UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(RULE
14a-101)
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed
by the Registrant:
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ý
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Filed
by a Party other than the Registrant:
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Check
the appropriate box:
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Preliminary
Proxy Statement
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¨
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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REDWOOD
TRUST, INC.
(Name
of
Registrant as Specified in Its Charter)
__________________________________________________________
(Name
of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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ý
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No
fee required.
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¨
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the Form or Schedule and the date of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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REDWOOD
TRUST, INC.
One
Belvedere Place, Suite 300
Mill
Valley, California 94941
(415)
389−7373
______________________________________
NOTICE
OF 2008
ANNUAL MEETING OF STOCKHOLDERS
To
the
Stockholders of Redwood Trust, Inc.:
You
are
cordially invited to attend the Annual Meeting of Stockholders of Redwood Trust,
Inc., a Maryland corporation, to be held on May 22, 2008 at 10:30 a.m.,
local time, at the Acqua Hotel, 555 Redwood Highway, Mill Valley, California
94941, for the following purposes:
1.
To
elect three Class II directors to serve until the Annual Meeting of Stockholders
in 2011 and until their successors are duly elected and qualified;
2.
To
ratify the appointment of Grant Thornton LLP as our independent registered
public accounting firm for 2008;
3.
To
consider and vote upon an amendment to our 2002 Incentive
Plan;
4.
To
consider
and vote upon an
amendment to our Charter;
5.
To
consider
and vote upon a
stockholder proposal; and
6.
To
transact such other business as may properly come before the Annual Meeting
or
any adjournment or postponement of the Annual Meeting.
A
Proxy
Statement describing the matters to be considered at the Annual Meeting is
attached to this notice. Our Board of Directors has fixed the close of business
on March 31, 2008 as the record date for determination of stockholders entitled
to notice of, and to vote at, the Annual Meeting and any adjournment or
postponement of the Annual Meeting.
Your
proxy to vote your shares at the Annual Meeting is solicited by our Board of
Directors, which recommends that your votes be cast “FOR” the specified nominees
for election as directors, “FOR” ratification of the appointment of our
independent registered public accounting firm for 2008, “FOR” approval of the
amendment to the 2002 Incentive Plan, “FOR” approval of the amendment to our
charter, and “AGAINST” the stockholder proposal concerning our classified board
of directors.
We
would
like your shares to be represented at the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, we respectfully request that you date,
execute, and promptly mail the enclosed proxy card in the accompanying
postage-paid envelope or authorize a proxy to vote your shares by telephone
or
via the Internet as instructed on the proxy card.
Important
Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting
to Be Held on May 22, 2008:
Our
Proxy Statement and our Annual Report on Form 10-K for the year ended December
31, 2007 are available at http://www.redwoodtrust.com/phoenix.zhtml?c=117494&p=irol-eproxy
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By
Order of the Board of Directors,
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Martin
S. Hughes
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Chief
Financial Officer and Secretary
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April
, 2008
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YOUR
VOTE IS IMPORTANT.
PLEASE
PROMPTLY MARK, DATE, SIGN, AND RETURN YOUR PROXY CARD
IN
THE ENCLOSED ENVELOPE
OR
AUTHORIZE A PROXY TO VOTE YOUR SHARES BY TELEPHONE
OR
THROUGH THE INTERNET AS INSTRUCTED ON THE PROXY CARD.
TABLE
OF CONTENTS
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Page
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INTRODUCTION
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1
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INFORMATION
ABOUT THE ANNUAL MEETING
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1
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Who
May Attend the Annual Meeting
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1
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Who
May Vote
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1
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Voting
by Proxy
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2
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Quorum
Requirement
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2
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Other
Matters
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2
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Information
About the Proxy Statement and the Solicitation of Proxies
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2
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Annual
Report
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2
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Householding
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2
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CORPORATE
GOVERNANCE
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3
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Corporate
Governance Standards
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3
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Director
Independence
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3
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Process
for Nominating Potential Director Candidates
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3
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Code
of Ethics
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4
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Presiding
Director
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4
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Executive
Sessions
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4
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Communications
with the Board of Directors
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4
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Director
Attendance at Annual Meetings of Stockholders
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4
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Stock
Ownership by Directors
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4
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ITEM
1 — ELECTION OF DIRECTORS
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4
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Vote
Required
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5
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Class
II Nominees to Board of Directors
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5
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Current
Directors - Terms Expiring After 2008
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5
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MEETINGS
AND COMMITTEES OF THE BOARD OF DIRECTORS
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6
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Audit
Committee
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6
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Compensation
Committee
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7
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Governance
and Nominating Committee
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7
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Committee
Members
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7
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DIRECTOR
COMPENSATION
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7
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EXECUTIVE
OFFICERS
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9
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SECURITY
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
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10
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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11
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EXECUTIVE
COMPENSATION
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11
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Compensation
Discussion and Analysis
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11
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Compensation
Philosophy and Objectives
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12
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Determination
of Compensation
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12
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Compensation
Benchmarking
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13
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Base
Salary
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14
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Performance-Based
Compensation
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14
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Long-Term
Compensation Awards
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15
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Deferred
Compensation
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16
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Employee
Stock Purchase Plan
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16
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401(k)
and Other Contributions
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17
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Other
Benefits
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17
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Severance
and Change of Control Arrangements
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17
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Tax
Considerations
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18
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Policies
with Respect to Incentive Compensation
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18
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Executive
Compensation Tables
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19
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Summary
Compensation
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19
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Grants
of Plan-Based Awards
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21
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Outstanding
Equity Awards at Fiscal Year-End
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22
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Options
Exercised and Stock Vested
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26
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Non-Qualified
Deferred Compensation
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26
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Potential
Payments upon Termination or Change of Control
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27
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Compensation
Committee Report
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30
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ADDITIONAL
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
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30
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Section
16(a) Beneficial Ownership Reporting Compliance
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30
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Compensation
Committee Interlocks and Insider Participation
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31
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Certain
Relationships and Related Transactions
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31
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AUDIT
COMMITTEE MATTERS
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31
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Audit
Committee Report
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31
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Fees
to Independent Registered Public Accounting Firm for 2007 and
2006
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32
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Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Registered Independent Accounting Firm
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32
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ITEM
2 — RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
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32
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Vote
Required
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33
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ITEM
3 — APPROVAL OF AMENDMENT TO THE 2002 INCENTIVE PLAN
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33
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Material
Difference: Increase in Authorized Shares
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34
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General
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34
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Purpose
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34
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Administration
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34
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Eligible
Persons
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34
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Shares
Subject to the Incentive Stock Plan
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35
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Term
of Options and SARs
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35
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Limitation
on ISO Treatment.
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35
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Option
Exercise
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36
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Option
Exercise Price
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36
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Limited
Transferability of Options
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36
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Other
Equity Awards
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36
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Stock
Awards
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36
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Performance
Units
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36
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DERs
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37
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Amendment
and Termination of Plan
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37
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Awards
under the Plan
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38
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Vote
Required
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39
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ITEM
4 — APPROVAL OF THE AMENDMENT TO REDWOOD’S CHARTER TO INCREASE THE
NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
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39
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Purpose
and Effect of the Amendment
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39
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Vote
Required
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40
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ITEM
5 — STOCKHOLDER PROPOSAL CONCERNING REDWOOD’S CLASSIFIED BOARD OF
DIRECTORS
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40
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Stockholder
Proposal
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40
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Supporting
Statement from Mr. Armstrong
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40
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Board
of Directors Statement Against this Stockholder Proposal
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41
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Vote
Required
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42
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STOCKHOLDER
PROPOSALS FOR THE 2009 ANNUAL MEETING
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43
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INFORMATION
INCORPORATED BY REFERENCE
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43
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REDWOOD
TRUST, INC.
One
Belvedere Place, Suite 300
Mill
Valley, California 94941
(415)
389−7373
______________________________________
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON MAY 22, 2008
INTRODUCTION
This
Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of Redwood Trust, Inc., a Maryland corporation
(the Company, Redwood, we or us), for exercise at the Annual Meeting of
Stockholders (the Annual Meeting) to be held on Thursday, May 22, 2008 at
10:30 a.m., local time, at the Acqua Hotel, 555 Redwood Highway, Mill Valley,
California 94941, and at any adjournment or postponement thereof. This Proxy
Statement, the accompanying proxy card, and the Notice of Annual Meeting are
being sent to stockholders beginning on or about April , 2008.
Redwood
Trust is a financial institution with competitive advantages in the business
of
investing in real estate loans and securities. Since Redwood was founded in
1994, our goal has been to create a company that is more efficient than banks,
thrifts, insurance companies, and other financial institutions at investing
in,
financing, and managing residential and commercial real estate loans and
securities.
Like
many
financial institutions, our primary source of income is net interest income,
which equals the interest income we earn from our investments in loans and
securities less the interest expenses we incur from borrowed funds and other
liabilities.
Some
financial institutions fund their asset investments with borrowed money sourced
by taking bank deposits, writing insurance policies, or issuing corporate debt.
By contrast, we fund most of our investments with equity. Our investments are
sourced from third party issuers of securitizations as well as the two
securitization programs we sponsor.
The
address and telephone number of our principal executive office are as set forth
above and our website is www.redwoodtrust.com.
INFORMATION
ABOUT THE ANNUAL MEETING
Who
May Attend the Annual Meeting
Only
stockholders who own common stock as of the close of business on March 31,
2008,
the record date for the Annual Meeting, will be entitled to attend the Annual
Meeting. In the discretion of management, we may permit certain other
individuals to attend the Annual Meeting, including members of the media and
our
employees.
Who
May Vote
Each
share of our common stock outstanding on the record date for the Annual Meeting
is entitled to one vote. The record date for determining stockholders entitled
to notice of, and to vote at, the Annual Meeting is the close of business on
March 31, 2008. As of the record date, there were 32,709,963 shares of common
stock issued and outstanding. You can vote in person at the Annual Meeting
or by
proxy. To vote by proxy, please date, execute, and mail the enclosed proxy
card,
or authorize a proxy to vote your shares by telephone or through the Internet
as
instructed on the proxy card.
If
your
shares are held in the name of a bank, broker, or other holder of record, you
will receive instructions from the holder of record that you must follow in
order for your shares to be voted. If your shares are not registered in your
own
name and you plan to vote your shares in person at the Annual Meeting, you
should contact your broker or agent to obtain a broker’s proxy card and bring it
to the Annual Meeting in order to vote.
Voting
by Proxy
If
you
vote by proxy, the individuals named on the proxy, or their substitutes, will
vote your shares in the manner you indicate. If you date, sign, and return
the
proxy card without indicating your instructions, your shares will be voted
as
follows:
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For
the election of each of the three Class II nominees to serve until
the
Annual Meeting of Stockholders in 2011 and until their successors
are duly
elected and qualified;
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For
the ratification of the appointment of Grant Thornton LLP as our
independent registered public accounting firm for 2008;
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For
the approval of the amendment to our 2002 Incentive
Plan;
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For
the approval of the amendment to our Charter;
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Against
the stockholder proposal; and
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In
the discretion of the proxy holder on any other matter that properly
comes
before the Annual Meeting.
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You
may
revoke or change your proxy at any time before it is exercised by delivering
to
us a signed proxy with a date later than your previously delivered proxy, by
voting in person at the Annual Meeting, or by sending a written revocation
of
your proxy addressed to Redwood’s Secretary at our principal executive
office.
Quorum
Requirement
The
presence, in person or by proxy, of stockholders entitled to cast a majority
of
all the votes entitled to be cast at the Annual Meeting constitutes a quorum
for
the transaction of business. Abstentions and broker non-votes are counted as
present for purposes of establishing a quorum. A broker “non-vote” occurs when a
nominee holding shares for a beneficial owner has not received instructions
from
the beneficial owner and does not have or chooses not to exercise discretionary
authority to vote the shares.
Other
Matters
Our
Board
of Directors knows of no other matters that may be presented for stockholder
action at the Annual Meeting. If other matters do properly come before the
meeting, however, it is intended that the persons named in the proxies will
vote
upon them in their discretion.
Information
About the Proxy Statement and the Solicitation of Proxies
The
enclosed proxy is solicited by our Board of Directors and we will bear the
costs
of this solicitation. Proxy solicitations will be made by mail, and also may
be
made by personal interview, telephone, facsimile transmission, e-mail, and
telegram on our behalf by our directors and officers. Banks, brokerage houses,
nominees, and other fiduciaries will be requested to forward the proxy
soliciting material to the beneficial owners of shares of our common stock
entitled to be voted at the Annual Meeting and to obtain authorization for
the
execution of proxies. We will, upon request, reimburse those parties for their
reasonable expenses in forwarding proxy materials to their beneficial owners.
We
have engaged MacKenzie Partners to solicit votes in connection with the Annual
Meeting, and the cost of the engagement is estimated to be $10,000, plus
reasonable out-of-pocket expenses.
Annual
Report
Our
2007
Annual Report, consisting of our Annual Report on Form 10-K for the year ended
December 31, 2007, is being mailed to stockholders together with this Proxy
Statement and contains financial and other information about Redwood, including
audited financial statements for our fiscal year ended December 31, 2007.
Certain sections of our 2007 Annual Report are incorporated into this Proxy
Statement by reference, as described in more detail under “Information
Incorporated by Reference” below. A copy of our 2007 Annual Report is available
on our website.
Householding
We
have
adopted a procedure approved by the Securities and Exchange Commission (SEC)
called “householding.” Under this procedure, stockholders of record who have the
same address and last name and do not participate
in electronic delivery of proxy materials will receive only one copy of our
Notice of Annual Meeting, Proxy Statement, and Annual Report, unless one or
more
of these stockholders notifies us that they wish to continue receiving
individual copies. This procedure reduces our printing costs and postage
fees.
Stockholders
who participate in householding will continue to receive separate proxy cards.
Also, householding will not in any way affect dividend check
mailings.
If
you
are eligible for householding, but you and other stockholders of record with
whom you share an address currently receive multiple copies of the Notice of
Annual Meeting, Proxy Statement, and Annual Report, or if you hold stock in
more
than one account, and in either case you wish to receive only a single copy
of
each of these documents for your household, please contact our transfer agent,
Computershare Trust Company, N.A. (in writing at: Computershare Investor
Services, 2 N. LaSalle Street, Chicago, IL 60602; or by telephone at:
888-472-1955).
If
you
participate in householding and wish to receive a separate copy of this Notice
of Annual Meeting, Proxy Statement, and 2007 Annual Report, or if you do not
wish to participate in householding and prefer to receive separate copies of
these documents in the future, please contact Computershare as indicated
above.
Beneficial
owners can request information about householding from their banks, brokers,
or
other holders of record.
CORPORATE
GOVERNANCE
Corporate
Governance Standards
Our
Board
of Directors has adopted Corporate Governance Standards (Governance Standards).
Our Governance Standards are available on our website as well as in print at
the
written request of any stockholder addressed to Redwood’s Secretary at our
principal executive office. The Governance Standards contain general principles
regarding the composition and functions of our Board of Directors and its
committees.
Director
Independence
As
required under Section 303A of the New York Stock Exchange Listed Company Manual
and our Governance Standards, our Board of Directors has affirmatively
determined that none of our non-management directors, Richard D. Baum, Thomas
C.
Brown, Mariann Byerwalter, Greg H. Kubicek, Georganne C. Proctor, Charles J.
Toeniskoetter, and David L. Tyler, has a material relationship (either directly
or as a partner, shareholder, or officer of an organization that has a
relationship) with us and that each qualifies as “independent” under Section
303A.
Process
for Nominating Potential Director Candidates
Director
Qualifications.
Our
Governance Standards contain Board membership criteria that apply to nominees
for our Board of Directors. The Governance Standards require that each member
of
our Board of Directors must exhibit high standards of integrity, commitment,
and
independence of thought and judgment, and must be committed to promoting the
best interests of Redwood. In addition, each director must devote the time
and
effort necessary to be a responsible and productive member of our Board of
Directors. This includes developing knowledge about Redwood’s business
operations and doing the work necessary to participate actively and effectively
in Board and committee meetings. The members of our Board of Directors should
collectively possess a broad range of talent, skill, expertise, and experience
useful to effective oversight of our business and affairs and sufficient to
provide sound and prudent guidance with respect to our operations and
interests.
Identifying
and Evaluating Nominees for Directors.
Our
Board of Directors nominates director candidates for election by stockholders
at
each annual meeting and elects new directors to fill vacancies on our Board
of
Directors between annual meetings of the stockholders. Our Board of Directors
has delegated the selection and initial evaluation of potential director
nominees to the Governance and Nominating Committee with input from the Chief
Executive Officer and the President. The Governance and Nominating Committee
makes the final recommendation of candidates to our Board of Directors for
nomination. Our Board of Directors, taking into consideration the assessment
of
the Governance and Nominating Committee, also determines whether a nominee
would
be an independent director.
Stockholders’
Nominees.
Our
Bylaws permit stockholders to nominate a candidate for election as a director
at
an annual meeting of the stockholders subject to compliance with certain notice
and informational requirements, as more fully described below in this Proxy
Statement under “Stockholder Proposals for the 2009 Annual Meeting.” A copy of
the full text of our Bylaws may be obtained by any stockholder upon written
request addressed to Redwood’s Secretary at our principal executive office. Any
stockholder nominations should include the nominee’s name and qualifications for
Board membership and should be addressed to Redwood’s Secretary at our principal
executive office.
The
policy of the Governance and Nominating Committee is to consider properly
submitted stockholder nominations for candidates for election to our Board
of
Directors. The Governance and Nominating Committee evaluates stockholder
nominations in connection with its responsibilities set forth in its written
charter and applies the qualification criteria set forth in the Governance
Standards under “Director Qualifications.”
Code
of Ethics
Our
Board
of Directors has adopted a Code of Business Conduct and Ethics (Code of Ethics)
that applies to all of our directors, officers, and employees. Our Code of
Ethics is available on our website as well as in print at the written request
of
any stockholder addressed to Redwood’s Secretary at our principal executive
office.
We
intend
to post on our website, and disclose in a Current Report on Form 8-K to the
extent required by applicable regulations, any change to the provisions of
our
Code of Ethics, as well as any waiver of a provision of the Code of
Ethics.
Presiding
Director
Our
Governance Standards provide that the Chair of the Governance and Nominating
Committee of the Board of Directors will serve as the Presiding Director for
our
independent directors, chairing executive sessions of our independent directors,
and performing other duties set forth in our Governance Standards. Richard
D.
Baum currently serves as the Presiding Director.
Executive
Sessions
Our
Governance Standards require that our independent directors meet in executive
session at each regularly scheduled meeting of our Board of Directors and at
such other times as determined by our Presiding Director.
Communications
with the Board of Directors
Stockholders
and other interested parties may communicate with our Board of Directors by
e-mail addressed to [email protected].
The
Presiding Director has access to this e-mail address and will provide access
to
the other directors as appropriate. Communications that are intended
specifically for non-management directors should be addressed to the Presiding
Director.
Director
Attendance at Annual Meetings of Stockholders
Pursuant
to our Governance Standards, our directors are expected to attend annual
meetings of stockholders. Seven of our nine directors attended last year’s
Annual Meeting of Stockholders. We expect eight of our nine directors to attend
this year’s Annual Meeting.
Stock
Ownership by Directors
Pursuant
to our Governance Standards, non-employee directors are required to purchase
from their own funds at least $50,000 (as measured on a purchase cost basis,
including deferred stock units acquired in the deferred compensation plan
through the voluntary deferral of what otherwise would have been current cash
compensation) of our common stock within three years from the date of
commencement of their Board membership. In addition, non-employee directors
are
required to own at least $250,000 of our common stock (as measured on a purchase
cost basis, including deferred stock units acquired through both voluntary
and
involuntary deferred compensation) by the later of December 31, 2011 or
five years from the date of commencement of their Board membership. Stock
acquired with respect to the $50,000 stock ownership requirement counts toward
the attainment of the $250,000 stock ownership requirement.
ITEM
1 — ELECTION OF DIRECTORS
Our
Charter and Bylaws provide for a classified Board of Directors consisting of
Classes I, II, and III. Class II directors are scheduled to be elected at the
2008 Annual Meeting to serve for a three-year term and until their successors
are duly elected and qualify. The nominees for the three Class II director
positions are set forth below. In the event we are advised prior to the Annual
Meeting that any nominee will be unable to serve or for good cause will not
serve as a director if elected at the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received
by
them for the nominees listed below and against any other nominees. As of the
date of this Proxy Statement, we are not aware of any nominee who is unable
or
unwilling to serve as a director for the full three-year term. The nominees
listed below currently are serving as directors of Redwood.
Vote
Required
If
a
quorum is present, a plurality of the votes cast at the Annual Meeting is
required for the election of directors. Cumulative voting in the election of
directors is not permitted. Abstentions and broker non-votes will not be counted
as votes cast and will have no effect on the results of the vote in the election
of directors.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR
THE NOMINEES IDENTIFIED BELOW.
Class
II
Nominees to Board of Directors
Name
|
|
Positions
With Redwood
|
Douglas
B. Hansen
|
|
Director
and President
|
Greg
H. Kubicek
|
|
Director
|
Charles
J. Toeniskoetter
|
|
Director
|
Certain
biographical information regarding each nominee for election at the Annual
Meeting is set forth below along with biographical information for other
directors.
Douglas
B. Hansen,
age 50,
is a founder of Redwood and has served as President and a director since 1994.
In November 2007, Mr. Hansen announced his intention to retire
from his position as President of Redwood on or prior to December 31, 2008.
From
1990
through 1997, Mr. Hansen was a Principal with George E. Bull, III Capital
Management, Inc. (GB Capital). GB Capital assisted banks, insurance companies,
and savings and loans in managing portfolios of securitized and unsecuritized
mortgage loans, in arranging collateralized borrowings, in hedging balance
sheet
risks, and with other types of capital markets transactions. GB Capital ceased
operating as a business in 1997. Mr. Hansen holds a B.A. in Economics from
Harvard College and an M.B.A. from Harvard Business School.
Greg
H. Kubicek,
age 51,
has been a director of Redwood since 2002. Mr. Kubicek is President of The
Holt Group, Inc., a real estate company that develops, owns, and manages
commercial real estate properties and is a residential homebuilder. He has
also
served as Chairman of the Board of Cascade Corporation, an international
manufacturing corporation. Mr. Kubicek holds a B.A. in Economics from
Harvard College.
Charles
J. Toeniskoetter,
age 63,
has been a director of Redwood since 1994. Mr. Toeniskoetter is Chairman of
Toeniskoetter & Breeding, Inc., a company that has developed, owns, and
manages over $300 million of commercial and industrial real estate
properties. Mr. Toeniskoetter serves on the Board of Directors of SJW Corp.
and Heritage Commerce Corp., as well as a number of other community
organizations. Mr. Toeniskoetter holds a B.S. in Mechanical Engineering
from the University of Notre Dame and an M.B.A. from the Stanford University
Graduate School of Business.
Current
Directors -
Terms Expiring After 2008
Richard
D. Baum,
age 61,
has been a director of Redwood since 2001. Mr. Baum is the Executive
Director of the California Commission for Economic Development. He served as
the
Chief Deputy Insurance Commissioner for the State of California from 1991 to
1994 and 2003 to 2007. Mr. Baum served from 1996 to 2003 as the President
of Care West Insurance Company, a worker’s compensation insurance company, and
prior to 1991 as Senior Vice President of Amfac, Inc., a diversified operating
company engaged in various businesses, including real estate development and
property management. Mr. Baum holds a B.A. from Stanford University, an
M.A. from the State University of New York, and a J.D. from George Washington
University, National Law Center, Washington, D.C. Mr. Baum is a Class
I director whose term expires in 2010.
George
E. Bull, III,
age 59,
is a founder of Redwood and has served as Chairman of the Board and Chief
Executive Officer of Redwood since 1994. From 1983 through 1997, Mr. Bull
was the President of GB Capital. GB Capital assisted banks, insurance companies,
and savings and loans in managing portfolios of securitized and unsecuritized
mortgage loans, in arranging collateralized borrowings, in hedging balance
sheet
risks, and with other types of capital markets transactions. Mr. Bull holds
a B.A. in Economics from the University of California at Davis. Mr. Bull is
a Class III director whose term expires in 2009.
Mariann
Byerwalter,
age 47,
has been a director of Redwood since 1998. Ms. Byerwalter is currently
Chairman of JDN Corporate Advisory LLC (a privately held advisory services
firm). Ms. Byerwalter served as the Chief Financial Officer and Vice
President for Business Affairs of Stanford University from 1996 to 2001. She
was
a partner and co-founder of America First Financial Corporation from 1987 to
1996, and she served as Chief Operating Officer, Chief Financial Officer, and
a
director of America First Eureka Holdings, a publicly traded institution and
the
holding company for Eureka Bank from 1993 to 1996. She serves on the Board
of
Directors of The PMI Group, Inc., Pacific Life Corp., SRI International,
Burlington Capital Corporation, the Lucile Packard Children’s Hospital, and the
Stanford Hospital and Clinics. She also currently serves on the Board of
Trustees of Stanford University and as a Trustee of certain investment companies
affiliated with Charles Schwab Corporation. Ms. Byerwalter holds a B.A.
from Stanford University and an M.B.A. from Harvard Business School.
Ms. Byerwalter is a Class I director whose term expires in
2010.
Thomas
C. Brown,
age 59,
has been a director of Redwood since 1998. Mr. Brown is currently Chief
Executive Officer and principal shareholder of Urban Bay Properties, Inc.
Mr. Brown has previously held CEO or senior officer positions with PMI
Mortgage Insurance, Centerbank, and Merrill Lynch and Co., Inc. Mr. Brown’s
experience encompasses over 25 years in mortgage finance, real estate, banking,
and investment banking. Mr. Brown holds a B.S. from Boston University and
an M.B.A. from the University of Buffalo. Mr. Brown is a Class III director
whose term expires in 2009.
Georganne
C. Proctor,
age 51,
has been a director of Redwood since March 9, 2006. Ms. Proctor is
currently Executive Vice President and Chief Financial Officer of TIAA-CREF.
From 2003 to 2005, Ms. Proctor was Executive Vice President of Golden West
Financial Corporation, a thrift institution. From 1994 to 1997, Ms. Proctor
was Vice President of Bechtel Group, a global engineering firm, and also served
as its Senior Vice President and Chief Financial Officer from 1997 to 2002
and
as a director from 1999 to 2002. From 1991 to 1994, Ms. Proctor served as
finance director of certain divisions of The Walt Disney Company, a diversified
worldwide entertainment company. Ms. Proctor also serves on the Board of
Directors of Kaiser Aluminum Corporation. Ms. Proctor holds a B.S. in
Business Management from the University of South Dakota and an M.B.A. from
California State University at Hayward. Ms. Proctor is a Class III director
whose term expires in 2009.
David
L. Tyler,
age 70,
has been a director of Redwood since 2001. Mr. Tyler retired in 2001 as
Executive Vice President, director, and Chief Financial Officer of Interland
Corporation, a private owner and developer of commercial centers and apartment
communities. Interland owned and operated in excess of 5,000 multifamily units
and over two million square feet of office space. Prior to his employment at
Interland beginning in 1972, Mr. Tyler served as Controller at Kaiser
Resources from 1968 to 1971 and with the accounting firm Touche Ross from 1963
to 1968. Mr. Tyler holds a B.A from the University of California, Riverside
and an M.B.A from the Graduate School of Business, University of California,
Berkeley. Mr. Tyler is a Class I director whose term expires in
2010.
MEETINGS
AND COMMITTEES OF THE BOARD OF DIRECTORS
Our
Board
of Directors consists of nine directors. Our Board of Directors has established
three committees of the Board: the Audit Committee, the Compensation Committee,
and the Governance and Nominating Committee. The membership during the 2007
fiscal year and the function of each committee are described below. Each of
the
committees has adopted a charter and the charters of all committees are
available on our website and in print at the written request of any stockholder
addressed to Redwood’s Secretary at our principal executive office.
Our
Board
of Directors held a total of seven meetings during 2007. The independent
directors of Redwood meet in executive session at each of the five regularly
scheduled meetings, for a total of five times during 2007. The Chair of the
Governance and Nominating Committee, also designated as the Presiding Director,
presided at executive sessions of the independent directors. No director
attended fewer than 75% of the meetings of the Board of Directors and the
committees on which he or she served, and as noted above, seven of our nine
directors attended last year’s Annual Meeting of Stockholders and eight of our
nine directors are expected to attend this year’s Annual Meeting of
Stockholders.
Audit
Committee
The
Audit
Committee provides oversight regarding accounting, auditing, and financial
reporting practices of Redwood. The Audit Committee consists solely of
non-management directors, all of whom our Board of Directors has determined
are
independent within the meaning of the listing standards of the New York Stock
Exchange (NYSE) and the rules of the SEC. Our Board of Directors has determined
that all members of the Audit Committee are financially literate pursuant to
the
listing standards of the NYSE, and has designated Mr. Tyler and Ms. Proctor
as “audit committee financial experts” as defined under current SEC rules. The
Audit Committee met eight times in 2007 in order to carry out its
responsibilities discussed more fully below under “Audit Committee Matters -
Audit Committee Report.”
Compensation
Committee
The
Compensation Committee reviews and approves Redwood’s compensation philosophy,
reviews the competitiveness of Redwood’s total compensation practices,
determines and approves the annual base salaries and incentive awards paid
to
our named executive officers, approves the terms and conditions of proposed
incentive plans applicable to our named executive officers and other key
management employees, approves and administers Redwood’s employee benefit plans,
and reviews and approves hiring and severance arrangements for our named
executive officers. The Compensation Committee consists solely of non-management
directors, all of whom our Board of Directors has determined are independent
within the meaning of the listing standards of the NYSE. The Compensation
Committee met seven times in 2007 in order to carry out its responsibilities
as
more fully discussed below under “Executive
Compensation - Compensation Discussion and Analysis.”
Governance
and Nominating Committee
The
Governance and Nominating Committee reviews and considers corporate guidelines
and principles, evaluates potential director candidates and recommends qualified
candidates to the full Board, reviews the management succession plan and
executive resources, oversees the evaluation of the Board of Directors, and,
in
collaboration with the Compensation Committee, oversees the evaluation of
management. The Governance and Nominating Committee consists solely of
non-management directors, all of whom our Board of Directors has determined
are
independent within the meaning of the listing standards of the NYSE. The
Governance and Nominating Committee met four times in 2007 in order to carry
out
its responsibilities.
Committee
Members
The
current members of each of the three standing committees are listed below,
with
the Chair appearing first.
Audit
|
|
Compensation
|
|
Governance
and Nominating
|
Greg
H. Kubicek
|
|
Mariann
Byerwalter
|
|
Richard
D. Baum
|
Thomas
C. Brown
|
|
Richard
D. Baum
|
|
Greg
H. Kubicek
|
Georganne
C. Proctor
|
|
Thomas
C. Brown
|
|
Georganne
C. Proctor
|
Charles
J. Toeniskoetter
|
|
David
L. Tyler
|
|
Charles
J. Toeniskoetter
|
David
L. Tyler
|
|
|
|
|
DIRECTOR
COMPENSATION
Information
on our non-employee director compensation to be paid in 2008 is set forth
below.
Annual
Retainer
|
|
$
|
50,000
|
*
|
Board
Meeting Fee (in person attendance)
|
|
$
|
2,000
|
|
Board
Meeting Fee (telephonic attendance)
|
|
$
|
1,000
|
|
Committee
Meeting Fee (in person attendance)
|
|
$
|
2,000
|
|
Committee
Meeting Fee (telephonic
attendance)
|
|
$
|
1,000
|
|
——————
|
*
|
The
Chair of the Audit Committee receives an additional annual retainer
of
$20,000 and the Chairs of the Compensation Committee and the Governance
and Nominating Committee receive an additional annual retainer of
$15,000.
|
Non-employee
directors are also reimbursed for reasonable out-of-pocket expenses incurred
in
attending Board and committee meetings.
Non-employee
directors are also granted deferred stock units each year following the annual
meeting of stockholders. Directors may also be granted equity awards upon their
initial election to the Board. Deferred stock units are credited under Redwood’s
executive deferred compensation plan. The number of deferred stock units granted
is determined by dividing $60,000 by the closing stock price on the grant date.
These deferred stock units are fully-vested upon grant. They are distributed
from the executive deferred compensation plan in shares of common stock at
a
date elected by the director with the earliest distribution date four years
from
the date of grant. Dividend equivalent rights on these deferred stock units
are
paid in cash to directors on each dividend distribution date.
Each
director may elect to defer receipt of cash compensation or dividend equivalent
rights on deferred stock units in Redwood’s executive deferred compensation
plan. Cash balances in the executive deferred compensation plan are unsecured
liabilities of the Company and are utilized by the Company as available capital
to help fund investments and operations. Directors earn a rate of return on
their deferred compensation that is equivalent to 120% of the applicable
long-term federal rate published by the Internal Revenue Service compounded
monthly. Directors have the option of converting their deferrals into deferred
stock units which will entitle them to receive dividend equivalent
rights.
The
following table provides information on non-employee director compensation
for
2007. Directors who are employed by Redwood do not receive any compensation
for
their Board activities.
Non-Employee
Director Compensation - 2007
Name
|
|
Fees
Earned or
Paid in
Cash
($)(1)
|
|
Stock
Awards
($)(2)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
|
|
All Other
Compensation
($)(4)
|
|
TOTAL
($)
|
|
Richard
D. Baum
|
|
$
|
81,000
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
29,800
|
|
$
|
170,800
|
|
Thomas
C. Brown
|
|
$
|
80,000
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
34,525
|
|
$
|
174,525
|
|
Mariann
Byerwalter
|
|
$
|
73,500
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
$
|
3,125
|
|
$
|
42,650
|
|
$
|
179,275
|
|
Greg
H. Kubicek
|
|
$
|
83,500
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
$
|
1,163
|
|
$
|
47,925
|
|
$
|
192,588
|
|
Georganne
C. Proctor
|
|
$
|
73,000
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
133,000
|
|
Charles
J. Toeniskoetter
|
|
$
|
76,000
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
136,000
|
|
David
L. Tyler
|
|
$
|
78,000
|
|
$
|
60,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
44,525
|
|
$
|
182,525
|
|
(1)
|
Fees
earned include the annual retainer and meeting
fees.
|
(2)
|
Value
of deferred stock units awarded
annually.
|
|
Represents
the value of “above-market” interest credited and expensed under the
executive deferred compensation plan. As described below under “Executive
Compensation - Compensation Discussion and Analysis - Deferred
Compensation,” the interest accrual formula for deferred compensation has
been modified and did not accrue above-market rates after June 30,
2007. The table does not include dividend equivalent rights earned
on
deferred stock units or options, as the value of the dividend equivalent
rights was factored into the grant date fair value of the original
deferred stock unit and option awards in accordance with Financial
Accounting Standard No. 123(R), Shared-Based
Payments
(SFAS
123(R)).
|
(4)
|
Represents
gains realized from the exercise of stock options. In 2007, the gains
were
the result of the exercise by each of the designated directors of
2,500
options.
|
EXECUTIVE
OFFICERS
Executive
officers and their positions with Redwood are listed in the table below. For
purposes of this proxy, the named executive officers (NEOs) are
Messrs. Bull, Hansen, Hughes, Nicholas, Sirkis, and Zagunis. Mr.
Sirkis resigned his employment with Redwood effective December 28,
2007.
Name
|
|
Position
With Redwood
|
|
Age
|
|
|
|
|
|
George
E. Bull, III
|
|
Chairman
of the Board and Chief Executive Officer
|
|
59
|
Douglas
B. Hansen
|
|
President
and Director
|
|
50
|
Martin
S. Hughes
|
|
Chief
Financial Officer and Secretary
|
|
50
|
Brett
D. Nicholas
|
|
Chief
Investment Officer
|
|
39
|
Harold
F. Zagunis
|
|
Managing
Director
|
|
50
|
Raymond
S. Jackson
|
|
Managing
Director and Controller
|
|
35
|
The
executive officers serve at the discretion of our Board of Directors.
Biographical information regarding Messrs. Bull and Hansen is provided in
the preceding pages. Biographical information regarding Messrs. Hughes,
Nicholas, Zagunis, and Jackson is set forth below.
Martin
S. Hughes,
age 50,
has served as Chief Financial Officer and Secretary since August 2006 and
Vice President of Redwood since June 2005. Mr.
Hughes, with Mr. Nicholas, is responsible for managing Redwood’s day-to-day
operations.
Mr. Hughes has over 15 years of senior management experience in the
financial services industry. From 2000 to 2004, Mr. Hughes was the
President and Chief Financial Officer of Paymap Inc., a company that develops,
markets, and services electronic payment products. Mr. Hughes served as
Vice President, Chief Financial Officer of Redwood in 1999. Mr. Hughes also
served as Chief Financial Officer of North American Mortgage Company from 1992
to 1998. Prior to 1992, Mr. Hughes was employed for eight years at an
investment banking firm and for four years at Deloitte and Touche LLP.
Mr. Hughes has a B.S. in Accounting from Villanova University.
Brett
D. Nicholas,
age 39,
has served as Chief Investment Officer since November 2007 and Vice President
of
Redwood since 1996. Mr.
Nicholas, with Mr. Hughes, is responsible for managing Redwood’s day-to-day
operations.
Prior
to joining Redwood, he was Vice President of Secondary Marketing at California
Federal Bank, FSB and Vice President of Secondary Marketing at Union Security
Mortgage. Mr. Nicholas holds a B.A. in Economics from the University of
Colorado at Boulder and is a graduate of the Stanford University Executive
Program.
Harold
F. Zagunis,
age 50,
has served as Managing Director since March 2008 and Vice President of Redwood
since 1995. From 2000 to 2006, Mr. Zagunis also served as our Chief
Financial Officer, Controller, Treasurer, and Secretary. Prior to joining
Redwood, Mr. Zagunis was Vice President of Finance for Landmark Land
Company, Inc., a publicly traded company owning savings and loan and real estate
development interests. He currently serves on the Board of Directors of Landmark
Land Company. Mr. Zagunis holds B.A. degrees in Mathematics and Economics
from Willamette University and an M.B.A. from Stanford University Graduate
School of Business.
Raymond
S. Jackson,
age 35,
has served as Managing Director since March 2008 and Vice President and
Controller of Redwood since April 2006. From 1994 to 2006, Mr. Jackson
served as Senior Manager and in other senior positions with the accounting
firms
Deloitte and Touche LLP, KPMG LLP, and PricewaterhouseCoopers LLP in the United
Kingdom and United States, serving clients within the mortgage finance and
banking industry. Mr. Jackson holds a B.S. from the University of
Loughborough, England.
SECURITY
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The
following table sets forth information as of March 31, 2008, on the beneficial
ownership of our common stock by our directors, named executive officers, and
by
all of our directors and executive officers as a group. The table includes
common stock equivalents held by these individuals through Redwood-sponsored
benefits programs. Except as otherwise indicated and for such power that may
be
shared with a spouse, each person has sole investment and voting power with
respect to the shares shown to be beneficially owned. Beneficial ownership
is
determined in accordance with the rules of the SEC.
Name
|
|
Number of
Shares of
Common Stock
Beneficially
Owned(1)
|
|
Percent
of Class
|
|
George
E. Bull, III(2)
|
|
|
794,998
|
|
|
2.40
|
%
|
Douglas
B. Hansen(3)
|
|
|
432,503
|
|
|
1.31
|
%
|
Brett
D. Nicholas(4)
|
|
|
139,256
|
|
|
|
*
|
Harold
F. Zagunis(5)
|
|
|
66,806
|
|
|
|
*
|
Greg
H. Kubicek(6)
|
|
|
62,706
|
|
|
|
*
|
Andrew
I. Sirkis(7)
|
|
|
55,131
|
|
|
|
*
|
David
L. Tyler(8)
|
|
|
31,971
|
|
|
|
*
|
Charles
J. Toeniskoetter(9)
|
|
|
28,815
|
|
|
|
*
|
Martin
S. Hughes(10)
|
|
|
23,681
|
|
|
|
*
|
Richard
D. Baum(11)
|
|
|
21,448
|
|
|
|
*
|
Thomas
C. Brown(12)
|
|
|
13,411
|
|
|
|
*
|
Mariann
Byerwalter(13)
|
|
|
12,667
|
|
|
|
*
|
Georganne
C. Proctor(14)
|
|
|
8,798
|
|
|
|
*
|
All
directors and executive officers as a group (14 persons)
|
|
|
1,695,122
|
|
|
5.01
|
%
|
——————
(1)
|
Represents
shares of common stock outstanding, common stock underlying vested
options
that are exercisable within 60 days of March 31, 2008, and common
stock
underlying deferred stock units that have vested or will vest within
60
days of March 31, 2008.
|
(2)
|
Includes
340,129 shares held of record by the Bull Trust, 600 shares held
of record
by Mr. Bull’s spouse, 347,030 shares issuable upon the exercise of
stock options exercisable within 60 days of March 31, 2008, and 107,239
deferred stock units that have vested or will vest within 60 days
of March
31, 2008.
|
(3)
|
Includes
153,858 shares held of record by the Hansen Revocable Living Trust,
185,263 shares issuable upon the exercise of stock options exercisable
within 60 days of March 31, 2008, and 93,382 deferred stock units
that
have vested or will vest within 60 days of March 31, 2008.
|
(4)
|
Includes
78,084 shares issuable upon the exercise of stock options exercisable
within 60 days March 31, 2008, and 40,728 deferred stock units that
have
vested or will vest within 60 days of March 31, 2008.
|
(5)
|
Includes
38,267 shares issuable upon the exercise of stock options exercisable
within 60 days of March 31, 2008 and 26,852 deferred stock units
that have
vested or will vest within 60 days of March 31,
2008.
|
(6)
|
Includes
14,664 shares held in GK Holt Company Inc. Money Purchase Pension
&
Profit Sharing Plan & Trust, 10,124 shares held in a living trust, 935
shares held of record by Mr. Kubicek’s spouse, 4,342 shares held of
record by Mr. Kubicek’s children, 2,500 shares issuable upon the
exercise of stock options exercisable within 60 days of March 31,
2008,
and 23,804 fully vested deferred stock
units.
|
(7)
|
Consists
of 55,131 fully vested deferred stock
units.
|
(8)
|
Includes
10,000 shares issuable upon the exercise of stock options exercisable
within 60 days of March 31, 2008 and 3,692 fully vested deferred
stock
units.
|
(9)
|
Includes
500 shares with respect to which Mr. Toeniskoetter has voting and
investment power in the Toeniskoetter & Breeding, Inc. Development
Profit Sharing Trust, 12,300 shares issuable upon the exercise of
stock
options exercisable within 60 days of March 31, 2008, and 3,692 fully
vested deferred stock units.
|
(10)
|
Includes
23,681 deferred stock units that have vested or will vest within
60 days
of March 31, 2008.
|
(11)
|
Includes
11,756 shares issuable upon the exercise of stock options exercisable
within 60 days of March 31, 2008 and 3,692 fully vested deferred
stock
units.
|
(12)
|
Includes
7,300 shares issuable upon the exercise of stock options exercisable
within 60 days of March 31, 2008 and 3,692 fully vested deferred
stock
units.
|
(13)
|
Includes
7,300 shares issuable upon the exercise of stock options within 60
days of
March 31, 2008 and 3,692 fully vested deferred stock units.
|
(14)
|
Includes
1,200 shares held in the Proctor Trust and 7,598 deferred stock units
that
have vested or will vest within 60 days of March 31,
2008.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth information as of March 31, 2008, with respect to
shares of our common stock owned by each person or entity (excluding our
executive officers) known by us to be the beneficial owner of more than
5 percent of our common stock.
Name
of Beneficial Owner
|
|
Number of
Shares of
Common
Stock Beneficially
Owned
|
|
Percent
of Class
|
|
Wallace
R. Weitz &
Company(1)
|
|
|
5,945,362
|
|
|
18.17
|
%
|
Davis
Selected Advisers, L.P.(2)
|
|
|
2,935,271
|
|
|
8.97
|
%
|
Wasatch
Advisors, Inc.(3)
|
|
|
2,564,988
|
|
|
7.84
|
%
|
——————
(1)
|
Address:
1125 South 103 Street, Suite 600, Omaha, Nebraska 68124. The information
in the above table and this footnote concerning the shares of common
stock
beneficially owned by Wallace R. Weitz & Company (Weitz) is based upon
the amended Schedule 13G filed by Weitz with the SEC on January 11,
2008.
The aggregate number of shares of common stock beneficially owned
by Weitz
includes 5,945,362 shares with respect to which Weitz has sole dispositive
power, 3,097,202 shares with respect to which it has sole voting
power,
and 2,709,660 shares with respect to which it has shared voting power.
2,790,660
shares
of common stock held by Weitz are subject to a Voting Agreement pursuant
to which Weitz transferred its voting rights with respect to such
shares
to George E. Bull, III and Douglas B. Hansen. Pursuant to that Voting
Agreement, which is not subject to specific duration, shares beneficially
held by Weitz and its affiliates in excess of 9.8% of Redwood’s total
issued and outstanding capital stock (Excess Shares) are subject
to an
irrevocable voting proxy under which Messrs. Bull and Hansen agree
to vote
the Excess Shares on each matter to be voted upon in the same proportion
as the votes cast on such matter by all stockholders other than Weitz
and
its affiliates. Additionally, the aggregate number of shares of common
stock beneficially owned by Weitz (including a portion of the shares
subject to the Voting Agreement described above) includes 2,455,000
shares
held of record by the Weitz Funds-Value Fund and 2,045,515 shares
held of
record by the Weitz Funds-Partners Value Fund.
|
(2)
|
Address:
2949 East Elvira Road, Suite 101, Tucson, Arizona 85706. Share ownership
is based on information furnished by Davis Selected Advisers, L.P.
(Davis)
in a Schedule 13G filed with the SEC on February 12, 2008. According
to that Schedule 13G, Davis has sole dispositive power with respect
to
2,935,271 shares of common stock, sole voting power with respect
to
2,852,026 shares of common stock, and there are no shares with respect
to
which it has either shared voting power or shared dispositive power.
|
(3)
|
Address:
150 Social Hall Avenue, Salt Lake City, UT 84111. Share ownership
is based
on information furnished by Wasatch Advisors, Inc. (Wasatch) in an
amended
Schedule 13G filed with the SEC on February 14, 2008. According to
that amended Schedule 13G, Wasatch has sole voting power and sole
dispositive power with respect to 2,564,988 shares of common stock,
and
there are no shares with respect to which it has either shared voting
power or shared dispositive power.
|
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The
Compensation Committee (the Committee) of Redwood’s Board of Directors consists
exclusively of independent directors as defined by the NYSE. The Committee
acts
on behalf of our Board of Directors in administering Redwood’s executive
compensation plans and programs.
The
Committee consists of Mariann Byerwalter (Chair), Richard D. Baum, Thomas C.
Brown, and David L. Tyler. The Committee met seven times in
2007.
Compensation
Philosophy and Objectives
Redwood
has adopted a performance-based compensation philosophy for its executive
officers that focuses executive behavior on achievement of both near-term and
long-term business objectives and strategies and also strives to ensure
retention of talented individuals in a competitive hiring marketplace. The
Committee is generally responsible for evaluating and administering our
executive compensation programs and practices to ensure that they provide proper
incentives and appropriately drive corporate performance. The Committee seeks
to
closely align executive compensation with individual and Company performance,
both on a short-term and long-term basis, through a mixture of cash compensation
and equity-based awards. Since Redwood’s inception, we have encouraged Company
ownership at both the executive and employee level.
The
Committee’s objectives in establishing executive compensation are as
follows:
|
·
|
Attract
and retain highly qualified and productive
executives;
|
|
·
|
Motivate
executives to enhance the overall performance and profitability of
Redwood, both on a short-term and long-term
basis;
|
|
·
|
Reinforce
the linkage between the interests of Redwood’s stockholders and executives
by encouraging Company ownership and rewarding stockholder value
creation;
and
|
|
·
|
Ensure
that compensation levels are both externally competitive and internally
equitable, while delivering compensation on a cost effective
basis.
|
Cash
compensation each year for Redwood’s executive officers is primarily determined
based on Company performance, with individual performance a secondary
determinant. Redwood seeks to have an executive compensation structure that
awards cash compensation (salary plus bonus) upon achievement of performance
targets that is similar to the median target cash compensation awarded by
companies that compete with Redwood for people and capital. The current target
level for Company performance for this purpose is 11% annual adjusted return
on
equity. For adjusted return on equity performance above or below the target
level, we intend that the compensation program deliver cash compensation that
is
above or below the median range, as applicable. To a lesser degree, total cash
compensation for each year also varies as a function of individual
performance.
With
respect to long-term equity compensation, Redwood seeks to make regular annual
awards at levels that exceed the market median of the Company’s peer group. The
value realized by an executive from these long-term equity compensation awards
will depend on dividends and stock price performance over extended vesting
and
deferral periods, as determined by the Committee to be appropriate.
The
peer
group of companies most recently utilized by the Committee for benchmarking
market medians and ranges is described below.
Determination
of Compensation
The
Committee is charged with the primary authority to make determinations and
recommendations of compensation awards available to Redwood’s NEOs. For 2007,
the NEOs consisted of Messrs. Bull, Hansen, Nicholas, Hughes, Zagunis, and
Sirkis. Redwood’s compensation setting process is dynamic and is evaluated on an
annual basis. As has been its practice for a number of years, the Committee
utilizes the services of a nationally recognized independent compensation
consultant, Frederic W. Cook & Co., Inc., to assist the Committee in
determining the key elements of its compensation programs and to provide
benchmarking analysis. Frederic W. Cook & Co., Inc. does no other work for
Redwood or management.
On
an
annual basis, Frederic W. Cook & Co., Inc. reviews the executive
compensation program with the Committee and assesses the competitiveness of
compensation levels for the NEOs to ensure that the compensation is aligned
with
the Company’s compensation philosophy. Frederic W. Cook & Co., Inc. also
provides the Committee with analysis of compensation practices among the
Company’s peer group and a two-year tally-sheet analysis for each Redwood NEO.
In addition, Frederic W. Cook & Co., Inc. assists the Committee with respect
to the determination of amounts, form, and structure of the compensation
programs adopted by Redwood. Based on the Committee’s judgment and reflecting
Frederic W. Cook & Co., Inc.’s input, Redwood’s executive compensation
package consists of a fixed base salary and variable cash and equity-based
incentive awards, with a significant portion of compensation allocated to the
variable and equity-based components to appropriately align total executive
compensation with individual and Company performance.
Redwood’s
Office of the President, consisting of its Chairman and Chief Executive Officer
and President (the OOP), provides the Committee with its recommendations with
respect to the compensation of the other NEOs. In addition, on an annual basis,
the Committee is provided with a self-assessment from each of the NEOs regarding
their own evaluation of individual and collective performance over the prior
year. The Committee takes these recommendations into consideration when
determining levels of cash and equity compensation.
Compensation
Benchmarking
As
in
prior years, in 2007 the Committee asked Frederic W. Cook & Co., Inc. to
conduct a market pay analysis of a peer group of companies. The Committee
considers the use of a peer group important to remain competitive. In
considering the market pay analysis, the Committee considered the fact that
the
peer group of companies used for comparison did not include generally
higher-paying externally managed REITs, private-equity firms, and hedge funds
with which Redwood must compete for executive talent. Frederic W. Cook &
Co., Inc. did not include those companies in their peer group because they
have
different business economics and pay models than Redwood. The Committee was
also
cognizant of competitive evidence suggesting that the upside potential in
Redwood’s annual bonuses was not commensurate to its peers at higher levels of
Company performance.
Following
the completion of the competitive pay analysis prepared by Frederic W. Cook
& Co., Inc., the Committee concluded that:
|
·
|
The
primary peer group should continue to be other major internally-managed
mortgage REITs and taxable mortgage, investment banking,
specialty-finance, real-estate, and investment management companies
with
comparable business economics and pay models to
Redwood;
|
|
·
|
Salaries
and target annual bonuses should continue to be oriented at or near
the
median target levels of compensation at this group of peer
companies;
|
|
·
|
Executive
annual bonuses should have adequate upside opportunity so that delivered
total annual compensation may potentially reach the top-quartile
of the
peer group for strong absolute Company performance;
and
|
|
·
|
Competitive
pressure from higher-paying related market sectors should be addressed
by
awarding long-term grant values near the 75th percentile relative
to the
peers.
|
The
“peer
group” of companies utilized by the Committee for the 2007 study of 2006
compensation levels and practices consisted of Accredited Home Lenders Company,
Allied Capital Corporation, American Capital Strategies, Ltd., American Home
Mortgage Investment Corporation, Annaly Capital Management, Inc., CapitalSource
Inc., Capital Trust Inc., Centerline Holding Company, Impac Mortgage Holdings
Inc., IndyMac Bancorp Inc., iStar Financial Inc., Northstar Realty Finance
Corporation, Ocwen Financial Corporation, and PHH Corporation. The Committee
reviews the list of peer companies on an annual basis to confirm that the
companies included continue to meet the Committee’s criteria for inclusion. The
Committee also takes into consideration changes in real estate and capital
markets and changes in competitors. Accordingly, the companies included in
the
peer group may change from year to year as a result of this review.
In
the
comparative analysis, executive positions were matched against functional
benchmarks from the peer companies as follows:
|
·
|
Messrs. Bull
and Hansen, were matched to the average of the top two executives
at peer
companies in cases where there were two executives sharing the top
leadership role, and only the Chief Executive Officer at
others.
|
|
·
|
Mr. Nicholas
was generally matched to the Chief Operating Officer, Chief Investment
Officer, or manager of the largest business unit for peer
companies.
|
|
·
|
Mr. Hughes
was matched to the Chief Financial Officer
position.
|
Determination
of compensation for Messrs. Sirkis and Zagunis was based upon internal
equity considerations within Redwood and general market conditions for similarly
positioned executives.
Base
Salary
The
Company seeks to establish base salaries of NEOs around the median of base
salaries paid by the peer group. In setting base salaries for NEOs, in addition
to the analysis prepared by Frederic W. Cook & Co., Inc., the Committee
annually reviews data from available published compensation surveys and proxy
statements filed by the peer group. The Committee reviews base salaries as
one
part of overall compensation for the NEOs annually. The Committee may make
adjustments to base salary based on the executive’s experience and
responsibilities and after consideration of other components of compensation.
As
noted above, base salaries are targeted at the median level relative to the
Company’s peer group.
Effective
January 1, 2008, the Committee increased the salaries of Messrs. Hughes and
Zagunis to reflect increased responsibilities. Mr. Hughes’ annual salary was
increased from $450,000 to $500,000 and Mr. Zagunis’ annual salary was increased
from $325,000 to $400,000. In addition, Mr. Hughes’ target bonus percentage was
increased to 100% in 2008.
Performance-Based
Compensation
Redwood’s
compensation program attempts to reward NEOs based on the Company’s performance
and the individual executive’s contribution to that performance. As an integral
part of this program, executive officers receive annual bonuses in the event
specified Company and individual performance measures are achieved.
In
order
to better align the interests of Redwood’s executive officers with the interests
of its stockholders, the annual bonus plan is weighted 75% on the achievement
of
a predetermined goal of adjusted return on equity (Adjusted ROE) and 25% on
the
achievement of pre-established individual goals. Adjusted ROE is defined as
GAAP
income divided by core equity, subject to adjustment when circumstances warrant
at the discretion of the Committee. Core equity is defined as average GAAP
equity excluding mark-to-market adjustments. The Committee has determined that
Adjusted ROE provides an appropriate measurement of the Company’s performance
because, as a company whose primary source of earnings is income from real
estate investments, the use of core equity reflects the amount of capital the
Company has to invest (excluding the effect of unrealized market valuation
adjustments).
The
Committee determined that individual performance in 2007 would be reviewed
in
the context of the following:
|
·
|
Manage
the credit cycle correctly to benefit and grow the core business,
including:
|
§ |
Reducing
the overall risk to the Company in the event of a significant decline
in
real estate values, while maintaining sufficient upside for stockholders
in case real estate credit performs well,
and
|
§ |
Retaining
sufficient cash to capitalize on potential future growth
opportunities.
|
|
·
|
Diversify
the Company’s opportunities.
|
|
·
|
Be
a leader in each of the Company’s chosen
markets.
|
|
·
|
Commence
development of new initiatives, including initiation of debt-funded
asset
strategies and diversifying CDO types and
issuance.
|
|
·
|
Successfully
complete certain critical internal projects as identified by management
and approved by the Committee.
|
In
2007,
the Committee set the Adjusted ROE Company performance bonus formula as
follows:
|
·
|
For
Adjusted ROE of less than or equal to 7%, no Adjusted ROE Company
performance bonus would be paid;
|
|
·
|
For
Adjusted ROE of 11%, 100% of target Adjusted ROE Company performance
bonus
would be paid;
|
|
·
|
For
Adjusted ROE between 7% and 11%, the Adjusted ROE Company performance
bonus would be pro-rated between 0% and 100%;
and
|
|
·
|
For
Adjusted ROE in excess of 11%, the Company performance bonus would
be
increased by approximately one-third of total target awards for every
1%
increase in Adjusted ROE.
|
The
table
below illustrates the 2007 targets for the executive bonus plan, assuming
achievement by the Company of 11% Adjusted ROE and 100% achievement of
individual performance objectives.
|
|
Each
Member of the OOP
|
|
Nicholas
|
|
Hughes
|
|
Sirkis
|
|
Zagunis
|
|
Base
Salary
|
|
$
|
700,000
|
|
$
|
500,000
|
|
$
|
450,000
|
|
$
|
400,000
|
|
$
|
325,000
|
|
Target
Bonus (%)
|
|
|
125
|
%
|
|
100
|
%
|
|
75
|
%
|
|
75
|
%
|
|
75
|
%
|
Target
Bonus ( $)
|
|
$
|
875,000
|
|
$
|
500,000
|
|
$
|
337,500
|
|
$
|
300,000
|
|
$
|
243,750
|
|
Company
Performance Target (Adjusted ROE Component)
|
|
$
|
656,250
|
|
$
|
375,000
|
|
$
|
253,125
|
|
$
|
225,000
|
|
$
|
182,812
|
|
Individual
Performance Target
|
|
$
|
218,750
|
|
$
|
125,000
|
|
$
|
84,375
|
|
$
|
75,000
|
|
$
|
60,937
|
|
The
individual performance component of the bonus may be earned up to 100% of the
target bonus amount allocated to individual performance. The Adjusted ROE
component of the bonus earns 100% of the Adjusted ROE target amount at 11%,
with
amounts paid in excess of the Adjusted ROE target amount for achievement of
Adjusted ROE in excess of 11%. The maximum sum of the two annual incentive
component awards is $5 million for each of Messrs. Bull and Hansen and
$2 million for each of the other NEOs. These caps were deemed appropriate
maximum bonuses for each of the NEOs based on their position, responsibilities,
level of performance needed to reach the cap, and the peer companies’ bonus
structures.
In
addition, bonus awards earned in excess of 300% of annual base salary are paid
in deferred stock units under the Company’s executive deferred compensation
plan. These deferred stock units are fully vested at the award date, receive
cash dividend equivalent rights (which can be deferred at the executive’s
election), and are distributed in shares at the earlier of three years from
the
date of grant or termination of employment (unless the executive voluntarily
defers for a longer period of time).
In
2007,
the Company Adjusted ROE was less than 7%. Consequently, no Adjusted ROE Company
performance bonus was paid to the NEOs in 2007. In 2007, the individual
performance awards equaled 90% of the target for each NEO.
With
respect to 2008, the Committee has determined that annual bonuses for executives
will continue to be weighted 75% on Company performance in a manner similar
to
2007 and 25% on individual performance metrics.
Long-Term
Compensation Awards
Equity
ownership in Redwood provides an important linkage between the interests of
stockholders and executives by rewarding long-term stockholder value creation.
To meet this objective, officers, directors, key employees, and other persons
expected to contribute to the management, growth, and profitability of Redwood
are eligible to receive long-term equity grants. The Committee determines
guidelines and procedures for the issuance of those grants to the executive
officers. Guidelines are based upon a number of factors, including the executive
officer’s total compensation level, individual and Company performance, and
comparison to executives in similar positions at peer companies. The Committee
also takes into consideration past grants and outstanding awards.
The
Committee has typically made long-term equity grants to the NEOs in the fourth
quarter. However, with respect to 2007, the Committee made long-term equity
grants to the NEOs in January 2008 rather than the fourth quarter of 2007.
With
respect to those grants, 25% of the award vests on January 1, 2009, and an
additional 6.25% vests on the first day of each subsequent quarter, with full
vesting on January 1, 2012, assuming continued service with the Company.
These deferred stock unit awards will be distributed in shares of common stock
on May 1, 2012, unless electively deferred by the executive under the terms
of the executive deferred compensation plan.
The
number of deferred stock units to be granted to each NEO is determined based
on
the dollar amount of the award granted to each NEO divided by the market value
of the stock on the day of the award. In January 2008, the deferred stock unit
awards to the NEOs consisted of the following: each of Messrs. Bull, Hansen,
Hughes, and Nicholas were granted 46,978 deferred stock units, and Mr. Zagunis
was granted 31,319 deferred stock units. These deferred stock units have
a
four year vesting schedule, under which 25% vest on January 1, 2009, and
thereafter, 6.25% vest on the first day of each subsequent quarter. In addition
and in lieu of an additional award of deferred stock units, Messrs. Bull and
Hansen each received, in January 2008, a $1,000,000 credit to the executive
deferred compensation plan. If stockholders approve an increase in shares
available for grant under the 2002 Redwood Incentive Plan, that credit, together
with interest accrued on the credit under the deferred compensation plan, will
be converted, on the day following the Annual Meeting of Stockholders, into
a
number of deferred stock units determined by dividing the amount of the credit,
plus accrued interest, by the closing price of our common stock on the NYSE
on
that day. Until
conversion, the balance will earn interest equivalent to 120% of the applicable
long-term federal rate published by the Internal Revenue Service and is subject
to the same vesting criteria as the deferred stock units awarded to the NEOs
in
January 2008. Dividend equivalent rights on deferred stock units are paid in
cash during the deferral period unless electively deferred by the executive
under the terms of the executive deferred compensation plan. Long-term incentive
grant values to the NEOs for 2007 generally fell between the 50th and 75th
percentile of our peer group.
During
2001 and 2002, stock option grants included a “stock-for-stock reload” feature
to encourage executives and directors to acquire and accumulate ownership of
actual shares of stock, rather than hold unexercised stock options without
ownership and personal investment risk. When a holder of a “reload” option
exercises the option using owned shares of common stock to pay the exercise
price of the option, the option holder is automatically granted,
as of the date of exercise of the original option, a reload option to purchase
the number of shares of common stock equal to the number of shares used to
pay
the exercise price of the original option. The reload option is only for the
remaining term of the original option and is fully-vested at grant. If the
Company withholds shares to pay the option holder’s withholding taxes, the
reload option will also include a number of shares related to the number of
shares withheld. The exercise price of the reload option is the fair market
value of the common stock as of the day the reload option is granted. There
are
no dividend equivalent rights on the reload stock options. Redwood has not
granted stock options with this reload feature since 2002. The Committee does
not consider these reload options to represent incremental compensation value
for purposes of determining current long-term equity grant levels, because
the
reloads are an extension of the originally granted options.
Certain
of the long-term equity grants have attached dividend equivalent rights,
resulting in either current cash payments or additional deferred stock units.
The value of any dividend equivalent rights was recognized at the time that
the
related equity grants were made. Therefore, the value of the current dividend
equivalent right payments or additional deferred stock units are not considered
as part of the compensation value reported above in the table of non-employee
director compensation included under “Director Compensation” or below in the
summary table of NEO compensation under “Executive
Compensation - Executive Compensation Tables - Summary
Compensation.”
The
Committee is in the process of reviewing alternative long-term equity incentive
strategies, with the objective of gaining a competitive advantage for the
Company through increased executive and employee ownership, as well as career
employment retention of outstanding individual performers at all levels of
the
Company.
Deferred
Compensation
Under
the
Company’s executive deferred compensation plan, NEOs may elect to defer up to
100% of their cash compensation as well as dividend equivalent right payments
on
deferred stock units and options, and under certain circumstances, can also
elect to re-defer scheduled distributions of cash or stock from the deferred
compensation plan. Additionally, deferred stock units granted to executives
are
automatically deferred under the executive deferred compensation plan. Deferred
amounts may be deferred until a date chosen by the executive at the time of
the
initial deferral (subject to certain restrictions) or until the executive’s
retirement, at which time the balance in the executive’s account will be paid in
cash or common stock (as applicable), or will be paid out over a period of
up to
15 years, depending upon the executive’s deferral elections. Cash amounts
deferred under the executive deferred compensation plan are credited with
interest at 120% of the long-term applicable federal rate as published by the
Internal Revenue Service.
The
Committee believes its executive deferred compensation plan provides an
important vehicle for the Company’s executives that enables them to
appropriately plan for retirement and benefit from awards granted.
Employee
Stock Purchase Plan
The
Company offers all eligible employees the opportunity to participate in a
tax-qualified Employee Stock Purchase Plan (ESPP). Through payroll deductions,
employees can purchase shares of the Company’s common stock at a discount from
fair market value on a quarterly basis. The purchase price per share is the
lower of (a) 85 percent of the fair market value per share on the
first day of each 12-month offering period (January 1st) or
(b) 85 percent of the fair market value per share on the purchase date
(the end of each calendar quarter, March 31st, June 30th,
September 30th, and December 31st). An employee is eligible to
participate in the ESPP after 90 consecutive days of
employment.
401(k)
and Other Contributions
The
Company offers a tax-qualified 401(k) plan to all employees for retirement
savings. Under the plan, employees are allowed to defer and invest up to 12%
of
their cash earnings (subject to the maximum 401(k) contribution amount) on
a
pre-tax basis in a diversified selection of publicly-traded mutual funds. The
Company also provides a matching contribution of 50% of all 401(k) deferrals
up
to the maximum 401(k) deferral amount (which was $7,750 in 2007). Matching
payments in the 401(k) plan are limited to 8% of an employee’s cash
compensation. Vesting of the 401(k) match payments is based on the employee’s
tenure with the Company, and over time, an employee becomes increasingly vested
in both prior and new matching payments. Employees are fully vested in all
prior
and all new matching payments after six years of employment.
The
Company also matches up to 50% of cash compensation deferred by participants
in
the executive deferred compensation plan. Total matching payments made by the
Company to participants in the executive deferred compensation plan (including
deferred compensation matching plus matches in the 401(k) plan) are limited
to
6% of the participant’s base salary. Deferred compensation matches are
subject to the same six-year vesting schedule as in the 401(k)
plan.
There
are
no other retirement or pension plans at Redwood.
Other
Benefits
In
addition to cash and equity-based compensation, Redwood currently provides
all
employees with a variety of other benefits including medical, dental,
vision, disability, and life insurance. Redwood currently pays approximately
70%
of an employee’s monthly premium for medical and dental coverage, and 100% of an
employee’s long-term disability and life insurance premiums. Redwood also funds
a Healthcare Reimbursement Account (HRA) for employees that choose to enroll
in
the PPO Savings Plus Plan. For those making this election, Redwood currently
contributes to HRAs $1,500 for single employees and $2,000 for employees with
families.
Severance
and Change of Control Arrangements
Each
of
the NEOs has entered into an employment agreement with Redwood, which provides
for severance payments in the event we terminate the executive’s employment
without “cause” or the executive terminates for “good reason.” The employment
agreements also provide for payments and vesting of stock options and other
equity-related awards in the event of the executive’s death or disability. In
the event of a “change of control” in which the surviving or acquiring
corporation does not assume outstanding stock options and equity-related awards
and substitute equivalent awards, the executive’s outstanding options and
equity-related awards will immediately vest and become exercisable.
The
various levels of post-termination benefits for each of the NEOs were determined
by the Committee to be appropriate for the individual based on such person’s
duties and responsibilities with the Company and were the result of arms-length
negotiations. The Company also determined the different levels to be appropriate
and reasonable when generally compared to post-termination benefits provided
by
the Company’s peers to executives with similar titles and similar levels of
responsibility. The Company also believes that the levels of benefit also take
into account the expected length of time and difficulty the individual may
experience in trying to secure new employment. The amount of the severance
is
balanced against the Company’s need to be responsible to its stockholders and
also takes into account the potential impact such severance payments may have
on
other potential parties to a change in control transaction.
The
terms
of the NEOs’ severance and change of control arrangements are described in more
detail below under Potential Payments upon Termination or Change of
Control.
Tax
Considerations
Section
162(m) of the Code limits the tax deductibility by Redwood of annual
compensation in excess of $1,000,000 paid to our Chief Executive Officer and
any
of our three other most highly compensated executive officers, other than our
Chief Financial Officer. However, performance-based compensation that has been
approved by our stockholders is excluded from the $1,000,000 limit if, among
other requirements, the compensation is payable only upon the attainment of
pre-established, objective performance goals and the committee of our board
of
directors that establishes such goals consists only of “outside
directors.” All members of the Committee qualify as outside directors. Our
compensation structure, including annual bonus and long-term incentive awards,
have been designed and implemented with the intent to allow us to pay
performance-based compensation under Section 162(m) of the Code. In 2007, all
of
our compensation was deductible.
The
Committee considers the anticipated tax treatment to us and our executive
officers when reviewing executive compensation and our compensation programs.
The deductibility of some types of compensation payments can depend upon the
timing of an executive’s vesting or exercise of previously granted rights or
termination of employment. Interpretations of and changes in applicable tax
laws
and regulations, as well as other factors beyond the Committee’s control, also
can affect the deductibility of compensation.
While
the
tax impact of any compensation arrangement is one factor to be considered,
such
impact is evaluated in light of the Committee’s overall compensation philosophy
and objectives. The Committee will consider ways to maximize the deductibility
of executive compensation, while retaining the discretion it deems necessary
to
compensate officers in a manner commensurate with performance and the
competitive environment for executive talent. From time to time, the Committee
may award compensation to our executive officers which is not fully deductible
if it determines that such award is consistent with its philosophy and is in
our
and our stockholders’ best interests, such as time-vested grants of restricted
deferred stock units.
Policies
with Respect to Incentive Compensation
The
Company has adopted a “clawback”
policy with respect to bonus and incentive payments made to executives whose
fraud or misconduct resulted in a financial restatement. Pursuant to this
policy, in the event of a significant restatement of the Company’s financial
results due to fraud or misconduct, the Board of Directors of the Company will
review all bonus and incentive compensation payments made on the basis of the
Company having met or exceeded specific performance targets during the period
affected by the restatement. If any of the payments would have been lower if
determined using the restated results, the Board of Directors will, to the
extent permitted by law, seek to recoup from the executives whose fraud or
misconduct materially contributed to the restatement the value or benefit of
the
payments.
Executive
Compensation Tables
Summary
Compensation
The
following table includes information concerning compensation earned by the
NEOs
for the year ended December 31, 2007.
Name
and
Principal
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
Incentive
Plan
Compensation
(3)
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
(4)
|
|
|
All Other
Compensation
(5)
|
|
|
Total
|
|
|
|
|
2007
|
|
$
|
700,000
|
|
|
—
|
|
$
|
2,439,394
|
|
$
|
326,947
|
|
$
|
196,875
|
|
$
|
140,780
|
|
$
|
42,000
|
|
$
|
3,845,996
|
|
Chief
Executive Officer
|
|
|
2006
|
|
$
|
600,000
|
|
|
—
|
|
$
|
2,279,616
|
|
$
|
772,172
|
|
$
|
1,511,061
|
|
$
|
338,375
|
|
$
|
36,000
|
|
$
|
5,537,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
B. Hansen
|
|
|
2007
|
|
$
|
700,000
|
|
|
—
|
|
$
|
2,439,394
|
|
$
|
326,947
|
|
$
|
196,875
|
|
$
|
6,393
|
|
$
|
42,000
|
|
$
|
3,711,609
|
|
President
|
|
|
2006
|
|
$
|
600,000
|
|
|
—
|
|
$
|
2,279,616
|
|
$
|
650,922
|
|
$
|
1,511,061
|
|
$
|
76,892
|
|
$
|
36,000
|
|
$
|
5,154,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brett
D. Nicholas
|
|
|
2007
|
|
$
|
500,000
|
|
|
—
|
|
$
|
1,244,103
|
|
$
|
200,156
|
|
$
|
112,500
|
|
$
|
16,543
|
|
$
|
30,000
|
|
$
|
2,103,302
|
|
Chief
Investment Officer
|
|
|
2006
|
|
$
|
300,000
|
|
|
—
|
|
$
|
869,556
|
|
$
|
246,265
|
|
$
|
604,425
|
|
$
|
106,750
|
|
$
|
18,000
|
|
$
|
2,144,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
S. Hughes
|
|
|
2007
|
|
$
|
450,000
|
|
|
—
|
|
$
|
975,327
|
|
$
|
—
|
|
$
|
75,938
|
|
$
|
—
|
|
$
|
27,000
|
|
$
|
1,528,265
|
|
Chief
Financial Officer
|
|
|
2006
|
|
$
|
300,000
|
|
|
—
|
|
$
|
365,740
|
|
$
|
—
|
|
$
|
453,318
|
|
$
|
—
|
|
$
|
18,000
|
|
$
|
1,137,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
I. Sirkis
|
|
|
2007
|
|
$
|
400,000
|
|
|
—
|
|
$
|
932,564
|
|
$
|
125,286
|
|
$
|
—
|
|
$
|
40,773
|
|
$
|
1,226,384
|
|
$
|
2,725,007
|
|
Vice-President(6)
|
|
|
2006
|
|
$
|
300,000
|
|
|
—
|
|
$
|
658,574
|
|
$
|
123,586
|
|
$
|
453,318
|
|
$
|
154,488
|
|
$
|
18,000
|
|
$
|
1,707,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold
F. Zagunis
|
|
|
2007
|
|
$
|
325,000
|
|
|
—
|
|
$
|
590,504
|
|
$
|
97,887
|
|
$
|
54,844
|
|
$
|
10,398
|
|
$
|
19,500
|
|
$
|
1,098,133
|
|
Vice-President
|
|
|
2006
|
|
$
|
300,000
|
|
|
—
|
|
$
|
635,964
|
|
$
|
153,551
|
|
$
|
453,318
|
|
$
|
34,102
|
|
$
|
18,000
|
|
$
|
1,594,935
|
|
——————
(1) |
Represents
the amount of compensation cost that was recognized by Redwood in
each
fiscal year indicated related to grants of deferred stock units awarded
to
each NEO as determined in accordance with SFAS 123(R). The valuation
assumptions used in determining such amounts are described in Note
18 to
our consolidated financial statements included in our Annual Report
on
Form 10-K for the year ended December 31,
2007.
|
(2) |
Represents
the amount of compensation cost determined in accordance with SFAS
123(R)
that was recognized by Redwood in each fiscal year indicated related
to
stock options granted to each NEO. The valuation assumptions used
in
determining such amounts are described in Note 18 to our consolidated
financial statements included in our Annual Report on Form 10-K for
the
year ended December 31, 2007.
|
(3) |
These
amounts are cash bonuses awarded and expensed under Redwood’s
performance-based compensation plan for each fiscal year indicated
with
respect to performance during such fiscal year (but paid during the
beginning of the next following fiscal year). All individual and
Company
performance goals used were pre-determined by the Committee and generally
designed to be objectively measurable as described above under “Executive
Compensation - Compensation Discussion and Analysis - Performance-Based
Compensation.”
|
(4) |
Represents
the value of “above-market” interest credited and expensed under the
executive deferred compensation plan. As described above under “Executive
Compensation - Compensation Discussion and Analysis - Deferred
Compensation,” the interest accrual formula for deferred compensation has
been modified and did not accrue above-market rates after June 30,
2007. The table does not include dividend equivalent rights earned
on
deferred stock units or options, as the value of the dividend equivalent
rights was factored into the grant date fair value of the original
deferred stock unit and option awards in accordance SFAS
123(R).
|
(5) |
Represents
matching contributions to the 401(k) and the executive deferred
compensation plan.
|
(6) |
Mr.
Sirkis resigned his employment with the Company effective December
28,
2007. Pursuant to his employment agreement, in connection with the
termination of his employment with the Company, Mr. Sirkis will be
paid a
total of $1,202,384, which is reflected in the table under “All Other
Compensation.” This amount was expensed in 2007 and consists of (a) his
2007 prorated target bonus in the amount of $297,534, (b) one year’s
annual base salary in the amount of $400,000, (c) his 2008 target
bonus in
the amount of $300,000, and (d) $204,850 for twelve months dividend
equivalent rights (calculated at a rate of $1.383 per share per quarter)
on outstanding stock options as of his date of termination. Mr. Sirkis
also received accelerated vesting on all previously unvested stock
options
and deferred stock units, the details of which can be found in the
“Options Exercised and Stock Vested” table below.
|
Grants
of Plan-Based Awards
The
following table reflects estimated possible payouts to the NEOs in 2007 under
Redwood’s performance-based compensation plan as well as actual equity-related
grants made in 2007 under Redwood’s incentive plan. Actual payouts for
performance in 2007 are reflected in the “Summary Compensation” table above. As
discussed above under “Executive Compensation - Compensation Discussion and
Analysis - Performance-Based Compensation,” the annual performance-based bonus
plan is weighted 75% on Adjusted ROE and 25% on achievement of pre-established
individual goals. The individual component may be earned up to 100% of target.
There is no cap on the amount that may be earned with respect to the Adjusted
ROE component, subject to an overall maximum annual total incentive award of
$5 million for each of the OOP members and $2 million for each of the
other NEOs. If earned awards are in excess of 300% of salary, the excess is
paid
in deferred stock units under the executive deferred compensation
plan.
|
|
|
|
|
|
Estimated
Possible Payouts
Under
Non-Equity
Incentive
Plan Awards
($)
|
|
|
Estimated
Possible Payouts
Under
Equity
Incentive Plan Awards
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Grant
Date
|
|
|
Threshold
(1)
|
|
|
Target
(2)
|
|
|
Maximum
(3)
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
(4)
|
|
|
All
Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
|
|
|
All
Other
Option
Awards:
Number
of
Securities
Underlying
Options
(#)(5)
|
|
|
Exercise
or Base
Price of
Option
Awards
($/Share)
(5)
|
|
|
Grant
Date
Fair Value
of Stock
and
Option
Awards
($)(5)
|
|
George
E. Bull, III
|
|
|
—
|
|
$
|
—
|
|
$
|
875,000
|
|
$
|
2,100,000
|
|
|
—
|
|
|
—
|
|
|
84,696
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Douglas
B. Hansen
|
|
|
—
|
|
$
|
—
|
|
$
|
875,000
|
|
$
|
2,100,000
|
|
|
—
|
|
|
—
|
|
|
84,696
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Brett.
D. Nicholas
|
|
|
—
|
|
$
|
—
|
|
$
|
500,000
|
|
$
|
1,500,000
|
|
|
—
|
|
|
—
|
|
|
14,603
|
|
|
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
3/9/2007
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,646
|
|
$
|
55.19
|
|
$
|
41,466
|
|
Martin
S. Hughes
|
|
|
—
|
|
$
|
—
|
|
$
|
337,500
|
|
$
|
1,350,000
|
|
|
—
|
|
|
—
|
|
|
18,984
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Andrew
I. Sirkis
|
|
|
—
|
|
$
|
—
|
|
$
|
300,000
|
|
$
|
1,200,000
|
|
|
—
|
|
|
—
|
|
|
23,364
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
2/26/2007
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,069
|
|
$
|
56.67
|
|
$
|
26,006
|
|
Harold
F. Zagunis
|
|
|
—
|
|
$
|
—
|
|
$
|
243,750
|
|
$
|
975,000
|
|
|
—
|
|
|
—
|
|
|
29,936
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
——————
(1) |
Under
the Company’s guidelines, no Company performance-based non-equity
incentive plan awards (bonus) would have been granted for fiscal
2007 if
the Adjusted ROE was less than 7%. No bonus would be awarded if Company
performance was below this threshold and also 0% of target bonus
for
individual performance was earned.
|
(2) |
Represents
100% of target bonus, which would have been paid assuming a Company
Adjusted ROE of 11% and assuming 100% of target bonus for individual
performance was earned. Actual amounts earned for fiscal year 2007
are
included in the “Summary Compensation Table”
above.
|
(3) |
The
maximum cash that could have been awarded was 300% of the executive’s
annual base salary. Any bonus amounts over 300% of annual base salary
would have been awarded in deferred stock units that would have been
deferred for 3 years but would have vested immediately (see footnote
4
below).
|
(4) |
Represents
the maximum number of deferred stock units that could have been granted
in
2007 under the performance-based bonus plan assuming a maximum bonus
plan
award ($5 million for each OOP and $2 million for each of the other
NEOs),
with the amount over three times salary paid in deferred stock units
and
assuming a common stock price of $34.24 per share (the closing price
of
the Company’s common stock on the NYSE on December 31,
2007).
|
(5) |
Represents
reload options granted in 2007 under the reload provisions of stock
options that were granted on December 19, 2002 pursuant to the 2002
Redwood Trust Incentive Plan (the terms of which are described above
under
“Executive Compensation - Compensation Discussion and Analysis - Long-Term
Compensation Awards”). Options issued under the reload provision are fully
vested upon grant with the exercise price equivalent to the fair
market
value at the time of reload. The valuation assumptions used in determining
the value for options are described in Note 4 to our consolidated
financial statements included in our Annual Report on Form 10-K for
the
year ended December 31, 2007.
|
Outstanding
Equity Awards at Fiscal Year-End
Redwood
does not currently award stock options, although new stock options may still
be
issued under the reload provisions of certain stock options that were granted
in
prior years. With the exception of options granted under reload provisions,
all
outstanding stock options were granted prior to 2005. In 2003 and 2004,
executives were issued ten-year non-qualified stock options with a four-year
vesting schedule that pay dividend equivalent rights for up to ten years (until
the earlier of option exercise or option termination). The stock options granted
in December 2001 and in 2002 were ten-year options with a four-year vesting
schedule that pay dividend equivalent rights for up to four years (until the
earlier of option exercise or option termination). Prior to December 2001,
Redwood also granted ten-year options with a four-year vesting schedule that
pay
dividend equivalent rights for up to ten years (until the earlier of option
exercise or option termination).
From
2005
forward, equity grants to the NEOs were made solely in the form of deferred
stock units. Participants in the executive deferred compensation plan specify
distribution dates not earlier than four years from the date of grant. Deferred
stock units outstanding receive dividend equivalent rights each time Redwood
pays a common stock dividend. All equity awards represented on this table have
a
four year vesting schedule, under which 25% vest on January 1 following the
first anniversary of the grant, and thereafter, 6.25% vest on the first day
of
each subsequent quarter.
The
following tables set forth certain information regarding outstanding equity
awards for each NEO as of December 31, 2007.
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(2)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)(3)
|
|
|
Option
Expiration
Date
|
|
|
Number of
Shares or
Units
of
Stock That
Have Not
Vested
(#)(4)
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(5)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
|
|
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have Not
Vested
($)
|
|
George
E. Bull, III
|
|
|
92,850
|
|
|
—
|
|
|
—
|
|
$
|
13.19
|
|
|
12/17/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
73,500
|
|
|
—
|
|
|
—
|
|
$
|
11.44
|
|
|
12/02/2009
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
21,450
|
|
|
—
|
|
|
—
|
|
$
|
17.63
|
|
|
12/14/2010
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
33,871
|
|
|
—
|
|
|
—
|
|
$
|
41.09
|
|
|
12/17/2011
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
39,769
|
|
|
—
|
|
|
—
|
|
$
|
56.18
|
|
|
12/19/2012
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
56,250
|
|
|
3,750
|
|
|
—
|
|
$
|
52.46
|
|
|
12/10/2013
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
23,622
|
|
|
7,874
|
|
|
—
|
|
$
|
58.23
|
|
|
12/01/2014
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
95,174
|
|
$
|
3,258,773
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
B. Hansen
|
|
|
36,750
|
|
|
—
|
|
|
—
|
|
$
|
11.44
|
|
|
12/02/2009
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,315
|
|
|
—
|
|
|
—
|
|
$
|
57.54
|
|
|
12/17/2011
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
9,432
|
|
|
—
|
|
|
—
|
|
$
|
58.94
|
|
|
12/17/2011
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
24,063
|
|
|
—
|
|
|
—
|
|
$
|
59.66
|
|
|
12/17/2011
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
25,977
|
|
|
—
|
|
|
—
|
|
$
|
58.94
|
|
|
12/19/2012
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
135
|
|
|
—
|
|
|
—
|
|
$
|
59.66
|
|
|
12/19/2012
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
56,250
|
|
|
3,750
|
|
|
—
|
|
$
|
52.46
|
|
|
12/10/2013
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
23,622
|
|
|
7,874
|
|
|
—
|
|
$
|
58.23
|
|
|
12/01/2014
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
95,174
|
|
$
|
3,258,773
|
|
|
—
|
|
|
—
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(2)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)(3)
|
|
|
Option
Expiration
Date
|
|
|
Number of
Shares or
Units
of
Stock That
Have Not
Vested
(#)(4)
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(5)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
|
|
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have Not
Vested
($)
|
|
Brett
D. Nicholas
|
|
|
7,750
|
|
|
—
|
|
|
—
|
|
$
|
21.94
|
|
|
6/4/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
7,100
|
|
|
—
|
|
|
—
|
|
$
|
13.19
|
|
|
12/17/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
$
|
11.44
|
|
|
12/02/2009
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,239
|
|
|
—
|
|
|
—
|
|
$
|
56.55
|
|
|
12/17/2011
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
9,646
|
|
|
—
|
|
|
—
|
|
$
|
55.19
|
|
|
12/19/2012
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
23,438
|
|
|
1,562
|
|
|
—
|
|
$
|
52.46
|
|
|
12/10/2013
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
12,987
|
|
|
5,904
|
|
|
—
|
|
$
|
58.23
|
|
|
12/01/2014
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
45,339
|
|
$
|
1,552,392
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
S. Hughes
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
33,207
|
|
$
|
1,137,008
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
I. Sirkis(6)
|
|
10,000
|
|
|
—
|
|
|
—
|
|
$
|
11.44
|
|
|
3/27/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,860
|
|
|
—
|
|
|
—
|
|
$
|
27.05
|
|
|
3/27/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
6,069
|
|
|
—
|
|
|
—
|
|
$
|
56.67
|
|
|
3/27/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
$
|
52.46
|
|
|
3/27/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
12,021
|
|
|
—
|
|
|
—
|
|
$
|
58.23
|
|
|
3/27/2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(2)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)(3)
|
|
|
Option
Expiration
Date |
|
|
Number of
Shares or
Units
of
Stock That
Have Not
Vested
(#)(4)
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(5)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
|
|
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have Not
Vested
($)
|
|
Harold
F. Zagunis
|
|
|
6,000
|
|
|
—
|
|
|
—
|
|
$
|
11.44
|
|
|
12/02/2009
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
$
|
27.05
|
|
|
12/19/2012
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
14,063
|
|
|
937
|
|
|
—
|
|
$
|
52.46
|
|
|
12/10/2013
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
8,264
|
|
|
3,757
|
|
|
—
|
|
$
|
58.23
|
|
|
12/01/2014
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
23,197
|
|
$
|
794,276
|
|
|
—
|
|
|
—
|
|
——————
(1) |
Represents
vested stock options outstanding as of December 31, 2007.
|
(2)
|
Represents unvested stock options
outstanding
as of December 31, 2007. These stock options vest over four years,
with
25% vesting on the first anniversary of grant and 6.25% vesting
on the
first day of each subsequent quarter.
|
(3)
|
The option exercise price
is based on the
closing price of the Company’s common stock on the NYSE on the day
immediately prior to grant.
|
(4)
|
Represents unvested deferred
stock units as
of December 31, 2007. These deferred stock units vest over
four years,
with 25% vesting on the first anniversary of grant and 6.25% vesting on
the first day of each subsequent
quarter.
|
(5)
|
Assumes a common stock
price of $34.24 per
share (the closing price of the Company’s common stock on the NYSE on
December 31, 2007).
|
(6)
|
Mr. Sirkis’ employment agreement
provided for
the accelerated vesting of 2,065 stock options and 32,097
deferred stock
units upon the termination of his employment with the
Company. Mr. Sirkis
had ninety days from the date of termination to exercise
all outstanding
stock options.
|
Options
Exercised and Stock Vested
The
following table sets forth information with respect to the options exercised
by
the NEOs during the fiscal year ended December 31, 2007. The table also
shows the value of accumulated deferred stock unit awards that vested during
2007.
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name
|
|
Number of
Shares
Acquired on
Exercise
(#)
|
|
Value
Realized
Upon
Exercise
($)(1)
|
|
Number
of Shares
Acquired on
Vesting
(#)
|
|
Value
Realized on
Vesting
($)(2)
|
|
George
E. Bull, III
|
|
|
140,580
|
|
$
|
2,136,847
|
|
|
39,523
|
|
$
|
2,049,976
|
|
Douglas
B. Hansen
|
|
|
3,939
|
|
$
|
110,843
|
|
|
39,523
|
|
$
|
2,049,976
|
|
Brett
D. Nicholas
|
|
|
17,466
|
|
$
|
461,003
|
|
|
14,562
|
|
$
|
751,370
|
|
Martin
S. Hughes
|
|
|
—
|
|
|
—
|
|
|
5,784
|
|
$
|
286,221
|
|
Andrew
I. Sirkis(3)
|
|
|
9,140
|
|
$
|
270,727
|
|
|
43,259
|
|
$
|
1,656,684
|
|
Harold
F. Zagunis
|
|
|
—
|
|
|
—
|
|
|
11,162
|
|
$
|
577,252
|
|
——————
(1) |
The
value realized upon exercise is the difference between the option
exercise
price and the fair market value of
the Company’s stock on the date of exercise, multiplied by the number of
shares covered by the option.
|
(2) |
The
value realized on vesting is calculated by multiplying the number
of
shares vested by the fair market value of the Company’s stock on the
vesting date.
|
(3) |
The
terms of Mr. Sirkis’ employment agreement provided for the accelerated
vesting of 32,097 deferred stock units with a realized value of $1,093,555
upon the termination of his employment with the Company.
|
Non-Qualified
Deferred Compensation
The
Company’s executive deferred compensation plan (a) permits eligible employees to
voluntarily defer receipt of a portion or all of their salary, bonus, and/or
dividend equivalent right payments on a tax deferred basis for distribution
from
the plan to the employee at a later date, and (b) requires all deferred stock
units awarded to be deferred into the plan for distribution from the plan to
the
employee at a later date.
Each
of
our NEOs is a participant in the executive deferred compensation plan and each
has voluntarily deferred a portion of his cash earnings during the course of
fiscal year 2007. In addition, deferred stock units awarded were deferred into
the plan. Interest accrual alternatives in respect of amounts deferred in the
executive deferred compensation plan are described above under Deferred
Compensation. Our NEOs are also entitled to a Company match on all or a portion
of their executive deferred compensation cash deferrals subject to vesting
requirements, as described above under “Executive Compensation - Compensation
Discussion and Analysis - 401(k) and Other Contributions.” All of our NEOs, with
the exception of Mr. Hughes, are fully vested in matching payments made to
the executive deferred compensation plan and 401(k) plan.
The
following table sets forth information with respect to our NEOs’ cash
contributions, vested deferred stock unit contributions, cash and deferred
stock
unit withdrawals, earnings, and aggregate balances in our executive deferred
compensation plan for the fiscal year ended December 31, 2007. The
aggregate balance indicated also reflects the value of vested deferred stock
units in the plan assuming a common stock price of $34.24 per share (the closing
price of the Company’s common stock on the NYSE on December 31,
2007).
Name
|
|
Executive
Contributions
in 2007
($)
|
|
Registrant
Contributions
in 2007
($)
|
|
Aggregate
Earnings
in 2007
($)
|
|
Aggregate
Withdrawals/
Distributions
in 2007
($)
|
|
Aggregate
Balance at
12/31/2007
($)
|
|
George
E. Bull, III(1)
|
|
$
|
2,904,629
|
|
$
|
34,250
|
|
$
|
433,918
|
|
|
—
|
|
$
|
8,854,430
|
|
Douglas
B. Hansen(2)
|
|
$
|
2,118,476
|
|
$
|
34,250
|
|
$
|
28,563
|
|
$
|
788,796
|
|
$
|
3,204,501
|
|
Brett
D. Nicholas(3)
|
|
$
|
799,629
|
|
$
|
22,250
|
|
$
|
52,420
|
|
$
|
856,150
|
|
$
|
1,636,872
|
|
Martin
S. Hughes(4)
|
|
$
|
324,721
|
|
$
|
19,250
|
|
$
|
7,618
|
|
$
|
224,786
|
|
$
|
654,129
|
|
Andrew
I. Sirkis(5)
|
|
$
|
2,223,653
|
|
$
|
16,250
|
|
$
|
139,016
|
|
$
|
692,263
|
|
$
|
3,707,944
|
|
Harold
F. Zagunis(6)
|
|
$
|
600,752
|
|
$
|
11,750
|
|
$
|
33,313
|
|
|
—
|
|
$
|
1,314,153
|
|
(1) |
Mr. Bull’s
contribution included $854,653 in voluntary cash deferrals from
his
dividend equivalent right payments and $2,049,976 as a result of
vesting
of previously awarded deferred stock units. Mr. Bull earned interest
in
the executive deferred compensation plan in the amount of $433,918
of
which $140,780 was above market interest and is included in the
“Summary
Compensation” table above.
|
(2)
|
Mr. Hansen’s
contribution included $68,500 in voluntary cash deferrals from
his salary
and $2,049,976 as a result of vesting of previously awarded deferred
stock
units. Mr. Hansen earned interest in the executive deferred compensation
plan in the amount of $28,563, of which $6,393 was above market
interest
and is included in the “Summary Compensation” table above.
|
(3)
|
Mr. Nicholas’
contribution includes $48,259 in voluntary cash deferrals from
his
dividend equivalent right payments and $751,370 as a result of
vesting of
previously awarded deferred stock units. Mr. Nicholas earned interest
in
the executive deferred compensation plan in the amount of $52,420,
of
which $16,543 was above market interest and is included in the
“Summary
Compensation” table above.
|
(4)
|
Mr. Hughes’
contribution included $38,500 in voluntary cash deferrals from
his salary
and $286,221 as a result of vesting of previously awarded deferred
stock
units. Mr. Hughes earned interest in the executive deferred compensation
plan in the amount of $7,618.
|
(5)
|
Mr. Sirkis’
contribution included $566,969 in voluntary cash deferrals from
his bonus
and dividend equivalent right payments and $1,656,684 as a result
of
vesting of previously awarded deferred stock units including accelerated
vesting of 32,097 deferred stock units pursuant to the terms of
Mr.
Sirkis’ severance of employment. Mr. Sirkis earned interest in the
executive deferred compensation plan in the amount of $139,016,
of which
$40,773 was above market interest and is included in the “Summary
Compensation” table above.
|
(6)
|
Mr. Zagunis’
contribution included $23,500 in voluntary cash deferrals to the
executive
deferred compensation plan from his salary and $577,252 as a result
of
vesting of previously awarded deferred stock units. Mr. Zagunis
earned
interest in the executive deferred compensation plan in the amount
of
$33,313, of which $10,398 was above market interest and is included
in the
“Summary Compensation” table above.
|
Potential
Payments upon Termination or Change of Control
Each
of
the NEOs has entered into an employment agreement with Redwood, which provides
for severance payments and benefits in the event the executive is terminated
without cause or resigns with good reason, which are each defined in the
applicable agreement. The employment agreements provide for terms through
December 31, 2008 and are subject to automatic one-year renewals if not
terminated by either party.
Each
employment agreement provides for the executive to receive severance payments
in
the event we terminate the executive’s employment without “cause” or the
executive terminates for “good reason” (each as defined below). The severance
payments would be in addition to payment of the executive’s base salary and
prorated annual target incentive compensation to the date of termination of
the
executive’s employment.
The
aggregate amount of severance payments with respect to Messrs. Bull and
Hansen would be 300% of each of his combined base salary and target annual
bonus, each as in effect immediately prior to termination of employment. All
outstanding stock options and equity-related awards granted to Messrs. Bull
and Hansen will immediately vest upon either such type of termination. With
respect to stock options granted before December 31, 2002,
Messrs. Bull and Hansen will receive the sum of dividend equivalent rights
that would have been payable over the three-year period following termination
of
employment. Dividend equivalent right payments related to stock options granted
to Messrs. Bull and Hansen on or after December 31, 2002 will be
treated in the same manner, unless their grant agreements for those stock
options provide a different formula for the dividend equivalent right payments.
In addition, for the three-year period following termination of employment,
Messrs. Bull and Hansen will be entitled to receive all life insurance,
disability insurance, and medical coverage fringe benefits as if the executive
had not been terminated. In addition to severance, executives will receive
their
prorated target bonus for the year to date in which they are
terminated.
The
aggregate amount of severance payments with respect to the other NEOs would
be
100% of the executive’s combined base salary and target annual bonus, each as in
effect immediately prior to termination of employment. All outstanding stock
options and equity-related awards granted to the other executives will
immediately vest upon either such type of termination. With respect to stock
options granted before December 31, 2002, the other executives will receive
the sum of dividend equivalent rights that would have been payable over the
one-year period following termination of employment. Dividend equivalent
right
payments related to stock options granted to the other executives on or after
December 31, 2002 will be treated in the same manner, unless the
executive’s grant agreements for those stock options provide a different formula
for the dividend equivalent right payments. In addition, for the one-year
period
following termination of employment, the other executives will be entitled
to receive all life insurance, disability insurance, and medical coverage
fringe
benefits as if the executive had not been terminated.
The
executives are entitled to payment of an excise tax gross-up if there are excise
taxes payable by the executive on the value of the severance benefits related
to
a change of control. The agreements provide that 75% of severance amounts due
will be paid in a lump sum six months following termination and the remaining
25% will be paid in equal monthly installments over the succeeding six months.
All severance benefits under each agreement require the executive to execute
an
agreement releasing all claims against the Company, and the executives are
subject to non-solicitation restrictions for a year following termination in
which severance is paid. In addition, Messrs. Bull and Hansen are subject
to non-competition restrictions for a year following termination in which
severance is paid.
“Cause”
for Messrs. Bull and Hansen is defined as (i) the executive’s material
failure to substantially perform the reasonable and lawful duties of his
position for the Company, which failure shall continue for 30 days after notice
thereof; (ii) acts or omissions constituting gross negligence, recklessness,
or
willful misconduct in respect of the executive’s fiduciary obligations or
otherwise relating to the business of Redwood; or (iii) the executive’s
conviction of a felony involving fraud, misappropriation, or
embezzlement.
“Cause”
for the other NEOs is defined as (i) the executive’s material failure to
substantially perform the reasonable and lawful duties of his position for
the
Company, which failure shall continue for 30 days after notice thereof; (ii)
acts or omissions constituting gross negligence, recklessness, or willful
misconduct in the performance of the executive’s duties, fiduciary obligations
or otherwise relating to the business of Redwood; (iii) the habitual or repeated
neglect of the executive’s duties; (iv) the executive’s conviction of a felony;
(v) theft or embezzlement, or attempted theft or embezzlement, of money,
tangible, or intangible assets or property of Redwood or its employees; (vi)
any
act of moral turpitude by the executive injurious to the interest, property,
operations, business, or reputation of Redwood; or (vii) unauthorized use or
disclosure of trade secrets or confidential or proprietary information
pertaining to Redwood’s business.
“Good
reason” for Messrs. Bull and Hansen is defined as the occurrence, without
the executive’s written consent, of (i)(A) the executive’s not being either the
President or Chief Executive Officer of Redwood (or its ultimate parent
company), (B) the assignment of duties to the executive not consistent with
the
position of President or CEO, or (C) the executive not reporting to Redwood’s
Board of Directors (or the Board of the ultimate parent company); (ii) a
reduction in the executive’s base salary or a material reduction in the value of
the executive’s total compensation package if such a reduction is inconsistent
with compensation trends for Presidents and CEOs at comparable companies, or
such reduction is not made in proportion to an across-the-board reduction for
all senior executives and a change of control has not occurred; (iii) the
relocation of the executive’s principal office to a location more than 25 miles
from its location as of the effective date of the agreement or Redwood requiring
the executive to be based anywhere other than Redwood’s principal executive
offices; (iv) a failure to re-elect the executive as a member of Redwood’s Board
of Directors (or the Board of the ultimate parent company); (v) a failure at
any
time to renew the employment agreement; (vi) the complete liquidation of
Redwood; or (vii) in the event of a merger, consolidation, transfer, or closing
of a sale of all or substantially all the assets of Redwood, the failure of
the
successor company to affirmatively adopt the employment agreement.
“Good
reason” for the other NEOs is defined as the occurrence, without the executive’s
written consent, of (i) a significant reduction in the executive’s
responsibilities or title; (ii) a reduction in the executive’s base salary or a
material reduction by Redwood in the value of the executive’s total compensation
package if such a reduction is not made in proportion to an across-the-board
reduction of all senior executives of Redwood and a change of control has not
occurred; (iii) the relocation of the executive’s principal office to a location
more than 25 miles from its location as of the effective date of the agreement;
(iv) a failure at any time to renew the employment agreement; (v) the complete
liquidation of Redwood; or (vi) in the event of a merger, consolidation,
transfer, or closing of a sale of all or substantially all the assets of
Redwood, the failure of the successor company to affirmatively adopt the
employment agreement.
In
the
event of a “change of control” (as defined below) in which the surviving or
acquiring corporation does not assume outstanding stock options and
equity-related awards and substitute equivalent awards, the executive’s
outstanding options and equity-related awards will immediately vest and become
exercisable. If the awards are assumed and substituted, then acceleration only
would occur upon a qualifying employment termination (involuntary without cause
or voluntary for good reason).
“Change
of control” is defined as the occurrence of any of the following:
(1)
any
“person” as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (other than the Company; any trustee or other fiduciary
holding securities under an employee benefit plan of the Company; or any company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company)
becomes, after the effective date of the executive deferred compensation plan,
the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates or in one or more
transactions approved or consented to by the Board of Directors) representing
25% or more of the combined voting power of the Company’s then outstanding
securities; or
(2)
during any period of two consecutive years (not including any period prior
to
the effective date of the executive deferred compensation plan), individuals
who
at the beginning of such period constitute the Board of Directors, and any
new
director (other than a director designated by a person who has entered into
an
agreement with the Company to effect a transaction described in clause (1),
(3)
or (4) of this definition) whose election by the Board of Directors or
nomination for election by the Company’s stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either
were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at
least
a majority thereof; or
(3)
a
merger or consolidation of the Company with any other corporation is
consummated, other than (a) a merger or consolidation which would result in
the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, at least 55% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (b) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than 50% of the combined voting power of the
Company’s then outstanding securities; or
(4)
a
sale or disposition by the Company of all or substantially all of the Company’s
assets is consummated; or
(5)
the
stockholders of the Company approve a plan of complete liquidation of the
Company.
If
a NEO
had been terminated as of December 31, 2007 either voluntarily with good
reason or involuntarily without cause, the approximate value of the severance
benefits payable to the executive would have been as follows:
Name
|
|
|
Salary
and Target Bonus
($)(1)
|
|
|
Accelerated
Vesting
of Stock Options and Deferred
Stock
Units
($)(2)
|
|
|
Dividend
Equivalent
Rights for Options
($)(3)
|
|
|
Benefits
($)(4)
|
|
|
Total
Payment Involuntary
Termination
Without
“Cause”
or Voluntary
Termination for
Good Reason” ($)
|
|
George
E. Bull, III
|
|
$
|
4,725,000
|
|
$
|
3,258,773
|
|
$
|
2,615,886
|
|
$
|
36,192
|
|
$
|
10,635,851
|
|
Douglas
B. Hansen
|
|
$
|
4,725,000
|
|
$
|
3,258,773
|
|
$
|
1,874,696
|
|
$
|
47,183
|
|
$
|
9,905,652
|
|
Brett
D. Nicholas
|
|
$
|
1,000,000
|
|
$
|
1,552,392
|
|
$
|
359,824
|
|
$
|
15,728
|
|
$
|
2,927,944
|
|
Martin
S. Hughes
|
|
$
|
787,500
|
|
$
|
1,137,008
|
|
$
|
—
|
|
$
|
15,728
|
|
$
|
1,940,236
|
|
Harold
F. Zagunis
|
|
$
|
568,750
|
|
$
|
794,276
|
|
$
|
182,716
|
|
$
|
15,728
|
|
$
|
1,561,470
|
|
——————
(1) |
For
Messrs. Bull and Hansen, this consists of 300% of annual salary and
target
bonus. For Messrs. Nicholas, Hughes, and Zagunis, this consists of
100% of
annual salary and target bonus.
|
(2) |
The
value of acceleration of deferred stock units assumes a common stock
price
of $34.24 per share (the closing price of the Company’s common stock on
the NYSE on December 31, 2007). As of December 31, 2007, the exercise
price of all unvested stock options exceeded the stock price of $34.24.
These amounts do not include deferred stock units granted to the
NEOs in
January 2008.
|
(3) |
Values
determined by multiplying the number of outstanding options with
dividend
equivalent rights as of December 31, 2007 by the average quarterly
dividend per share over the prior three fiscal years of
$1.383.
|
(4) |
All
NEOs are entitled to a continuation of health insurance, life insurance,
and long-term disability insurance for a predetermined period after
employment. For Messrs. Bull and Hansen this is equivalent to three
years;
for Messrs. Nicholas, Hughes, and Zagunis, one year.
|
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis included in this Proxy Statement. Based
on
this review and discussion, the Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in this Proxy
Statement.
Compensation
Committee:
Mariann
Byerwalter, Chairperson
Richard
D. Baum
Thomas
C.
Brown
David
L.
Tyler
ADDITIONAL
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
officers, and holders of more than 10% of our common stock, to file with the
SEC
initial reports of ownership and reports of changes in ownership of common
stock. Directors, officers and 10% stockholders are required by SEC regulation
to furnish us with copies of all Section 16(a) forms they file.
Based
solely on our review of those forms we received, and written representations
from reporting persons that no additional Form 5s were required for those
persons, we believe that, during fiscal year 2007, all Section 16(a) filing
requirements were satisfied on a timely basis.
Compensation
Committee Interlocks and Insider Participation
Our
Compensation Committee currently consists of Ms. Byerwalter, the Chair, and
Messrs. Baum, Brown, and Tyler. No member of our Compensation Committee has
served as an officer or employee of Redwood at any time. None of our executive
officers serve as a member of the compensation committee of any other company
that has an executive officer serving as a member of our Board of Directors.
None of our executive officers serve as a member of the board of directors
of
any other company that has an executive officer serving as a member of our
Compensation Committee.
Certain
Relationships and Related Transactions
Our
Audit
Committee monitors and reviews issues involving potential conflicts of interest
and related party transactions. In this regard, the Board of Directors applies
Redwood’s Code of Ethics, which provides that directors, officers, and all other
employees are prohibited from taking actions, having interests, or having
relationships that would cause a conflict of interest, and our directors,
officers, and all other employees are expected to refrain from taking actions,
having interests, or having relationships that would even appear to cause a
conflict of interest. There were no relationships or related party transactions
between Redwood and any affiliated parties that are required to be reported
in
this Proxy Statement.
AUDIT
COMMITTEE MATTERS
Audit
Committee Report
The
Audit
Committee of the Board of Directors reports to and acts on behalf of the Board
of Directors in providing oversight of the financial management, independent
registered public accounting firm, and financial reporting procedures of
Redwood. Redwood’s management is responsible for internal controls and for
preparing Redwood’s financial statements. The independent registered public
accounting firm is responsible for performing an independent audit of Redwood’s
consolidated financial statements in accordance with the Public Company
Accounting Oversight Board (PCAOB) standards and issuing a report thereon.
The
Audit Committee is responsible for overseeing the conduct of these activities
by
Redwood’s management and the independent auditors.
In
this
context the Audit Committee met and held discussions during 2007 and 2008 with
management and the independent registered public accounting firm (including
private sessions with the inependent registered public accounting firm,
Redwood’s director of internal audit, and the Chief Financial Officer). During
these meetings, the Audit Committee reviewed and discussed with both management
and the independent registered public accounting firm the quarterly and audited
year-end financial statements and reports prior to their issuance. These
meetings also included an overview of the preparation and review of these
financial statements and a discussion of any significant accounting issues.
Management and the independent registered public accounting firm advised the
Audit Committee that these financial statements were prepared under generally
accepted accounting principles in all material respects. The Audit Committee
also discussed the quality, not just the acceptability, of the accounting
principles used in preparing the financial statements, the reasonableness of
significant accounting judgments and estimates, and the clarity of disclosures
in the financial statements.
The
Audit
Committee discussed with the independent registered public accounting firm
the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communications
with Audit Committees.
In
addition, the Audit Committee received from the independent registered public
accounting firm the written disclosures and the letter regarding the firm’s
independence as required by Independence Standards Board Standard No. 1,
Independence
Discussions with Audit Committees.
The
independent registered public accounting firm provided certain tax services
and
other services in 2007. These disclosures and other matters relating to the
firm’s independence were reviewed by the Audit Committee and discussed with the
independent registered public accounting firm.
The
independent registered public accounting firm discussed the scope of its audit
with the Audit Committee prior to the audit. The Audit Committee discussed
the
results of the audit with management and the independent registered public
accounting firm. The Audit Committee also discussed with management and the
independent registered public accounting firm the adequacy of Redwood’s internal
controls, policies, and systems, and the overall quality of Redwood’s financial
reporting.
Based
on
its review of the financial statements, and in reliance on its review and
discussions with management and the independent registered public accounting
firm, the results of internal and external audit examinations, evaluations
by
the independent registered public accounting firm of Redwood’s internal
controls, and the quality of Redwood’s financial reporting, the Audit Committee
recommended to the Board of Directors that Redwood’s audited financial
statements be included in Redwood’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2007 for filing with the Securities and Exchange
Commission.
Audit
Committee:
Greg
H.
Kubicek, Chair
Thomas
C.
Brown
Georganne
C. Proctor
Charles
J. Toeniskoetter
David
L.
Tyler
Grant
Thornton LLP audited Redwood’s financial statements and otherwise acted as
Redwood’s independent registered public accounting firm with respect to the
fiscal years ended December 31, 2007 and December 31, 2006. The following is
a
summary of the fees billed to us by Grant Thornton LLP for professional services
rendered for 2007 and 2006:
|
|
|
Fiscal
Year 2007
|
|
|
Fiscal
Year 2006
|
|
Audit
Fees
|
|
$
|
1,691,792
|
|
$
|
1,519,279
|
|
Audit-Related
Fees
|
|
|
—
|
|
|
—
|
|
Tax
Fees
|
|
|
34,240
|
|
|
97,300
|
|
All
Other Fees
|
|
|
—
|
|
|
—
|
|
Total
Fees
|
|
$
|
1,726,032
|
|
$
|
1,616,579
|
|
Tax
Fees
were for
services rendered related to tax compliance and reporting.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of
Registered Independent Accounting Firm
It
is the
Audit Committee’s policy to review and pre-approve the scope, terms, and related
fees of all auditing services and permitted non-audit services provided by
the
auditors, subject to de
minimis
exceptions for non-audit services which are approved by the Audit Committee
prior to the completion of the audit.
ITEM
2 —
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
The
Audit
Committee has selected Grant Thornton LLP as the independent registered public
accounting firm to audit the books of Redwood and its subsidiaries for the
year
ending December 31, 2008, to report on the consolidated financial statements
of
Redwood and its subsidiaries, and to perform such other appropriate accounting
services as may be required by our Board of Directors. The Board recommends
that
the stockholders vote in favor of ratifying the appointment of Grant Thornton
LLP for the purposes set forth above. If the stockholders do not ratify the
appointment of Grant Thornton LLP, the Audit Committee will consider a change
in
auditors for the next year.
Grant
Thornton LLP has advised the Audit Committee that they are independent
accountants with respect to Redwood, within the meaning of standards established
by the American Institute of Certified Public Accountants, the PCAOB, the
Independence Standards Board and federal securities laws administered by the
SEC. Representatives of Grant Thornton LLP will be present at the Annual
Meeting. They will have the opportunity to make a statement if they so desire,
and they will be available to respond to appropriate questions.
Vote
Required
If
a
quorum is present, the affirmative vote of a majority of the votes cast at
the
Annual Meeting is required for ratification of the appointment of Grant Thornton
LLP as our independent registered public accounting firm for the year ending
December 31, 2008. Abstentions and broker non-votes will not be counted as
votes
cast and will have no effect on the results of the vote in ratifying the
appointment of Grant Thornton LLP.
THE
BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS
A VOTE FOR THE RATIFICATION OF THE SELECTION OF GRANT THORNTON LLP AS REDWOOD’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008.
ITEM
3 —
APPROVAL OF AMENDMENT TO THE 2002 INCENTIVE PLAN
At
a
meeting on March 5, 2008, our Board of Directors adopted, subject to approval
of
the stockholders, an amendment to the 2002 Redwood Trust, Inc. Incentive Stock
Plan, as amended (the 2002 Incentive Plan or Plan), increasing the number of
shares available for grants under the Plan.
As
discussed above under “Compensation Discussion and Analysis,” we have adopted a
performance-based compensation philosophy for our executive officers that
focuses executive behavior on the achievement of both near-term and long-term
business objectives and strategies and also strives to ensure that we can hire
and retain talented individuals in a competitive marketplace. We believe equity
ownership in Redwood provides an important link between the interests of
stockholders and executives by rewarding the creation of long-term stockholder
value. To meet this objective, we make equity awards a key component of
executive compensation.
As
of
March 31, 2008, 203,495 shares authorized for issuance under the Plan remained
available for future grants. If the number of shares available for future equity
awards is not increased, our ability to continue to provide equity awards to
our
employees and further foster our culture of stock ownership that aligns the
long-term interests of our employees and stockholders will be severely
restricted. Consequently, our Board of Directors approved an amendment to the
Plan to increase the number of shares of Redwood common stock authorized for
issuance under the Plan by 1,500,000. This increase in the number of authorized
shares will provide us with much needed flexibility in our ability to attract,
retain, and motivate directors, officers, and other key employees, agents,
and
consultants upon whose judgment, dedication, and special effort the successful
conduct of our business is largely dependent. As discussed above under
“Executive Compensation - Compensation Discussion and Analysis - Long-Term
Compensation Awards,” Messrs. Bull and Hansen have each received a $1,000,000
credit to the executive deferred compensation plan. If stockholders approve
an
increase in shares available for grant under the Plan, that credit, together
with interest accrued on the credit under the deferred compensation plan, will
be converted, on the day following the Annual Meeting of Stockholders, into
a
number of deferred stock units determined by dividing the amount of the credit,
plus accrued interest, by the closing price of our common stock on the NYSE
on
that day. At the closing price of our common stock on the NYSE on April 7,
2008,
the $2,000,000 aggregate credit, excluding accrued interest, would represent
51,948 deferred stock units.
Set
forth
below is a description of the material difference (consisting of an increase
in
the number of authorized shares) between the existing Plan and the amended
Plan
as adopted by the Board of Directors on March 5, 2008, as well as a summary
of
the principal features of the amended Plan approved by the Board of Directors.
This description is qualified in its entirety by the terms of the amended Plan,
a copy of which is attached to this Proxy Statement as Appendix A and is
incorporated herein by reference.
Material
Difference: Increase
in Authorized Shares
The
only
material difference between the existing Plan and the amended Plan approved
by
the Board of Directors on March 5, 2008, is the number of shares available
for
issuance under the Plan. Under the existing Plan, as of March 31, 2008, 203,495
shares remained available for issuance. On March 5, 2008, the Board approved
an
amendment to the Plan to increase to by 1,500,000 shares the number of shares
authorized for issuance under the Plan. The Board of Directors believes that
the
additional authorized shares will be necessary to cover anticipated issuances
under the Plan over the next three years.
General
The
Plan
provides for the grant of qualified incentive stock options (ISOs) which meet
the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (Code), stock options not so qualified (NQSOs and, together with ISOs,
Options), and stock appreciation rights (SARs), deferred stock, restricted
stock, and performance share awards (Stock Awards), performance unit awards,
and
dividend equivalent rights (DERs). As of March 31, 2008, there were 99
officers, directors, and employees eligible to receive grants under the Plan.
The effective date of the amendment to the Plan will be the date it is approved
by stockholders and the Plan will remain in effect unless terminated by the
Board.
Purpose
The
purpose of the Plan is to enable Redwood to obtain and retain competent
personnel who will contribute to Redwood’s success, to give the Redwood’s
non-employee directors a proprietary interest in Redwood, and to provide
incentives to the participating directors, officers and other key employees,
and
agents and consultants, that are linked to performance measures and will
therefore inure to the benefit of all stockholders of Redwood.
Administration
The
Plan
provides that the Board of Directors will serve as the Administrator of the
Plan. The Administrator is responsible for administering the Plan. The Board
of
Directors has authorized the Compensation Committee (Committee) to serve as
the
Administrator pursuant to the Committee Charter. The Compensation Committee
is
comprised of not less than three Board members who are (i) ”independent” as
defined by the rules of the NYSE, as they may be amended from time to time;
(ii) ”non-employee directors” as defined in Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended; and
(iii) ”outside directors” as defined under Code Section 162(m) and
rules promulgated thereunder. Members of the Committee are eligible to receive
grants under the Plan, as determined by the Board.
All
grants of awards under the Plan (other than to Committee members) will be made
by the Committee and will be subject to the terms and restrictions established
by the Committee, subject to the terms of the Plan. The Committee has
discretionary authority to select participants from among eligible persons
and
to determine at the time an award is granted when and in what increments the
awards become exercisable or vest. In addition, in the case of Options, the
Committee determines whether they are intended to be ISOs or NQSOs.
Eligible
Persons
Officers,
directors, and employees of Redwood or its subsidiaries, including individuals
to whom an offer of employment has been made by Redwood or any of its
subsidiaries, and other persons expected to contribute to the management,
growth, or profitability of Redwood or its subsidiaries, are eligible to
participate in the Plan. As of March 31, 2008, approximately seven directors
and
92 employees were eligible to participate in the Plan. ISOs may only be granted
to the employees (including directors and officers who are employees) of Redwood
or its subsidiaries. Under the Plan and current law, ISOs may not be granted
to
any individual who is not an employee of Redwood or its subsidiaries, including
a director of Redwood who is not also an employee, or to directors, officers,
and other employees of entities unrelated to Redwood. NQSOs, SARs, Stock Awards
and DERs may be granted to the directors, officers, employees, agents and
consultants of Redwood, or any of its subsidiaries, or any other venture in
which it has a significant interest. Performance Units may also be granted
to
these persons, but it is the intention of the Committee to limit those grants
to
NEOs, and any other executive officer who may be subject to Code
Section 162(m).
No
grants
may be made under the Plan to any person who, assuming exercise or vesting
of
all awards held by that person, would own or be deemed to own beneficially
more
than 9.8% (by number of shares or value) of the outstanding shares of equity
stock of Redwood, other than awards of Performance Units payable only in cash.
Shares
Subject to the Incentive Stock Plan
Subject
to anti-dilution provisions for stock splits, stock dividends, and similar
events, the Plan, as amended, authorizes the grant of awards with respect to
a
maximum number of shares equal to the sum of: (i) 1,500,000 shares of
common stock; (ii) the number of shares of common stock previously
authorized for awards under the Plan; (iii) any shares of common stock that
are represented by awards granted under Redwood’s Amended and Restated 1994
Executive and Non-Employee Director Stock Option Plan (Prior Plan) which are
(A) forfeited, expire or are canceled without delivery of shares of common
stock or (B) settled in cash; and (iv) any shares of common stock that
are represented by awards granted under the Prior Plan which are tendered to
Redwood to satisfy the exercise price of options or the applicable tax
withholding obligation.
Any
shares of common stock covered by an award under the Plan that is forfeited
or
canceled, or shares of stock not delivered because the award is settled in
cash
or used to satisfy the applicable tax withholding obligation, will not be deemed
to have been granted for purposes of determining the maximum number of shares
of
common stock available for future awards under the Plan. In addition, shares
of
common stock issued under the Plan or covered by awards granted under the Plan
pursuant to the settlement, assumption or substitution of outstanding awards
or
obligations to grant future awards as a condition of Redwood acquiring another
entity shall not count against the maximum number of shares available for future
awards under the Plan.
If
the
exercise price of any Option is satisfied by tendering shares of common stock
to
Redwood, only the number of shares issued net of the shares tendered will be
deemed granted for purposes of determining the maximum number of shares of
common stock available for future awards under the Plan.
The
Plan
also provides for sublimits as follows: (i) the maximum number of shares that
may be subject of awards granted as ISOs cannot exceed 963,637 shares; (ii)
the
maximum number of shares that may be subject of awards granted as Options and
SARs during any calendar year cannot exceed 500,000 shares; and (iii) no more
than 500,000 shares of common stock may be the subject of awards to any one
individual during any calendar year if the awards are intended to be
“performance-based compensation” (as the term is used for purposes of Code
Section 162(m)). Any shares that are canceled or forfeited, and any shares
subject to such awards that are surrendered, shall continue to count against
these sub-limits for purposes of determining compliance therewith.
The
Plan
provides that, in connection with any reorganization, merger, consolidation,
recapitalization, stock split, or similar transaction, the Administrator may
adjust awards to preserve the benefits or potential benefits of the awards.
Term
of Options and SARs
The
term
of each Option or SAR will be set by the Administrator. No Option or SAR may
be
exercisable more than 10 years after the date granted, provided, however, that
an ISO granted to a person owning (within the meaning of Section 424(d) of
the
Code) more than 10% of the combined voting power of all classes of our or our
subsidiaries’ capital stock may not be exercisable more than five years after
the date granted. Options and SARs may be granted on terms providing for
exercise either in whole or in part at any time or times during their respective
terms, or only in specified percentages at stated time periods or intervals.
Limitation
on ISO Treatment.
Even
if
an option is designated as an ISO, no option will qualify as an ISO if the
aggregate fair market value of the stock (as determined as of the date of grant)
with respect to all of a holder’s ISOs exercisable for the first time during any
calendar year under the Plan exceeds $100,000. Any option failing to qualify
as
an ISO will be deemed to be an NQSO.
Option
Exercise
The
exercise price of any Option granted under the Plan may be made payable in
cash,
with shares of common stock owned by the optionee or subject to a grant, or
by
any other method as determined by the Committee. Redwood may not make loans
available to Option holders to exercise options.
Option
Exercise Price
The
Administrator will set the per share exercise price which will not be less
than
100% of the fair market value of shares of our common stock on the grant date,
provided, however, that for any persons owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of our capital stock or of any of our subsidiaries, the per share
exercise price cannot be less than 110% of the fair market value of the shares
of our common stock on the grant date.
Limited
Transferability of Options
NQSOs
may
be granted on terms which permit transfer by the optionee to family members
or
trusts or partnerships for the exclusive benefit of immediate family members
or
any other persons or entities as may be approved by the Committee, subject
in
all cases to the terms of the Plan. Subject to this exception, Options are
generally not transferable by the holder, other than by will or by the laws
of
descent and distribution or pursuant to a “qualified domestic relations order,”
as that term is defined in the Employee Retirement Income Security Act of 1974.
Other
Equity Awards
In
addition to stock options, the Administrator may also grant eligible stock
awards, performance unit awards, dividend equivalent rights, deferred stock
awards, dividend equivalents, performance share awards, with such terms and
conditions as our Board of Directors (or, if applicable, the Administrator)
may,
subject to the terms of the Plan, establish. Under the Plan, performance-based
awards are intended to comply with the requirements of Section 162(m) of the
Code and its underlying regulations, in order to allow these awards, when
payable, to be fully tax deductible by us.
Stock
Awards
The
Plan
provides that the Committee may grant Stock Awards either alone or in addition
to other awards granted under the Plan. The terms of Stock Awards will be
determined by the Committee in its discretion, including: the number of shares
subject to the Stock Award; the price (if any) to be paid by the recipient
of
the Stock Award; the period (Restricted Period) during which the shares subject
to the Stock Award may not be sold, transferred, pledged, or assigned; and
any
performance objectives applicable to the Stock Awards. The Restricted Period
for
Stock Awards subject solely to continued employment will not be less than three
years from the grant date except for certain limited situations. The Restricted
Period for Stock Awards subject to meeting performance criteria generally will
not be shorter than twelve months or longer than five years.
Performance
Units
The
Plan
provides that the Committee may grant awards of Performance Units either alone
or in addition to other awards granted under the Plan. The performance measures
that may be used in connection with the granting of awards under the Plan
intended to be performance-based will be based on any one or more of the
following: revenue; revenue per employee; GAAP earnings; taxable earnings;
GAAP
or taxable earnings per employee; GAAP or taxable earnings per share (basic
or
diluted); operating income; total stockholder return; dividends paid or payable;
market share; profitability as measured by return ratios, including return
on
revenue, return on assets, return on equity (including adjusted return on
equity), and return on investment; cash flow; or economic value added (economic
profit). The performance criteria generally must be specified in advance and
may
relate to one or any combination of two or more corporate, group, unit,
division, affiliate, or individual performances.
It
is
expected that awards of Performance Units will be used for annual bonuses to
NEOs and that the awards would qualify as performance-based compensation under
Code Section 162(m). The terms of awards of Performance Units will be
determined by the Committee in its discretion, including: the number of units
subject to the award; and the performance period during which the units will
be
earned; and the performance objectives applicable to the award. The performance
period, which the Administrator will establish when an award of Performance
Units is made, will generally be no less than twelve months and no longer than
five years. Awards of Performance Units that are intended to qualify as
performance-based will be payable only if the performance goals established
when
the awards are made are satisfied during the relevant performance period, the
Committee certifies that the performance goals have been met, and the awards
are
otherwise administered as required by Code Section 162(m). The performance
goals that may be used by the Committee for such awards that are intended to
qualify as performance-based compensation under Code Section 162(m) in the
preceding paragraph. Under the Plan, the maximum dollar value payable to any
participant under an award of Performance Units that is intended to be
performance-based will not exceed $5,000,000 in any 12-month period. If an
award
of Performance Units intended to qualify as performance-based is cancelled,
the
award will continue to count against the $5,000,000 maximum. Payment of earned
Performance Units may be made in cash, shares of common stock, other property
or
a combination thereof, as determined by
the
Committee.
DERs
The
Plan
provides that DERs may be granted in conjunction with the grant of any awards
under the Plan. DERs entitle the participant to receive distributions of cash,
stock, or other property, or to accrue rights to future distributions of stock,
in amounts linked to Redwood Stock dividends. Shares of common stock accrued
for
the account of the participant may be made eligible to receive dividends and
distributions and may be made payable whether or not the related award is
exercised or vested. The right of the holder of a DER to receive any dividend
equivalent payment or accrual may be made subject to vesting of the related
award, the satisfaction of specified performance objectives, or other
conditions. DERs have been determined by the Administrator to be
performance-based compensation because their value and the amount of
distributions and accruals depend on Redwood’s future performance and dividend
paying capability, which is influenced by the participant.
Amendment
and Termination of Plan
The
Board
may amend, alter, suspend, terminate, or discontinue the Plan or any portion
thereof at any time No amendment, alteration, suspension, discontinuation,
or
termination may be made, however, without (1) stockholder approval if that
approval is necessary to qualify for or comply with any tax or regulatory
requirement for which or with which the Board deems it necessary or desirable
to
qualify or comply or (2) the consent of the affected participant if the
action would impair the rights of that participant under any outstanding award.
Additionally, except in connection with a corporate transaction involving
Redwood (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, or exchange of shares), the
terms of outstanding awards may not be amended without stockholder approval
to
reduce the exercise price of outstanding Options or SARs or to cancel
outstanding Options or SARS in exchange for cash, other awards or Options or
SARs with an exercise price that is less than the exercise price of the Options
or SARs.
Awards
under the Plan
The
actual number and terms of awards that will be granted under the Plan during
the
remainder of 2008 and in future periods is not presently determinable, as the
Administrator has sole discretion to determine whether to grant awards and
the
terms of the awards. As discussed above under “Long-Term Compensation Awards,”
however, and as illustrated in the following table, in January 2008, in lieu
of
additional deferred stock units, each of Messrs. Bull and Hansen received a
$1,000,000 credit to the executive deferred compensation plan which will be
converted into deferred stock units if the amendment to the Plan is approved
by
stockholders.
|
|
|
|
Awards
|
|
Name
|
|
Position
With Redwood
|
|
Dollar
Value
|
|
Number
of Units
|
|
George
E. Bull, III
|
|
|
Chairman
of the Board and Chief Executive Officer
|
|
$
|
1,000,000
|
|
|
(1)
|
|
Douglas
B. Hansen
|
|
|
President
|
|
$
|
1,000,000
|
|
|
(1)
|
|
_________________
(1) |
The
number of units will be determined by dividing $1,000,000, plus any
interest accrued under the deferred compensation plan, by the NYSE
closing
common stock price on the first trading day following stockholder
approval
of the amendment to the Plan. The conversion is contingent upon the
stockholder approval of the amendment.
|
The
following table contains certain information with respect to our equity
compensation plans, including the number of shares of common stock subject
to
outstanding awards and the number of shares of common stock remaining available
for issuance as of December 31, 2007.
Securities
Authorized for Issuance Under Equity Compensation Plans
|
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Plan
Category
|
|
(a)(1)
|
|
(b)(2)
|
|
(c)(3)
|
|
Equity
compensation plans approved by security holders
|
|
|
1,543,063
|
|
$
|
37.60
|
|
|
493,646
|
|
Equity
compensation plans not approved by security
holders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
1,543,063
|
|
$
|
37.60
|
|
|
493,646
|
|
_________________
(1) |
Includes
833,215 stock options and 709,848 deferred stock units granted to
employees and independent directors which were outstanding as of
December
31, 2007.
|
(2) |
Reflects
the weighted average exercise price of outstanding stock options
only.
Deferred Stock Units outstanding do not have an exercise price and
are
therefore not taken into consideration in the calculation of the
weighted
average exercise price.
|
(3) |
Reflects
the number of shares available for issuance under the 2002 Redwood
Trust
Inc, Incentive Stock Plan as of December 31, 2007.
|
Vote
Required
The
affirmative vote of a majority of the votes cast on the proposal is required
for
approval of the amendment to our 2002 Incentive Plan, provided that the total
votes cast on the proposal represents over 50% in interest of all securities
entitled to vote on the proposal. For purposes of the vote on the amendment,
abstentions will have the same effect as votes against the proposal and broker
non-votes will have the same effect as votes against the proposal, unless
holders of more than 50% in interest of all securities entitled to vote on
the
proposal cast votes, in which event broker non-votes will not have any effect
on
the result of the vote.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE 2002 INCENTIVE PLAN.
ITEM
4 - APPROVAL OF THE AMENDMENT TO REDWOOD’S
CHARTER TO INCREASE THE
NUMBER
OF SHARES AUTHORIZED FOR ISSUANCE
Under
Redwood’s charter, as currently in effect (Charter), Redwood has authority to
issue an aggregate of 50,000,000 shares of capital stock. At a meeting on April 7, 2008,
the
Board of Directors deemed advisable and approved an amendment to the first
sentence of Section A of Article VI of the Charter to increase the number of
shares of capital stock authorized for issuance to 75,000,000 as
follows:
“The
total number of shares of stock of all classes which the Corporation has
authority to issue is seventy five million (75,000,000) shares of capital stock,
par value one cent ($0.01) per share, amounting in aggregate par value of Seven
Hundred Fifty Thousand Dollars ($750,000).”
Purpose
and Effect of the Amendment
In
order
to maintain our status as a real estate investment trust for federal income
tax
purposes, we are required to distribute 90% of our REIT taxable income.
Accordingly, our ability to grow depends on our access to external sources
of
capital at attractive rates.
As
of
March 31, 2008, we had issued 32,709,963 shares of our capital stock, leaving
17,290,037 shares of capital stock available for future
issuances, of which 1,750,507 shares are committed
for issuances upon the exercise of outstanding stock options and conversion
of outstanding deferred stock units. We do not believe the number of remaining
shares authorized for issuance will be adequate to satisfy our desire to raise
additional capital in the foreseeable future. Approval of an amendment to the
Charter increasing the authorized number of shares will provide us with valuable
flexibility to take advantage of opportunities to raise additional capital
on
favorable terms to finance the growth of our business.
Since
our
inception in 1994, we have issued over 30,000,000 shares of our common stock.
We
have issued those shares at times when we believed those issuances to be in
the
best interest of our stockholders. We intend to maintain this philosophy with
future issuance of shares.
The
state
of the existing mortgage market may present us with opportunities to expand
our
business through the acquisition of assets at attractive prices or otherwise.
We
are seeking to increase the number of shares we are authorized to issue under
our Charter to enable us to raise additional equity capital to fund the
expansion of our business as appropriate opportunities to do so arise in the
future.
We
currently have no specific plans, arrangements or agreements relating to the
issuance of the additional shares of capital stock. The additional shares may
be
issued from time to time for cash or other consideration, in public offerings
or
private placements, or through our direct stock purchase and dividend
reinvestment plan, to fund our asset acquisitions or for other general corporate
purposes. The issuance of additional shares of common stock could have the
effect of diluting existing stockholder earnings per share, book value per
share, and voting power. Our stockholders do not have any preemptive right
to
purchase or subscribe for any part of any new or additional issuances of our
securities.
Our
Board
of Directors has the authority under the Charter to reclassify any authorized
but unissued shares into one or more classes or series having such preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends and other distributions, and qualifications or terms or conditions
of
redemption as may be determined by the Board of Directors, subject to the limits
provided by Maryland law. Prior to the issuance of shares of any class or
series, other than common stock, articles supplementary establishing the class
or series and determining its relative rights and preferences must be filed
with
the Maryland State Department of Assessments and Taxation.
Vote
Required
The
affirmative vote of stockholders entitled to cast of a majority of the votes
entitled to be cast at the Annual Meeting is required to approve the amendment
to our Charter. Abstentions and broker non-votes will not be counted as votes
cast and will have the effect of a vote against the amendment to our Charter.
If
the
amendment is approved by the stockholders, it will become effective upon the
filing of articles of amendment with the State Department of Assessments and
Taxation of Maryland. The filing is expected to be accomplished immediately
after the Annual Meeting. If the proposed amendment is not approved by the
stockholders, the Charter will remain as currently in effect.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE CHARTER.
ITEM
5 —
STOCKHOLDER PROPOSAL CONCERNING REDWOOD’S CLASSIFIED BOARD OF
DIRECTORS
Mr.
Gerald R. Armstrong, 820 Sixteenth Street, No. 705, Denver, Colorado,
80202-3227, owner of 555.037269 shares of our common stock, has given
notice that he intends to present at the Annual Meeting the following proposal,
which is OPPOSED
by the
Board of Directors.
Stockholder
Proposal
Resolution
That
the
shareholders of REDWOOD TRUST, INC. request its Board of Directors to take
the
steps necessary to eliminate classification of terms of its Board of Directors
to require that ALL Directors stand for election annually. The Board
declassification shall be completed in a manner that does not affect the terms
of the previously-elected Directors.
Supporting
Statement from Mr. Armstrong
“U.S.
Bancorp, Associated Banc-Corp, Piper-Jaffray Companies, Fifth-Third Bancorp,
Pan
Pacific Retail Properties, Qwest Communications International, Xcel Energy,
Greater Bay Bancorp, North Valley Bancorp, Pacific Continental Corporation,
Regions Financial Corporation, CoBiz Financial Inc., Marshall & Illsley
Corporation, and Wintrust Financial, Inc. are among the corporations electing
directors annually because of the efforts of the proponent.
“The
performance of our management and our Board of Directors is now being more
strongly tested due to economic conditions and the accountability for
performance must be given to the shareholders whose capital has been entrusted
in the form of share investments.
“A
study
by researchers at Harvard Business School and the University of Pennsylvania’s
Wharton School titled ‘Corporate Governance and Equity Prices’ (Quarterly
Journal of Economics, February, 2003), looked at the relationship between
corporate governance practices (including classified boards) and firm
performance. The study found a significant positive link between governance
practices favoring shareholders (such as annual directors election) and firm
value.
“While
management may argue that directors need and deserve continuity, management
should become aware that continuity and tenure may be best assured when their
performance as directors is exemplary and is deemed beneficial to the best
interests of the corporation and its shareholders.
“The
proponent regards as unfounded the concern expressed by some that annual
election of all directors could leave companies without experienced directors
in
the event that all incumbents are voted out by shareholders. In the unlikely
event that shareholders do vote to replace all directors, such a decision would
express dissatisfaction with the incumbent directors and reflect a need for
change.
“If
you
agree that shareholders may benefit from greater accountability afforded by
annual election of all directors, please vote “FOR” this proposal.”
Board
of Directors Statement Against this Stockholder Proposal
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST
THIS PROPOSAL FOR THE FOLLOWING REASONS:
The
Board
of Directors has given this proposal careful consideration and believes that
it
should not be implemented. The Board of Directors believes that a classified
board is more advantageous to, and better serves the interests of, Redwood
and
its stockholders than a board that would be elected annually for the reasons
discussed below. Under Redwood’s Charter, the Board of Directors is divided into
three classes with directors elected to staggered terms. This classified
structure has been in place since the Company’s inception and has been and
continues to be an integral part of Redwood’s overall governance structure. It
is a long-time feature of corporate governance and many well respected U.S.
corporations have classified boards.
The
Board
of Directors believes corporate governance is a matter of balance - balancing
the need of stockholders to hold the Board accountable for its actions with
the
need to provide the Board with the tools necessary to protect and enhance
long-term stockholder value. The Board continually reviews our corporate
governance structure and believes the current structure, which includes a
classified board, strikes the appropriate balance.
Our
business involves identification, acquisition, and management of real estate
loans and securities and, by its very nature, requires long-term strategies
and
planning. In order for our directors to do the best job possible in protecting
and enhancing stockholder value, they need to understand fully all of the risks
and potential opportunities presented by our long-term investments in these
loans and securities. The three-year staggered terms of our directors are
designed to provide stability, enhance mid- and long-term planning and ensure
that a majority of directors at any given time have prior experience as
directors of Redwood. This ensures that the Board of Directors has solid
knowledge of Redwood’s business and strategy. Directors who have experience with
Redwood and knowledge about its business and affairs are a valuable resource
and
are better positioned to make the fundamental decisions that are in the best
interests of Redwood. At the same time, Redwood stockholders have an opportunity
each year to vote on several directors and to shape the decision-making of
the
Board of Directors accordingly.
The
Board
of Directors believes that the annual election of each director is not necessary
to promote accountability. All directors are required to uphold duties to
Redwood, regardless of how often they stand for election. Directors elected
to
three-year terms are not insulated from this responsibility and are as
accountable as directors elected annually.
Mr.
Armstrong’s proposal cites a 2003 study to support his position that a company’s
performance may be compromised by a classified board of directors. Our
performance suggests otherwise. The following graph presents a total return
comparison of Redwood’s common stock, over the last five years, to the S&P
Composite-500 Stock Index and the National Association of Real Estate Investment
Trusts, Inc. (NAREIT) Mortgage REIT Index. The total returns reflect stock
price
appreciation and the reinvestment of dividends for our common stock and for
each
of the comparative indices. The information has been obtained from sources
believed to be reliable; but neither its accuracy nor its completeness is
guaranteed.
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
Redwood
Trust
|
100.00
|
213.45
|
300.72
|
226.42
|
355.32
|
239.87
|
S&P
Composite-500 Index
|
100.00
|
128.70
|
142.70
|
149.71
|
173.35
|
182.88
|
NAREIT
Mortgage REIT Index
|
100.00
|
157.39
|
186.40
|
143.18
|
170.85
|
98.50
|
Redwood
has had a classified board for the entire period covered by this chart and
has
been able to deliver returns to its stockholders that substantially exceeded
the
returns generated by these indices. These results clearly demonstrate that
having a classified board structure does not lead to poor
performance.
A
classified board is designed to safeguard the company against the efforts of
a
third party intent on quickly taking control of, and not paying fair value
for,
the business and assets of the company. The classified board structure enhances
the ability of the Board of Directors to negotiate the best results for all
stockholders in these circumstances. It does not preclude a takeover, but it
would afford Redwood time to evaluate the adequacy and fairness of any takeover
proposal, negotiate with the sponsor on behalf of all stockholders and weigh
alternatives, including the continued operation of Redwood’s business, to
provide maximum value for all stockholders.
The
Board
of Directors does not believe there is a single formula to corporate governance
that can be applied uniformly to all types of companies, without regard to
their
industry, structure, or other company-specific considerations. An appropriate
practice for one company may not be an appropriate practice for another. To
claim that “one size fits all” in this context ignores the unique challenges and
opportunities of each particular company. The Board of Directors and the
Governance and Nominating Committee review Redwood’s corporate governance
practices annually and have each concluded that Redwood’s classified board
structure continues to be in the best interests of Redwood.
The
statements set forth above in opposition to this proposal reflect the views
of
all members of the Board of Directors. It is important to note that approval
of
this proposal by stockholders would not in itself effectuate the changes
contemplated by the proposal. Further action by the Board of Directors and
the
stockholders would be required to amend Redwood’s Charter.
Vote
Required
If
a
quorum is present, the affirmative vote of a majority of the votes cast at
the
Annual Meeting is required to approve the stockholder-submitted proposal that
the stockholders request the Board of Directors to take steps to eliminate
the
classification of terms of directors. Abstentions and broker non-votes will
not
be counted as votes cast and will have no effect on the results of the vote.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
THIS PROPOSAL.
STOCKHOLDER
PROPOSALS FOR THE 2009
ANNUAL MEETING
Pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (Exchange
Act), stockholders may present proper proposals for inclusion in Redwood’s proxy
statement and for consideration at Redwood’s 2009 Annual Meeting. To be eligible
for inclusion in Redwood’s 2009 Proxy Statement, a stockholder proposal must be
received in writing not less than 120 calendar days before the first anniversary
of the date we released our proxy statement for the preceding year’s annual
meeting and must otherwise comply with Rule 14a-8 under the Exchange Act.
Accordingly, a stockholder nomination for director or proposal of business
intended to be considered at the 2009 Annual Meeting must be received by the
Secretary not later than December , 2008 to be eligible for inclusion in our
2009 Proxy Statement. While the Board of Directors will consider stockholder
proposals, Redwood reserves the right to omit from Redwood’s Proxy Statement
stockholder proposals that it is not required to include under the Exchange
Act,
including Rule 14a-8 of the Exchange Act.
In
addition, our Bylaws contain an advance notice provision with respect to matters
to be brought before an annual meeting, including nominations, whether or not
included in our proxy statement. Our Bylaws currently provide that in order
for
a stockholder to nominate a candidate for election as a director at an annual
meeting of stockholders or propose business for consideration at an annual
meeting, written notice containing the information required by the Bylaws
generally must be delivered to our Secretary at our principal executive office
not earlier than the 150th day prior to the first anniversary of the date of
the
proxy statement for the preceding year’s annual meeting nor later than 5:00
p.m., Pacific Time, on the 120th day prior to the first anniversary of the
date
of the proxy statement for the preceding year’s annual meeting. Accordingly,
under our Bylaws, a stockholder nomination for director or proposal of business
intended to be considered at the 2009 Annual Meeting must be received by the
Secretary not earlier than November , 2008, and not later than 5:00 p.m.,
Pacific Time, on December , 2008. Proposals should be mailed to Redwood Trust,
Inc., Attention: Secretary, One Belvedere Place, Suite 300, Mill Valley, CA
94941. A copy of the Bylaws may be obtained from Redwood’s Secretary by written
request to the same address.
INFORMATION
INCORPORATED BY REFERENCE
This
Proxy Statement incorporates by reference the information set forth in our
Annual Report on Form 10-K for the year ended December 31, 2007 (2007 Annual
Report) under the following headings: Item 6. Selected Financial Data; Item
7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations; Item 7A. Quantitative and Qualitative Disclosures about Market
Risk;
Item 8. Financial Statements and Supplementary Data; and Item 9. Changes and
Disagreements with Accountants on Accounting and Financial Disclosure. Copies
of
the 2007 Annual Report are available upon request without charge. Requests
may
be oral or written and should be directed to the attention of the Secretary
of
Redwood at (415) 389-7373 or at the principal executive offices of Redwood
at
the address set forth above under “Stockholder Proposals for the 2009 Annual
Meeting.” In addition, within the Investor Information section of Redwood’s
website located at www.redwood.com, you can obtain, free of charge, a copy
of
the 2007 Annual Report.
BY
ORDER OF THE BOARD OF DIRECTORS
Martin
S.
Hughes
Chief
Financial Officer and Secretary
April
, 2008
2002
REDWOOD TRUST, INC. INCENTIVE PLAN
(as
amended)
Section
1. General
Purpose of Plan; Definitions.
The
name
of this plan is the 2002 Redwood Trust, Inc. Incentive Plan (the “Plan”). The
Plan (then known as the 2002 Redwood Trust, Inc. Incentive Stock Plan) was
adopted by the Board on March 21, 2002 and approved by the Company’s
stockholders on May 9, 2002. The Board approved amendments to the Plan (i)
on
March 4, 2004 (the “2004 Amendments”) which were approved by the Company’s
stockholders on May 6, 2004, (ii) on March 9, 2006 (the “2006 Amendments”) which
were approved by the Company’s stockholders on May 11, 2006, and (iii) on March
5, 2008 (the “2008 Amendments”) which were approved by the Company’s
stockholders on May 22, 2008. In addition, pursuant to the authorization
contained in Section 11(6), the Board approved amendments to the Plan on
November 10, 2007 (the “409A Amendments”).
The
purpose of the Plan is to enable the Company and its Subsidiaries to obtain
and
retain competent personnel who will contribute to the Company’s success by their
ability, ingenuity, and industry, to give the Company’s non-employee directors a
proprietary interest in the Company, and to provide incentives to the
participating directors, officers and other key employees, and agents and
consultants, that are linked to performance measures and will therefore inure
to
the benefit of all stockholders of the Company.
For
purposes of the Plan, the following terms shall be defined as set forth
below:
(1) “Administrator”
means
the Board, or as long as the Company is subject to the reporting requirements
of
the Securities Exchange Act of 1934, as amended, or as required under Section
162(m) of the Code, the Committee appointed by the Board.
(2) “Board”
means
the Board of Directors of the Company.
(3) “Code”
means
the Internal Revenue Code of 1986, as amended from time to time, or any
successor thereto.
(4) “Committee”
means
the Compensation Committee of the Board, which shall be composed of not less
than three Board members who shall be (i) Independent as defined by the rules
of
the New York Stock Exchange, as they may be amended from time to time; (ii)
a
Non-Employee Director as defined in Rule 16b-3 promulgated under Section 16
of
the Securities Exchange Act of 1934, as amended; and (iii) an Outside Director
as defined under Section 162(m) of the Internal Revenue Code of 1986, as
amended, and rules promulgated thereunder.
(5) “Company”
means
Redwood Trust, Inc., a corporation organized under the laws of the State of
Maryland (or any successor corporation).
(6) “DERs”
shall
mean dividend equivalent rights, which are the right to receive amounts on
related Stock awards that are linked to dividends on the Stock and that may
be
paid currently in cash or Stock, or accrued in shares of deferred stock with or
without compounding through subsequent payments or accruals on the accrued
shares. Payment of such deferred stock from DER accruals on Stock Options and
Stock Appreciation Rights may or may not be contingent upon the exercise of
the
related award, as determined by the Committee at the time of grant.
(7) “Deferred
Stock”
means
an award granted pursuant to Section 7 of the right to receive Stock at the
end
of a specified deferral period or on such other bases as the Administrator
may
determine.
(8) “Disability”
means:
(i) a determination by the Social Security Administration that a Participant
is
totally disabled; (ii) a determination that the Participant is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can
be
expected to last for a continuous period of not less than 12 months; or
(iii) the Participant is, by reason of any medically determinable physical
or
mental impairment that can be expected to result in death or can be expected
to
last for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than 3 months under a
disability plan or other accident and health plan maintained by the
Company.
(9) “Effective
Date”
shall
mean the date provided pursuant to Section 11.
(10) “Eligible
Employee”
means
an employee of the Company or any Subsidiary, and any person to whom an offer
of
employment is made by the Company or any Subsidiary, eligible to participate
in
the Plan pursuant to Section 4.
(11) “Eligible
Non-Employee Director”
means
a
member of the Board or the board of directors of any Subsidiary who is not
a
bona fide employee of the Company or any Subsidiary and who is eligible to
participate in the Plan pursuant to Section 4.
(12) “Fair
Market Value”
means,
as of any given date, with respect to any awards granted hereunder, at the
discretion of the Administrator and subject to such limitations as the
Administrator may impose, the closing sale price of the Stock on the next
preceding business day as reported in the Western Edition of the Wall Street
Journal Composite Tape.
(13) “GAAP”
means,
for any day, generally accepted accounting principles, applied on a consistent
basis, stated in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants, or in
statements and pronouncements of the Financial Accounting Standards Board or
in
such other statements by another entity or entities as may be approved by a
significant segment of the accounting profession, that are applicable to the
circumstances for that day.
(14) “Incentive
Stock Option”
means
any Stock Option intended to be designated as an “incentive stock option” within
the meaning of Section 422 of the Code.
(15) “Non-Employee
Director”
shall
have the meaning set forth in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
(16) “Non-Qualified
Stock Option”
means
any Stock Option that is not an Incentive Stock Option, including any Stock
Option that provides (as of the time such option is granted) that it will not
be
treated as an Incentive Stock Option.
(17) “Parent
Corporation”
means
any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company, if each of the corporations in the chain (other than
the Company) owns stock possessing 50% or more of the combined voting power
of
all classes of stock in one of the other corporations in the chain.
(18) “Participant”
means
any Eligible Employee, Non-Employee Director, or consultant or agent of the
Company or any Subsidiary selected by the Committee, pursuant to the
Administrator’s authority in Section 2, to receive grants under the
Plan.
(19) “Performance
Share”
means
an award of shares of Stock granted pursuant to Section 7 that is subject to
restrictions based upon the attainment of specified performance
objectives.
(20)
“Performance
Unit”
means
an award of a unit valued by reference to a designated amount of property
(including cash) other than Stock, which value may be paid to the Participant
by
delivery of such property as the Committee shall determine, including cash,
Stock, other property, or any combination thereof, upon achievement of such
performance goals as the Committee shall establish.
(21) “Restricted
Stock”
means
an award granted pursuant to Section 7 of shares of Stock, subject to
restrictions that will lapse with the passage of time or on such other bases
as
the Administrator may determine.
(22) “Stock”
means
the common stock, $0.01 par value per share, of the Company.
(23) “Stock
Appreciation Right”
means
the right pursuant to an award granted under Section 6 to receive an amount
equal to the difference between (A) the Fair Market Value, as of the date such
Stock Appreciation Right or portion thereof is surrendered, of the shares of
Stock covered by such right or such portion thereof, and (B) the aggregate
exercise price of such right or such portion thereof.
(24) “Stock
Option”
means
an option to purchase shares of Stock granted pursuant to Section
5.
(25) “Subsidiary”
means
(A) any corporation (other than the Company) or other entity whose assets and
liabilities are consolidated with those of the Company on the Company’s
consolidated balance sheet and (B) any other business venture designated by
the
Administrator in which the Company has a significant interest, as determined
in
the discretion of the Administrator.
Section
2. Administration.
The
Plan
shall be administered by the Administrator, except as otherwise expressly
provided herein.
The
Administrator shall have the power and authority to grant to Participants
pursuant to the terms of the Plan: (a) Stock Options, (b) Stock Appreciation
Rights, (c) Restricted Stock, (d) Deferred Stock, (e) Performance Shares, (f)
Performance Units or (g) any combination of the foregoing. DERs may be granted
in conjunction with any of the Stock awards listed above.
In
addition, the Administrator shall have the authority:
(a) to
select
those employees and prospective employees of the Company or any Subsidiary
who
shall be Eligible Employees;
(b) to
determine whether and to what extent Stock Options (with or without DERs),
Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Performance Shares,
Performance Units or a combination of the foregoing, are to be granted to
Participants hereunder;
(c) to
determine the number of shares to be covered by each such award granted
hereunder;
(d) to
determine the terms and conditions, not inconsistent with the terms of the
Plan,
of any award granted hereunder (including, but not limited to, (x) the
restricted period applicable to Restricted or Deferred Stock awards and the
date
or dates on which restrictions applicable to such Restricted or Deferred Stock
shall lapse during such period, and (y) the performance goals and periods
applicable to the award of Performance Shares and Performance Units);
and
(d) to
determine the terms and conditions, not inconsistent with the terms of the
Plan,
which shall govern all written instruments evidencing the Stock Options, DERs,
Stock Appreciation Rights, Restricted Stock, Deferred Stock, Performance Shares,
Performance Units or any combination of the foregoing.
The
Administrator may designate whether any award being granted to any Participant
is intended to be “performance-based compensation” as that term is used in
Section 162(m) of the Code. Any such awards designated as “performance-based
compensation” shall be conditioned on the achievement of one or more performance
measures. The performance measures that may be used by the Administrator for
such awards shall be based on any one or more of the following, as selected
by
the Administrator: revenue; revenue per employee; GAAP earnings; taxable
earnings; GAAP or taxable earnings per employee; GAAP or taxable earnings per
share (basic or diluted); operating income; total stockholder return; dividends
paid or payable; market share; profitability as measured by return ratios,
including return on revenue, return on assets, return on equity (including
adjusted return on equity), and return on investment; cash flow; or economic
value added (economic profit); and such criteria generally must be specified
in
advance and may relate to one or any combination of two or more corporate,
group, unit, division, affiliate, or individual performances. For awards
intended to be “performance-based compensation,” the grant of the awards, the
establishment of the performance measures, and the certification that the
performance goals were satisfied shall be made during the period and in the
manner required under Code Section 162(m).
The
Administrator shall have the authority, in its discretion, to adopt, alter,
and
repeal such administrative rules, guidelines, and practices governing the Plan
as it shall from time to time deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan (and any agreements
relating thereto); and to otherwise supervise the administration of the Plan.
All
decisions made by the Administrator pursuant to the provisions of the Plan
shall
be final and binding on all persons, including the Company, any Subsidiaries
and
the Participants. Notwithstanding the foregoing or anything else to the contrary
in the Plan, any action or determination by the Administrator specifically
affecting or relating to an award to a Non-Employee Director shall be approved
and ratified by the Board.
Notwithstanding
anything to the contrary herein, no award hereunder may be made to any
Participant to the extent that, following such award, the shares subject or
potentially subject to such Participant’s control (including, but not limited
to, (i) shares of the Company’s equity stock owned by the Participant, (ii)
shares of Stock subject to awards granted to the Participant under the Prior
Plan (whether such awards are then exercisable or vested), (iii) Stock Options,
whether or not then exercisable, held by the Participant to purchase additional
such shares, (iv) Restricted Stock, Deferred Stock, and Performance Share awards
to the Participant, whether or not then vested, and (v) shares of Stock accrued
under DERs awarded to the Participant) would constitute more than 9.8% of the
outstanding capital stock of the Company.
Section
3. Stock
Subject to Plan.
(1) Subject
to the following provisions of this Section 3, the maximum number of shares
of
Stock that may be issued with respect to awards granted under the Plan
subsequent to the approval of the 2008 Amendments shall be equal to the sum
of:
(i) 1,500,000 shares of Stock; (ii) the number of shares of Stock previously
authorized for awards under the Plan immediately prior to the stockholder
approval of the 2008 Amendments; (iii) any shares of Stock that are represented
by awards granted under the Company’s Amended and Restated 1994 Executive and
Non-Employee Director Stock Option Plan (the “Prior Plan”) which are (A)
forfeited, expire, or are canceled without delivery of shares of Stock or (B)
settled in cash; and (iv) any shares of Stock that are represented by awards
granted under the Prior Plan which are tendered to the Company (by either actual
delivery or attestation) to satisfy the exercise price of Stock Options or
the
applicable tax withholding obligation.
(2) Any
shares of Stock covered by an award that is forfeited or canceled, or shares
of
stock not delivered because the award is settled in cash or used to satisfy
the
applicable tax withholding obligation, shall not be deemed to have been issued
for purposes of determining the maximum number of shares of Stock available
for
future awards under the Plan.
(3) If
the
exercise price of any Stock Option granted under the Plan is satisfied by
tendering shares of Stock to the Company (by either actual delivery or by
attestation), only the number of shares of Stock issued net of the shares of
Stock tendered shall be deemed issued for purposes of determining the maximum
number of shares of Stock available for future awards under the
Plan.
(4) Subject
to Section 3(5), the following additional maximums are imposed under the
Plan:
(a) The
maximum number of shares of Stock that may be the subject of awards granted
as
Incentive Stock Options under the Plan shall be 963,637 shares (regardless
of
whether the awards are canceled, forfeited, or materially amended or the shares
subject to any such awards are surrendered).
(b) The
maximum number of shares that may be the subject of awards granted to any one
individual pursuant to Sections 5 and 6 (relating to Stock Options and Stock
Appreciation Rights) shall be 500,000 shares during any calendar year
(regardless of whether such awards are canceled, forfeited, or materially
amended or the shares subject to any such award are surrendered).
(c) No
more
than 500,000 shares of Stock may be the subject of awards under the Plan granted
to any one individual during any one-calendar-year period (regardless of when
such shares are deliverable or whether the awards are forfeited, canceled or
materially amended or the shares subject to any such award are surrendered)
if
such awards are intended to be “performance-based compensation” (as the term is
used for purposes of Code Section 162(m)).
(d) Shares
of
Stock issued under the Plan or covered by awards granted under the Plan pursuant
to the settlement, assumption or substitution of outstanding awards or
obligations to grant future awards as a condition of the Company acquiring
another entity shall not count against the maximum number of shares available
for future awards under the Plan.
(5) In
the
event of a corporate transaction involving the Company (including, without
limitation, any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, or exchange of shares), the Administrator may adjust awards to
preserve the benefits or potential benefits of the awards. Action by the
Administrator may include: (i) adjustment of the number and kind of shares
which
may be delivered under the Plan; (ii) adjustment of the number and kind of
shares subject to outstanding awards; (iii) adjustment of the exercise price
of
outstanding Stock Options and Stock Appreciation Rights; and (iv) any other
adjustments that the Administrator determines to be equitable, in its sole
discretion.
Section
4. Eligibility.
Officers
and other key employees of the Company or Subsidiaries who are responsible
for
or contribute to the management, growth, and/or profitability of the business
of
the Company or its Subsidiaries, Non-Employee Directors, and consultants and
agents of the Company or its Subsidiaries, shall be eligible to be granted
Stock
Options, DERs, Stock Appreciation Rights, Restricted Stock, Deferred Stock,
Performance Shares, or Performance Units hereunder. The Participants under
the
Plan shall be selected from time to time by the Administrator, in its sole
discretion, from among those eligible.
Section
5. Stock
Options.
Stock
Options may be granted alone or in addition to other awards granted under the
Plan, including DERs. Any Stock Option granted under the Plan shall be in such
form as the Administrator may from time to time approve, and the provisions
of
Stock Option awards need not be the same with respect to each optionee.
Recipients of Stock Options shall enter into a Stock Option agreement with
the
Company, in such form as the Administrator shall determine, which agreement
shall set forth, among other things, the exercise price, the term, and
provisions regarding exercisability of the Stock Option granted thereunder.
The
Stock
Options granted under the Plan may be of two types: (i) Incentive Stock Options
and (ii) Non-Qualified Stock Options.
The
Administrator shall have the authority under this Section 5 to grant any
optionee (except Eligible Non-Employee Directors) Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options (in each case with
or without DERs or Stock Appreciation Rights), provided, however, that Incentive
Stock Options may not be granted to any individual who is not an employee of
the
Company or its Subsidiaries. To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option. More than one option may be granted to the same
optionee and be outstanding concurrently hereunder.
Stock
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(1) Option
Price.
The
option price per share of Stock purchasable under a Stock Option shall be
determined by the Administrator in its sole discretion at the time of grant
but
shall not be less than 100% of the Fair Market Value of the Stock on such date,
and shall not, in any event, be less than the par value of the Stock. If an
employee owns or is deemed to own (by reason of the attribution rules applicable
under Section 425(d) of the Code) more than 10% of the combined voting power
of
all classes of stock of the Company or any Parent Corporation or Subsidiary
and
an Incentive Stock Option is granted to such employee, the option price of
such
Incentive Stock Option (to the extent required by the Code at the time of grant)
shall be no less than 110% of the Fair Market Value of the Stock on the date
such Incentive Stock Option is granted. The provisions of this Section 5(1)
shall not be applicable to awards granted under the Plan pursuant to the
settlement, assumption or substitution of outstanding awards or obligations
to
grant future awards as a condition of the Company acquiring another entity
so
long as the ratio of exercise price to fair market value in effect with respect
to such award or obligation before its settlement, assumption or substitution
is
maintained after giving effect to such settlement, assumption or
substitution.
(2) Option
Term.
The
term of each Stock Option shall be fixed by the Administrator, but no Stock
Option shall be exercisable more than ten years after the date such Stock Option
is granted; provided, however, that if an employee owns or is deemed to own
(by
reason of the attribution rules of Section 425(d) of the Code) more than 10%
of
the combined voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the term of such Incentive Stock Option (to the extent required by
the
Code at the time of grant) shall be no more than five years from the date of
grant.
(3) Exercisability.
Stock
Options shall be exercisable at such time or times and subject to such terms
and
conditions as shall be determined by the Administrator at or after grant. The
Administrator may provide, in its discretion, that any Stock Option shall be
exercisable only in installments, and the Administrator may waive such
installment exercise provisions at any time in whole or in part based on such
factors as the Administrator may determine, in its sole discretion. To the
extent not exercised, installments shall accumulate and be exercisable in whole
or in part at any time after becoming exercisable but not later than the date
the Stock Option expires.
(4) Method
of Exercise.
Subject
to Section 5(3), Stock Options may be exercised in whole or in part at any
time
during the option period, by giving written notice of exercise to the Company
specifying the number of shares to be purchased, accompanied by payment in
full
of the purchase price in cash or its equivalent as determined by the
Administrator. The Administrator may also permit a Participant to elect to
pay
the exercise price upon the exercise of a Stock Option by irrevocably
authorizing a third party to sell shares of Stock (or a sufficient portion
of
the shares) acquired upon exercise of the Stock Option and remit to the Company
a sufficient portion of the sale proceeds to pay the entire exercise price
and
any tax withholding resulting from such exercise. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also
be
made by surrendering unrestricted Stock already owned by the optionee, or,
in
the case of the exercise of a Non-Qualified Stock Option, Restricted Stock,
or
Performance Shares subject to an award hereunder (based, in each case, on the
Fair Market Value of the Stock on the date the option is exercised); provided,
however, that in the case of an Incentive Stock Option, the right to make
payment in the form of already owned shares may be authorized only at the time
of grant. Any payment in the form of stock already owned by the optionee may
be
effected by use of an attestation form approved by the Administrator. If payment
of the option exercise price of a Non-Qualified Stock Option is made in whole
or
in part in the form of Restricted Stock or Performance Shares, the shares
received upon the exercise of such Stock Option (to the extent of the number
of
shares of Restricted Stock or Performance Shares surrendered upon exercise
of
such Stock Option) shall be restricted in accordance with the original terms
of
the Restricted Stock or Performance Share award in question, except that the
Administrator may direct that such restrictions shall apply only to that number
of shares equal to the number of shares surrendered upon the exercise of such
option. An optionee shall generally have the rights to dividends and other
rights of a stockholder with respect to shares subject to the option only after
the optionee has given written notice of exercise, has paid in full for such
shares, and, if requested, has given the representation described in paragraph
(1) of Section 11.
(5) Limits
on Transferability of Options.
(a) Subject
to Section 5(5)(b), no Stock Option shall be transferable by the optionee
otherwise than by will or by the laws of descent and distribution or pursuant
to
a “qualified domestic relations order,” as such term is defined in the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), and all Stock
Options shall be exercisable, during the optionee’s lifetime, only by the
optionee or in accordance with the terms of a qualified domestic relations
order.
(b) The
Administrator may, in its discretion, authorize all or a portion of the
Non-Qualified Stock Options to be granted to an optionee to be on terms which
permit transfer by such optionee to (i) the spouse, qualified domestic partner,
children, or grandchildren of the optionee and any other persons related to
the
optionee as may be approved by the Administrator (“Immediate Family Members”),
(ii) a trust or trusts for the exclusive benefit of such Immediate Family
Members, (iii) a partnership or partnerships in which such Immediate Family
Members are the only partners, or (iv) any other persons or entities as may
be
approved by the Administrator, provided that (x) there may be no consideration
for any transfer unless approved by the Administrator, (y) the stock option
agreement pursuant to which such options are granted must be approved by the
Administrator, and must expressly provide for transferability in a manner
consistent with this Section 5(5)(b), and (z) subsequent transfers of
transferred Stock Options shall be prohibited except those in accordance with
Section 5(5)(a) or expressly approved by the Administrator. Following transfer,
any such Stock Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that,
except for purposes of Sections 5(6) and 10(3) hereof, the terms “optionee,”
“Stock Option holder” and “Participant” shall be deemed to refer to the
transferee. The events of termination of employment contained in the option
agreement with respect to such Stock Options shall continue to be applied with
respect to the original optionee, following any which event the Stock Options
shall be exercisable by the transferee only to the extent, and for the periods
specified in such option agreements. Notwithstanding the transfer, the original
optionee will continue to be subject to the provisions of Section 10(3)
regarding payment of taxes, including the provisions entitling the Company
to
deduct such taxes from amounts otherwise due to such optionee. Any transfer
of a
Stock Option that was originally granted with DERs related thereto shall
automatically include the transfer of such DERs, any attempt to transfer such
Stock Option separately from such DERs shall be void, and such DERs shall
continue in effect according to their terms. “Qualified domestic partner” for
the purpose of this Section 5(5)(b) shall mean a domestic partner living in
the
same household as the optionee and registered with, certified by, or otherwise
acknowledged by the county or other applicable governmental body as a domestic
partner or otherwise establishing such status in any manner satisfactory to
the
Administrator.
(6) Annual
Limit on Incentive Stock Options.
To the
extent that the aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of shares of Stock with respect to which
Incentive Stock Options granted to an optionee under this Plan and all other
option plans of the Company, its Parent Corporation or any Subsidiary become
exercisable for the first time by the optionee during any calendar year exceeds
$100,000, such Stock Options shall be treated as Non-Qualified Stock
Options.
Section
6. Stock
Appreciation Rights.
(1) Grant
and Exercise.
Stock
Appreciation Rights may be granted either alone (“Free Standing Rights”) or in
conjunction with all or part of any Stock Option granted under the Plan
(“Related Rights”). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option.
In
the case of an Incentive Stock Option, Related Rights may be granted only at
the
time of the grant of the Incentive Stock Option.
A
Related
Right or applicable portion thereof granted in conjunction with a given Stock
Option shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option, except that, unless otherwise provided
by
the Administrator at the time of grant, a Related Right granted with respect
to
less than the full number of shares covered by a related Stock Option shall
only
be reduced if and to the extent that the number of shares covered by the
exercise or termination of the related Stock Option exceeds the number of shares
not covered by the Stock Appreciation Right.
A
Related
Right may be exercised by an optionee, in accordance with paragraph (2) of
this
Section 6, by surrendering the applicable portion of the related Stock Option.
Upon such exercise and surrender, the optionee shall be entitled to receive
an
amount determined in the manner prescribed in paragraph (2) of this Section
6.
Stock Options which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the Related Rights have been so
exercised.
(2) Terms
and Conditions.
Stock
Appreciation Rights shall be subject to such terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from time
to time by the Administrator, including the following:
(a) Stock
Appreciation Rights that are Related Rights (“Related Stock Appreciation
Rights”) shall be exercisable only at such time or times and to the extent that
the Stock Options to which they relate shall be exercisable in accordance with
the provisions of Section 5 and this Section 6; provided, however, that no
Related Stock Appreciation Right shall be exercisable during the first twelve
months of its term, except that this additional limitation shall not apply
in
the event of death or Disability of the optionee prior to the expiration of
such
six-month period.
(b) Upon
the
exercise of a Related Stock Appreciation Right, an optionee shall be entitled
to
receive up to, but not more than, an amount in cash or that number of shares
of
Stock (or in some combination of cash and shares of Stock) equal in value to
the
excess of the Fair Market Value of one share of Stock as of the date of exercise
over the option price per share specified in the related Stock Option multiplied
by the number of shares of Stock in respect of which the Related Stock
Appreciation Right is being exercised, with the Administrator having the right
to determine the form of payment.
(c) Related
Stock Appreciation Rights shall be transferable or exercisable only when and
to
the extent that the underlying Stock Option would be transferable or exercisable
under paragraph (5) of Section 5.
(d) Upon
the
exercise of a Related Stock Appreciation Right, the Stock Option or part thereof
to which such Related Stock Appreciation Right is related shall be deemed to
have been exercised for the purpose of the limitation set forth in Section
3 on
the number of shares of Stock to be issued under the Plan.
(e) A
Related
Stock Appreciation Right granted in connection with an Incentive Stock Option
may be exercised only if and when the Fair Market Value of the Stock subject
to
the Incentive Stock Option exceeds the exercise price of such Stock
Option.
(f) Stock
Appreciation Rights that are Free Standing Rights (“Free Standing Stock
Appreciation Rights”) shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Administrator at or
after grant; provided, however, that no Free Standing Stock Appreciation Right
shall be exercisable during the first twelve months of its term, except that
this limitation shall not apply in the event of death or Disability of the
recipient of the Free Standing Stock Appreciation Right prior to the expiration
of such twelve-month period.
(g) The
term
of each Free Standing Stock Appreciation Right shall be fixed by the
Administrator, but no Free Standing Stock Appreciation Right shall be
exercisable more than ten years after the date such right is granted.
(h) Upon
the
exercise of a Free Standing Stock Appreciation Right, a recipient shall be
entitled to receive up to, but not more than, an amount in cash or that number
of shares of Stock (or any combination of cash or shares of Stock) equal in
value to the excess of the Fair Market Value of one share of Stock as of the
date of exercise over the price per share specified in the Free Standing Stock
Appreciation Right (which price shall be no less than 100% of the Fair Market
Value of the Stock on the date of grant) multiplied by the number of shares
of
Stock with respect to which the right is being exercised, with the Administrator
having the right to determine the form of payment.
(i) Free
Standing Stock Appreciation Rights shall be transferable or exercisable subject
to the provisions governing the transferability and exercisability of Stock
Options set forth in paragraphs (3) and (5) of Section 5.
(j) In
the
event of the termination of an employee who has been granted one or more Free
Standing Stock Appreciation Rights, such rights shall be exercisable to the
same
extent that a Stock Option would have been exercisable in the event of the
termination of the optionee.
(k) For
the
purpose of the limitation set forth in Section 3 on the number of shares to
be
issued under the Plan, the grant or exercise of Free Standing Stock Appreciation
Rights shall be deemed to constitute the grant or exercise, respectively, of
Stock Options with respect to the number of shares of Stock with respect to
which such Free Standing Stock Appreciation Rights were so granted or
exercised.
Section
7. Restricted
Stock, Deferred Stock, and Performance Shares.
(1) General.
Restricted Stock, Deferred Stock, or Performance Share awards may be issued
either alone or in addition to other awards granted under the Plan. The
Administrator shall determine the Participants to whom, and the time or times
at
which, grants of Restricted Stock, Deferred Stock, or Performance Share awards
shall be made; the number of shares to be awarded; the price, if any, to be
paid
by the recipient of Restricted Stock, Deferred Stock, or Performance Share
awards; the Restricted Period (as defined in Section 7(3)) applicable to
Restricted Stock, Deferred Stock, or Performance Share awards; the performance
objectives applicable to Performance Share, Restricted Stock, or Deferred Stock
awards; the date or dates on which restrictions applicable to such Restricted
Stock or Deferred Stock awards shall lapse during such Restricted Period; and
all other conditions of the Restricted Stock, Deferred Stock, and Performance
Share awards. The Administrator may also condition the grant of Restricted
Stock, Deferred Stock, or Performance Share awards upon the exercise of Stock
Options or upon such other criteria as the Administrator may determine, in
its
sole discretion. The provisions of Restricted Stock, Deferred Stock or
Performance Share awards need not be the same with respect to each
recipient.
(2) Awards
and Certificates.
The
prospective recipient of a Restricted Stock, Deferred Stock, or Performance
Share award shall not have any rights with respect to such award, unless and
until such recipient has executed an agreement evidencing the award (a
“Restricted Stock Award Agreement,” “Deferred Stock Award Agreement,” or
“Performance Share Award Agreement,” as appropriate) and delivered a fully
executed copy thereof to the Company, within a period of sixty days (or such
other period as the Administrator may specify) after the award date. Except
as
otherwise provided below in this Section 7(2), (i) each Participant who is
awarded Restricted Stock or Performance Shares shall be issued a stock
certificate in respect of such shares of Restricted Stock or Performance Shares;
and (ii) such certificate shall be registered in the name of the Participant,
and shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following
form:
“The
transferability of this certificate and the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture) of the 2002
Redwood Trust, Inc. Incentive Plan and a Restricted Stock Award Agreement or
Performance Share Award Agreement entered into between the registered owner
and
Redwood Trust, Inc. Copies of such Plan and Agreement are on file in the offices
of Redwood Trust, Inc.”
The
Company shall require that the stock certificates evidencing such shares be
held
in the custody of the Company until the restrictions thereon shall have lapsed,
and that, as a condition of any Restricted Stock award or Performance Share
award, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.
(3) Restrictions
and Conditions.
The
Restricted Stock, Deferred Stock, and Performance Share awards granted pursuant
to this Section 7 shall be subject to the following restrictions and
conditions:
(a) Subject
to the provisions of the Plan and the Restricted Stock, Deferred Stock, or
Performance Share award agreement, during such period as may be set by the
Administrator commencing on the grant date (the “Restricted Period”), the
Participant shall not be permitted to sell, transfer, pledge, or assign shares
of Restricted Stock, Performance Shares, or Deferred Stock awarded under the
Plan; provided, however, that the Administrator may, in its sole discretion,
provide for the lapse of such restrictions in installments and may accelerate
or
waive such restrictions in whole or in part based on such factors and such
circumstances as the Administrator may determine, in its sole discretion,
including, but not limited to, the attainment of certain performance related
goals, the Participant’s termination, death, or Disability or the occurrence of
a “Change of Control” (as defined by the Administrator at the time of grant).
Except for certain limited situations, the Restricted Period for awards subject
solely to continued employment restrictions shall be not less than three years
from the date of grant. The Restricted Period for awards subject to meeting
specified performance criteria shall generally not be shorter than twelve months
or longer than five years.
(b) Except
as
provided in paragraph (3)(a) of this Section 7, the Participant shall have,
with
respect to the shares of Restricted Stock or Performance Shares, all of the
rights of a stockholder of the Company, including the right to vote the shares,
and the right to receive any dividends thereon during the Restricted Period.
With respect to Deferred Stock awards, the Participant shall generally not
have
the rights of a stockholder of the Company, including the right to vote the
shares during the Restricted Period; provided, however, that, except as
otherwise specified by the Administrator at time of grant, dividends declared
during the Restricted Period with respect to the number of shares covered by
a
Deferred Stock award shall accrue to the Participant. Certificates for shares
of
unrestricted Stock shall be delivered to the Participant promptly after, and
only after, the Restricted Period shall expire without forfeiture in respect
of
such shares covered by the award of Restricted Stock, Performance Shares, or
Deferred Stock, except as the Administrator, in its sole discretion, shall
otherwise determine.
Section
8. Performance
Units.
(1) General.
Performance Unit awards may be issued either alone or in addition to other
awards granted under the Plan. The Administrator shall determine the
Participants to whom, and the time or times at which, grants of Performance
Unit
awards shall be made; the number of units to be awarded; the Performance Period
(as defined in Section 8(2)) applicable to Performance Unit awards; the
performance objectives applicable to Performance Unit awards, including the
performance measures specified in Section 2 for Performance Unit awards that
are
intended to be “performance-based compensation” as that term is used in Section
162(m) of the Code; and all other conditions of the Performance Unit awards.
The
Administrator may also condition the grant of Performance Unit awards upon
such
other criteria as the Administrator may determine, in its sole discretion.
The
provisions of Performance Unit awards need not be the same with respect to
each
recipient.
(2) Performance
Period and Conditions.
The
Performance Unit awards granted pursuant to this Section 8 shall be subject
to
the following terms and other conditions:
(a) The
Performance Unit award agreement shall specify such period as may be set by
the
Administrator commencing on the grant date (the “Performance Period”) during
which the Performance Unit award shall be earned, based on the attainment of
certain performance related goals and such other factors as the Administrator
may determine, in its sole discretion; provided, however, that the Administrator
may waive such goals and factors in whole or in part under such circumstances
as
it may determine in its sole discretion, including the Participant’s
termination, death, or Disability or the occurrence of a “Change of Control” (as
defined by the Administrator at the time of grant). The Performance Period
for
awards shall generally not be shorter than twelve months or longer than five
years. Notwithstanding anything to the contrary herein, with respect to a
Performance Unit award intended to qualify as performance-based compensation
under Section 162(m) of the Code, the Committee may adjust downwards, but not
upwards, the amount payable under such award. Notwithstanding anything to the
contrary herein, with respect to any Performance Unit award that is intended
to
qualify as performance-based compensation under Section 162(m) of the Code,
the
Committee shall, prior to payment on such award, certify in writing that the
applicable performance related goals have been met.
(b) Except
as
provided in this Section 8 or as may be provided in an award agreement,
Performance Units will be paid only after the end of the relevant Performance
Period. Performance Unit awards may be paid in cash, shares of stock, other
property, or any combination thereof, in the sole discretion of the Committee
at
the time of payment. Awards may be paid in a lump sum or in installments
following the close of the Performance Period or, in accordance with procedures
established by the Committee, on a deferred basis subject to the requirements
of
Section 409A of the Code.
(3) Maximum
Dollar Value.
The
maximum dollar value payable to any Participant in any 12-month period with
respect to a Performance Unit award that is intended to be performance-based
compensation is $5,000,000. If such an award is cancelled, the cancelled award
shall continue to be counted towards such maximum dollar value.
Section
9. Amendment
and Termination.
The
Board
may amend, alter, suspend, terminate, or discontinue the Plan or any portion
thereof at any time; provided, however, that no such amendment, alteration,
suspension, discontinuation, or termination shall be made without (1)
stockholder approval if such approval is necessary to qualify for or comply
with
any tax or regulatory requirement for which or with which the Board deems it
necessary or desirable to qualify or comply or if such approval is required
by
the paragraph below or (2) the consent of the affected Participant, if such
action would impair the rights of such Participant under any outstanding award.
Notwithstanding anything to the contrary herein, the Committee may amend the
Plan in such manner as may be necessary so as to have the Plan conform to local
rules and regulations in any jurisdiction outside the United
States.
The
Administrator may amend the terms of any award theretofore granted prospectively
or retroactively, but no such amendment shall (1) impair the rights of any
Participant without his or her consent or (2) without stockholder approval,
except for adjustments made pursuant to Section 3(5) or in connection with
substitute awards, reduce the exercise price of outstanding Stock Options or
Stock Appreciation Rights or cancel outstanding Stock Options or Stock
Appreciation Rights in exchange for cash, other Awards or Stock Options or
Stock
Appreciation Rights with an exercise price that is less than the exercise price
of the original Stock Options or Stock Appreciation Rights. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Participant, be made in a manner so as to constitute a
“modification” that would cause such Incentive Stock Option to fail to continue
to qualify as an Incentive Stock Option. Notwithstanding the foregoing, any
adjustments made pursuant to Section 3(5) shall not be subject to these
restrictions.
Section
10. Unfunded
Status of Plan.
The
Plan
is intended to constitute an “unfunded” plan for incentive compensation. With
respect to any payments not yet made to a Participant or optionee by the
Company, nothing contained herein shall give any such Participant or optionee
any rights that are greater than those of a general creditor of the
Company.
Section
11. General
Provisions.
(1) The
Administrator may require each person purchasing shares pursuant to a Stock
Option to represent to and agree with the Company in writing that such person
is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Administrator deems appropriate
to reflect any restrictions on transfer.
All
certificates for shares of Stock delivered under the Plan shall be subject
to
such stock-transfer orders and other restrictions as the Administrator may
deem
advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Stock is then listed, and any
applicable federal or state securities law, and the Administrator may cause
a
legend or legends to be placed on any such certificates to make appropriate
reference to such restrictions.
Except
as
otherwise expressly stated in the applicable grant or award agreement, if (i)
a
Participant is granted Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Performance Units or other awards under this Plan and
such grant or award includes a vesting requirement, a performance requirement
or
other condition to unrestricted receipt of the rights granted or awarded (or
any
portion thereof) and (ii) such Participant’s service with the Company is
terminated for any reason prior to the satisfaction or lapse of such vesting
or
performance condition, then those Stock Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Units or other rights not yet
vested or for which performance or other stated conditions have not yet been
satisfied shall terminate automatically as of the date of termination of service
and shall be forfeited to the Company immediately and without further notice
or
obligation on the part of the Company to the Participant.
(2) Nothing
contained in the Plan shall prevent the Board from adopting other or additional
compensation arrangements, subject to stockholder approval if such approval
is
required; and such arrangements may be either generally applicable or applicable
only in specific cases. The adoption of the Plan shall not confer upon any
employee of the Company or any Subsidiary any right to continued employment
with
the Company or a Subsidiary, as the case may be, nor shall it interfere in
any
way with the right of the Company or a Subsidiary to terminate the employment
of
any of its employees at any time.
(3) Each
Participant shall, no later than the date as of which the value of an award
first becomes includable in the gross income of the Participant for federal
income tax purposes, pay to the Company, or make arrangements satisfactory
to
the Administrator regarding payment of, any federal, state, or local taxes
of
any kind required by law to be withheld with respect to the award. The
obligations of the Company under the Plan shall be conditional on the making
of
such payments or arrangements, and the Company (and, where applicable, its
Subsidiaries) shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Participant.
(4) No
member
of the Board or the Administrator, nor any officer or employee of the Company
acting on behalf of the Board or the Administrator, shall be personally liable
for any action, determination, or interpretation taken or made in good faith
with respect to the Plan, and all members of the Board or the Administrator
and
each and any officer or employee of the Company acting on their behalf shall,
to
the extent permitted by law, be fully indemnified and protected by the Company
in respect of any such action, determination or interpretation.
(5) The
Administrator may permit or require a Participant to subject any award granted
hereunder to any deferred compensation, deferred stock issuance, or similar
plan
that may be made available to Participants by the Company from time to time.
The
Administrator may establish such rules and procedures for participation in
such
deferral plans as it may deem appropriate, in its sole discretion.
(6) This
Plan
is intended to comply and shall be administered in a manner that is intended
to
comply with Section 409A of the Code and shall be construed and interpreted
in
accordance with such intent. To the extent that an award or the payment,
settlement or deferral thereof is subject to Section 409A of the Code, the
award
shall be granted, paid, settled or deferred in a manner that will comply with
Section 409A of the Code, including regulations or other guidance issued with
respect thereto, except as otherwise determined by the Committee. Any provision
of this Plan that would cause the grant of an award or the payment, settlement
or deferral thereof to fail to satisfy Section 409A of the Code shall be amended
to comply with Section 409A of the Code on a timely basis, which may be made
on
a retroactive basis, in accordance with regulations and other guidance issued
under Section 409A of the Code.
Section
12. Effective
Date of Plan.
The
Plan
became effective (the “Effective Date”) on May 9, 2002, the date the Company’s
stockholders formally approved the Plan. The 2004 Amendments became effective
on
May 6, 2004, the date the Company’s stockholders formally approved 2004
Amendments. The 2008 Amendments became effective on May 22, 2008, the date
the
Company’s stockholders formally approved the 2008 Amendments. The 409A
Amendments shall be effective with respect to all awards involving income
deferrals made after December 31, 2004.
Section
13. Term
of Plan.
The
Plan
shall remain in full force and effect unless terminated by the Board or no
further shares of Stock remain available for awards to be granted under Section
3 and there are no outstanding awards that remain to become vested, exercised,
or free of restrictions.