1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) 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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
2
RWT
REDWOOD TRUST, INC.
591 Redwood Highway, Suite 3100
Mill Valley, California 94941
(415) 389-7373
------------------
NOTICE OF 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 (the "Company"), to be held on
Thursday, May 3, 2001, at 11:00 a.m., PDT, at the Acqua Hotel, 555 Redwood
Highway, Mill Valley, California, for the following purposes:
1. The election of three Class I directors to serve until the Company's
Anual Meeting of Stockholders to be held in 2004 or until such
directors' successors are elected and qualified;
2. Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 2001; and
3. To transact such other business as may properly come before the Annual
Meeting or at any adjournments thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. The Board of Directors has fixed the close
of business on March 30, 2001, as the record date for determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting and at
any adjournments thereof.
Management desires to have a maximum representation of stockholders at
the Annual Meeting. The Company may incur substantial additional proxy
solicitation costs if a sufficient number of proxies are not returned in advance
of the Annual Meeting. In order that your shares may be represented at the
Annual Meeting, management respectfully requests that you date, execute and
promptly mail the enclosed proxy in the accompanying postage-paid envelope or
vote by telephone or via the Internet as instructed on the proxy. A proxy may be
revoked by a stockholder by notice in writing to the Secretary of the Company at
any time prior to its use, by presentation of a later-dated proxy, or by
attending the Annual Meeting and voting in person.
By Order of the Board of Directors
/s/ HAROLD F. ZAGUNIS
-----------------------------------
HAROLD F. ZAGUNIS
Secretary
Mill Valley, California
April 4, 2001
---------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE OR VOTE BY TELEPHONE OR VIA THE
INTERNET AS INSTRUCTED ON THE PROXY.
---------------------------------------------------------------------
3
TABLE OF CONTENTS
Page
----
GENERAL INFORMATION....................................................................................... 1
Solicitation of Proxies.......................................................................... 1
Voting Rights.................................................................................... 1
Voting of Proxies................................................................................ 2
Revocability of Proxy............................................................................ 2
Annual Report.................................................................................... 2
ITEM 1 - ELECTION OF DIRECTORS............................................................................ 2
Class I Nominees to Board of Directors........................................................... 3
Class II and Class III Directors - Terms Expiring After 2001..................................... 3
Information Concerning the Board of Directors.................................................... 4
Compensation Committee Interlocks and Insider Participation...................................... 5
Compliance with Section 16(a) of the Securities and Exchange Act of 1934......................... 5
MANAGEMENT OF THE COMPANY................................................................................. 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................ 7
EXECUTIVE COMPENSATION.................................................................................... 8
Employment Agreements............................................................................ 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................ 10
AUDIT COMMITTEE REPORT.................................................................................... 12
COMPENSATION COMMITTEE REPORT............................................................................. 13
PERFORMANCE GRAPH......................................................................................... 15
ITEM 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS................................................... 16
Audit Fees....................................................................................... 16
Financial Information Systems Design and Implementation Fees..................................... 16
All Other Fees................................................................................... 16
OTHER BUSINESS............................................................................................ 16
STOCKHOLDER PROPOSALS - 2002 ANNUAL MEETING............................................................... 17
APPENDIX A - AUDIT COMMITTEE CHARTER...................................................................... 18
4
RWT
REDWOOD TRUST, INC.
591 Redwood Highway, Suite 3100
Mill Valley, California 94941
(415) 389-7373
------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 3, 2001
To Our Stockholders:
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Redwood Trust, Inc., a Maryland
corporation (the "Company"), for use at the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held on Thursday, May 3, 2001 at 11:00
a.m., Pacific Daylight Time, at the Acqua Hotel, 555 Redwood Highway, Mill
Valley, California, and any adjournments thereof. This Proxy Statement, the
accompanying proxy card and the Notice of Annual Meeting are being provided to
stockholders beginning on or about April 4, 2001.
GENERAL INFORMATION
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors of the
Company. The costs of this solicitation will be borne by the Company. Proxy
solicitations will be made by mail, and also may be made by personal interview,
telephone, facsimile transmission and telegram on behalf of the Company by
directors and officers of the Company. Banks, brokerage houses, nominees and
other fiduciaries will be requested to forward the proxy soliciting material to
the beneficial owners and to obtain authorization for the execution of proxies.
The Company will, upon request, reimburse such parties for their reasonable
expenses in forwarding proxy materials to their beneficial owners. The Company
does not expect to engage an outside firm to solicit votes, but if such a firm
is engaged subsequent to the date of this Proxy Statement, the cost is estimated
to be less than $10,000, plus reasonable out-of-pocket expenses.
VOTING RIGHTS
Holders of shares of the Company's common stock ("Common Stock") at the
close of business on March 30, 2001, the record date are entitled to notice of,
and to vote at, the Annual Meeting. On that date, 8,868,838 shares of Common
Stock were outstanding. Each share of Common Stock outstanding on the record
date is entitled to one vote on each matter presented at the Annual Meeting. The
presence, in person or by proxy, of stockholders representing 50% or more of the
issued and outstanding stock entitled to vote constitutes a quorum for the
transaction of business at the Annual Meeting. If a quorum is present, (i) a
plurality of the votes cast at the Meeting is required for election as a
director, and (ii) the affirmative vote of the majority of the shares present,
in person or by proxy, at the Annual Meeting and entitled to vote is required
for all other matters. Cumulative voting in the election of directors is not
permitted. Abstentions are considered shares present and entitled to vote, and
therefore have the same legal effect as a vote against all matters presented at
the Annual Meeting other than the election of directors. Any shares held in
street name for which the broker or nominee receives no instructions from the
beneficial owner, and as to which such broker or nominee does not have
discretionary voting authority under applicable New York Stock Exchange rules,
will be considered as shares not entitled to vote and will therefore not be
considered in the tabulation of the votes.
5
VOTING OF PROXIES
Shares of the Common Stock represented by all properly executed (or
otherwise designated) proxies received in time for the Annual Meeting will be
voted in accordance with the choices specified in the proxies. Unless contrary
instructions are indicated on the proxy, the shares will be voted FOR the
election of the nominees named in this proxy statement as directors and FOR the
appointment of PricewaterhouseCoopers LLP as the Company's auditors.
The management and the Board of Directors of the Company know of no
matters to be brought before the Annual Meeting other than as set forth herein.
To date, no stockholders' proposals have been received by the Company. However,
if any other matters of which the management and Board of Directors of the
Company are not now aware are presented properly to the stockholders for action,
it is the intention of the proxy holders named in the enclosed proxy to vote in
their discretion on all matters on which the shares represented by such proxy
are entitled to vote.
REVOCABILITY OF PROXY
The giving of the enclosed proxy does not preclude the right to vote in
person should the stockholder giving the proxy so desire. A proxy may be revoked
at any time prior to its exercise by delivering a written statement to the
Secretary of the Company that the proxy is revoked, by presenting to the Company
a later-dated proxy, or by attending the Annual Meeting and voting in person.
ANNUAL REPORT
The 2000 Annual Report including financial statements for the year
ended December 31, 2000, which is being mailed to stockholders together with the
Proxy Statement, contains financial and other information about the activities
of the Company, but is not incorporated into this Proxy Statement and is not to
be considered a part of these proxy soliciting materials.
The 2000 Annual Report includes the annual report on Form 10-K for the
year ended December 31, 2000 as filed with the Securities and Exchange
Commission ("SEC"). Any exhibits listed in the Form 10-K will be furnished upon
request at the actual expense incurred by the Company in furnishing such
exhibit. Any such requests should be directed to the Company's Secretary at the
Company's executive office set forth in this Proxy Statement.
ITEM 1 -- ELECTION OF DIRECTORS
The Company's Articles of Incorporation and Bylaws provide for a
classified Board of Directors comprised of Classes I, II and III. Class I
directors are scheduled to be elected at the 2001 Annual Meeting to serve for a
three-year term and until their successors are elected and duly qualified. The
Company's Bylaws further provide that, except in the case of a vacancy, a
majority of the members of the Board of Directors and of any committee of the
Board of Directors will be at all times Independent Directors. The nominees for
Class I directors of the Board of Directors are set forth below. Unless
authorization is withheld, the persons named as proxies will vote FOR the
nominees for directors listed below unless otherwise specified by the
stockholder. In the event any nominee is unable or declines to serve as a
director at the time of 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, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as director. All of the nominees listed below
already are serving as directors of the Company.
2
6
The election to the Board of Directors of each of the three nominees
identified in this Proxy Statement will require a plurality of the votes cast,
in person or by proxy, at the Annual Meeting. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE THREE NOMINEES IDENTIFIED BELOW.
CLASS I NOMINEES TO BOARD OF DIRECTORS
NAME POSITION WITH THE COMPANY
--------------------------- -----------------------------
Richard D. Baum Director
Mariann Byerwalter Director
David L. Tyler Director
Certain biographical information regarding each nominee is set forth
below along with biographical information for each continuing director.
RICHARD D. BAUM, age 54, is the President of Care West Insurance
Company, a worker's compensation company headquartered in Rocklin, California.
Previously, Mr. Baum was the Chief Deputy Insurance Commissioner for the State
of California. Prior to that, Mr. Baum was a 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. degree
from Stanford University, an M.A. degree from the State University of New York,
and a J.D. from George Washington University, National Law Center, Washington,
D.C.
MARIANN BYERWALTER, age 40, was elected to the Board of Directors in
1998. Ms. Byerwalter is the Chief Financial Officer and Vice President for
Business Affairs of Stanford University. She serves as a director of Stanford
Research Institute International, the America First Companies in Omaha,
LookSmart, and the Stanford Hospital and Clinics. She also currently serves as a
Trustee of Schwab Funds. From 1987 to 1996, Ms. Byerwalter was a partner and
co-founder of America First Financial Corporation. Ms. Byerwalter was also the
Chief Operating Officer, Chief Financial Officer and Director of America First
Eureka Holdings, the holding company for EurekaBank, a publicly traded
institution. She was the Chief Financial Officer of EurekaBank from 1993 to 1996
and was a member of its Board of Directors from 1988 until the company was sold
in 1998. From 1984 to 1987 Ms. Byerwalter was a Vice President for Strategic
Planning and Corporate Development at BankAmerica Corporation. From 1984 to 1987
she was a Vice President of the BankAmerica Venture Capital Corporation. Ms.
Byerwalter has a B.A. degree from Stanford University and an M.B.A from Harvard
Business School.
DAVID L. TYLER, age 63, is the Executive Vice President, Director, and
Chief Financial Officer of Interland Corporation, a private owner/developer of
commercial centers and apartment communities. Interland owns and operates in
excess of 5,000 multifamily units and over 2 million square feet of office
space. Mr. Tyler has B.A from the University of California, Riverside and an
M.B.A from the Graduate School of Business, University of California, Berkeley.
CLASS II AND CLASS III DIRECTORS - TERMS EXPIRING AFTER 2001
THOMAS C. BROWN, age 52, has been a Director of the Company since 1998,
Mr. Brown is currently an independent consultant. Mr. Brown was CEO of Rates
Financial Network. Prior to that, Mr. Brown was the Executive Vice President,
Marketing and Field Operations at PMI Mortgage Insurance Company in San
Francisco. Mr. Brown has more than 20 years of senior management experience in
real estate, mortgage finance, and investment banking. Prior to joining PMI in
1997, Mr. Brown was President, CEO and Director of Centerbank Mortgage Company
based in Waterbury, CT. Before joining Centerbank in 1989, Mr. Brown held senior
management positions at Goldome Realty Credit Corporation and Merrill Lynch and
Company, where he was President of Merrill Lynch Huntoon Paige Inc. and Managing
Director of the Real Estate Finance Group. Mr. Brown holds a B.S. from Boston
University and an MBA from the University of Buffalo. Mr. Brown is a Class III
Director whose term expires in 2003.
GEORGE E. BULL, age 52, has served as Chairman of the Board and Chief
Executive Officer of the Company since 1994 and as Chairman of the Board of
Sequoia Mortgage Funding Corporation, a subsidiary of the Company,
3
7
since 1997. Mr. Bull serves as Chairman and Chief Executive Officer of RWT
Holdings, Inc., a subsidiary of the Company, and as Chairman and Chief
Executive Officer of RWT Holding's three wholly owned subsidiaries, Redwood
Residential Funding, Inc., Redwood Commercial Funding, Inc. and Redwood
Financial Services, Inc. Since 1997, Mr. Bull has been a director of Specialty
Mortgage Trust, Inc., a publicly reporting mortgage REIT. From 1983 through
1997, Mr. Bull was the President of George E. Bull, III Capital Management,
Inc. ("GB Capital"). GB Capital discontinued operating as a business in 1997.
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. degree in
Economics from University of California at Davis. Mr. Bull is a Class III
Director whose term expires in 2003.
THOMAS F. FARB, age 44, has been a Director of the Company since 1994.
In 1998, Mr. Farb became General Partner and Chief Financial Officer of Summit
Partners, a Boston-based private equity investment firm with a capital base of
over $3.4 billion. From 1994 to 1998, Mr. Farb was the Executive Vice President
of Finance, Chief Financial Officer and Treasurer of Interneuron
Pharmaceuticals, Inc., a publicly held pharmaceutical company. From 1992 to
1994, Mr. Farb was the Vice President of Finance and Corporate Development,
Chief Financial Officer and Controller of Cytyc Corporation, a publicly held
medical device/diagnostics company. Mr. Farb is currently a director of HNC
Software, Inc., a public company, and Saf-T-Med Corporation. Mr. Farb holds a
B.A. degree from Harvard College. Mr. Farb is a Class II director whose term
expires in 2002.
DOUGLAS B. HANSEN, age 43, has served as President and a Director of
the Company since 1994. He also served as Chief Financial Officer of the Company
from 1994 until April 1999. Mr. Hansen has also served as President and a
Director of Sequoia Mortgage Funding Corporation, a subsidiary of the Company,
since 1997. Mr. Hansen serves as President and Director of RWT Holdings, Inc.,
a subsidiary of the Company, and as President of RWT Holding's three wholly
owned subsidiaries, Redwood Residential Funding, Inc., Redwood Commercial
Funding, Inc. and Redwood Financial Services, Inc. From 1990 through 1997, Mr.
Hansen was a Principal with GB Capital. GB Capital discontinued operating as a
business in 1997. 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. Hansen holds a B.A.
degree in Economics from Harvard College and an M.B.A. from Harvard Business
School. Mr. Hansen is a Class II director whose term expires in 2002.
CHARLES J. TOENISKOETTER, age 56, has been a Director of the Company
since 1994. Mr. Toeniskoetter is the President of Toeniskoetter & Breeding, Inc.
Development, a company which has developed, and owns and manages over $250
million of commercial and industrial real estate properties, and is the
President of Toeniskoetter & Breeding, Inc. Construction, a commercial and
industrial construction company that has completed over $500 million of
construction contracts since its founding. Mr. Toeniskoetter co-founded both of
these companies in 1983. Mr. Toeniskoetter serves on the Board of the San Jose
Water Company and a number of non-profit foundations and other community
organizations. Mr. Toeniskoetter has a B.S.M.A. from the University of Notre
Dame and an M.B.A. from Stanford University Graduate School of Business. Mr.
Toeniskoetter is a Class II director whose term expires in 2002.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors consists of Mr.
Toeniskoetter, Mr. Farb, and Mr. Tyler. The Audit Committee met seven times in
2000 in order to carry out its responsibilities as discussed below in the Audit
Committee Report. The Board of Directors also has a Compensation Committee,
which in 2000 consisted of Ms. Byerwalter and Mr. Brown. The Compensation
Committee met eight times in 2000. The Company has no other standing committees
of the Board of Directors.
The Board of Directors held four regular meetings in 2000. None of the
directors attended fewer than 75% of the meetings of the Board of Directors and
the committees on which he or she served.
The Directors who are not employed by the Company (the "Independent
Directors") receive an annual fee of $16,000 per year, plus a fee of $1,000 for
each meeting of the Board of Directors attended in person and $500 for each
Board meeting attended telephonically. They may also be paid for each committee
meeting attended in person
4
8
or telephonically. They are also granted options to purchase shares of the
Company's Common Stock, which may include dividend equivalent rights ("DERs"),
at the fair market value on the date of grant each year which is the day after
the Annual Meeting of Stockholders. Independent Directors are reimbursed for
expenses related to their attendance at Board of Directors and committee
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is comprised of Mariann
Byerwalter, Richard D. Baum, Thomas C. Brown, and David L. Tyler. The
Compensation Committee establishes the compensation of the officers of the
Company and also administers the Company Stock Option Plan. None of the
Compensation Committee members nor the named executive officers has any
relationships with the Company or its affiliates that must be disclosed under
this caption.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and holders of more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission (the
"SEC") initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Such officers,
directors and 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of such forms that it received, and written
representations from reporting persons that no additional Form 5s were required
for such persons, the Company believes that, during fiscal year 2000, all
Section 16(a) filing requirements were satisfied on a timely basis.
MANAGEMENT OF THE COMPANY
The executive officers of the Company and their positions are as
follows:
NAME POSITION WITH THE COMPANY AGE
- --------------------------- -------------------------------------------- --------
George E. Bull Chairman of the Board and Chief Executive Officer 52
Douglas B. Hansen President and Director 43
Harold F. Zagunis Vice President, Chief Financial Officer, Treasurer, 43
Secretary, and Controller
Andrew I. Sirkis Vice President 39
Brett D. Nicholas Vice President 32
The executive officers serve at the discretion of the Company's Board of
Directors. Biographical information regarding Mr. Bull and Mr. Hansen is
provided in the preceding pages. Biographical information regarding Mr. Zagunis,
Mr. Sirkis, and Mr. Nicholas is set forth below.
HAROLD F. ZAGUNIS, age 43, has served as a Vice President of the
Company since 1995 and as Vice President, Chief Financial Officer, Treasurer,
Secretary, and Controller of the Company since 1999. He also serves as Chief
Financial Officer, Treasurer and Secretary and Director of Sequoia Mortgage
Funding Corporation, a subsidiary of the Company and as Chief Financial
Officer, Treasurer and Secretary of RWT Holdings, Inc., a subsidiary of the
Company, and as Chief Financial Officer, Treasurer and Secretary of RWT
Holding's three wholly owned subsidiaries, Redwood Residential Funding, Inc.,
Redwood Commercial Funding, Inc. and Redwood Financial Services, Inc. Prior to
joining the Company in 1995, Mr. Zagunis worked from 1986 to 1995 as Vice
President of Finance for Landmark Land Company, Inc., a publicly traded company
owning savings and loan and real estate development interests. Mr. Zagunis
holds B.A. degrees in Mathematics and Economics from Willamette University and
an M.B.A. degree from Stanford University Graduate School of Business.
ANDREW I. SIRKIS, age 39, has served as Vice President of the Company
since 1997. Prior to joining the Company, he was Senior Vice President of
Capital Markets at Saxon Mortgage Corporation, and worked for Saxon's
5
9
parent corporation, Resource Mortgage Capital. Prior to his service at Saxon
Mortgage, Mr. Sirkis served as Vice President of Secondary Marketing at GMAC
Mortgage Corporation. Mr. Sirkis has a B.B.A. degree in Accounting from Temple
University and an M.B.A. degree in Finance from Tulane University.
BRETT D. NICHOLAS, age 32, has served as Vice President of the Company
since 1996. Prior to joining the Company he was Vice President of Secondary
Marketing at California Federal Bank, FSB from 1994 to 1995. Mr. Nicholas worked
from 1991 to 1994 at Union Security Mortgage, a wholly owned subsidiary of Union
Federal Savings Bank of Evansville, Indiana as Vice President of Secondary
Marketing. Mr. Nicholas has a B.A. degree in Economics from the University of
Colorado at Boulder.
6
10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock
of the Company as of March 1, 2001, by each person who is known to the Company
to own beneficially more than 5% of the Company's Common Stock, by each
director, by each of the executive officers named in the Summary Compensation
Table, and by all directors and executive officers as a group:
NUMBER OF SHARES APPROXIMATE
NAME BENEFICIALLY OWNED % OWNED
------------------ ------------------ -------
Wallace R. Weitz & Company(1) 2,872,514 32.0%
FMR Corp.(2) 930,200 10.5%
Granite Capital and Affiliates(3) 658,800 7.4%
Gruber & McBaine Capital Management, LLC(4) 654,100 7.4%
George E. Bull(5) 436,284 4.8%
Douglas B. Hansen(6) 402,206 4.4%
Richard D. Baum(7) 1,750 *
Thomas C. Brown(8) 3,325 *
Mariann Byerwalter(9) 3,325 *
Thomas F. Farb (10) 10,386 *
Charles J. Toeniskoetter(11) 17,275 *
David L. Tyler(12) 7,537 *
Harold F. Zagunis(13) 36,951 *
Andrew I. Sirkis(14) 17,148 *
Brett D. Nicholas(15) 19,418 *
All Directors and Executive Officers as a group (11 persons) 955,604 10.1%
- ---------------
* LESS THAN ONE PERCENT
(1) ADDRESS: 1125 SOUTH 103RD STREET, SUITE 600, OMAHA, NEBRASKA 68124.
INCLUDES 653,700 SHARES OF COMMON STOCK SUBJECT TO A VOTING AGREEMENT
PURSUANT TO WHICH WALLACE R. WEITZ & COMPANY ("WEITZ") HAS TRANSFERRED
ITS VOTING RIGHTS WITH RESPECT TO SUCH SHARES TO MESSRS. BULL AND
HANSEN. THE VOTING AGREEMENT COVERS UP TO 1,000,000 COMMON SHARES AND
WILL CONTINUE IN EFFECT FOR SO LONG AS WEITZ OR ITS AFFILIATES HOLD ANY
CAPITAL STOCK OF THE COMPANY AND EITHER MR. BULL OR MR. HANSEN
CONTINUES TO BE EMPLOYED BY OR REMAINS ON THE BOARD OF DIRECTORS OF THE
COMPANY. UNDER THE VOTING AGREEMENT, MESSRS. BULL AND HANSEN AGREE TO
VOTE THE SHARES SUBJECT TO THE AGREEMENT 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. ALSO INCLUDES 114,600
SHARES OF CONVERTIBLE PREFERRED STOCK.
(2) ADDRESS: 82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109.
(3) ADDRESS: 126 EAST 56TH STREET, 25TH FLOOR, NEW YORK, NEW YORK 10022.
(4) ADDRESS: 50 OSGOOD PLACE, PENTHOUSE, SAN FRANCISCO, CA 94133.
(5) INCLUDES 139,309 SHARES HELD OF RECORD BY THE BULL TRUST, 6,000 SHARES
HELD IN AN IRA, , 400 SHARES HELD OF RECORD BY MR. BULL'S SPOUSE, 3,100
SHARES HELD OF RECORD BY MR. BULL'S CHILDREN AND 12,520 SHARES OF
CONVERTIBLE PREFERRED STOCK HELD IN AN IRA. ALSO INCLUDES 260,955
SHARES ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS EXERCISABLE WITHIN
60 DAYS. ALSO INCLUDES 14,000 SHARES OF RESTRICTED STOCK ISSUED IN
MARCH 2001.
(6) INCLUDES 3,000 SHARES HELD IN AN IRA AND 1,400 SHARES HELD OF RECORD BY
MR. HANSEN'S SPOUSE. ALSO INCLUDES 260,955 SHARES ISSUABLE UPON THE
EXERCISE OF STOCK OPTIONS EXERCISABLE WITHIN 60 DAYS. ALSO INCLUDES
14,000 SHARES OF RESTRICTED STOCK ISSUED IN MARCH 2001.
(7) INCLUDES 1,500 SHARES HELD IN AN IRA. ALSO INCLUDES 250 SHARES OF
CONVERTIBLE PREFERRED STOCK HELD IN AN IRA.
(8) INCLUDES 3,325 SHARES ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS
EXERCISABLE WITHIN 60 DAYS.
(9) INCLUDES 3,325 SHARES ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS
EXERCISABLE WITHIN 60 DAYS.
(10) INCLUDES 5,860 SHARES ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS
EXERCISABLE WITHIN 60 DAYS.
(11) INCLUDES 14,205 SHARES ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS
EXERCISABLE WITHIN 60 DAYS. ALSO INCLUDES 500 SHARES ON WHICH MR.
TOENISKOETTER HAS VOTING AND INVESTMENT POWER IN THE TBI CONSTRUCTION
PROFIT SHARING TRUST.
(12) INCLUDES 200 SHARES HELD OF RECORD BY MR. TYLER'S SPOUSE.
(13) INCLUDES 1,000 SHARES HELD IN AN IRA. ALSO INCLUDES 35,951 SHARES
ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS EXERCISABLE WITHIN 60 DAYS.
(14) INCLUDES 15,148 SHARES ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS
EXERCISABLE WITHIN 60 DAYS. ALSO INCLUDES 1,000 SHARES OF CONVERTIBLE
PREFERRED STOCK.
(15) INCLUDES 17,718 SHARES ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS
EXERCISABLE WITHIN 60 DAYS. ALSO INCLUDES 1,500 SHARES OF CONVERTIBLE
PREFERRED STOCK.
7
11
EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation earned
in the years ended December 31, 2000, 1999 and 1998 by the Company's Chief
Executive Officer and its four other executive officers during those years.
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------
OTHER
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS COMPENSATION
-------------------- ------------------------------------------ -------------
RESTRICTED DIVIDEND SECURITIES
STOCK EQUIVALENT UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS($)(2) RIGHTS(#)(3) OPTIONS(#) OTHER($)(4)
--------------------------- ---- ---------- ----------- ------------- ------------ ---------- -----------
George E. Bull 2000 $350,000 $ 352,110 $260,610 5,962 57,200 $ 25,250
Chairman of the Board and 1999 350,000 0 0 1,702 73,500 26,833
Chief Executive Officer 1998 350,000 120,000 0 660 229,491 0
Douglas B. Hansen 2000 $350,000 $ 352,110 $260,000 5,962 57,200 $ 25,250
President and Director 1999 350,000 0 0 1,702 73,500 26,833
1998 350,000 120,000 0 660 229,491 0
Harold F. Zagunis 2000 $200,000 $ 59,010 $ 0 2,371 0 $ 5,250
Vice President, Chief Financial 1999 137,000 75,464 0 677 10,000 5,000
Officer, Treasurer, Controller 1998 131,000 61,133 0 262 5,038 0
and Secretary
Andrew I. Sirkis 2000 $200,000 $ 59,010 $ 0 0 0 $ 5,250
Vice President 1999 175,000 115,675 0 0 10,000 5,000
1998 145,000 93,042 0 0 24,101 0
Brett D. Nicholas 2000 $200,000 $ 59,010 $ 0 0 0 $ 5,250
Vice President 1999 150,000 82,625 0 0 10,000 5,000
1998 135,000 63,000 0 0 17,850 0
- ------------------------------------------------------------------------------------------------------------------------------
- ----------------
(1) AMOUNTS STATED INCLUDE BONUS AMOUNTS ACCRUED DURING THE FISCAL YEAR AND
PAID WITHIN 2 1/2 MONTHS OF YEAR-END.
(2) REPRESENTS 14,000 SHARES AWARDED IN JANUARY 2001 AND ISSUED ON MARCH 1,
2001. THESE AWARDS VEST OVER FOUR YEARS AND DIVIDENDS ARE PAYABLE ON ALL
OUTSTANDING RESTRICTED STOCK. PRIOR TO THESE AWARDS IN 2001, NO EXECUTIVE
OWNED ANY RESTRICTED STOCK.
(3) REPRESENTS THE NUMBER OF SHARES OF STOCK, WHICH ARE ACCRUED STOCK DERS AND
ARE ISSUABLE TO HOLDERS UPON THE EXERCISE OF THE RELATED STOCK OPTIONS.
(4) THIS COLUMN INCLUDES COMPANY CONTRIBUTIONS TO THE COMPANY'S PENSION AND
PROFIT SHARING PLANS. IT ALSO INCLUDES FEES PAID BY AFFILIATES OF THE
COMPANY TO CERTAIN EXECUTIVE OFFICERS AS BOARD FEES. IT DOES NOT INCLUDE
CASH DERS PAID ON UNEXERCISED STOCK OPTIONS.
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, certain information concerning stock
options granted during the 2000 fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ----------- ------ ---- ------ -------
George E. Bull 57,200 40.6% $17.625 12/14/10 $634,020 $1,606,731
Douglas B. Hansen 57,200 40.6% $17.625 12/14/10 $634,020 $1,606,731
Harold F. Zagunis 0 0% ---- ---- ---- ----
Andrew I. Sirkis 0 0% ---- ---- ---- ----
Brett D. Nicholas 0 0% ---- ---- ---- ----
8
12
The following table sets forth, for the executive officers named in the
Summary Compensation Table above, certain information regarding the exercise of
stock options during the 2000 fiscal year and the value of options held at
fiscal year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------------- ------------------------- --------------------------
George E. Bull 0 $0.00 260,958/328,685 $350,453/$788,842
Douglas B. Hansen 0 $0.00 260,958/328,685 $350,453/$788,842
Harold F. Zagunis 0 $0.00 35,955/23,634 $109,901/$70,101
Andrew I. Sirkis 0 $0.00 15,148/35,941 $14,942/$107,956
Brett D. Nicholas 0 $0.00 17,718/36,300 $8,098/$87,420
- ----------------
(1) THE VALUE OF UNEXERCISED OPTIONS IS BASED ON THE MARKET VALUE OF THE
UNDERLYING SECURITIES AT FISCAL YEAR END, MINUS THE EXERCISE PRICE.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Bull
and Hansen. Each agreement provides for a term through December 31, 2003 and is
automatically extended for an additional year at the end of each year of the
agreement, unless either party provides a prescribed prior written notice to the
contrary. Each agreement provides for an annual base salary and for
participation in any bonus incentive compensation plan. Each agreement provides
for the officer to receive his base salary and bonus compensation to the date of
the termination of employment by reason of death, disability or resignation and
to receive base compensation to the date of the termination of employment by
reason of a termination of employment for cause as defined in the agreement.
Each agreement also provides for the officer to receive, in the event that the
Company terminates the subject officer's employment without cause, or if the
officer resigns for "good reason" (as defined in the agreement, including the
occurrence of a "Change of Control" of the Company as defined in the agreement),
an amount, 50% payable immediately and 50% payable in monthly installments over
the succeeding twelve months, equal to three times the greater of such officer's
combined maximum base salary and actual bonus compensation, subject in each case
to a maximum amount of 1% of the Company's book equity value (exclusive of
valuation adjustments) and a minimum amount of $250,000. Each agreement also
contains a "non-compete" provision prohibiting the officer from competing with
the Company for a period of one year following termination of employment
following the Company's termination of the officer without cause or resignation
of the officer for "good reason" (including a "Change of Control"). In addition,
all outstanding options and Awards granted to the officer under the Stock Option
Plan shall immediately vest upon his termination without cause or termination
for "good reason" (including upon a "Change of Control"). "Change of Control"
for purposes of the agreements would include a merger or consolidation of the
Company, a sale of all or substantially all of the assets of the Company,
changes in the identity of a majority of the members of the Board of Directors
of the Company (other than due to the death, disability or age of a director) or
acquisitions of more than 9.8% of the combined voting power of the Company's
capital stock, subject to certain limitations. Mr. Bull's agreement also
restricts the Company from entering into a separate management agreement or
arrangement, without Mr. Bull's consent, pursuant to which another entity would
perform all or a substantial portion of Mr. Bull's duties.
The Company has entered into employment agreements with each of Messrs.
Zagunis, Sirkis, and Nicholas, as of March 2001. Each agreement will remain in
effect until terminated by either party. Each employment agreement provides for
an annual base salary and for participation in a discretionary bonus incentive
compensation plan. Each agreement provides for the officer to receive, in the
event that the Company terminates his employment without cause, or if he resigns
for "good reason" (as defined in the agreement, including the occurrence of a
"Change of Control" of the Company as defined in the agreement), an amount,
payable in three equal monthly installments, equal to the greater of 50% of his
then current annual base salary, or 50% of his 1999 annual base salary plus his
1999 incentive bonus). Each agreement contains a "non-compete" provision
prohibiting the officer from competing with the Company for a period of three
months following termination of employment.
9
13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to January 1, 2001, the Company owned a non-voting preferred
stock interest in RWT Holdings, Inc. ("Holdings"), an unconsolidated, non-REIT,
taxable affiliate. Holdings was incorporated and began operations in 1998.
PURCHASE OF HOLDINGS COMMON STOCK. In 1998, Holdings issued a total of
2,000 shares of Common Stock, 1,000 shares to George E. Bull and 1,000 shares to
Douglas B. Hansen, for net proceeds of $200,000. In 1999, Holdings issued an
additional 1,000 shares of Common Stock, 500 shares to Mr. Bull and 500 shares
to Mr. Hansen, for net proceeds of $100,000.
In 1998, Holdings issued 3,960 shares of Preferred Stock to the Company
for net proceeds of $19.8 million. In 1999, Holdings issued an additional 1,980
shares of Preferred Stock to the Company for net proceeds of $9.9 million. The
Preferred Stock entitled the Company to receive 99% of the aggregate amount of
any dividends or distributions made by Holdings. The holders of the Common Stock
were entitled to receive the remaining 1% of the aggregate amount of such
dividends and distributions. The Preferred Stock ranked senior to the Common
Stock, which preference entitled holders of the Preferred Stock to receive a
$1,000 per share liquidation preference before any distribution was made on the
Common Stock. After the liquidation preference, the holders of Preferred Stock
were entitled to 99% of any remaining assets.
Effective December 15, 1999, Congress enacted the REIT Modernization
Act ("RMA") which, among other things, authorized REITs to own 100% of the
outstanding voting securities of a taxable REIT subsidiary beginning after
December 31, 2000. The RMA thus permitted the Company for the first time to own
all of the Common Stock of Holdings, and thereby be entitled to consolidate
Holdings in the Company's financial statements. Accordingly, effective January
1, 2001, the Company acquired all of the Common Stock of Holdings for $300,000
in cash consideration. The Company's Audit Committee determined the purchase
price based on an independent appraisal obtained by the Committee and through
negotiations with Messrs. Bull and Hansen, taking into account projected cost
savings to the Company from being able to consolidate Holdings into the
Company's future financial statements and other potential benefits to the
Company and its stockholders. Following the Company's acquisition of the Common
Stock of Holdings, the Company converted its shares of Preferred Stock into
additional Common Stock of Holdings as part of an equity recapitalization of
Holdings. Following these transactions, the Company now owns 100% of the Common
Stock of Holdings.
The transaction has been accounted for using the purchase method of
accounting. The assets and liabilities of Holdings have been recorded by the
Company at their fair market value. The transaction did not have a material
impact on the financial statements of the Company.
PAYMENTS TO EXECUTIVE OFFICERS. During 2000, Mr. Bull and Mr. Hansen
each received payments of $20,000 from Holdings under agreements between them
and Holdings for compensation as management directors.
PURCHASES AND SALES OF MORTGAGE LOANS. During the year ended December
31, 2000, the Company sold $58 million of commercial Mortgage Loans to RCF.
Pursuant to Master Forward Commitment Agreements between the Company and RCF,
the Company sold the Mortgage Loans to RCF at the same price for which the
Company acquired the Mortgage Loans. During the year ended December 31, 1999,
there were $50 million of commercial Mortgage Loans sold to RCF pursuant to such
agreements. At December 31, 2000 and 1999, under the terms of Master Forward
Commitment Agreements, the Company had committed to sell $34 and $8 million,
respectively, of commercial Mortgage Loans to RCF during the first quarter of
2001 and 2000, respectively.
During the year ended December 31, 2000, the Company sold $17 million
of residential Mortgage Loans to Redwood Residential Funding ("RRF"), a
subsidiary of Holdings. Pursuant to Master Forward Commitment Agreements, the
Company sold the Mortgage Loans to RRF at the same price for which the Company
acquired the Mortgage Loans. There were $61 million of such sales of residential
Mortgage Loans during the year ended December 31, 1999. At December 31, 2000,
the Company had no commitments to sell residential Mortgage Loans
10
14
to RRF. At December 31, 1999, under the terms of Master Forward Commitment
Agreements, the Company had committed to sell $16 million, of residential
Mortgage Loans to RRF during the first and second quarters of 2000.
OTHER. Under a revolving credit facility arrangement, the Company may
loan funds to Holdings to finance certain Mortgage Loans owned by Holdings.
These loans are typically unsecured and are repaid within six months. Such loans
bear interest at a rate of 3.50% over the LIBOR. At December 31, 2000, the
Company had no such loans to Holdings. At December 31, 1999, the Company had
loaned $6.5 million to Holdings in accordance with the provisions of this
arrangement. During the years ended December 31, 2000 and 1999, the Company
earned $0.3 million and $1.1 million, respectively, in interest on loans to
Holdings.
The Company shares many of the operating expenses of Holdings,
including personnel and related expenses, subject to full reimbursement by
Holdings. During the years ended December 31, 2000 and 1999, $0.2 million and
$3.0 million, respectively, of Holdings' operating expenses were paid by the
Company, and were subject to reimbursement by Holdings.
The Company may provide credit support to Holdings to facilitate
Holdings' financings from third-party lenders and/or hedging arrangements with
counterparties. As part of this arrangement, Holdings is authorized as a
co-borrower under some of the Company's short-term debt agreements subject to
the Company continuing to remain jointly and severally liable for repayment.
Accordingly, Holdings pays the Company credit support fees on borrowings subject
to this arrangement. At December 31, 2000, the Company was providing credit
support on $18 million of Holdings' short-term debt. At December 31, 1999, such
borrowings totaled $22 million. During both years ended December 31, 2000 and
1999, the Company recognized $0.1 million in credit support fee income. Credit
support fees are reflected as a component of "Other Income" on the Consolidated
Statements of Operations.
In 2000, the Company acquired from RWT Holdings $23 million in
commercial Mortgage Loans which the Company intends to hold in its portfolio..
RWT Holdings recognized a gain on the sale of these loans of $0.2 million. Any
inter-company gains or losses recorded on the sale of commercial Mortgage Loans
from RCF to the Company are eliminated against the basis of the commercial
Mortgage Loan purchased by the Company. No such sales occurred in 1999.
11
15
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART,
THE FOLLOWING REPORTS OF THE AUDIT COMMITTEE AND THE COMPENSATION COMMITTEE AND
THE PERFORMANCE GRAPH SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
AUDIT COMMITTEE REPORT
During 2000, the Audit Committee of the Company's Board of Directors
developed an Audit Committee Charter to define and guide its responsibilities.
This charter, which is included as Appendix A, incorporates new standards for
audit committees recently set forth by both the Securities and Exchange
Commission ("SEC") and the New York Stock Exchange. The Company's Audit
Committee Charter was approved by the full Board of Directors at the May 11,
2000 Board meeting. The Audit Committee will review its Charter and request
Board approval on an annual basis, and intends to include the most recent
charter as an appendix to all future proxy statements.
The Audit Committee is composed of three directors, each of whom is
independent as defined by the rules of the New York Stock Exchange. As presented
in greater detail in the Audit Committee Charter, the Audit Committee's
responsibilities generally fall within the following four areas: (i) monitoring
and reviewing the Company's financial statements, internal controls, risk
management procedures, and other relevant policies, (ii) providing an open
avenue of communication between the independent auditors and the Board of
Directors, including review of the auditors' independence, scope of audit and
related fees, and interim and year-end audited financial statements, (iii)
recommending to the Board of Directors the independent auditors to be nominated,
and (iv) informing the Board of any legal, regulatory, or compliance issues that
may have material impact on the financial statements.
The Audit Committee met with both management and the independent
auditors to discuss the interim and year-end financial statements and reports
prior to their issuance. Such meetings included an overview of the preparation
and review of such financial statements and a discussion of any significant
accounting issues. Management and the independent auditors advised the Committee
that all statements were prepared under generally accepted accounting
principles.
The Audit Committee discussed with the independent auditors matters
required to be discussed under Statement on Auditing Standards No. 61,
Communications with Audit Committees. In addition, the Audit Committee received
from the independent auditors written disclosures and a letter regarding the
auditors' independence as required by Independence Standard Boards Standard No.
1, Independence Discussions with Audit Committees. Such disclosures and other
matters relating to the auditors' independence were reviewed by the Audit
Committee and discussed with the independent auditors. The Audit Committee
considered whether the provision of non-audit services and financial
information systems design and implementation services by the independent
auditor is compatible with maintaining the auditors' independence.
The scope of the audit was discussed with the Committee prior to the
audit. The Audit Committee discussed the results of the audit with management
and the independent auditors. The Audit Committee also discussed with management
and the independent auditors the adequacy of the Company's internal controls,
policies, and systems, and management's ongoing progress to further strengthen
such areas as appropriate.
Based on its review of the financial statements, and its discussions
with management and the independent auditors, the Audit Committee recommended to
the full Board of Directors that the Company's audited financial statements for
fiscal year ending December 31, 2000 be included in the Company's Annual Report
and Form 10-K for filing with the SEC.
Audit Committee
Charles J. Toeniskoetter
Thomas Farb
David L. Tyler
12
16
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Committee"), which is comprised exclusively of independent directors,
administers the Company's executive compensation plans and programs. All issues
pertaining to executive compensation are reviewed and approved by the
Compensation Committee.
The Committee believes that the Company's executives should be rewarded
for achieving sustained earnings and for creating long-term value for the
Company's stockholders. Further, the Committee believes that rewards to the
Company's executives should be based upon the achievement of the Company's
business strategies and operating plans. The Committee's guiding principles in
regard to the compensation of the Company's executives are to: (i) attract,
develop and retain highly qualified and productive executives; (ii) motivate
executives to achieve, maintain, and improve the overall performance and
profitability of the Company; (iii) provide additional rewards to executives
when specific, measurable results have been achieved; (iv) ensure accountability
by making rewards based upon each executive's performance and contributions; (v)
tie incentive awards, when granted, to the performance of the Company's common
stock as a means to reinforce the linkage between the interests of the Company's
stockholders and the executives; and, (vi) ensure that compensation levels are
both externally competitive and internally equitable. The Committee conducts
such research and oversight to ensure that the compensation of executives is set
at levels competitive with compensation paid to similar positions in companies
with generally comparable business structures, scope of operations, and lines of
business.
The compensation of the Company's executives is comprised of three
principal components: (i) base salary; (ii) annual incentive awards; and (iii)
restricted stock and stock options granted under the Company's Stock Option
Plan. The base salary of the Company's executives is reviewed at least annually
by the Committee, and is adjusted at the discretion of the Committee, in keeping
with the above-stated principles. The Committee has established and administers
an annual incentive plan for certain executives. The plan enables the granting
of incentive awards to executives based upon the Committee's assessment of the
contribution of eligible executives in consideration of the overall performance
and results of the Company. Typically, incentive awards, if made, are awarded
annually. Grants of restricted stock and or stock options, when made, are based
upon prevailing stock option and restricted stock granting practices of
comparable companies and upon the Committee's assessment of the contributions
made by each eligible executive to the enhancement of the Company's long-term
value. The Committee may, at its discretion, grant stock options with associated
dividend equivalent rights ("DERs"). DERs, if granted to executives, may be in
"accrued" or "current-pay" form. When DERs are "current-pay, the holder of such
DERs ("recipient") receives the same cash or stock dividends or other
distributions paid or made to the holders of the Company's common stock,
regardless of whether the related stock options are vested or unvested. When
DERs are accrued, the recipient is credited for additional shares of common
stock in the amount of the cash, stock, or other distribution made, which
shares are transferred to the recipient only upon exercise of the related
option. No new options with DERs were granted to these officers in 2000. Each
of these officers continue to receive DER payments on outstanding, unexercised
options with DERs granted in years prior to 2000 at the same dividend rate paid
to common stockholders.
During 2000, the Committee conducted a detailed review of the relevant
executive compensation practices of a number of financial institutions,
financial services companies, REITs and mortgage-related companies. Based upon
this analysis, the Committee concluded that for fiscal year 2000 the base
salaries, annual incentive targets and awards, and restricted stock and stock
option grants made to executives, taken together, were reasonable, appropriate
to the Company's achieved results, and generally competitive with the prevailing
compensation practices of similar companies. This analysis also was considered
by the Committee in establishing the base compensation levels for executives for
the Company's fiscal year 2001.
The Compensation Committee applies the foregoing principles, policies
and practices in determining and adjusting the compensation of George E. Bull,
the Company's Chief Executive Officer, and of Douglas B. Hansen, the Company's
President. During fiscal year 2000, Mr. Bull and Mr. Hansen each received a
salary of $350,000. Based on their achievement of certain goals and objectives,
the Committee provided short-term incentive awards of $352,110 to both Mr. Bull
and Mr. Hansen. Based upon the performance of Messrs. Bull and Hansen and in
consideration of the performance of the Company during fiscal year 2000, the
Committee, in December 2000,
13
17
granted to Messrs. Bull and Hansen, respectively, options to purchase 57,200
shares of the Company's common stock. The stock options were granted without
associated DERs.
In January 2001, the Compensation Committee made awards of 14,000
shares each of restricted stock to Messrs. Bull and Hansen. The Compensation
Committee determined the term, conditions, and restrictions that apply to these
grants of restricted stock, as it considered appropriate. These terms,
conditions and restrictions included, among others: (i) the period of the
restrictions; (ii) the exercise of voting rights with respect to such shares
during the period of the restrictions; and (iii) the right to receive dividends
payable during the period of restriction. These restricted stock awards were
issued on March 1, 2001 upon the execution of restricted stock award agreements.
Although these awards were granted in the year 2001, the Compensation Committee
considered the awards a part of the fiscal year 2000 compensation for these
executives.
The Compensation Committee will continue to evaluate alternative forms
and levels of compensation to ensure that the compensation of the Company's
executives is reasonable, performance-based, and consistent with the Company's
overall strategies, operating plans, and objectives. The Compensation Committee
reserves the right, at its sole discretion, to implement programs that are based
on a full range of performance criteria important to the Company's success, even
when compensation payable under such programs may not be fully or partially
deductible by the Company.
Compensation Committee
Mariann Byerwalter
Richard D. Baum
Thomas C. Brown
David L. Tyler
14
18
PERFORMANCE GRAPH
The following graph presents a total return comparison of the Company'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
value of dividends for the Company's 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. The
total return performance shown on the graph is not necessarily indicative of
future total return performance of the Company's Common Stock.
FIVE YEAR -TOTAL RETURN COMPARISON
DECEMBER 31, 1995 THROUGH DECEMBER 31, 2000
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
Redwood Trust, Inc. $100.00 $216.68 $126.13 $87.72 $80.92 $127.40
S&P Composite-500 Index $100.00 $122.94 $163.95 $210.80 $255.16 $231.93
NAREIT Mortgage REIT Index $100.00 $150.86 $156.62 $110.86 $74.03 $85.85
Mortgage REIT Peer Group Index(1) $100.00 $156.39 $165.31 $60.92 $61.67 $111.68
- -------------
(1) In past years, the Company has also included a Peer Group Index of five
mortgage REITs, believing the selected Mortgage REIT Peer Group Index was more
representative of its sector of the mortgage REIT industry than the NAREIT
Mortgage REIT Index. The Peer Group Index was comprised of the following five
mortgage REITs: (a) Thornburg Mortgage Asset Corporation, (b) Capstead Mortgage
Corporation, (c) CRIIMI MAE, Inc., (d) IndyMac Mortgage Holdings, Inc. and (e)
Dynex Capital, Inc. Due to changes in the business conditions and strategies of
these REITs, the Company no longer believes this to be a comparable group of
peers and will not continue to present a return comparison on this Peer Group
Index.
15
19
ITEM 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the accounting firm of
PricewaterhouseCoopers LLP to audit the Company's financial statements for, and
otherwise act as the Company's independent certified public accountants with
respect to, the year ended December 31, 2001. The Board of Directors' selection
of PricewaterhouseCoopers LLP for the current fiscal year is being presented to
stockholders for ratification at the Annual Meeting. To the Company's knowledge,
neither PricewaterhouseCoopers LLP nor any of its partners has any direct
financial interest or any material indirect financial interest in the Company,
or has had any connection since the inception of the Company in the capacity of
promoter, underwriter, voting trustee, director, officer or employee. A
representative of PricewaterhouseCoopers LLP will be present at the Annual
Meeting, will have the opportunity to make a statement if he of she desires to
do so and will be available to respond to appropriate questions from
stockholders.
AUDIT FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal year ended December 31, 2000 and for the reviews of
the financial statements included in the Company's Quarterly Reports on Form
10-Q for that fiscal year were $110,500. In addition, fees for audit services
provided to RWT Holdings, Inc., an affiliate of the Company, were $35,000 for
fiscal year 2000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no professional services rendered by PricewaterhouseCoopers
LLP for information technology services relating to financial information
systems design and implementation during 2000.
ALL OTHER FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for services
rendered to the Company other than the services described above for the fiscal
year ended December 31, 2000 were approximately $10,500. In addition, aggregate
fees billed by PricewaterhouseCoopers LLP for services rendered to RWT Holdings,
Inc, an affiliate of the Company, other than the services described above for
the fiscal year ended December 31, 2000 were approximately $11,000. These fees
were principally for tax accounting services.
OTHER BUSINESS
The Board of Directors knows of no other matters that may be presented
for stockholder action at the meeting. However, if other matters do properly
come before the meeting, it is intended that the persons named in the proxies
will vote upon them in accordance with their best judgment.
16
20
STOCKHOLDER PROPOSALS - 2002 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a
forthcoming stockholders' meeting if they comply with the requirements of the
proxy rules and the Company's Bylaws. Under the proxy rules, any proposals
intended to be presented at the Annual Meeting of Stockholders of the Company to
be held in the year 2002 must be received at a Company's offices on or before
December 5, 2001 in order to be considered for inclusion in the Company's proxy
statement and form of proxy relating to such meeting. Pursuant to the Company's
Bylaws, a stockholder must deliver the proposal to the Secretary of the Company
at the principal executive office of the Company not less than 60 days nor more
than 90 days prior to May 3, 2002.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ HAROLD F. ZAGUNIS
---------------------------------------
Harold F. Zagunis
Secretary
Mill Valley, California
April 4, 2001
17
21
APPENDIX A
REDWOOD TRUST, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be a committee of the Board of Directors of Redwood Trust, Inc.
("the Company") to be known as the Audit Committee. The Audit Committee shall be
composed of directors who are independent of the management of the Company and
are free of any relationship that, in the opinion of the Board of Directors,
would interfere with their exercise of independent judgment as a committee
member. The membership of the Audit Committee shall consist of at least three
independent members of the Board of Directors who shall serve at the pleasure of
the Board of Directors. All members of the Audit Committee shall have a working
familiarity with basic finance and accounting practices, and at least one member
of the committee shall have accounting or related financial management
expertise. The Board of Directors shall review the backgrounds of all members at
least annually, and make the determination as to whether the members are
independent and have the appropriate level of financial background and
expertise.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Company's directors and
management in fulfilling their responsibility to the stockholders, potential
stockholders, and the investment community relating to corporate accounting,
reporting practices of the Company, and the quality and integrity of the
financial reports and controls of the Company. In so doing, it is the
responsibility of the Audit Committee to maintain free and open means of
communication between the directors, the independent auditors, and the financial
management of the Company.
RELATIONSHIP TO INDEPENDENT AUDITORS
The independent auditors for the Company are ultimately accountable to the Board
of Directors and Audit Committee of the Company. The Audit Committee and the
Board of Directors have the ultimate authority and responsibility to select the
independent auditors to be nominated for stockholder approval, to evaluate, and,
where appropriate, to replace the independent auditors. The Audit Committee is
responsible for ensuring that the independent auditors submit on a periodic
basis to the Audit Committee a formal written statement delineating all
relationships between the independent auditors and the Company. The Audit
Committee is responsible for actively engaging in a dialogue with the
independent auditors with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent auditors and
for recommending that the Board of Directors take appropriate action to ensure
the independence of the independent auditors.
RESPONSIBILITIES
In carrying out its responsibilities, the Audit Committee believes its policies
and procedures should remain flexible, in order to best react to changes in
conditions and to ensure to the directors and stockholders that the corporate
accounting, financial reporting, and control practices of the Company are in
accordance with all requirements and are of the highest quality. The duties and
responsibilities of a member of the Audit Committee are in addition to those
duties set out for a member of the Board of Directors.
In carrying out its responsibilities, the Audit Committee will:
1. Provide an open avenue of communication between the independent
auditors and the Board of Directors.
2. Review and update the Audit Committee's charter at least
annually.
18
22
3. Recommend to the Board of Directors the independent auditors to
be nominated for stockholder approval, review the compensation
of the independent auditors, and review and approve the
discharge of the independent auditors.
4. Review annually the need for an internal audit department, given
appropriate consideration to the size and complexity of the
Company, and arrange for certain internal audit functions (if
any are deemed to be necessary) to be outsourced to the extent
the committee determines an internal auditing department is not
vital.
5. Review the scope and related fees of all services provided by
the independent auditors. Obtain a formal written statement from
the independent auditors delineating all relationships between
the Company and the independent auditors. Discuss with the
independent auditors any disclosed relationships or services
that may impact auditor objectivity and independence.
6. Inquire of management and the independent auditors about
significant risks or exposures and assess the steps management
has taken to minimize such risks to the Company.
7. Consider, in consultation with the independent auditors, the
audit scope and plan of the independent auditors.
8. Consider with management and the independent auditors the
rationale for employing audit firms other than the principal
independent auditors.
9. Review with the independent auditors the coordination of the
audit effort to assure completeness of coverage, reduction of
redundant efforts, and the effective use of audit resources.
10. Consider and review with the independent auditors:
a. The adequacy of the Company's internal controls including
computerized information system controls and security.
b. Any related significant findings and recommendations of
the independent auditors together with management's
responses thereto.
11. Review with management and the independent auditors at the
completion of the annual examination:
a. The Company's annual financial statements and related
footnotes.
b. The independent auditors' audit of the financial
statements and their report thereon.
c. Any significant changes required in the independent
auditors' audit plan.
d. Any serious difficulties or disputes with management
encountered during the course of the audit.
e. Other matters related to the conduct of the audit which
are to be communicated to the committee under generally
accepted auditing standards.
12. Consider and review with management:
a. Significant findings during the year and management's
responses thereto.
b. Any difficulties encountered in the course of the audit.
19
23
c. Any changes required in the planned scope of the audit
plan.
13. Review with management and the independent auditors the interim
financial reports before they are filed with the SEC or other
regulators. The Committee should attempt such review prior to
any earnings release for such interim period, if such earnings
release date is prior to the filing of the interim reports. The
chair of the Audit Committee, or appointed delegate, may
represent the committee for purposes of this review.
14. Review policies and procedures with respect to officers' expense
accounts and perquisites, including their use of corporate
assets, and consider the results of any review of these areas by
the independent auditors.
15. Review legal and regulatory matters that may have a material
impact on the financial statements, related company compliance
policies, and programs and reports received from regulators, if
any.
16. Meet with the independent auditors and management in separate
executive sessions to discuss any matters that the committee or
these groups believe should be discussed privately with the
Audit Committee.
17. Report committee actions to the Board of Directors with such
recommendations as the committee may deem appropriate.
18. Prepare an Audit Committee Report for inclusion in the annual
proxy statement that describes the committee's composition and
responsibilities and how they were discharged.
19. The Audit Committee shall have the power to conduct or authorize
investigations into any matters within the committee's scope of
responsibilities. The committee shall be empowered to
independently retain counsel, accountants, or others to assist
it in the conduct of any investigation.
20. The committee shall meet four times per year or more frequently
as circumstances require. The committee may ask members of
management or others to attend any meeting and provide pertinent
information as necessary.
21. The committee will perform such other functions as assigned by
law, the Company's charter or bylaws, or the Board of Directors.
20
24
REDWOOD TRUST, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE UNDERSIGNED HEREBY APPOINTS GEORGE E. BULL, DOUGLAS B. HANSEN, AND HAROLD
F. ZAGUNIS, AND EACH OF THEM SINGLY, AS PROXIES WITH FULL POWER OF SUBSTITUTION,
AND HEREBY AUTHORIZES THEM TO REPRESENT AND TO VOTE, AS DESIGNATED ON THE
REVERSE SIDE HEREOF, ALL SHARES OF COMMON STOCK OF REDWOOD TRUST, INC. WHICH THE
UNDERSIGNED IS ENTITLED TO VOTE AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
AT THE ACQUA HOTEL, 555 REDWOOD HIGHWAY, MILL VALLEY, CALIFORNIA ON MAY 3,
2001, AT 11:00 A.M. LOCAL TIME, OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
BY SIGNING AND DATING THE REVERSE OF THIS CARD, YOU AUTHORIZE THE PROXIES TO
VOTE EACH PROPOSAL, AS MARKED, OR IF NOT MARKED TO VOTE "FOR" EACH PROPOSAL, AND
TO USE HIS DISCRETION TO VOTE ANY OTHER MATTER AS MAY PROPERLY COME BEFORE THE
MEETING. PLEASE COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENVELOPE PROVIDED. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
THIS PROXY IS REVOCABLE AND THE UNDERSIGNED MAY REVOKE IT AY ANY TIME PRIOR TO
ITS EXERCISE. ATTENDANCE OF THE UNDERSIGNED AT SAID MEETING OR ANY ADJOURNED OR
POSTPONED SESSION THEREOF WILL NOT BE DEEMED TO REVOKE THIS PROXY UNLESS THE
UNDERSIGNED SHALL INDICATE AFFIRMATIVELY THEREAT THE INTENTION OF THE
UNDERSIGNED TO VOTE SAID SHARES IN PERSON. IF THE UNDERSIGNED HOLD(S) ANY SHARES
OF REDWOOD TRUST, INC. IN A FIDUCIARY, CUSTODIAL OR JOINT CAPACITY OR
CAPACITIES, THIS PROXY IS SIGNED BY THE UNDERSIGNED IN EVERY SUCH CAPACITY AS
WELL AS INDIVIDUALLY.
(CONTINUED AND TO BE SIGNED ON THE REVERSE HEREOF)
-- FOLD AND DETACH HERE --
25
PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE
1. ELECTION OF DIRECTORS INSTRUCTIONS: To withhold authority to IMPORTANT: PLEASE SIGN EXACTLY AS
vote for any individual nominee check YOUR NAME APPEARS ON THIS PROXY. IF
FOR all nominees WITHHOLD the "FOR ALL NOMINEES" box to the left, ACTING AS EXECUTOR, ADMINISTRATOR,
listed to the right AUTHORITY and strike a line through that nominee's TRUSTEE, GUARDIAN, ETC., YOU SHOULD
(except as marked to vote for all nominees name below. INDICATE WHEN SIGNING. IF THE SIGNER
to the contrary) listed to the right IS A CORPORATION PLEASE SIGN IN FULL
Richard D. Baum, Mariann Byerwalter, CORPORATE NAME BY A DULY AUTHORIZED
[ ] [ ] and David L. Tyler OFFICER. IF A PARTNERSHIP, PLEASE
SIGN IN THE PARTNERSHIP NAME BY AN
2. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP 3. IN THEIR DISCRETION, THE PROXYHOLDERS AUTHORIZED PERSON. IF SHARES ARE HELD
AS INDEPENDENT AUDITORS OF REDWOOD TRUST, INC. ARE AUTHORIZED TO VOTE ON SUCH OTHER JOINTLY, EACH STOCKHOLDER SHOULD
MATTERS THAT MAY PROPERLY COME BEFORE SIGN.
FOR AGAINST ABSTAIN THIS ANNUAL MEETING OR ANY ADJOURNMENT
[ ] [ ] [ ] OR POSTPONEMENT THEREOF. UNLESS OTHERWISE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE
LISTED ITEMS, AND IN THE DISCRETION
OF THE PROXYHOLDERS ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES
RECEIPT OF NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS OF REDWOOD TRUST,
INC. AND A PROXY STATEMENT FOR THE
ANNUAL MEETING PRIOR TO THE SIGNING
OF THIS PROXY.
Dated _________________________, 2001
(BE SURE TO DATE PROXY)
SIGNATURE ___________________________
PLEASE VOTE, SIGN AND RETURN THIS
PROXY AS PROMPTLY AS POSSIBLE IN
THE ENVELOPE PROVIDED.
- ------------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -