Business Context and Reporting Period
This Form 8-K Current Report was filed by Redwood Trust, Inc. on December 2, 2010, covering events occurring on November 30, 2010. The filing primarily addresses Item 5.02 regarding compensatory arrangements for certain officers and Item 8.01 regarding legal opinions on a Direct Stock Purchase and Dividend Reinvestment Plan.
Key Financial Metrics
This filing does not contain consolidated financial statements, revenue, profit, cash flow, or debt metrics for the Company. The only financial data provided relates to executive compensation awards and salary determinations.
- DSU Grant Date Fair Value: $13.99 per unit.
- PSU Grant Date Fair Value: $14.01 per unit.
- Reference Stock Price (Nov 30, 2010): $14.14 (used for PSU performance measurement).
Material Changes and Compensation Details
The Compensation Committee approved 2010 year-end long-term equity awards and 2011 base salaries and target bonuses for key officers.
2010 Year-End Equity Awards
Awards consisted of Deferred Stock Units (DSUs) and Performance Stock Units (PSUs). DSUs vest over four years. PSUs vest over three years based on Total Stockholder Return (TSR), with potential payout ranging from 0% to 200% of the target.
| Officer | DSU Count | DSU Fair Value | PSU Count | PSU Fair Value |
|---|---|---|---|---|
| Martin S. Hughes (CEO) | 80,358 | $1,124,213 | 80,358 | $1,125,787 |
| Brett D. Nicholas (COO/CIO) | 57,144 | $799,440 | 57,144 | $800,560 |
| Diane L. Merdian (CFO) | 18,750 | $262,316 | 18,750 | $262,684 |
| Harold F. Zagunis (CRO) | 18,750 | $262,316 | 18,750 | $262,684 |
| Christopher J. Abate (Controller) | 9,650 | $135,000 | 0 | $0 |
2011 Base Salaries
Base salaries for 2011 remained unchanged from 2010 levels (0% change) for the CEO, COO, CFO, and CRO.
- Martin S. Hughes: $700,000
- Brett D. Nicholas: $500,000
- Diane L. Merdian: $400,000
- Harold F. Zagunis: $400,000
2011 Target Annual Bonuses
Target bonuses are weighted 75% on company financial performance and 25% on individual goals. The CFO and CRO received a 33% increase in their target bonus amounts compared to 2010.
- Martin S. Hughes: 165% of base ($1,155,000); 0% change.
- Brett D. Nicholas: 150% of base ($750,000); 0% change.
- Diane L. Merdian: 100% of base ($400,000); 33% increase.
- Harold F. Zagunis: 100% of base ($400,000); 33% increase.
Outlook, Risks, and Other Events
Future Disclosures: The Company will disclose 2010 annual performance bonuses and the 2011 annual company performance bonus formula in a subsequent Form 8-K or the 2011 Annual Proxy Statement.
Legal Opinion: The Company filed an opinion from Venable LLP dated November 30, 2010, regarding the legality of shares issued under its Direct Stock Purchase and Dividend Reinvestment Plan.
Risks: The filing notes that PSU vesting is contingent on TSR performance. If the three-year TSR is negative, 0% of PSUs will vest. If TSR is below 25%, vesting will be less than 100% of the target.
Investor Verification Checklist
- Verify the specific TSR performance metrics and final vesting outcomes for the PSUs granted in November 2010 when the three-year period concludes in November 2013.
- Review the upcoming 2011 Annual Proxy Statement for details on the 2010 annual performance bonuses and the 2011 company performance bonus formula.
- Confirm the impact of the 33% increase in target bonuses for the CFO and CRO on total executive compensation costs relative to company performance.
- Check the 2011 Annual Proxy Statement for the full Compensation Discussion and Analysis (CD&A) referenced in this filing.