable Securities held by
Cargill which Cargill requests to be registered. Notwithstanding anything to the
contrary set forth in this Agreement, none of the other Holders, the Founders or
the Company shall have any right to have their Registration Securities covered
by such Registration Statement and subsections 1.2(b)(iv)(A) and (B) shall not
apply to a Cargill written request under this subsection 1.2(c), but
subsections 1.2(b)(iv)(C) and (D) shall apply. If Cargill intends to
distribute the Registrable Securities covered by its request by means of an
underwriting, it shall so advise the Company as a part of its request made
pursuant to this subsection 1.2(c). The underwriter will be selected by the
Company, shall be reasonably acceptable to Cargill, and must be at least a
regional firm with a history of leading or co-leading securities issuances with
major or bulge bracket firms. Cargill shall (together with the Company as
provided in subsection 1.4(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting.

         (d) If a request for registration has been received by the Company
pursuant to subsection 1.2(a), (b) or (c), including any registration so
requested that has been deferred pursuant to the provisions of Section 1.2(a)
(iii) or 1.2(b)(iii)(a "Pending Registration"), no other registration requested
pursuant to subsection (1.2(a), (b) or (c) shall be permitted to be declared
effective until 180 days following the effective date of the Pending
Registration.

     1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register any of its stock or other securities under the Act
in connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan, a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder, and the Founders,
written notice of such registration. Upon the written request of each Holder
given within 20 days after mailing of such notice by the Company in accordance
with Section 4.5, the Company shall, subject to the provisions of Section 1.8,
cause to be registered under the Act all of the Registrable Securities that each
such Holder has requested to be registered.

     1.4 Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

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               (a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its 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 for a period of up to 120 days or until the
distribution contemplated in the registration statement has been completed;
provided, however, that (i) such 120-day period shall be extended for a period
of time equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company; and (ii) in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation
to file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (I) includes any prospectus required by Section 10(a)(3) of the
Act or (II) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.

               (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 keep such registration statement
effective and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during the
period(s) set forth in subsection 1.4(a) above.

               (c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 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 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;
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, unless the Company is
already subject to service in such jurisdictions, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Act.

               (e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

               (f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered

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under the 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 and, at the request of any such Holder,
the Company shall prepare and furnish to such Holder a reasonable number of
copies of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading.

               (g)  Cause all such Registrable Securities registered pursuant
hereunder to be listed on a securities exchange or the National Association of
Securities Dealers ("NASD") automated quotation system and, if listed on the
NASD automated quotation system, use its best efforts to secure designation of
all such Registrable Securities covered by such registration statement as a
"national market system security" of The Nasdaq Stock Market within the meaning
of Rule 11 Aa2-1 of the Securities and Exchange Commission or, failing that, to
secure The Nasdaq Stock Market's authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the NASD, or, if similar securities issued by the Company are
then listed, on the same securities exchange as the similar securities.

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

               (i)  Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.

               (j)  Make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees, agents, representatives and independent
accountants to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.

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               (k)  Otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months beginning with the
first day of the Company's first full calendar quarter after the effective date
of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.

               (l)  Permit any Holder of Registrable Securities which Holder, in
its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such Holder and its counsel should be included.

               (m)  In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, the Company shall use it best efforts promptly to obtain the
withdrawal of such order.

               (n)  Use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities.

Before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
Holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
shall be subject to the review and comment of such counsel. In addition, if any
such registration or comparable statement refers to any such Holder by name or
otherwise as the holder of any securities of the Company, such Holder shall have
the right to require (i) the insertion therein of language, in form and
substance satisfactory to such Holder and presented to the Company in writing,
to the effect that the holding by such Holder of such securities is not to be
construed as a recommendation by such Holder of the investment quality of the
Company's securities covered thereby, and that such holding does not imply that
such Holder shall assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal or state
statute then in force, the deletion of the reference to such Holder; provided
that, with respect to this clause (ii), such Holder shall furnish to the Company
an opinion of counsel to such effect, which opinion and counsel shall be
reasonably satisfactory to the Company.

          1.5  Furnish Information.

               (a)  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

                                       10

<PAGE>

the Company may reasonably request in writing and as shall be required to effect
the registration of such Holder's Registrable Securities.

         (b) The Company shall have no obligation with respect to any
registration requested pursuant to subsection 1.2(b) or Section 1.12 if, due to
the operation of subsection 1.2(b)(ii), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(b) or subsection
1.12(b)(2), whichever is applicable.

     1.6 Expenses of Demand Registration. The Company shall bear all expenses
other that underwriting discounts and commissions incurred in connection with
any demand registration under Section 1.2(a) or (c) and one other demand
registration, pursuant to subsection 1.2(b), including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders. However, the Company shall
not be required to pay for any expenses of any registration proceeding begun
pursuant to subsection 1.2 if the registration request is subsequently withdrawn
at the request of, respectively, (i) RFC, (ii) the Holders of a majority of the
Registrable Securities to be registered (in which case such Holders shall bear
such expenses pro rata, based on the ratio that the number of each Holder's
Registrable Securities to have been included in such registration bears to the
total number of Registrable Securities to have been included in such
registration by all such Holders), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to subsection 1.2(b), or (iii) Cargill; provided further, however, that
if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from that
known to the holders at the time of their request and have withdrawn the request
with reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.

     1.7 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 for each Holder (which right may be assigned as provided in Section 1.13),
including (without limitation) all registration, filing, and qualification fees,
printers and accounting fees relating or apportionable thereto and the fees and
disbursements of one counsel for the selling Holders selected by them, but
excluding underwriting discounts and commissions relating to Registrable
Securities.

     1.8 Underwriting Requirements - Company Registration. In connection with
any offering involving an underwriting of shares of the Company's capital stock
pursuant to Section 1.3, the Company shall not be required under Section 1.3 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). If the total amount of securities, including Registrable
Securities, requested by shareholders to be included in such offering exceeds
the amount of securities that the

                                       13

<PAGE>

underwriters determine, in their opinion, provided to the Company in writing
(with a copy to each Holder requesting registration of Registrable Securities),
that can be sold in an orderly manner in such offering within a price range
acceptable to the Company, 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 opinion, provided to the Company in
writing (with a copy to each Holder requesting registration of Registrable
Securities), that can be sold in an orderly manner such offering within a price
range acceptable to the Company (the securities so included to be apportioned
first, up to the full amount of Registrable Securities of RFC requested to be
included in such registration, and then pro rata among the other selling
shareholders according to the total amount of securities entitled to be included
therein owned by each such other selling shareholder or in such other
proportions as shall mutually be agreed to by such other selling shareholders)
provided, however, that the number of shares of Registrable Securities to be
included in such underwriting shall not be reduced unless all other securities
are first entirely excluded from the underwriting; and provided further that (a)
Registrable Securities held by Holders other than RFC and by Founders shall be
excluded from such underwriting prior to any Registrable Securities of RFC being
excluded, and (b) Registrable Securities held by Founders shall be excluded from
such underwriting prior to any Registrable Securities of any other Holder being
excluded. In no event shall the amount of securities of the selling Holders
included in the offering exceed 33% of the total amount of securities included
in such offering. In addition, if such offering is the initial public offering
of the Company's securities the Registrable Securities offered for registration
by the Holders may all be excluded if the underwriters make the determination
described above and no other shareholder's securities are included. For purposes
of the preceding parenthetical concerning apportionment, for any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders 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 shareholders", and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder", 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 registration statement
filed with and declared effective by the SEC as the result of any controversy
that might arise with respect to the interpretation or implementation of the
provisions of this Section 1.

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

          (a)  To the full extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 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

                                       12

<PAGE>

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 Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, or the 1934 Act or any state securities law; and the Company will pay to
each such Holder, underwriter or controlling person, 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 1.10(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 in any such
case 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, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the 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 Act, or the 1934 Act or other federal 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, any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.10(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
1.10(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; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.

                (c) Promptly after receipt by an indemnified party under this
Section 1.10 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 1.10, 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 fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by

                                       13

<PAGE>

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, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, 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
1.10.

          (d)  If the indemnification provided for in this Section 1.10 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. 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)  Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.

          (f)  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.

     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 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 or pursuant to
a registration on Form S-3, the Company agrees to:

          (a)  make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;

          (b)  take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as

                                       14

<PAGE>

practicable after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to the general
public is declared effective;

               (c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and

               (d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after 90 days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other 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 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders (excluding Founders) a written request or requests that the
Company effect a registration on Form S-3, including a request that the Company
effect a registration pursuant to Rule 415 under the Securities Act, provided
that any such registration shall terminate after six months or the sale of all
Registrable Securities registered thereunder, whichever first occurs, and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:

               (a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders (including
Founders); 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 distridution 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 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 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) 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 (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) 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, such registration would reasonably be expected to have a
material adverse effect on any proposal or plan by the Company (A) to engage in
any acquisition of assets (other than in the ordinary course of business) or any
stock purchase, merger, consolidation, tender offer, reorganization or similar
transaction, or (B) to execute transactions of private or publicly traded
asset-backed issuances or commercial paper offerings, in which event the Company
shall have

                                       15

<PAGE>

the right to defer the filing of the Form S-3 registration for a period of not
more ten 90 days after receipt of the request of the Holder of Holders under the
Section 1.12 provided however, that the company shall not utilize this right
more than once in any twelve-month period; (4) if the Company has, within the
six-month period preceding the date of such request, already effected a
registration of Form S-3 for the Holders pursuant to this Section 1.12; (5) in
any particular jurisdiction on 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 (6) the Company has filed a
registration statement within the past 180 days.

            (c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with registrations requested
by RFC pursuant to this Section 1.12 or in connection with two registrations
requested by Holders other than RFC pursuant to this Section 1.12, including
(without limitation) all registration, filing, qualification, printer's and
accounting fees and the reasonable fees and disbursements of one designated
counsel for the selling Holder or Holders and counsel for the Company, but
excluding any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne by the Company. All expenses incurred in connection
with any additional registrations requested by Holders other than RFC pursuant
to this Section 1.12 following the first two (2) such registrations, including
(without limitation) all registration, filing, qualification, printer's and
accounting fees and the reasonable fees and disbursements of one designated
counsel for the selling Holder or Holders and counsel for the Company, but
excluding any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne pro rata by the Holder or Holders participating in
the Form S-3 Registration; provided, however, that in the event that RFC shall
participate in such Form S-3 Registration, any expenses that RFC would otherwise
be required to bear pursuant to this subsection 1.12(c) shall be borne by the
Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.

     1.13   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) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least
250,000 shares of Registrable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations),
provided: (a) the Company is, within a reasonable time 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; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section 1.15 below; and (c) 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 Act.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be

                                       16

<PAGE>

aggregated together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1.

          1.14 Limitations on Subsequent Registration Rights. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the outstanding Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
which would allow such holder or prospective holder (a) to include such
securities in any registration filed under subsection 1.2(a) or (b) or Section
1.3 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of such holder's securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of any of the dates set forth in subsection
1.2(a)(i) or (b)(i) or within 120 days of the effective date of any registration
effected pursuant to Section 1.3. Each of the Investors, as applicable, has
previously consented to the inclusion as Investors under the Original Agreement,
amended as applicable, of each Investor who or which was not an Investor under
the Original Agreement, and does hereby consent to the inclusion of RFC as an
Investor under this Agreement.

          1.15 "Holdback" Agreements.

               (a)  Each Investor, Founder and Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the date of the first
sale to the public pursuant to a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that:

                    (i)   with respect to the first such registration statement
of the Company which covers Common Stock (or other securities) to be sold on its
behalf to the public in an underwritten offering such market stand-off time
period shall not exceed 180 days;

                    (ii)  with respect to any subsequent registration statement
such market stand-off time period shall not exceed 90 days; and

                    (iii) all officers and directors of the Company and all
other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements.

In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Investor (and
the shares or securities of every

                                       17

<PAGE>

other person subject to the foregoing restriction) until the end of such period.
If requested to do so by the Company, each Investor shall execute an
underwriter's letter in the customary form prior to the registration of the
Company's initial public offering. Notwithstanding the foregoing, the
obligations described in this subsection 1.15(a) shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-15 or similar
forms which may be promulgated in the future.

               (b) The Company (i) shall not effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
registration under Sections 1.2 or 1.12 hereof (except as part of such
underwritten offering or pursuant to registrations on Form S-8 or any successor
form), unless the underwriters managing the registered offering otherwise agree.

          1.16 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after five years following
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public. The
foregoing notwithstanding, no Holder shall be entitled to exercise any right
provided for in this Section 1 following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public if the Registrable Securities held by such
Holder may be sold without restriction pursuant to Rule 144(k) provided,
however, that such Holder's Form S-3 registration rights under Section 1.12
shall be unaffected by this Section 1.16.

    2.    Covenants of the Company.

          2.1  Delivery of Financial Statements. So long as an Investor holds
at least 250,000 shares (with such minimum number subject to appropriate
adjustment for stock splits, stock dividends, combinations or other
recapitalizations) of Registrable Securities or securities convertible into
Registrable Securities (a "Major Investor"), and subject to each Major Investor
executing a confidentiality agreement, the Company shall deliver to each Major
Investor:

               (a) as soon as practicable, but in any event within 90 days after
the end of each fiscal year of the Company, financial statements for such fiscal
year including, but not limited to, a balance sheet of the Company and statement
of shareholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company;

               (b) within 30 days of the end of each monthly accounting period,
unaudited monthly reports including, but not limited to, a balance sheet, profit
and loss

                                       18

<PAGE>

statement, cash flow analysis, and comparison to year earlier results and to
projected results on a monthly and year-to-date basis;

               (c) as soon as practicable, but in any event 30 days prior to the
end of each fiscal year, a budget and business plan for the next fiscal year,
prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company;

               (d) with respect to the financial statements called for in
subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;

               (e) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Major Investor
may from time to time request; provided, however, that the Company shall not be
obligated under this subsection (e) or any other subsection of Section 2.1 to
provide information which it deems in good faith to be a trade secret or similar
confidential information.

          2.2  Inspection. The Company shall permit each Investor, at such
Investor's expense and subject to the Investor signing a confidentiality
agreement, to visit and inspect the Company's properties, to examine its books
of accounts and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
the Investor; provided however, that the Company shall not be obligated pursuant
to this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.

          2.3  Observation Rights. Cargill shall have the right to have two (2)
observers attend meetings of the Company's Board of Directors, and Cargill,
Lehman and RFC shall be provided notice of all regularly scheduled and special
meetings of the Company's Board of Directors as well as to be copied
contemporaneously with Board members of all unanimous written consents by the
Board. Cargill, Lehman and RFC shall also receive copies of all notices and
other communications sent to Investors or the Board.

          2.3  Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants each Major Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, Major Investor
includes any general partners and affiliates of a Major Investor. A Major
Investor shall be entitled to apportion the right of first offer hereby granted
it among itself and its partners and affiliates in such proportions as it deems
appropriate. Each time the Company proposes to offer any shares of, or
securities convertible into, or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:

                                       19

<PAGE>

               (a) The Company shall deliver a notice by certified mail
("Notice") to each Major Investor stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.

               (b) By providing written notice to the Company within 20 calendar
days after its receipt of the Notice, each Major Investor may elect to purchase
or obtain, at the price and on the terms specified in the Notice, up to that
portion of such Shares which equals the proportion that the number of shares of
Common Stock then held or issuable upon the exercise or conversion of any
convertible securities or securities exercisable for Common Stock, including
the Series A Preferred Stock, the Cargill Warrant, the Lehman Warrant and the
Convertible Debenture, then held by such Major Investor bears to the total
number of shares of Common Stock of the Company then outstanding (assuming full
conversion and exercise of all convertible or exercisable securities). The
Company shall promptly, in writing, inform each Major Investor which purchases
all the shares available to it ("Fully-Exercising Major Investor") of any other
Major Investor's failure to do likewise. During the ten-day period commencing
after receipt of such information, each Fully-Exercising Major Investor shall
be entitled to obtain that portion of the Shares which is equal to the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion or exercise of the Series A Preferred Stock, the
Cargill Warrant, the Lehman Warrant, the Convertible Debenture and any other
securities pursuant to which Common Stock will be issued on exercise then held,
by such Fully-Exercising Major Investor bears to the total number of shares of
the Company's capital stock issued and held, or issuable on conversion or
exercise, by all Fully Exercising Major Investors.

               (c) If all Shares referred to in the Notice are not elected to be
obtained as provided in subsection 2.4(b) hereof, the Company may, during the
30-day period following the expiration of the period provided in subsection
2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within 30 days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first re-offered to the Major Investors in accordance herewith,
and the Major Investors may elect to rescind their contingent purchase of such
Shares pursuant to Section 2.4(b) hereof.

               (d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of such number of shares of Common Stock
(or options therefor) as may be issuable or issued to employees, consultants,
directors (other than (A) James Konrath, Ray McKewon or Joseph Lydon solely in
their capacities as directors of the Company or (B) any direct or elected by the
holders of the Company's outstanding shares of Preferred Stock) or vendors
(if in transactions with primarily non-financing purposes) of the Company
directly or pursuant to a stock option plan or restricted stock plan approved by
the Company's Board of Directors, the shareholders of the Company, including
holders of at least a majority of the then outstanding shares of the Series A
Preferred Stock, and, until termination of the RFC Agreement, RFC, (ii) upon and
subsequent to the Company's sale of its common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the

                                       20

<PAGE>

Securities Act of 1933, as amended, the public offering price of which was not
less than Twelve Million Dollars ($12,000,000) in the aggregate at a price per
share of not less than $4.00 (adjusted to reflect stock dividends, stock splits
or recapitalization after the first date the Series A Preferred Stock was
issued) or pursuant to which all shares of Series A Preferred Stock are
converted into Common Stock, (iii) to the issuance of securities pursuant to
the conversion or exercise of any of the Company's covertible or exercisable
securities, (iv) to the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, or (v) to the issuance
of stock, warrants or other securities or rights to Persons that are not
Affiliates of the Company with which the Company has business relationships
including, but not limited to, corporate partner transactions and lease or debt
financings, provided such issuances are for other than primarily equity
financing purposes.

               (e) The right of first refusal set forth in this Section 2.4 may
not be assigned or transferred, except that (i) such right is assignable by each
Major Investor to any wholly owned subsidiary or parent of, or to any
corporation or entity that is, within the meaning of the Act, controlling,
controlled by or under common control with, any such Major Investor, and (ii)
such right is assignable between and among any of the Major Investors.

               (f) Each of the Investors, as applicable, has previously waived
any and all rights it may have possessed to participate in the issuances of the
Cargill Warrant and the Lehman Warrant (and the Common Stock issued or issuable
upon the exercise or conversion thereof), and hereby waives any and all rights
it may possess to participate in the Company's issuance to RFC of the
Convertible Debenture (and the Common Stock issued or issuable upon RFCs
conversion of the Convertible Debenture).

          2.5  Termination of Company Covenants. The covenants and provisions of
Section 2.1 and Section 2.2 hereof shall terminate and be of no further force or
effect upon the earlier to occur of (i) the consummation of the initial public
offering of the Common Stock of the Company pursuant to a registration statement
filed by the Company under the Securities Act of 1933, as amended, and (ii) the
date the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act; provided, however, that the Company
will continue to deliver to each Major Investor such quarterly financial
information and annual reports as and when such reports and information are
finalized and available to be distributed to the Company's shareholders.

     3.   Covenants of Investors. Investors, and their duly appointed
representatives; shall obtain and provide to the Company, promptly upon request,
any and all information reasonably required by the Company to comply with state
and federal licensing and other requirements, include but not limited to,
beneficial ownership information and all shall cooperate with any state or
federal licensing agency in any investigation by such agencies.

     4.   Miscellaneous.

          4.1  Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective

                                       21

<PAGE>

successors and assigns of the parties (including transferees of any shares of
Registrable Securities).  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.

          4.2  Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.

          4.3  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.

          4.4  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.

          4.5  Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Agreement shall be in writing and shall be
deemed delivered (i) upon personal delivery, (ii) upon facsimile transmittal
followed by oral telephone confirmation of receipt, (iii) one business day
following deposit for next day delivery with a reputable over-night courier
service, or (iv) five business days following deposit with the United States
Post Office by registered or certified mail, postage prepaid and properly
addressed to the party to be notified as set forth below such party's signature
or at such other address as such party may designate by ten calendar days'
advance written notice to the other parties hereto.

          4.6  Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

          4.7  Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospective), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Notwithstanding the foregoing, the
Company shall not enter into any amendment, modification or waiver of this
Agreement which has an adverse effect on Cargill or RFC, that is
disproportionate to the adverse effect of such amendment, modification or waiver
as it relates to all other Holders, without obtaining the prior written consent
of Cargill or RFC, as applicable; provided however, any such amendment,
modification or waiver for which Cargill's and/or RFC's consent is not required
and not obtained shall not be effective until Cargill and/or RFC, as applicable,
shall have been provided with a certified copy of such amendment, modification,
or waiver by notice as provided in Section 4.5 of this Agreement. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable

                                       22

<PAGE>

Securities then outstanding, each future holder of all such Registrable
Securities, and the Company.

          4.8  Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from the Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.

          4.9  Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.

          4.10 Entire Agreement. This Agreement (including the Exhibits hereto,
if any) constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof and supersedes the
Original Agreement, as amended in its entirety.

                            [Signature Pages Follow]

                                       23

<PAGE>

  [Signature Page to Second Amended and Restated Investors' Rights Agreement]

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                               COMPANY:

                               ACCREDITED HOME LENDERS, INC.,

                               By: /s/ James A. Konrath
                                  ----------------------------------------------
                                  James A. Konrath, Chief Executive Officer

                               Address:    15030 Avenue of Science, Suite 100
                                           San Diego, CA 92128
                               Telephone:  (619) 676-2100
                               Facsimile:  (619) 676-2170

                               INVESTORS:

                               CROSSPOINT VENTURE PARTNERS 1993
                               CROSSPOINT 1993 ENTREPRENEURS FUND

                               By: /s/ Robert A. Hoff
                                  ----------------------------------------------
                                  Robert A. Hoff, General Partner

                               Address:    18552 MacArthur Boulevard, Suite 400
                                           Irvine, CA 92612-1217
                               Telephone:  (949) 852-1611
                               Facsimile:  (949) 852-9804

                               ENTERPRISE PARTNERS III, L.P.
                               ENTERPRISE PARTNERS III ASSOCIATES, L.P.

                               By: /s/ Charles D. Martin
                                  ----------------------------------------------
                                  Charles D. Martin, Authorized Representative

                               Address:    5000 Birch Street, Suite 6200
                                           Newport Beach, CA 92660
                               Telephone:  (714) 833-3650
                               Facsimile:  (714) 833-3652

<PAGE>

   [Signature Page to Second Amended and Restated Investors' Rights Agreement]

                                INVESTORS (cont.):

                                OCEAN PARK VENTURES

                                By:               /s/ James P. Gauer
                                           -------------------------------
                                           James P. Gauer, General Partner

                                Address:         100 Wilshire Blvd., Suite 400
                                                 Santa Monica, CA 90401
                                Telephone:       (310) 260-6050
                                Facsimile:       (310) 656-4150

                                CARGILL FINANCIAL SERVICES CORPORATION,

                                By:        _____________________________________
                                Name:      _____________________________________
                                Its:       _____________________________________

                                Address:         12700 Whitewater Drive
                                                 Minnetonka, MN 55343

                                Telephone:       _______________________________
                                Facsimile:       _______________________________

                                LEHMAN COMMERCIAL PAPER INC.

                                By:        _____________________________________
                                Name:      _____________________________________
                                Title:     _____________________________________

                                Address:         200 Vesey Street, 9/th/ Floor
                                                 New York, NY 10285-0900
                                Telephone:       (212) 526-6970
                                Facsimile:       (212) 528-9284

<PAGE>

   [Signature Page to Second Amended and Restated Investors' Rights Agreement]

                               INVESTORS (cont.):

                               OCEAN PARK VENTURES

                               By:    __________________________________________
                                      James P. Gauer, General Partner

                               Address:    100 Wilshire Blvd.
                                           Santa Monica, CA 90401
                               Telephone:  (310) 260-6050
                               Facsimile:  (310) 656-4150

                               CARGILL FINANCIAL SERVICES CORPORATION,

                               By:    __________________________________________
                               Name:  Jody A. Gunderson
                               Its:   Director, Corporate Capital Group

                               Address:    12700 Whitewater Drive
                                           Minnetonka, MN 55343
                               Telephone:  612/984-3765
                               Facsimile:  612/984-3905

                               LEHMAN COMMERCIAL PAPER INC.

                               By:    __________________________________________
                               Name:  __________________________________________
                               Title: __________________________________________

                               Address:    200 Vesey Street, 9/th/ Floor
                                           New York, NY 10285-0900
                               Telephone:  (212) 526-6970
                               Facsimile:  (212) 528-9284

<PAGE>

[Signature Page to Second Amended and Restated Investors' Rights Agreement]

                               INVESTORS (cont.):

                               OCEAN PARK VENTURES

                               By:          ____________________________________
                                            James P. Gauer, General Partner

                               Address:     100 Wilshire Blvd.
                                            Santa Monica, CA 90401
                               Telephone:   (310) 260-6050
                               Facsimile:   (310) 656-4150

                               CARGILL FINANCIAL SERVICES CORPORATION

                               By:          ____________________________________
                               Name:        ____________________________________
                               Its:         ____________________________________

                               Address:     12700 Whitewater Drive
                                            Minnetonka, MN 55343

                               Telephone:   ____________________________________
                               Facsimile:   ____________________________________

                               LEHMAN COMMERCIAL PAPER INC.

                               By:               /s/ Francis X. Gilhool
                                            ------------------------------------
                               Name:                 Francis X. Gilhool
                                            ------------------------------------
                               Its:              AUTHORIZED SIGNATORY
                                            ------------------------------------

                               Address:     200 Vesey Street, 9/th/ Floor
                                            New York, NY 10285-0900
                               Telephone:   (212) 526-6970
                               Facsimile:   (212) 528-9284

<PAGE>

  [Signature Page to Second Amended and Restated Investors' Rights Agreement]

                               INVESTORS (cont.):

                               RESIDENTIAL FUNDING CORPORATION,

                               By: /s/ Thomas S. Dinnegan
                                  ----------------------------------------------
                                   Thomas S. Dinnegan, Managing Director

                               Address:    8400 Normandale Lake Blvd., Suite 600
                                           Minneapolis, MN 55437
                               Telephone:  818-753-4435
                               Facsimile:  818-985-7344

<PAGE>

   [Signature Page to Second Amended and Restated Investors' Rights Agreement]

                                         INVESTORS (cont.):

                                         /s/ Martin P. Harding
                                         ---------------------------------------
                                         MARTIN P. HARDING

                                         Address:     c/o Lehman Brothers Inc.
                                                      3 World Financial Center
                                                      New York, NY 10285
                                         Telephone:  (212) 526-0017
                                         Facsimile:  (212) 528-6049

                                         /s/ John M. Robbins
                                         ---------------------------------------
                                         JOHN M. ROBBINS, JR.

                                         Address:    17444 Circa Oriente, #499
                                                     P.O. Box 9668
                                                     Rancho Santa Fe, CA 92067
                                         Telephone:  (619) 756-1348
                                         Facsimile:  (619) 759-1885

     I, Laura Robbins, spouse of John M. Robbins, Jr., have read and approved
the foregoing Agreement. I hereby appoint my spouse as my attorney-in-fact in
respect to the exercise of any rights under the Agreement, including without
limitation amendment thereof, and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws of the State of
California or similar laws relating to martial property in effect in the state
of our residence as of the date of the signing of the foregoing Agreement.

Dated as of _________, 1999.             /s/ Laura Robbins
                                         ---------------------------------------
                                         LAURA ROBBINS

                                       25

<PAGE>

   [Signature Page to Second Amended and Restated Investors' Rights Agreement]

                                   FOUNDERS:

                                   /s/ James A. Konrath
                                   -------------------------------------
                                   JAMES A. KONRATH

                                   Address:   15030 Avenue of Science, Suite 100
                                              San Diego, CA 92128
                                   Telephone: (619) 676-2100
                                   Facsimile: (619) 676-2170

                                   /s/ Ray W. Mckewon
                                   -------------------------------------
                                   RAY W. MCKEWON

                                   Address:   15030 Avenue of Science, Suite 100
                                              San Diego, CA 92128
                                   Telephone: (619) 676-2100
                                   Facsimile: (619) 676-2170

     I, JoAnne B. Konrath, spouse of James A. Konrath, have read and approve the
foregoing Agreement. I hereby appoint my spouse as my attorney-in-fact in
respect to the exercise of any rights under the Agreement, including without
limitation amendment thereof, and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws of the State of
California or similar laws relating to marital property in effect in the state
of our residence as of the date of the signing of the foregoing Agreement.

Dated as of 2/28, 1999             /s/ Joanne B. Konrath
            ----                   -------------------------------------
                                   JOANNE B. KONRATH

     I, Suzanne McKewon, spouse of Ray W. McKewon, have read and approve the
foregoing Agreement. I hereby appoint my spouse as my attorney-in-fact in
respect to the exercise of any rights under the Agreement including without
limitation amendment thereof, and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws of the State of
California or similar laws relating to marital property in effect in the state
of our residence as of the date of the signing of the foregoing Agreement.

Dated as of 2/25, 1999             /s/ Suzanne Mckewon
            ----                   ------------------------------------
                                   SUZANNE MCKEWON

<PAGE>

                                   SCHEDULE A
                                       TO
                           SECOND AMENDED AND RESTATED
                           INVESTORS' RIGHTS AGREEMENT

                                    Investors
                                    ---------

                        Crosspoint Venture Partners 1993

                       Crosspoint 1993 Entrepreneurs Fund

                          Enterprise Partners III, L.P.

                    Enterprise Partners III Associates, L.P.

                               Ocean Park Ventures

                     Cargill Financial Services Corporation

                                Martin P. Harding

                              John M. Robbins, Jr.

                          Lehman Commercial Paper Inc.

                         Residential Funding Corporation<PAGE>

                                                                    EXHIBIT 10.1

                          ACCREDITED HOME LENDERS, INC.
                       1998 STOCK OPTION PLAN, as Amended

     1.   Establishment, Purpose and Term of Plan.

          1.1  Establishment. The Accredited Home Lenders, Inc. 1998 Stock
Option Plan (the "Plan") is hereby established effective as of March 1, 1998
(the "Effective Date").

          1.2  Purpose. The purpose of the Plan is to advance the interests of
the Participating Company Group and its shareholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and to motivate such persons to contribute to the growth and
profitability of the Participating Company Group.

          1.3  Term of Plan. The Plan shall continue in effect until terminated
by the Board or until all of the shares of Stock available for issuance under
the Plan have been issued and all restrictions on such shares under the terms of
the Plan and the agreements evidencing Options granted under the Plan have
lapsed. However, all Options shall be granted, if at all, within ten (10) years
from the Effective Date.

     2.   Definitions and Construction.

          2.1  Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:

               (a)  "Board" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).

               (b)  "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.

               (c)  "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.

               (d)  "Company" means Accredited Home Lenders, Inc., a California
corporation, or any successor corporation thereto.

               (e)  "Consultant" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.

               (f)  "Director" means a member of the Board or of the board of
directors of any other Participating Company.

                                       1

<PAGE>

                    (g)   "Employee" means any common-law employee (including
officers and Directors who are also common-law employees) of a Participating
Company; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for this purpose.

                    (h)   "Exchange Act" means the Securities Exchange Act of
1934, as amended.

                    (i)   "Fair Market Value" means, as of any date, the value
of a share of stock or other property as determined by the Board, in its sole
discretion.

                    (j)   "Incentive Stock Option" means an Option intended to
be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422 (b) of the Code.

                    (k)   "Insider" means an officer or Director of the Company
or any other person whose transactions in the Stock are subject to Section 16 of
the Exchange Act.

                    (l)   "Nonstatutory Stock Option" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.

                    (m)   "Option" means a right to purchase Stock (subject to
adjustment as provided in Section 5.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.

                    (n)   "Optionee" means a person who has been granted one or
more Options.

                    (o)   "Option Agreement" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee.

                    (p)   "Parent Corporation" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                    (q)   "Participating Company" means the Company or any
Parent Corporation or Subsidiary Corporation.

                    (r)   "Participating Company Group" means, at any point in
time, all corporations collectively which are then Participating Companies.

                    (s)   "Rule 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.

                    (t)   "Stock" means the common stock, without par value, of
the Company, as adjusted from time to time in accordance with Section 5.2.

                                        2

<PAGE>

                    (u)   "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

                    (v)   "Ten Percent Owner Optionee" means an Optionee who, at
the time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of Section 422(b)(6) of the Code.

               2.2  Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

     3.  Administration.

               3.1  Administration by the Board. The Plan shall be administered
by the Board, including any duly appointed Committee of the Board. All questions
of interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.

               3.2  Powers of the Board. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:

                    (a)  to determine the persons to whom, and the time or times
at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;

                    (b)  to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;

                    (c)  to determine the Fair Market Value of shares of stock
or other property;

                    (d)  to determine the terms and conditions of each Option
(which need not be identical), including, without limitation, the exercise price
of the Option, the method of payment for shares purchased upon the exercise of
the Option, the method for satisfaction of any tax withholding obligation
arising in connection with the Option, including by the withholding or delivery
of shares of stock, the timing and terms of the exercisability and vesting of
the Option, the time of the expiration of the Option, the effect of the
Optionee's termination of employment or service, and all other terms and
conditions of the Option not inconsistent with the terms of the Plan;

                                        3

<PAGE>

                    (e)  to approve one or more forms of Option Agreement;

                    (f)  to amend, modify, extend, or renew, or grant a new
Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or the exercise thereof;

                    (g)  to accelerate, continue, extend or defer the
exercisability or vesting of any Option, including with respect to the period
following an Optionee's termination of employment or service with the
Participating Company Group;

                    (h)  to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and

                    (i)  to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan and any
Option as the Board may deem advisable, to the extent consistent with the Plan
and applicable law.

               3.3  Administration with Respect to Insiders. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.

     4.  Eligibility and Option Limitations.

               4.1  Eligible Persons. Options may be granted only to Employees,
Consultants, and Directors. For purposes of the foregoing sentence, "Employees",
"Consultants" and "Directors" shall include prospective Employees, prospective
Consultants and prospective Directors to whom Options are granted in connection
with written offers of employment or other service relationship with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option.

               4.2  Option Grant Restrictions. Any person who is not an Employee
on the effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences Service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.

               4.3  Fair Market Value Limitation. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as

                                        4

<PAGE>

Nonstatutory Stock Options. For purposes of this Section 4.3, options designated
as Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of stock shall be determined as of
the time the option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section 4.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 4.3, the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.

     5.   Shares Subject to Plan.

          5.1  Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 5.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be One Million Two Hundred and Eleven
Thousand Three Hundred Seventy Three (1,211,373) and shall consist of authorized
but unissued shares of Stock. In the event that any outstanding Option for any
reason expires or is terminated or canceled or shares of Stock acquired, subject
to repurchase, upon the exercise of an Option are repurchased by the Company,
the shares of Stock allocable to the unexercised portion of such Option, or such
repurchased shares of Stock, shall again be available for issuance under the
Plan. Notwithstanding the foregoing, at any such time as the offer and sale of
securities pursuant to the Plan is subject to compliance with Section 260.140.45
of Title 10 of the California Code of Regulations ("Section 260.140.45"), the
total number of shares of Stock issuable upon the exercise of all outstanding
Options (together with options outstanding under any other stock option plan of
the Company) and the total number of shares provided for under any stock bonus
or similar plan of the Company shall not exceed thirty percent (30%) (or such
other higher percentage limitation as may be approved by the shareholders of the
Company pursuant to Section 260.140.45) of the then outstanding shares of the
Company as calculated in accordance with the conditions and exclusions of
Section 260.140.45.

          5.2  Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and in the exercise price of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to a Transfer of Control (as
defined in Section 8.1) shares of another corporation (the "New Shares"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to and the exercise price of the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 5.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option.

                                        5

<PAGE>

     6.   Terms and Conditions of Options.

          Options shall be evidenced by Option Agreements specifying the number
of shares of Stock covered thereby, in such form as the Board shall from time to
time establish, which Option Agreements may incorporate all or any of the terms
of the Plan by reference and shall comply with and be subject to the following
terms and conditions:

          6.1  Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.

          6.2  Exercise Period. Options shall be exercisable at such time or
times and subject to such terms, conditions, performance criteria, and
restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however, that (a) no Option shall be
exercisable after the expiration of ten (10) years after the effective date of
grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent
Owner Optionee shall be exercisable after the expiration of five (5) years after
the effective date of grant of such Option, (c) no Option granted to a
prospective Employee or prospective Consultant may become exercisable prior to
the date on which such individual commences service with a Participating Company
and (d) with the exception of an Option granted to an officer, Director or
Consultant, no Option shall become exercisable at a rate less than twenty
percent (20%) per year over a period of five (5) years from the effective date
of grant of such Option, subject to the Optionee's continued Service. Subject to
the foregoing, unless otherwise specified by the Board in the grant of an
Option, any Option granted hereunder shall have a term of ten (10) years from
the effective date of grant of the Option.

          6.3  Payment of Exercise Price.

               (a)  Forms of Payment Authorized. Except as otherwise provided
below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company, or attestation to the ownership, of
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the exercise price, (iii) by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the

                                        6

<PAGE>

provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Cashless Exercise"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.

                    (b)  Limitations on Forms of Consideration.

                         (i)   Tender of Stock. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender, or attestation to the
ownership, of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.

                         (ii)  Cashless Exercise. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.

                         (iii) Payment by Promissory Note. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.

               6.4  Tax Withholding. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option shares the Fair Market Value of which is equal to all or any part of
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to such Option.
Alternatively, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding or otherwise, to make adequate
provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option. The Company shall have no
obligation to deliver shares of Stock or to release shares of

                                       7

<PAGE>

Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied.

     7.   Standard Forms of Option Agreement.

          7.1  Incentive Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement attached hereto as Exhibit
A.

          7.2  Nonstatutory Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Nonstatutory Stock Option Agreement attached hereto as
Exhibit B.

          7.3  Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of such revised
or amended standard form or forms of Option Agreement shall be in accordance
with the terms of the Plan.

     8.   Transfer of Control.

          8.1  Definition. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:

               (a)  the direct or indirect sale or exchange by the shareholders
of the Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, as a result of their ownership of shares of the Company's stock
prior to such event, beneficial ownership of at least a majority of the voting
stock of the Company after such sale or exchange;

               (b)  a merger or consolidation where the shareholders of the
Company before such merger or consolidation do not retain, directly or
indirectly, as a result of their ownership of shares of the Company's stock
prior to such event, beneficial ownership of at least a majority of the voting
stock of the Company after such merger or consolidation;

               (c)  the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one or
more Subsidiary Corporations of the Company);

               (d)  a liquidation or dissolution of the Company.

                                       8

<PAGE>

               8.2  Effect of Transfer of Control on Options. In the event of a
Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under outstanding Options or substitute substantially equivalent options for the
Acquiring Corporation's stock for outstanding Options. Any Options which are
neither assumed or substituted for by the Acquiring Corporation in connection
with the Transfer of Control nor exercised as of the date of the Transfer of
Control shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control.

          9.   Provision of Information.

               At least annually, copies of the Company's balance sheet and
income statement for the just completed fiscal year shall be made available to
each Optionee and purchaser of shares of Stock upon the exercise of an Option.
The Company shall not be required to provide such information to persons whose
duties in connection with the Company assure them access to equivalent
information.

          10.  Nontransferability of Options.

               During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.

          11.  Indemnification.

               In addition to such other rights of indemnification as they may
have as members of the Board, members of the Board and any officers to whom
authority to act for the Board is delegated shall be indemnified by the Company
against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for negligence or misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at its own expense to handle and defend the same.

          12.  Termination or Amendment of Plan.

               The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's shareholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of

                                       9

<PAGE>

Section 5.2), (b) no change in the class of persons eligible to receive
Incentive Stock Options, and (c) no other amendment of the Plan that would
require approval of the Company's shareholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.

          13.  Shareholder Approval.

               The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 5.1 (the "Maximum Shares") shall be
approved by the shareholders of the Company within twelve (12) months of the
date of adoption thereof by the Board. Options granted prior to shareholder
approval of the Plan or in excess of the Maximum Shares previously approved by
the shareholders shall become exercisable no earlier than the date of
shareholder approval of the Plan or such increase in the Maximum Shares, as the
case may be.

               IN WITNESS WHEREOF, the undersigned Secretary of the Company
certifies that the foregoing Accredited Home Lenders, Inc. 1998 Stock Option
Plan was duly adopted by the Board on March 1, 1998.

                               /s/ Ray W. McKewon
                               ------------------------------------------
                               Ray W. McKewon, Secretary

                                       10

<PAGE>

                                  PLAN HISTORY

March 1, 1998       Board adopts Plan, with an initial reserve of 244,000
                    shares.

March 1, 1998       Shareholders approve Plan, with an initial reserve of
                    244,000 shares.

January 29, 1999    Board approves 284,873 increase in reserve for a total
                    reserve of 528,873 shares.

January 29, 1999    Shareholders approve 284,873 increase in reserve for a total
                    reserve of 528,873 shares.

January 1, 2000     Board approves transfer of 25,000 shares in reserve to the
                    1995 Executive Stock Option Plan for a total reserve of
                    503,873 shares.

January 1, 2000     Shareholders approve transfer of 25,000 shares in reserve to
                    the 1995 Executive Stock Option Plan for a total reserve of
                    503,873 shares.

February 3, 2000    Board approves 486,500 increase in reserve for a total
                    reserve of 990,373 shares.

February 3, 2000    Shareholders approve 486,500 increase in reserve for a total
                    reserve of 990,373 shares.

February 21, 2001   Board approves transfer of 18,500 shares in reserve to the
                    1995 Executive Stock Option Plan for a total reserve of
                    971,873 shares.

February 21, 2001   Shareholders approve transfer of 18,500 shares in reserve to
                    the 1995 Executive Stock Option Plan for a total reserve of
                    971,873 shares.

October 25, 2001    Board approves 250,000 increase in reserve for a total
                    reserve of 1,221,873 shares.

October 25, 2001    Shareholders approve 250,000 increase in reserve for a total
                    reserve of 1,221,873 shares.

January 30, 2002    Board approves transfer of 10,500 shares in reserve to the
                    1995 Executive Stock Option Plan for a total reserve of
                    1,211,373.

January 30, 2002    Shareholders approve transfer of 10,500 shares in reserve to
                    the 1995 Executive Stock Option Plan for a total reserve of
                    1,211,373.

                                       11

<PAGE>

                                   Exhibit A

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.

THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

                          ACCREDITED HOME LENDERS, INC.

                        INCENTIVE STOCK OPTION AGREEMENT

         THIS INCENTIVE STOCK OPTION AGREEMENT (the "Option Agreement") is made
and entered into as of ___________, ____, by and between Accredited Home
Lenders, Inc. and ______________________ (the "Optionee").

         The Company has granted to the Optionee pursuant to the Accredited Home
Lenders, Inc. 1998 Stock Option Plan (the "Plan") an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").

         1.    Definitions and Construction.

               1.1   Definitions. Whenever used herein, the following terms
shall have their  respective  meanings set forth below:

                     (a)   "Date of Option Grant" means ___________, ____.

                     (b)   "Number of Option Shares"  means ___________ shares
of Stock, as adjusted from time to time pursuant to Section 9.

                     (c)   "Exercise Price" means  $_______ per share of Stock,
as adjusted from time to time pursuant to Section 9.

                     (d)   "Initial Exercise Date" means the Initial Vesting
Date.

<PAGE>

                     (e)   "Initial Vesting Date" means the date occurring one
(1) year after (check one):

                           [_]   the Date of Option Grant.

                           [_]   ______________, ____ , the date the Optionee's
                                 Service commenced.

                     (f)   "Vested Ratio" means, on any relevant date, the ratio
determined as follows:

                                                                  Vested Ratio

                     Prior to Initial Vesting Date                     0

                     On Initial Vesting Date, provided the            1/4
                     Optionee's Service has not terminated
                     prior to such date

                     Plus

                     For each full month of the Optionee's
                     continuous Service from the Initial             1/48
                     Vesting Date until the Vested Ratio
                     equals 1/1, an additional

                     (g)   "Option Expiration Date" means the date ten (10)
years after the Date of Option Grant.

                     (h)   "Board" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" shall also mean such Committee(s).

                     (i)   "Code" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.

                     (j)   "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.

                     (k)   "Company" means Accredited Home Lenders, Inc., a
California  corporation,  or any  successor corporation thereto.

                                       2

<PAGE>

                     (l)   "Consultant" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.

                     (m)   "Director" means a member of the Board or of the
board of directors of any other Participating Company.

                     (n)   "Disability" means the inability of the Optionee, in
the opinion of a qualified physician, to perform the major duties of the
Optionee's position with the Participating Company Group because of the sickness
or injury of the Optionee.

                     (o)   "Employee" means any common-law employee (including
officers and Directors who are also common-law employees) of a Participating
Company; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for this purpose.

                     (p)   "Exchange Act" means the Securities Exchange Act of
1934, as amended.

                     (q)   "Fair Market Value" means, as of any date, the value
of a share of stock or other property as determined by the Board, in its sole
discretion.

                     (r)   "Parent Corporation" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                     (s)   "Participating Company" means the Company or any
Parent Corporation or Subsidiary Corporation.

                     (t)   "Participating Company Group" means, at any point in
time, all corporations collectively which are then Participating Companies.

                     (u)   "Securities Act" means the Securities Act of 1933, as
amended.

                     (v)   "Service" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service, and provided,
further, that part-time employment of less than thirty (30) hours per week with
the Participating Company Group shall not constitute "Service" for an Employee
under this Agreement. The Optionee's Service shall be deemed to have terminated
either upon an actual termination of Service or upon the corporation for which
the Optionee performs Service ceasing to be a Participating Company. (NOTE: If
the Option is exercised more than three (3) months after the date on which the
Optionee ceased to be an Employee (other than by reason of death or a permanent
and total disability as defined in Section 22(e)(3) of the Code), the Option
will be treated as a nonstatutory stock option and not as an incentive stock
option to the extent required by Section 422 of the Code.)

                                       3

<PAGE>

                     (w)   "Stock" means the common stock, without par value, of
the Company, as adjusted from time to time in accordance with Section 9.

                     (x)   "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

               1.2   Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.

         2.    Tax Status of the Option. This Option is intended to be an
incentive stock option within the meaning of Section 422(b) of the Code (an
"Incentive Stock Option"), but the Company does not represent or warrant that
this Option qualifies as such. The Optionee should consult with the Optionee's
own tax advisor regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the
Code, including, but not limited to, holding period requirements. (NOTE: If the
aggregate Exercise Price of the Option (that is, the Exercise Price multiplied
by the Number of Option Shares) plus the aggregate exercise price of any other
Incentive Stock Options held by the Optionee (whether granted pursuant to the
Plan or any other stock option plan of the Participating Company Group) is
greater than One Hundred Thousand Dollars ($100,000), the Optionee should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an Incentive Stock Option.)

         3.    Administration. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.

         4.    Exercise of the Option.

               4.1   Right to Exercise. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in Section 11. In no event shall the
Option be exercisable for more shares than the Number of Option Shares.

               4.2   Method of Exercise. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as

                                       4

<PAGE>

to the Optionee's investment intent with respect to such shares as may be
required pursuant to the provisions of this Option Agreement. The written notice
must be signed by the Optionee and must be delivered in person, by certified or
registered mail, return receipt requested, by confirmed facsimile transmission,
or by such other means as the Company may determine, to the Chief Financial
Officer of the Company, or other authorized representative of the Participating
Company Group, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the Exercise Price for the number of shares
of Stock being purchased and (ii) an executed copy, if required herein, of the
then current forms of escrow and security agreement referenced below. The Option
shall be deemed to be exercised upon receipt by the Company of such written
notice, the aggregate Exercise Price, and, if required by the Company, such
executed agreements.

            4.3   Payment of Exercise Price.

                  (a)   Forms of Payment Authorized. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (determined without regard to
any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the aggregate Exercise Price, (iii) by means of a
Cashless Exercise, as defined in Section 4.3(c), (iv) if expressly authorized by
the Company, in its sole discretion, at the time of Option exercise, by the
Optionee's promissory note for the aggregate Exercise Price, or (v) by any
combination of the foregoing.

                  (b)   Tender of Stock. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.

                  (c)   Cashless Exercise. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.

                  (d)   Payment by Promissory Note. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable four (4) years after the date the Option is exercised.
Interest on

                                        5

<PAGE>

the principal balance of the promissory note shall be payable in annual
installments at the minimum interest rate necessary to avoid imputed interest
pursuant to all applicable sections of the Code. Such recourse promissory note
shall be secured by the shares of Stock acquired pursuant to the then current
form of security agreement as approved by the Company. At any time the Company
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the promissory
note and any accrued interest thereon upon termination of the Optionee's Service
with the Participating Company Group for any reason, with or without cause.

               4.4   Tax Withholding. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for,
any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares or
release such shares from any escrow provided for herein.

               4.5   Certificate Registration. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, the heirs of the Optionee.

               4.6   Restrictions on Grant of the Option and Issuance of Shares.
The grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of the Company to obtain from any regulatory body having

                                       6

<PAGE>

jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.

               4.7   Fractional Shares. The Company shall not be required to
issue fractional shares upon the exercise of the Option.

         5.    Nontransferability of the Option. The Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in any
manner except by will or by the laws of descent and distribution. Following the
death of the Optionee, the Option, to the extent provided in Section 7, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.

         6.    Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.

         7.    Effect of Termination of Service.

               7.1   Option Exercisability.

                     (a)   Disability. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option may be exercised by the Optionee (or the Optionee's
guardian or legal representative) at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. (NOTE: If the Option is
exercised more than three (3) months after the date on which the Optionee's
Service as an Employee terminated as a result of a Disability other than a
permanent and total disability as defined in Section 22(e)(3) of the Code, the
Option will thereafter be treated as a nonstatutory stock option and not as an
Incentive Stock Option to the extent required by Section 422 of the Code.)

                     (b)   Death. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option may be exercised by the Optionee (or the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death) at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of Service.

                                       7

<PAGE>

               (c)   Other Termination of Service. If the Optionee's Service
with the Participating Company Group terminates (including an Employee's change
to part-time employment of less than thirty (30) hours per week with the
Participating Company Group) for any reason, except Disability or death, the
Option, to the extent unexercised and exercisable by the Optionee on the date on
which the Optionee's Service terminated, may be exercised by the Optionee within
three (3) months after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date.

         7.2   Additional Limitation on Option Exercise. Except as the Company
and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1
following termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).

         7.3   Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences to the Optionee
of any such delayed exercise.

         7.4   Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences of any such delayed exercise.

         7.5   Leave of Absence. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.

                                       8

<PAGE>

         8.    Ownership Change and Transfer of Control.

               8.1   Definitions.

                     (a)   An "Ownership Change" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:

                           (i)   the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company;

                           (ii)  a merger or consolidation in which the Company
is a party;

                           (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one or more Subsidiary Corporations of the Company); or

                           (iv)  a liquidation or dissolution of the Company.

                     (b)   A "Transfer of Control" shall mean

                           (i)   an Ownership Change described in Sections
8.1(a)(i) or 8.1(a)(ii) in which the shareholders of the Company before such
Ownership Change do not retain, directly or indirectly, as a result of their
ownership of shares of the Company's stock prior to such event, beneficial
ownership of at least a majority of the voting stock of the Company after such
event; or

                           (ii)  an Ownership Change described in Sections
8.1(a)(iii) or 8.1(a)(iv).

               8.2   Effect of Transfer of Control on Option. In the event of a
Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under this Option Agreement or substitute a substantially equivalent option for
the Acquiring Corporation's stock for the Option. The Option shall terminate and
cease to be outstanding effective as of the date of the Transfer of Control to
the extent that the Option is neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control.

         9.    Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number

                                       9

<PAGE>

of Option Shares and the Exercise Price shall be adjusted in a fair and
equitable manner, as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 9 shall be rounded up or down to the nearest whole
number, as determined by the Board, and in no event may the Exercise Price be
decreased to an amount less than the par value, if any, of the stock subject to
the Option.

         10.   Rights as a Shareholder, Employee, Director or Consultant. The
Optionee shall have no rights as a shareholder with respect to any shares
covered by the Option until the date of the issuance of a certificate for the
shares for which the Option has been exercised. No adjustment shall be made for
dividends, distributions or other rights for which the record date is prior to
the date such certificate is issued, except as provided in Section 9. Nothing in
this Option Agreement shall confer upon the Optionee any right to continue in
the Service of a Participating Company or interfere in any way with any right of
the Participating Company Group to terminate the Optionee's Service as an
Employee, Director or Consultant, as the case may be, at any time.

         11.   Right of First Refusal.

               11.1  Grant of Right of First Refusal. Except as provided in
Section 11.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares
acquired upon exercise of the Option (the "Transfer Shares") to any person or
entity, including, without limitation, any shareholder of the Participating
Company Group, the Company shall have the right to repurchase the Transfer
Shares under the terms and subject to the conditions set forth in this Section
11 (the "Right of First Refusal").

               11.2  Notice of Proposed Transfer. Prior to any proposed
transfer of the Transfer Shares, the Optionee shall give a written notice (the
"Transfer Notice") to the Company describing fully the proposed transfer,
including the number of Transfer Shares, the name and address of the proposed
transferee (the "Proposed Transferee") and, if the transfer is voluntary, the
proposed transfer price, and containing such information necessary to show the
bona fide nature of the proposed transfer. In the event of a bona fide gift or
involuntary transfer, the proposed transfer price shall be deemed to be the Fair
Market Value of the Transfer Shares, as determined by the Board in good faith.
If the Optionee proposes to transfer any Transfer Shares to more than one
Proposed Transferee, the Optionee shall provide a separate Transfer Notice for
the proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.

               11.3  Bona Fide Transfer. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 11, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure

                                       10

<PAGE>

described in this Section 11. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.

               11.4  Exercise of Right of First Refusal. If the Company
determines the proposed transfer to be bona fide, the Company shall have the
right to purchase all, but not less than all, of the Transfer Shares (except as
the Company and the Optionee otherwise agree) at the purchase price and on the
terms set forth in the Transfer Notice by delivery to the Optionee of a notice
of exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.

               11.5  Failure to Exercise Right of First Refusal. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 11.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 11.

               11.6  Transferees of Transfer Shares. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 11 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 11 are met.

                                       11

<PAGE>

               11.7  Transfers Not Subject to Right of First Refusal. The Right
of First Refusal shall not apply to any transfer or exchange of the shares
acquired upon exercise of the Option if such transfer or exchange is in
connection with an Ownership Change. If the consideration received pursuant to
such transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 11.9 below result in a termination of the Right of First
Refusal.

               11.8  Assignment of Right of First Refusal. The Company shall
have the right to assign the Right of First Refusal at any time, whether or not
there has been an attempted transfer, to one or more persons as may be selected
by the Company.

               11.9  Early Termination of Right of First Refusal. The other
provisions of this Section 11 notwithstanding, the Right of First Refusal shall
terminate and be of no further force and effect upon (a) the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under this Option Agreement or substitutes a
substantially equivalent option for the Acquiring Corporation's stock for any
portion of the Option remaining unexercised at the time of the Transfer of
Control, or (b) the existence of a public market for the class of shares subject
to the Right of First Refusal. A "public market" shall be deemed to exist if (i)
such stock is listed on a national securities exchange (as that term is used in
the Exchange Act) or (ii) such stock is traded on the over-the-counter market
and prices therefor are published daily on business days in a recognized
financial journal.

         12.   Escrow.

               12.1  Establishment of Escrow. To ensure that shares subject to
the Right of First Refusal or securing any promissory note will be available for
repurchase, the Company may require the Optionee to deposit the certificate
evidencing the shares which the Optionee purchases upon exercise of the Option
with an escrow agent designated by the Company under the terms and conditions of
escrow and security agreements approved by the Company. If the Company does not
require such deposit as a condition of exercise of the Option, the Company
reserves the right at any time to require the Optionee to so deposit the
certificate in escrow. The Company shall bear the expenses of the escrow.

               12.2  Delivery of Shares to Optionee. As soon as practicable
after the expiration of the Right of First Refusal, and after full repayment of
any promissory note secured by the shares in escrow, but not more frequently
than twice each calendar year, the escrow agent shall deliver to the Optionee
the shares no longer subject to such restriction and no longer securing any
promissory note.

               12.3  Notices and Payments. In the event the shares held in
escrow are subject to the Company's exercise of the Right of First Refusal, the
notices required to be given to the Optionee shall be given to the escrow agent,
and any payment required to be given to the Optionee shall be given to the
escrow agent. Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.

                                       12

<PAGE>

         13.   Stock Dividends Subject to Option Agreement. If, from time to
time, there is any stock dividend, stock split, or other change in the character
or amount of any of the outstanding stock of the corporation the stock of which
is subject to the provisions of this Option Agreement, then in such event any
and all new, substituted or additional securities to which the Optionee is
entitled by reason of the Optionee's ownership of the shares acquired upon
exercise of the Option shall be immediately subject to the Right of First
Refusal and any security interest held by the Company with the same force and
effect as the shares subject to the Right of First Refusal and such security
interest immediately before such event.

         14.   Notice of Sales Upon Disqualifying Disposition. The Optionee
shall dispose of the shares acquired pursuant to the Option only in accordance
with the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of this
Option Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence.

         15.   Legends. The Company may at any time place legends referencing
the Right of First Refusal and any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to carry out the provisions of this Section. Unless otherwise
specified by the Company, legends placed on such certificates may include, but
shall not be limited to, the following:

               15.1  "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."

                                       13

<PAGE>

               15.2  "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."

               15.3  "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY
THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK
OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO
ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO . SHOULD THE REGISTERED
HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX
TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."

         16.   Public Offering. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such public offering; provided, however, that such period of
time shall not exceed one hundred eighty (180) days from the effective date of
the registration statement to be filed in connection with such public offering.
The foregoing limitation shall not apply to shares registered in the public
offering under the Securities Act. The foregoing limitation shall remain in
effect for the two (2) year period immediately following the effective date of
the Company's initial public offering and shall thereafter terminate and cease
to have any force or effect. The Optionee shall be subject to this Section
provided and only if the officers and directors of the Company are also subject
to similar arrangements.

         17.   Binding Effect. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

         18.   Termination or Amendment. The Board may terminate or amend the
Plan or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option to qualify as an Incentive Stock Option. No
amendment or addition to this Option Agreement shall be effective unless in
writing.

                                       14

<PAGE>

         19.   Integrated Agreement. This Option Agreement constitutes the
entire understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group other than those as set forth
or provided for herein. To the extent contemplated herein, the provisions of
this Option Agreement shall survive any exercise of the Option and shall remain
in full force and effect.

         20.   Applicable Law. This Option Agreement shall be governed by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.

                                                ACCREDITED HOME LENDERS, INC.

                                                By:_____________________________
                                                   James A. Konrath, President

         The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, including the Right of First Refusal
set forth in Section 11, and hereby accepts the Option subject to all of the
terms and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement.

         The undersigned acknowledges receipt of a copy of the Plan.

                                             OPTIONEE

Date:__________________________________      ___________________________________

                                       15

<PAGE>

                                   Exhibit B

THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.

THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

                          ACCREDITED HOME LENDERS, INC.

                       NONSTATUTORY STOCK OPTION AGREEMENT

       THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "Option Agreement") is made
and entered into as of ___________, ____, by and between Accredited Home
Lenders, Inc. and ______________________ (the "Optionee").

       The Company has granted to the Optionee pursuant to the Accredited Home
Lenders, Inc. 1998 Stock Option Plan (the "Plan") an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").

       1.    Definitions and Construction.

             1.1   Definitions. Whenever used herein, the following terms shall
have their respective meanings set forth below:

                   (a)  "Date of Option Grant" means _________, ____.

                   (b)  "Number of Option Shares" means __________ shares of
Stock, as adjusted from time to time pursuant to Section 9.

                   (c)  "Exercise Price" means $_________ per share of Stock, as
adjusted from time to time pursuant to Section 9.

                   (d)  "Initial Exercise Date" means the Initial Vesting Date.

<PAGE>

             (e)  "Initial Vesting Date" means the date occurring one (1) year
after (check one):

                  [X]  the Date of Option Grant.

                  [_]  ________________ , ____, the date the Optionee's Service
commenced.

             (f)  "Vested Ratio" means, on any relevant date, the ratio
determined as follows:

                                                         Vested Ratio

             Prior to Initial Vesting Date                    0

             On Initial Vesting Date, provided the            1/4
             Optionee's Service has not
             terminated prior to such date

             Plus

             For each full month of the                       1/48
             Optionee's continuous Service from
             the Initial Vesting Date until the
             Vested Ratio equals 1/1, an
             additional

             (g)  "Option Expiration Date" means the date ten (10) years after
the Date of Option Grant.

             (h)  "Board" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "Board"
shall also mean such Committee(s).

             (i)  "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.

             (j)  "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.

             (k)  "Company" means Accredited Home Lenders, Inc., a California
corporation, or any successor corporation thereto.

                                       2

<PAGE>

               (l) "Consultant" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.

               (m) "Director" means a member of the Board or of the board of
directors of any other Participating Company.

               (n) "Disability" means the inability of the Optionee, in the
opinion of a qualified physician, to perform the major duties of the Optionee's
position with the Participating Company Group because of the sickness or injury
of the Optionee.

               (o) "Employee" means any common-law employee (including officers
and Directors who are also common-law employees) of a Participating Company;
provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for this purpose.

               (p) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               (q) "Fair Market Value" means, as of any date, the value of a
share of stock or other property as determined by the Board, in its sole
discretion.

               (r) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.

               (s) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.

               (t) "Participating Company Group" means, at any point in time,
all corporations collectively which are then Participating Companies.

               (u) "Securities Act" means the Securities Act of 1933, as
amended.

               (v) "Service" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company.

               (w) "Stock" means the common stock, without par value, of the
Company, as adjusted from time to time in accordance with Section 9.

               (x) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

                                       3

<PAGE>

           1.2  Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.

      2.   Tax Status of the Option. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.

      3.   Administration. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.

      4.   Exercise of the Option.

           4.1   Right to Exercise. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in Section 11. In no event shall the
Option be exercisable for more shares than the Number of Option Shares.

           4.2   Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
determine, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
Exercise Price for the number of shares of Stock being purchased and (ii) an
executed copy, if required herein, of the then current forms of escrow and
security agreement referenced below. The Option shall be deemed to be exercised
upon receipt by the Company of such written notice, the aggregate Exercise
Price, and, if required by the Company, such executed agreements.

                                       4

<PAGE>

        4.3    Payment of Exercise Price.

               (a)   Forms of Payment Authorized. Except as otherwise provided
below, payment of the aggregate Exercise Price for the number of shares of Stock
for which the Option is being exercised shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (determined without regard to any
restrictions on transferability applicable to such stock by reason of federal or
state securities laws or agreements with an underwriter for the Company) not
less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise,
as defined in Section 4.3((c)), (iv) if expressly authorized by the Company, in
its sole discretion, at the time of Option exercise, by the Optionee's
promissory note for the aggregate Exercise Price, or (v) by any combination of
the foregoing.

               (b)   Tender of Stock. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.

               (c)   Cashless Exercise. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.

               (d)   Payment by Promissory Note. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3((a)) shall be a full recourse note in a form satisfactory to the Company,
with principal payable four (4) years after the date the Option is exercised.
Interest on the principal balance of the promissory note shall be payable in
annual installments at the minimum interest rate necessary to avoid imputed
interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.

                                       5

<PAGE>

            4.4   Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for, any sums required
to satisfy the federal, state, local and foreign tax withholding obligations of
the Participating Company Group, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired upon exercise of the Option, (iii) the operation of
any law or regulation providing for the imputation of interest, or (iv) the
lapsing of any restriction with respect to any shares acquired upon exercise of
the Option. The Optionee is cautioned that the Option is not exercisable unless
the tax withholding obligations of the Participating Company Group are
satisfied. Accordingly, the Optionee may not be able to exercise the Option when
desired even though the Option is vested, and the Company shall have no
obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.

            4.5   Certificate Registration. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, the heirs of the Optionee.

            4.6   Restrictions on Grant of the Option and Issuance of Shares.
The grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company's legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.

            4.7   Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.

       5.   Nontransferability of the Option. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative

                                       6

<PAGE>

and may not be assigned or transferred in any manner except by will or by the
laws of descent and distribution. Following the death of the Optionee, the
Option, to the extent provided in Section 7, may be exercised by the Optionee's
legal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.

       6.   Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.

       7.   Effect of Termination of Service.

            7.1   Option Exercisability.

                  (a)   Disability. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option may be exercised by the Optionee (or the Optionee's
guardian or legal representative) at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.

                  (b)   Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option may
be exercised by the Optionee (or the Optionee's legal representative or other
person who acquired the right to exercise the Option by reason of the Optionee's
death) at any time prior to the expiration of twelve (12) months after the date
on which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.

                  (c)   Other Termination of Service. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.

            7.2   Additional Limitation on Option Exercise. Except as the
Company and the Optionee otherwise agree, exercise of the Option pursuant to
Section 7.1 following termination of the Optionee's Service may not be made by
delivery of a promissory note as provided in Section 4.3((a)).

            7.3   Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3)

                                       7

<PAGE>

months after the date the Optionee is notified by the Company that the Option is
exercisable, but in any event no later than the Option Expiration Date.

            7.4   Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.

            7.5   Leave of Absence. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.

      8.    Ownership Change and Transfer of Control.

            8.1   Definitions.

                  (a)   An "Ownership Change" shall be deemed to have occurred
in the event any of the following occurs with respect to the Company:

                        (i)   the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company;

                        (ii)  a merger or consolidation in which the Company is
a party;

                        (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one or more Subsidiary Corporations of the Company); or

                        (iv)  a liquidation or dissolution of the Company.

                  (b)   A "Transfer of Control" shall mean

                        (i)   an Ownership Change described in Sections
8.1((a))((i)) or 8.1((a))((ii)) in which the shareholders of the Company before
such Ownership Change do not retain, directly or indirectly, as a result of
their ownership of shares of the Company's stock prior to such event, beneficial
ownership of at least a majority of the voting stock of the Company after such
event; or

                                       8

<PAGE>

                       (ii)   an Ownership Change described in Sections
8.1((a))((iii)) or 8.1((a))((iv)).

           8.2   Effect of Transfer of Control on Option. In the event of a
Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under this Option Agreement or substitute a substantially equivalent option for
the Acquiring Corporation's stock for the Option. The Option shall terminate and
cease to be outstanding effective as of the date of the Transfer of Control to
the extent that the Option is neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control.

      9.   Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option.

      10.  Rights as a Shareholder, Employee, Director or Consultant. The
Optionee shall have no rights as a shareholder with respect to any shares
covered by the Option until the date of the issuance of a certificate for the
shares for which the Option has been exercised. No adjustment shall be made for
dividends, distributions or other rights for which the record date is prior to
the date such certificate is issued, except as provided in Section 9. Nothing in
this Option Agreement shall confer upon the Optionee any right to continue in
the Service of a Participating Company or interfere in any way with any right of
the Participating Company Group to terminate the Optionee's Service as an
Employee, Director or Consultant, as the case may be, at any time.

      11.  Right of First Refusal.

           11.1   Grant of Right of First Refusal. Except as provided in Section
11.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any shares acquired upon
exercise of the Option (the "Transfer Shares") to any person or entity,
including, without limitation, any shareholder of the Participating Company
Group, the Company shall have the right to repurchase the Transfer Shares under
the terms and subject to the conditions set forth in this Section 11 (the "Right
of First Refusal").

                                       9

<PAGE>

        11.2 Notice of Proposed Transfer. Prior to any proposed transfer of the
Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.

        11.3 Bona Fide Transfer. If the Company determines that the information
provided by the Optionee in the Transfer Notice is insufficient to establish the
bona fide nature of a proposed voluntary transfer, the Company shall give the
Optionee written notice of the Optionee's failure to comply with the procedure
described in this Section 11, and the Optionee shall have no right to transfer
the Transfer Shares without first complying with the procedure described in this
Section 11. The Optionee shall not be permitted to transfer the Transfer Shares
if the proposed transfer is not bona fide.

        11.4 Exercise of Right of First Refusal. If the Company determines the
proposed transfer to be bona fide, the Company shall have the right to purchase
all, but not less than all, of the Transfer Shares (except as the Company and
the Optionee otherwise agree) at the purchase price and on the terms set forth
in the Transfer Notice by delivery to the Optionee of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's right to exercise
the Right of First Refusal with respect to any proposed transfer described in
any other Transfer Notice, whether or not such other Transfer Notice is issued
by the Optionee or issued by a person other than the Optionee with respect to a
proposed transfer to the same Proposed Transferee. If the Company exercises the
Right of First Refusal, the Company and the Optionee shall thereupon consummate
the sale of the Transfer Shares to the Company on the terms set forth in the
Transfer Notice within sixty (60) days after the date the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed
Transferee); provided, however, that in the event the Transfer Notice provides
for the payment for the Transfer Shares other than in cash, the Company shall
have the option of paying for the Transfer Shares by the present value cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.

        11.5 Failure to Exercise Right of First Refusal. If the Company fails to
exercise the Right of First Refusal in full (or to such lesser extent as the
Company and the Optionee otherwise agree) within the period specified in Section
11.4 above, the Optionee may

                                       10

<PAGE>

conclude a transfer to the Proposed Transferee of the Transfer Shares on the
terms and conditions described in the Transfer Notice, provided such transfer
occurs not later than ninety (90) days following delivery to the Company of the
Transfer Notice. The Company shall have the right to demand further assurances
from the Optionee and the Proposed Transferee (in a form satisfactory to the
Company) that the transfer of the Transfer Shares was actually carried out on
the terms and conditions described in the Transfer Notice. No Transfer Shares
shall be transferred on the books of the Company until the Company has received
such assurances, if so demanded, and has approved the proposed transfer as bona
fide. Any proposed transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed transfer by
the Optionee, shall again be subject to the Right of First Refusal and shall
require compliance by the Optionee with the procedure described in this Section
11.

              11.6   Transferees of Transfer Shares. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 11 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 11 are met.

              11.7   Transfers Not Subject to Right of First Refusal. The Right
of First Refusal shall not apply to any transfer or exchange of the shares
acquired upon exercise of the Option if such transfer or exchange is in
connection with an Ownership Change. If the consideration received pursuant to
such transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 11.9 below result in a termination of the Right of First
Refusal.

              11.8   Assignment of Right of First Refusal. The Company shall
have the right to assign the Right of First Refusal at any time, whether or not
there has been an attempted transfer, to one or more persons as may be selected
by the Company.

              11.9   Early Termination of Right of First Refusal. The other
provisions of this Section 11 notwithstanding, the Right of First Refusal shall
terminate and be of no further force and effect upon (a) the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under this Option Agreement or substitutes a
substantially equivalent option for the Acquiring Corporation's stock for any
portion of the Option remaining unexercised at the time of the Transfer of
Control, or (b) the existence of a public market for the class of shares subject
to the Right of First Refusal. A "public market" shall be deemed to exist if (i)
such stock is listed on a national securities exchange (as that term is used in
the Exchange Act) or (ii) such stock is traded on the over-the-counter market
and prices therefor are published daily on business days in a recognized
financial journal.

        12.   Escrow.

              12.1   Establishment of Escrow. To ensure that shares subject to
the Right of First Refusal or securing any promissory note will be available for
repurchase, the Company may

                                       11

<PAGE>

require the Optionee to deposit the certificate evidencing the shares which the
Optionee purchases upon exercise of the Option with an escrow agent designated
by the Company under the terms and conditions of escrow and security agreements
approved by the Company. If the Company does not require such deposit as a
condition of exercise of the Option, the Company reserves the right at any time
to require the Optionee to so deposit the certificate in escrow. The Company
shall bear the expenses of the escrow.

             12.2  Delivery of Shares to Optionee. As soon as practicable after
the expiration of the Right of First Refusal, and after full repayment of any
promissory note secured by the shares in escrow, but not more frequently than
twice each calendar year, the escrow agent shall deliver to the Optionee the
shares no longer subject to such restriction and no longer securing any
promissory note.

             12.3  Notices and Payments. In the event the shares held in escrow
are subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent, and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.

      13.   Stock Dividends Subject to Option Agreement. If, from time to time,
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new, substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Right of First Refusal and any
security interest held by the Company with the same force and effect as the
shares subject to the Right of First Refusal and such security interest
immediately before such event.

      14.   Legends. The Company may at any time place legends referencing the
Right of First Refusal and any applicable federal, state or foreign securities
law restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:

            14.1   "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER,

                                       12

<PAGE>

ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT."

             14.2  "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."

       15.   Public Offering. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such public offering; provided, however, that such period of
time shall not exceed one hundred eighty (180) days from the effective date of
the registration statement to be filed in connection with such public offering.
The foregoing limitation shall not apply to shares registered in the public
offering under the Securities Act. The foregoing limitation shall remain in
effect for the two (2) year period immediately following the effective date of
the Company's initial public offering and shall thereafter terminate and cease
to have any force or effect. The Optionee shall be subject to this Section
provided and only if the officers and directors of the Company are also subject
to similar arrangements.

       16.   Binding Effect. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

       17.   Termination or Amendment. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.

       18.   Integrated Agreement. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group other than those as set forth
or provided for herein. To the extent contemplated herein, the provisions of
this Option Agreement shall survive any exercise of the Option and shall remain
in full force and effect.

                                       13

<PAGE>

       19.   Applicable Law. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.

                                         ACCREDITED HOME LENDERS, INC.

                                         By:____________________________________

                                         Title:_________________________________

       The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in Section 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement.

       The undersigned acknowledges receipt of a copy of the Plan.

                                         OPTIONEE

Date:_________________________________   _______________________________________

                                       14

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