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: x

Filed by a Party other than the Registrant: o

Check the appropriate box:

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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REDWOOD TRUST, INC.
One Belvedere Place, Suite 300
Mill Valley, California 94941
(415) 389-7373

NOTICE OF 2013 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 16, 2013 at 10:30 a.m., local time, at the Acqua Hotel, 555 Redwood Highway, Mill Valley, California 94941, for the following purposes:

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 28, 2013 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.

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 mark, date, sign, and promptly mail the enclosed proxy card in the accompanying postage-paid envelope or, pursuant to instructions on the enclosed proxy card, authorize a proxy to cast your votes by telephone or through the Internet.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on May 16, 2013:

By Order of the Board of Directors,
 
/s/ Andrew P. Stone

Secretary

April 2, 2013

YOUR VOTE IS IMPORTANT.

PLEASE PROMPTLY MARK, DATE, SIGN, AND RETURN YOUR PROXY CARD IN
THE ENCLOSED ENVELOPE OR, PURSUANT TO INSTRUCTIONS ON YOUR PROXY CARD, AUTHORIZE A PROXY TO CAST YOUR VOTES BY TELEPHONE OR THROUGH
THE INTERNET.

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REDWOOD TRUST, INC.
 
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Introduction			1
Information About The Annual Meeting			2
Who May Attend the Annual Meeting			2
Who May Vote			2
Voting by Proxy; Board Of Directors’ Voting Recommendations			2
Quorum Requirement			2
Other Matters			3
Information About the Proxy Statement and the Solicitation Of Proxies			3
Annual Report			3
Householding			3
Corporate Governance			4
Corporate Governance Standards			4
Process for Nominating Potential Director Candidates			4
Director Independence			4
Board Leadership Structure			5
Executive Sessions			5
Board of Directors’ Role in Risk Oversight			5
Communications with the Board Of Directors			6
Director Attendance at Annual Meetings of Stockholders			6
Code of Ethics			6
Stock Ownership Requirements			7
Required Stock Ownership by Directors			7
Required Stock Ownership by Executive Officers			7
Item 1 — Election of Directors			8
Meetings and Committees of the Board Of Directors			12
Director Compensation			13
Executive Officers			16
Security Ownership of Directors and Executive Officers			17
Security Ownership of Certain Beneficial Owners			19
Executive Compensation			20
Compensation Discussion and Analysis			20
Executive Compensation Tables			48
Other Compensation Matters			53
Review of Prior Commitment Regarding Volume of Awards Under Redwood’s Incentive Plan			53
Potential Payments upon Termination or Change of Control			55
Compensation Risks			58
Additional Information About Directors and Executive Officers			59

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Audit Committee Matters			60
Item 2 — Ratification of Appointment of the Independent Registered Public Accounting Firm			62
Item 3 — Vote on Advisory Resolution to Approve Named Executive Officer Compensation			63
Item 4 — Vote on an Amendment to Redwood’s Charter to Increase the Number of Shares Authorized for Issuance			68
Item 5 — Approval of an Amendment and Restatement of the 2002 Incentive Plan, Including an Amendment to Increase the Number of Shares Authorized for Issuance Thereunder			70
Item 6 — Approval of an Amendment to the 2002 Employee Stock Purchase Plan to Increase the Number of Shares Available for Purchase Thereunder			80
Stockholder Proposals for the 2014 Annual Meeting			85
Information Incorporated by Reference			85
Appendix A — 2002 Redwood Trust, Inc. Incentive Plan (as amended and restated)			A-1
Appendix B — 2002 Redwood Trust, Inc. Employee Stock Purchase Plan (as amended)			B-1

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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 16, 2013

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 (Redwood, we, or us), for exercise at the Annual Meeting of Stockholders (the Annual Meeting) to be held on Thursday, May 16, 2013 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 mailed to stockholders of record as of the record date for the Annual Meeting beginning on or about April 11, 2013.

Redwood Trust, Inc., together with its subsidiaries, is an internally-managed operating company focused on engaging in residential and commercial mortgage banking activities and investing in mortgage- and other real estate-related assets. We seek to generate fee and gain on sale income through our mortgage banking activities and to invest in real estate-related assets that have the potential to generate attractive cash flow returns over time. For tax purposes, Redwood Trust, Inc. is structured as a real estate investment trust (“REIT”) and we generally refer, collectively, to Redwood Trust, Inc. and those of its subsidiaries that are not subject to subsidiary-level corporate income tax as “the REIT” or “our REIT.” We generally refer to subsidiaries of Redwood Trust, Inc. that are subject to subsidiary-level corporate income tax as “our operating subsidiaries” or “our taxable REIT subsidiaries.” Our mortgage banking activities are generally carried out through our operating subsidiaries, while our portfolio of mortgage- and other real estate-related investments is primarily held at our REIT. We generally intend to retain profits generated and taxed at our operating subsidiaries, and to distribute as dividends at least 90% of the income we generate from the investment portfolio at our REIT.

The address and telephone number of our principal executive office are as set forth above and our website is www.redwoodtrust.com. Information on our website is not a part of this Proxy Statement.

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INFORMATION ABOUT THE ANNUAL MEETING

Who May Attend the Annual Meeting

Only stockholders who own our common stock as of the close of business on March 28, 2013, 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 entitles the holder thereof 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 28, 2013. As of the record date, there were 81,696,701 shares of common stock issued and outstanding. You can vote in person at the Annual Meeting or by proxy. To vote by authorizing a proxy to cast your votes, please mark, date, sign, and mail the enclosed proxy card. You may also 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 cast your votes 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; Board of Directors’ Voting Recommendations

If you vote by proxy, the individuals named on the proxy, or their substitutes, will cast your votes in the manner you indicate. If you date, sign, and return the proxy card without marking your voting instructions, your votes will be cast in accordance with the recommendations of Redwood’s Board of Directors, as follows:

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 submitting a new proxy by telephone or through the Internet, 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 returns a proxy card but does not vote on a matter because the nominee holder has not received instructions from the beneficial owner and does not have or chooses not to exercise discretionary authority to vote the shares.

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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 properly come before the Annual Meeting, however, it is intended that the persons named in the proxies will vote on those matters 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 our directors, officers, and employees in person or by telephone, facsimile transmission, e-mail, or other means of communication. 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 on behalf of beneficial owners. We will, upon request, reimburse those parties for their reasonable expenses in forwarding proxy materials to their beneficial owners.

Annual Report

Our 2012 Annual Report, consisting of our Annual Report on Form 10-K for the year ended December 31, 2012, 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, 2012. Certain sections of our 2012 Annual Report are incorporated into this Proxy Statement by reference, as described in more detail under “Information Incorporated by Reference” below. Our 2012 Annual Report is also 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, 250 Royall Street, Canton, MA 02021; or by telephone at: (888) 472-1955).

If you participate in householding and wish to receive a separate copy of the Notice of Annual Meeting, Proxy Statement, and 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.

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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.

Process for Nominating Potential Director Candidates

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 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 2014 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. Among other matters required under our Bylaws, 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 and diversity criteria set forth in the Governance Standards.

Director Qualifications.  Our Governance Standards contain Board membership criteria that apply to nominees for our Board of Directors. 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.

Our Governance Standards also contain criteria that are intended to guide our Governance and Nominating Committee’s considerations of diversity in identifying nominees for our Board of Directors. In particular, our Governance Standards provide that 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. The self-assessments that are conducted each year by our Board of Directors and our Governance and Nominating Committee include an assessment of whether the Board’s then current composition represents the broad range of talent, skill, expertise, and experience that is called for by our Governance Standards.

Director Independence

As required under Section 303A of the New York Stock Exchange (NYSE) Listed Company Manual and our Governance Standards, our Board of Directors has affirmatively determined that none of the following directors 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 of them qualifies as “independent” under Section 303A: Richard D. Baum, Mariann Byerwalter, Douglas B. Hansen, Greg H. Kubicek, Jeffrey T. Pero, Georganne C. Proctor, and Charles J. Toeniskoetter. The Board of Directors’ determination was made with respect to Mr. Pero after

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consideration of the following: Mr. Pero is a retired partner of Latham & Watkins LLP and has been a director of Redwood since November 2009; Latham & Watkins LLP provides legal services to Redwood; and Mr. Pero’s retirement payments from Latham & Watkins LLP are adjusted to exclude any proportionate benefit received from the fees paid by Redwood to Latham & Watkins LLP.

One member of our Board of Directors, Martin S. Hughes, does not qualify as “independent” under Section 303A of the NYSE Listed Company Manual or our Governance Standards. Mr. Hughes does not qualify as independent because he is Redwood’s current Chief Executive Officer.

Board Leadership Structure

At Redwood, there is a separation of the chairman and chief executive officer roles. The Chairman of the Board of Directors presides over meetings of the Board and serves as a liaison between the Board and management of Redwood. In addition, the Chairman provides input regarding Board agendas, materials, and areas of focus, and may represent Redwood to external constituencies such as investors, governmental representatives, and business counterparties. The Chairman is currently Richard D. Baum, who was elected Chairman in September 2012 and who has continuously served as an independent director of Redwood since 2001.

Under Redwood’s Governance Standards, the Board of Directors also has a Vice-Chairman who presides over meetings of the Board in the absence of the Chairman and who also acts as a resource to management upon request by providing strategic counsel and advice. The Vice-Chairman is currently Douglas B. Hansen, who was elected Vice-Chairman in September 2012. Mr. Hansen is currently an independent director, has served as a director of Redwood since 1994, and is a founder of Redwood and served as Redwood’s President from 1994 through his retirement from that position at the end of 2008. In addition, under the Governance Standards, each of the Audit Committee, Compensation Committee, and Governance and Nominating Committee of Redwood’s Board of Directors is chaired by an independent director.

The Board believes this leadership structure is appropriate for Redwood, as it provides for the Board and its standing committees to be led by independent directors. As an independent Chairman of the Board, Mr. Baum brings more than a decade of experience of serving on Redwood’s Board along with the important perspective of an independent director to this leadership position. As an independent Vice-Chairman of the Board, Mr. Hansen also brings significant prior experience as the President of Redwood to bear on his leadership responsibilities.

Executive Sessions

Our Governance Standards require that our non-employee directors (i.e., the seven of our eight directors who are not Redwood employees) meet in executive session at each regularly scheduled meeting of our Board of Directors and at such other times as determined by our Chairman. In addition, if any non-employee director is not also an independent director, then our Governance Standards require that our independent directors meet at least annually in executive session without any such non-independent directors.

Board of Directors’ Role in Risk Oversight

The Board of Directors takes an active role in risk oversight. At its regular meetings it reviews Redwood’s business and investment strategies and plans and seeks an understanding of the related risks as well as management’s approach to identifying and managing those risks. Because of the nature of Redwood’s business, the Board of Directors focuses on, among other things, establishing the appropriate philosophy with respect to investment risk and determining whether risks actually taken are in accordance with this philosophy. In carrying out its role in risk oversight, the Board of Directors receives and discusses quarterly reports from the Chief Executive Officer and quarterly reports from the Audit Committee, which also carries out a risk oversight function delegated by the Board of Directors.

Under its charter, the Audit Committee is specifically charged with (i) inquiring of management and Redwood’s independent registered public accounting firm about significant risks or exposures with respect to corporate accounting, reporting practices of Redwood, the quality and integrity of the financial reports and controls of Redwood, regulatory and accounting initiatives, and any off-balance sheet structures and (ii) assessing the steps management has taken to minimize such risks. In addition, the Audit Committee is

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specifically charged with regularly discussing with management Redwood’s policies with respect to risk assessment and risk management, including identification of Redwood’s major financial and operational risk exposures and the steps management has taken to monitor and control those exposures.

The Audit Committee carries out this function by, among other things, receiving a quarterly risk management report from Redwood’s Chief Executive Officer and a quarterly internal audit report from Redwood’s head of internal audit, reviewing these reports, and discussing them by asking questions and providing direction to management. In addition, as noted below under “Audit Committee Matters — Audit Committee Report,” the Audit Committee also receives and discusses regular and required communications from Redwood’s independent registered public accounting firm regarding, among other things, Redwood’s internal controls. In addition to discussion of these reports during Audit Committee meetings, as circumstances merit, the Audit Committee holds separate executive sessions with one or more of the Chief Executive Officer, Redwood’s head of internal audit, and representatives of Redwood’s independent registered public accounting firm to discuss any matters that the Audit Committee or these persons believe should be discussed in the absence of other members of management.

In addition, when appropriate, the Board of Directors may delegate to other standing committees risk oversight responsibilities with respect to certain matters or request that other committees review certain risk oversight matters. For example, the Compensation Committee has been delegated to review, on an annual basis, whether Redwood’s compensation policies and practices are reasonably likely to have a material adverse effect on Redwood.

The Board of Directors believes that this manner of administering the risk oversight function effectively integrates such oversight into the Board of Directors’ leadership structure, because the risk oversight function is carried out both at the Board level as well as through delegation to the Audit Committee, which consists solely of independent directors, and when appropriate to the other standing committees of the Board of Directors, which also consist solely of independent directors.

Communications with the Board of Directors

Stockholders and other interested parties may communicate with our Board of Directors by e-mail addressed to boardofdirectors@redwoodtrust.com. The Chairman has access to this e-mail address and provides access to the other directors as appropriate. Communications that are intended specifically for non-employee directors should be addressed to the Chairman.

Director Attendance at Annual Meetings of Stockholders

Pursuant to our Governance Standards, our directors are expected to attend annual meetings of stockholders. All of our directors attended last year’s annual meeting of stockholders in person. We currently expect all of our directors to attend this year’s Annual Meeting.

Code of Ethics

Our Board of Directors has adopted a 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 and any waiver of a provision of the Code of Ethics.

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STOCK OWNERSHIP REQUIREMENTS

Required 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 credited to our Executive 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. Any director whose status has changed from being an employee director to being a non-employee director is not subject to this requirement if that director held at least $50,000 of our common stock at the time of that change in status (as measured on the purchase cost basis outlined in the prior sentence).

In addition, non-employee directors are required to own at least $350,000 of our common stock (as measured on a purchase/acquisition cost basis, including deferred stock units acquired through both voluntary and involuntary deferred compensation) by the later of December 31, 2013 or five years from the date of commencement of their Board membership. Stock and deferred stock units acquired with respect to the $50,000 stock ownership requirement count toward the attainment of this additional stock ownership requirement.

As of the date of this Proxy Statement, all of our non-employee directors were in compliance with these guidelines.

Required Stock Ownership by Executive Officers

The Compensation Committee of our Board of Directors has set the following executive stock ownership guidelines with respect to our executive officers (as measured on a purchase/acquisition cost basis, including deferred stock units acquired through both voluntary and involuntary deferred compensation).

As of the date of this Proxy Statement, all of our executive officers were in compliance with these guidelines.

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ITEM 1 — ELECTION OF DIRECTORS

Redwood is transitioning to a declassified Board of Directors pursuant to an amendment to Redwood’s charter approved at the 2012 annual meeting of stockholders. Beginning with the Annual Meeting, as each class’s term expires, the successors to the directors in that class will be elected to serve until the next annual meeting of stockholders and until their respective successors are duly elected and qualify. Accordingly, the current Class I directors have been nominated to be elected at the Annual Meeting to serve until the next annual meeting of stockholders and until their successors are duly elected and qualify. In 2015, the transition to a declassified Board of Directors will be complete and at the annual meetings of stockholders held in 2015 and thereafter, the entire Board of Directors will be subject to election.

The nominees for the three 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 cast votes for any person who shall be nominated by the present Board of Directors to fill the vacancy. 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. The nominees listed below currently are serving as directors of Redwood.

Vote Required

If a quorum is present, the election of each nominee as a director requires a majority of the votes cast with respect to such nominee at the Annual Meeting. For purposes of the election of directors, a majority of the votes cast means that the number of votes cast “for” a nominee for election as a director exceeds the number of votes cast “against” that nominee. 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 RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE NOMINEES IDENTIFIED BELOW.

Nominees to Board of Directors

Name		Position with Redwood
Richard D. Baum		Chairman of the Board
Mariann Byerwalter		Director
Jeffrey T. Pero		Director

Certain biographical information regarding each nominee for election at the Annual Meeting is set forth below along with biographical information for other directors.

Richard D. Baum, age 66, is Chairman of the Board and has been a director of Redwood since 2001. Mr. Baum is currently the President and Managing Partner of Atwater Retirement Village LLC (a private company). From 2008 to mid-2009, Mr. Baum served as Executive Director of the California Commission for Economic Development. He also 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.

The Board of Directors concluded that Mr. Baum should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

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Mariann Byerwalter, age 52, 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 Pacific Life Corp., SRI International, Burlington Capital Corporation, WageWorks, Inc., the Lucile Packard Children’s Hospital, and the Stanford Hospital and Clinics. In April 2012, she completed her term on the Board of Trustees of Stanford University. Ms. Byerwalter serves 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.

The Board of Directors concluded that Ms. Byerwalter should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

Jeffrey T. Pero, age 66, has been a director of Redwood since November 2009. Mr. Pero retired in October 2009, after serving as a partner for more than 23 years, from the international law firm of Latham & Watkins LLP. At Latham & Watkins LLP, Mr. Pero’s practice focused on advising clients regarding corporate governance matters, debt and equity financings, mergers and acquisitions, and compliance with U.S. securities laws; Mr. Pero also served in various firm management positions. Mr. Pero currently serves as a director of BRE Properties, Inc., a real estate investment trust. Mr. Pero holds a B.A. from the University of Notre Dame and a J.D. from New York University School of Law.

The Board of Directors concluded that Mr. Pero should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

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Current Directors — Terms Expiring After 2013

Douglas B. Hansen, age 55, is Vice-Chairman of the Board, is a founder of Redwood, and served as Redwood’s President from 1994 through 2008. Mr. Hansen retired from his position as President of Redwood at the end of 2008. Mr. Hansen has been a director of Redwood since 1994. From 1990 through 1997, Mr. Hansen was a Principal with 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. Hansen serves on the boards of several not-for-profit institutions, including the International Center of Photography and River of Knowledge. Mr. Hansen holds a B.A. 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 2014.

The Board of Directors concluded that Mr. Hansen should continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

Martin S. Hughes, age 55, has served as Chief Executive Officer since May 2010 and as a director since January 2011. Mr. Hughes served as President from January 2009 to January 2012, Co-Chief Operating Officer from November 2007 to May 2010, Chief Financial Officer from 2006 to April 2010, Treasurer from 2006 to 2007, and Vice President from 2005 to 2007. Mr. Hughes has 20 years of senior management experience in the financial services industry. From 2000 to 2004, Mr. Hughes was the President and Chief Financial Officer for Paymap, Inc. In addition, Mr. Hughes served as a Vice President and Chief Financial Officer for Redwood from 1998 to 1999. Mr. Hughes also served as Chief Financial Officer for 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 & Touche. Mr. Hughes has a BS in accounting from Villanova University. Mr. Hughes is a Class II director whose term expires in 2014.

The Board of Directors concluded that Mr. Hughes should continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

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Greg H. Kubicek, age 56, 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. Mr. Kubicek currently serves as a director for Cadet Manufacturing Co. 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. Mr. Kubicek is a Class II director whose term expires in 2014.

The Board of Directors concluded that Mr. Kubicek should continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

Georganne C. Proctor, age 56, has been a director of Redwood since March 2006. Ms. Proctor is the former Chief Financial Officer of TIAA-CREF, and served in that position from June 2006 to July 2010. Additionally, Ms. Proctor served as Executive Vice President for Enterprise Integration from January 2010 to July 2010. From July 2010 to October 2010, she served as Enterprise Integration’s Executive Vice President. 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 currently serves on the Board of Directors of Och-Ziff Capital Management Group. Ms. Proctor previously served on the Board of Directors of Kaiser Aluminum Corporation from 2006 to 2009. Ms. Proctor holds a B.S. in Business Management from the University of South Dakota and an M.B.A. from California State University East Bay. Ms. Proctor is a Class III director whose term expires in 2015.

The Board of Directors concluded that Ms. Proctor should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

Charles J. Toeniskoetter, age 68, has been a director of Redwood since 1994. Mr. Toeniskoetter is Chairman of Toeniskoetter Development, Inc., a company that has developed, owns, and manages over $250 million of commercial and industrial real estate properties, and Chairman & CEO of Toeniskoetter Construction, Inc. Mr. Toeniskoetter serves on the Board of Directors of Heritage Commerce Corp. (NASDAQ: HTBK), as well as a number of 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. Mr. Toeniskoetter is a Class II director whose term expires in 2014.

The Board of Directors concluded that Mr. Toeniskoetter should continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:

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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

Our Board of Directors currently consists of eight directors. Our Board of Directors has established three standing committees of the Board: the Audit Committee, the Compensation Committee, and the Governance and Nominating Committee. The membership of each committee 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 nine meetings during 2012. The non-employee directors of Redwood met in executive session at each of the five regularly scheduled meetings, for a total of five times during 2012. Mr. Baum 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 all of our directors attended last year’s annual meeting of stockholders in person.

Audit Committee

The Audit Committee provides oversight regarding accounting, auditing, risk management, and financial reporting practices of Redwood. The Audit Committee consists solely of non-employee directors, all of whom our Board of Directors has determined are independent within the meaning of the listing standards of the NYSE and the rules of the SEC. Our Board of Directors has determined that all members of the Audit Committee are “financially literate” within the meaning of the applicable regulations and standards and has designated Ms. Proctor as an “audit committee financial expert” within the meaning of the applicable regulations and standards. The Audit Committee met four times in 2012 in order to carry out its responsibilities, as discussed 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 compensation practices, as well as risks that may arise from those practices, determines and approves the annual base salaries and incentive compensation paid to our executive officers, approves the terms and conditions of proposed incentive plans applicable to our executive officers and other employees, approves and oversees the administration of Redwood’s employee benefit plans, and reviews and approves hiring and severance arrangements for our executive officers. The Compensation Committee consists solely of non-employee directors, all of whom our Board of Directors has determined are independent within the meaning of the listing standards of the NYSE, are “non-employee directors” within the meaning of the rules of the SEC, and are “outside directors” within the meaning of the rules of the Internal Revenue Service (the IRS). The Compensation Committee met seven times in 2012 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 governance guidelines and principles, evaluates potential director candidates and recommends qualified candidates to the full Board, reviews the management succession plan and evaluates executives in connection with succession planning, and oversees the evaluation of the Board of Directors. The Governance and Nominating Committee consists solely of non-employee 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 six times in 2012 in order to carry out its responsibilities.

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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		Georganne C. Proctor		Jeffrey T. Pero
Mariann Byerwalter		Richard D. Baum		Richard D. Baum
Georganne C. Proctor		Mariann Byerwalter		Greg H. Kubicek
Charles J. Toeniskoetter		Jeffrey T. Pero		Charles J. Toeniskoetter

DIRECTOR COMPENSATION

Information on our non-employee director cash compensation to be paid in 2013 is set forth in the table below.

Annual Retainer		$	70,000*
Committee Meeting Fee (in person attendance)		$	2,000
Committee Meeting Fee (telephonic attendance)		$	1,000

Non-employee directors are also reimbursed for reasonable out-of-pocket expenses incurred in attending Board and committee meetings, as well as for their and, in some cases, their guest’s attendance at other Redwood-related meetings or events. Non-employee directors may also be reimbursed for out-of-pocket expenses incurred in attending conferences or educational seminars that relate to their Board service.

Non-employee directors are also granted deferred stock units (or comparable equity-based awards) each year at the time of the annual meeting of stockholders. The number of deferred stock units (or comparable equity-based awards) granted is determined by dividing $75,000 by the closing price of Redwood’s common stock on the NYSE on the day immediately prior to grant (and rounding to the nearest whole share amount). Non-employee directors may also be granted equity-based awards upon their initial election to the Board. Deferred stock units (or comparable equity-based awards) may be credited under our Executive Deferred Compensation Plan. These deferred stock units (or comparable equity-based awards) are fully vested upon grant, although they are generally subject to a mandatory four-year holding period. Dividend equivalent rights on deferred stock units (or comparable equity-based awards) are generally paid in cash to directors on each dividend distribution date.

Each director may elect to defer receipt of cash compensation or dividend equivalent rights through our Executive Deferred Compensation Plan. Cash balances in the Executive Deferred Compensation Plan are unsecured liabilities of Redwood and are utilized by Redwood as available capital to fund investments and operations. Based on each director’s election, deferred compensation can either be deferred into a cash account and earn a rate of return that is equivalent to 120% of the applicable long-term federal rate published by the IRS compounded monthly or be deferred into deferred stock units which will, among other things, entitle them to receive dividend equivalent rights.

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The following table provides information on non-employee director compensation for 2012, which compensation was paid in accordance with the 2012 director compensation policy disclosed in Redwood’s 2012 annual proxy statement or in accordance with the changes to that policy subsequently approved by the Board. Director compensation is set by the Board and is subject to change. Directors who are employed by Redwood do not receive any compensation for their Board activities.

Non-Employee Director Compensation — 2012⁽¹⁾

Name		Fees Earned or Paid in Cash ($)(2)				Stock Awards ($)(3)				All Other Compensation ($)(4)				Total ($)
Richard D. Baum		$	131,712			$	75,005				—			$	206,717
Thomas C. Brown(5)		$	34,532				—				—			$	34,532
George E. Bull, III(6)		$	86,036			$	75,005				—			$	161,041
Mariann Byerwalter		$	88,000			$	75,005				—			$	163,005
Douglas B. Hansen		$	87,380			$	75,005				—			$	162,385
Greg H. Kubicek		$	107,000			$	75,005				—			$	182,005
Jeffrey T. Pero		$	91,609			$	75,005				—			$	166,614
Georganne C. Proctor		$	103,000			$	75,005				—			$	178,005
Charles J. Toeniskoetter		$	87,000			$	75,005				—			$	162,005

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The following table provides information on stock unit distributions to non-employee directors from our Executive Deferred Compensation Plan in 2012. Stock units distributed represent compensation previously awarded in prior years and were reported as director or executive compensation in those prior years.

Name		Stock Units Distributed (#)				Aggregate Value of Stock Units Distributed ($)
Mariann Byerwalter(1)			1,832			$	21,398
Thomas C. Brown(2)			12,448			$	153,235
George E. Bull, III(3)			131,931			$	1,540,950
Jeffrey T. Pero(4)			4,576			$	53,449

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EXECUTIVE OFFICERS

Executive officers of Redwood as of the date of this Proxy Statement are listed in the table below. Of these executive officers, for purposes of this Proxy Statement, Mr. Hughes, Mr. Nicholas, Mr. Matera, and Mr. Abate were Named Executive Officers (NEOs) for 2012.

Name		Position with Redwood as of December 31, 2012		Age
Martin S. Hughes		Chief Executive Officer		55
Brett D. Nicholas		President		44
Fred J. Matera		Chief Investment Officer		49
Christopher J. Abate		Chief Financial Officer		33
Andrew P. Stone		Managing Director, General Counsel & Secretary		42

Executive officers of Redwood serve at the discretion of our Board of Directors. Biographical information regarding Mr. Hughes is provided in the preceding pages. Biographical information regarding Mr. Nicholas, Mr. Matera, Mr. Abate, and Mr. Stone is set forth below.

Brett D. Nicholas, age 44, has served as President since January 2012. Mr. Nicholas served as Executive Vice President and Chief Operating Officer from May 2010 to January 2012 and Chief Investment Officer from 2007 to January 2012. Mr. Nicholas also served as Co-Chief Operating Officer from 2007 to May 2010 and Vice President of Redwood from 1996 to 2007. Mr. Nicholas is responsible for managing Redwood’s day-to-day operations and investment activity. 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.

Fred J. Matera, age 49, has served as Chief Investment Officer (CIO) since January 2012 and is responsible for managing Redwood’s investment portfolio. Prior to serving as CIO, Mr. Matera was a Managing Director. Prior to joining Redwood in July 2008, and since the spring of 2001, Mr. Matera was a Managing Director and Co-Head of Structured Credit at RBS Greenwich Capital. He began his career in finance in 1989 as a mortgage trader, and has held a number of trading positions in financial services firms, including Goldman Sachs, DLJ, and First Boston. Prior to graduating from business school, Mr. Matera was an analyst at the Federal Reserve Bank of New York. Mr. Matera has a B.A. in economics from Tufts University, and an M.B.A. in finance from The Wharton School of the University of Pennsylvania.

Christopher J. Abate, age 33, has served as Chief Financial Officer since March 9, 2012. Mr. Abate also served as Redwood’s Controller from January 2009 to March 2013 and has been employed by Redwood since April 2006. Prior to being named Controller, Mr. Abate served as a Vice President beginning in December 2007 and as a Managing Director since December 2008, with responsibility during the majority of that time for Redwood’s accounting and financial reporting functions. Before joining Redwood, Mr. Abate was employed by PricewaterhouseCoopers LLP as an auditor and consultant. He holds a B.A. in accounting and finance from Western Michigan University, an M.B.A. from the University of California at Berkeley and Columbia University, and is a certified public accountant.

Andrew. P. Stone, age 42, has served as General Counsel and Managing Director since December 2008. Prior to joining Redwood, he served as Deputy General Counsel of Thomas Weisel Partners Group, Inc. from 2006 to 2008 and between 1996 and 2006 practiced corporate and securities law at Sullivan & Cromwell LLP and Brobeck, Phleger & Harrison LLP. Mr. Stone holds a B.A. in mathematics and history from Kenyon College and a J.D. from New York University School of Law.

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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information, as of March 28, 2013, on the beneficial ownership of our common stock by our current directors and executive officers, and by all of these directors and executive officers as a group. As indicated in the notes, 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.

Executive Officers		Number of Shares of Common Stock Beneficially Owned(1)				Percent of Class(2)
Martin S. Hughes(3)			571,248				*
Brett D. Nicholas(4)			464,167				*
Christopher J. Abate(5)			22,595				*
Fred J. Matera(6)			103,332				*
Andrew P. Stone(7)			48,359				*

Non-Employee Directors
Richard D. Baum(8)			32,264				*
Mariann Byerwalter(9)			27,597				*
Douglas B. Hansen(10)			416,895				*
Greg H. Kubicek(11)			158,625				*
Jeffrey T. Pero(12)			28,902				*
Georganne C. Proctor(13)			49,378				*
Charles J. Toeniskoetter(14)			45,689				*
All directors and executive officers as a group (12 persons)(15)			1,969,051				2.37	%

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information as of the dates noted below, with respect to shares of our common stock owned by each person or entity known by us to be the beneficial owner of approximately 5% or more of our common stock.

Name of Beneficial Owner		Number of Shares of Common Stock Beneficially Owned				Percent of Class(1)
BlackRock, Inc.(2)			6,382,053				7.81	%
Janus Capital Management LLC(3)			4,122,032				5.05	%
Wallace R. Weitz & Company(4)			6,542,009				8.01	%
Wells Fargo & Company(5)			4,045,949				4.95	%

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis (CD&A)

Compensation Committee

The Compensation Committee (the Committee) of Redwood’s Board of Directors consists exclusively of independent directors as defined by the New York Stock Exchange (NYSE). The Committee acts on behalf of Redwood’s Board of Directors in administering Redwood’s executive compensation plans and programs.

The Committee currently consists of Georganne C. Proctor (Chair), Richard D. Baum, Mariann Byerwalter, and Jeffrey T. Pero. The Committee met seven times in 2012 and has met one time to date in 2013.

The Committee is committed to providing disclosure within this Compensation Discussion and Analysis (CD&A) that gives insight into the process by which it arrives at determinations relating to executive compensation and the underlying rationale for those determinations. Among other things, this CD&A describes:

Executive Summary of CD&A

Redwood has adopted a performance-based compensation philosophy for its executive officers. Under that philosophy, Redwood seeks to provide incentives to achieve both short-term and long-term business objectives, align the interests of executive officers with the interests of Redwood’s long-term stockholders, and ensure that Redwood can hire and retain talented individuals in a competitive marketplace.

Executive officers are compensated through a combination of the following types of compensation:

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In accordance with SEC regulations, this CD&A is focused on the compensation of Redwood’s Named Executive Officers (NEOs) for 2012, although it also provides some general discussion and analysis of aspects of Redwood’s compensation programs, plans, and practices that apply to all of Redwood’s executive officers. Under SEC regulations, Redwood has six NEOs for 2012, which are listed below with their current titles:

Redwood’s NEOs for 2012 accounted for five of the 86 employees of Redwood as of December 31, 2012.

Each year the Committee reviews Redwood’s compensation philosophy and its executive compensation plans and programs and, after taking into account the outcome of the most recent stockholder advisory vote on executive compensation (commonly referred to as a “say-on-pay” vote), makes compensation determinations it believes are necessary or appropriate in light of its executive compensation objectives. Highlighted below are summaries of the key determinations made by the Committee with respect to 2012 and, in some cases, 2013. Each of these key items is discussed more fully within this CD&A, as well as within the section of this Proxy Statement relating to the stockholders’ vote on an advisory resolution to approve NEO compensation (pages 63 – 67 of this Proxy Statement).

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The table on page 36 of this Proxy Statement under the heading “Application of Formula for Determining Form of Payment of Performance-Based Annual Bonuses to Total Bonus Amounts Earned for 2012” sets forth the portions of each NEO’s total 2012 annual bonus that were paid in cash and were paid in the form of vested DSUs with a mandatory three-year holding period.

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CEO Compensation — 2012

Aggregate NEO Compensation  — 2012

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End of Executive Summary of CD&A

Stockholders’ Most Recent “Say-on-Pay” Votes

At both of Redwood’s 2012 and 2011 annual meetings of stockholders, stockholders had the opportunity to cast an advisory vote on executive compensation. At both of those annual meetings, more than 90% of the votes cast in respect of “say-on-pay” were voted “FOR” approval of the compensation of the named executive officers (NEOs) as disclosed in the 2012 and 2011 proxy statements, respectively. The Committee has considered the results of the 2012 and 2011 “say-on-pay” votes and believes that the overwhelming support of Redwood stockholders in these votes generally reflects support for Redwood’s approach to executive compensation. This support was one of the factors the Committee took into account in not making material changes during 2012 to Redwood’s performance-based compensation philosophy for executive officers or to the components of executive compensation. At Redwood’s 2011 annual meeting of stockholders, stockholders also voted in favor of a proposal to hold a “say-on-pay” vote every year. In the future, the Committee will continue to consider the outcome of the annual “say-on-pay” vote when making compensation decisions regarding executive officers.

Overall Compensation Philosophy and Objectives

Redwood has adopted a performance-based compensation philosophy for its executive officers that seeks to provide incentives to achieve both short-term and long-term business objectives and ensure that Redwood can hire and retain talented individuals in a competitive marketplace. The Committee is responsible for evaluating Redwood’s executive compensation programs, plans, and practices to ensure that they provide proper incentives and appropriately support corporate performance without creating risks that are likely to have a material adverse effect on Redwood.

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Redwood’s executive compensation objectives are as follows:

Components of Compensation in 2012

In 2012, cash compensation for Redwood’s NEOs included a base salary and the cash portion of a performance-based annual bonus. The non-cash portion of 2012 annual bonuses was paid in the form of equity awards with a mandatory three-year holding period. Annual bonuses for 2012 were primarily determined based on a company performance bonus formula, with individual performance a secondary determinant. Redwood seeks to have an executive compensation structure under which annual bonus compensation is earned upon achievement of performance targets. The Committee generally intends that the base salary and annual bonus targets for each NEO be appropriate in comparison to a market-based benchmark of the median base salary and target annual bonus compensation for each NEO. In addition, the Committee believes that performance-based bonuses for each NEO should have adequate upside opportunity so that total annual compensation actually earned may reach the top-quartile of the market-based benchmark for strong performance.

The market-based benchmarks used by the Committee are determined with the assistance of the Committee’s independent compensation consultant, Frederic W. Cook & Co., Inc. (Cook & Co.), through a process that included reviewing compensation practices of a peer group of companies. The peer group used for this purpose consists of companies with similar size and complexity that are competitors of Redwood, including competitors for executive talent and capital. Other market-based benchmarks used by the Committee are determined through the review of supplemental data relating to certain NEO positions obtained from McLagan, a third party firm that is nationally recognized as qualified to provide such data. The peer group of companies used by the Committee in 2012 for competitive benchmarking comparisons and the other data used for benchmarking comparisons are further described on pages 27 – 28 of this Proxy Statement under the heading “Compensation Benchmarking for 2012.”

The target level for Redwood’s 2012 financial performance used in determining the component of 2012 annual bonuses based on company financial performance was an annual adjusted return on equity (Adjusted ROE) between 7.75% and 8.75%. Adjusted ROE is a non-GAAP performance measure that is defined and described on pages 29 – 33 of this Proxy Statement under the heading “2012 Performance-Based Annual Bonus Compensation.” For annual Adjusted ROE performance above or below the target level, it is the Committee’s intention that the compensation program results in annual bonus compensation for NEOs that is appropriately above or below the annual bonus amount that would be earned at the target level of performance, as applicable. To a lesser degree, annual bonus compensation also varies as a function of individual performance.

With respect to long-term equity-based compensation, the Committee generally seeks to grant annual incentive awards to NEOs at levels that exceed the market-based benchmark median, with the market-based benchmark determined in the same manner as described above with respect to base salary and target annual bonus. These awards provide an incentive to create long-term stockholder value, encourage employment retention, and build executive ownership. In particular, for 2012, the value of annual long-term equity-based compensation granted to NEOs was determined after taking into account the Committee’s philosophy that:

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NEOs are provided with other benefits that are also generally provided to other officers and employees of Redwood on the same terms and conditions as provided to the NEOs. These benefits, which are further described below on pages 44 – 45 within this CD&A, include standard health and welfare benefits and the ability to participate in Redwood’s 401(k) plan, employee stock purchase plan, and deferred compensation plan. In addition, certain NEOs are entitled to severance and change in control benefits in the circumstances described below on pages 45 – 46 within this CD&A under the heading “Severance and Change of Control Arrangements.”

Determination of Compensation for 2012

Each year the Committee makes determinations regarding the compensation of Redwood’s NEOs. Redwood’s NEOs for 2012 are listed on page 21 of this Proxy Statement within the “Executive Summary of CD&A.”

The process for determining NEO compensation is dynamic and compensation levels are evaluated throughout each year, with the Committee having the authority to re-examine and adjust any aspect of the compensation program or process it may determine to be necessary or appropriate to take into account changing circumstances throughout the year. As has been its practice for a number of years, for 2012 the Committee directly engaged and used the services of a nationally recognized compensation consultant, Frederic W. Cook & Co., Inc. (Cook & Co.), to assist it in, among other things, determining the elements of compensation and providing benchmarking analyses. Cook & Co. reports directly to the Committee and acts as the Committee’s compensation consultant regarding director, executive officer, and other compensation-related matters. Cook & Co. is not retained by Redwood or its management in any other capacity and the Committee has the sole authority to establish and terminate the relationship with Cook & Co. In addition, the Committee conducted an assessment of the independence of Cook & Co. and concluded that no conflict of interest existed that would result in Cook & Co. not being able to provide advice to the Committee independently from management.

On an annual basis, Cook & Co. reviews the compensation program for Redwood’s executive officers with the Committee and assesses the competitiveness of compensation levels and targets to evaluate whether the compensation program is aligned with Redwood’s compensation philosophy. Cook & Co. also provides the Committee with data regarding compensation practices among Redwood’s peer group and analyzes the compensation levels and targets of each NEO. The analysis prepared by Cook & Co. covers all elements of direct compensation, including base salary, annual incentives, and long-term incentives (including year-to-year comparisons), and also reviews benefit and perquisite offerings of Redwood, as well as total equity ownership in Redwood by each NEO (and the value of those equity stakes at different share prices). Cook & Co.’s analysis assists the Committee in understanding the extent to which different components of each NEO’s compensation are above or below market levels (based on Redwood’s peer group and on other supplemental benchmarking data) and in understanding the year-to-year changes in awarded, accumulated, and potential NEO compensation.

In addition, Cook & Co. assists the Committee in determining the aggregate amounts, form, and structure of the compensation programs adopted by Redwood. Based on the Committee’s judgment, and reflecting input from Cook & Co., the compensation package for each NEO consists of a base salary, a performance-based annual bonus, and a long-term equity-based award, with a significant portion of compensation allocated to the variable annual bonus and the long-term equity-based award components to appropriately align total executive compensation with Redwood’s financial performance and each NEO’s individual performance. Each of these compensation elements is reviewed by the Committee annually with respect to each NEO.

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As part of its process for making year-end 2012 compensation determinations for NEOs, the Committee considered the following recommendations:

In addition, as part of its process for making year-end 2012 compensation determinations for NEOs, the Committee was provided with self-assessments from NEOs that addressed individual performance over the year. The Committee reviewed these self-assessments and took them into consideration when determining the level of compensation earned by each NEO for 2012.

With respect to Ms. Merdian, in connection with her ceasing to act as Chief Financial Officer and her departure from being an employee of Redwood as of March 9, 2012, Redwood and Ms. Merdian entered into a separation agreement which provided for a $200,000 separation payment to be made to Ms. Merdian and for the forfeiture of all unvested equity-based awards previously awarded to Ms. Merdian. The amount of this separation payment was determined after reviewing Redwood’s past practice with respect to the departure of senior officers, which Redwood believes is generally consistent with market practice. Prior to Redwood entering into the separation agreement with Ms. Merdian, the Committee reviewed and approved the terms of the agreement.

Compensation Benchmarking for 2012

As in prior years, in 2012 the Committee asked Cook & Co. to conduct a market pay analysis with respect to various compensation matters, including compensation of NEOs. Cook & Co.’s market pay analysis relied in part on publicly disclosed executive compensation data from a group of peer companies and, due to the fact that not all of the peer group companies publicly disclose executive compensation information for officers with responsibilities comparable to some of Redwood’s NEOs, in part on supplemental data obtained from McLagan, a third party firm engaged by Redwood that is nationally recognized as qualified to provide such data. The supplemental data obtained from McLagan was reviewed and analyzed by Cook & Co., who advised the Committee that both they and the Committee could reasonably rely on the supplemental data. Redwood also uses compensation-related data and consulting services from McLagan and certain of its affiliates, including for determining compensation for employees who are not NEOs.

The Committee considers the use of market-based compensation analysis, including analysis of a peer group of companies, important for competitive positioning in attracting and retaining executive talent. In connection with the competitive pay analysis prepared by Cook & Co., the Committee, after consultation with Cook & Co., designated a peer group of companies to be used in preparing the analysis. The peer group was intended to include companies with which Redwood competes for business, capital, and/or executive talent. The peer group was determined using objective criteria by including publicly-traded, U.S.-based companies in the same or related industry group as Redwood (determined using Global Industry Classification Standard (GICS) codes) with generally comparable net income and company market capitalization value (e.g., companies with average market capitalization values generally between one-third and three-times Redwood’s average market capitalization). Based on GICS codes, companies within the same or related industry group as Redwood include real estate investment trusts (REITs), real estate management and development companies, diversified financial services companies, and capital markets companies (with property REITs, externally-managed companies, and companies in the cash advance or pawn-broker businesses excluded due to the differences between Redwood’s and these types of companies’ business models and compensation practices). In considering the market analysis provided by Cook & Co., the Committee recognized that the peer group did not include generally higher-paying externally-managed REITs, private

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equity firms, and hedge funds with which Redwood must compete for executive talent. These organizations were not included in the peer group because they have different business economics and pay models than Redwood.

Based on the above-described methodology, the peer group of companies designated by the Committee for use in the competitive pay analysis prepared by Cook & Co. for 2012 consisted of: Artio Global Investors Inc., Capstead Mortgage Corporation, Cohen & Steers, Inc., Duff & Phelps Corporation, Dynex Capital, Inc., Epoch Holding Corporation, Financial Engines, Inc., Greenhill & Co., Inc., Hercules Technology Growth Capital, Inc., HFF, Inc., iStar Financial Inc., Main Street Capital Corporation, MarketAxess Holdings Inc., MFA Financial, Inc., NewStar Financial, Inc., Northstar Realty Finance Corporation, PHH Corporation, Piper Jaffray Companies, Stifel Financial Corp., and Triangle Capital Corporation.

The Committee reviews the list of peer companies on an annual basis to confirm that they 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 as peers may change from year to year as a result of this review. In particular, the following companies, which were within the peer group of companies designated by the Committee for use in the prior year’s competitive pay analysis prepared by Cook & Co., were not within the 2012 peer group described above: Annaly Capital Management, Inc., Anworth Mortgage Asset Corporation, RAIT Financial Trust, AllianceBernstein Holding L.P., Altisource Portfolio Solutions S.A., CBOE Holdings, Inc., Credit Acceptance Corporation, Encore Capital Group, Inc., Janus Capital Group, Inc., Knight Capital Group, Inc., Nelnet, Inc., Portfolio Recovery Associates, Inc., W.P. Carey & Co. LLC, and World Acceptance Corporation. These companies were not included within the 2012 peer group due to changes in the relative net income and company market capitalization value between Redwood and these companies, as well as due to changes in Redwood’s business model and competitive posture in relation to these companies.

2012 Base Salaries

Base salary is a traditional component of executive compensation. Redwood seeks to establish base salaries for NEOs after reviewing a market-based benchmarked median for similar executives, as well as the experience, skills, and responsibilities of each NEO. The Committee reviews base salaries as one part of overall compensation for the NEOs annually. The Committee may make adjustments to base salary in connection with this annual review or at other times based on the executive’s experience and responsibilities and after consideration of other components of compensation and consideration of the competitive levels necessary for executive retention.

In December 2011, the Committee determined, after consultation with Cook & Co., that the 2012 base salaries for each of the following NEOs would be as follows:

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In addition, in connection with Ms. Merdian’s departure from employment with Redwood, and effective March 9, 2012, Christopher J. Abate was named Redwood’s interim Chief Financial Officer. At the time he was named interim Chief Financial Officer, Mr. Abate’s base salary rate for 2012 was set at $250,000 per annum, which was ratified by the Committee on March 9, 2012. Subsequently, in September 2012, Mr. Abate was named Chief Financial Officer and his 2012 base salary rate was increased at that time to $350,000 per annum, as approved by the Committee on August 31, 2012. Consequently, base salary actually paid to Mr. Abate during 2012 was $283,333.

2012 Performance-Based Annual Bonus Compensation

Redwood’s compensation program is designed to reward NEOs based on Redwood’s financial performance and each NEO’s individual performance, including each NEO’s contribution to Redwood’s performance. Each NEO’s annual bonus is based on the Committee’s review of the satisfaction of a specific pre-established target level of Redwood financial performance and specific individual performance measures.

In order to align the interests of Redwood’s NEOs with the interests of its long-term stockholders, the Committee determined during the first quarter of 2012, after consultation with Cook & Co., that 2012 target annual bonuses for NEOs would continue to be weighted as follows:

This weighting has been used so that most of an NEO’s target annual bonus will depend directly on the achievement of the target level of company financial performance, while also providing incentives for achievement of individual goals that the Committee believes are in the interests of Redwood and its stockholders, but which may be difficult to quantitatively link directly to company financial performance. The Committee also determined that for 2012 the individual performance component of the bonus could be earned up to 200% of the target amount for that component depending on the Committee’s assessment of individual performance, subject to adjustment when circumstances warrant at the discretion of the Committee (although, once determined, the Committee did not exercise its discretion during 2012 to adjust this aspect of the compensation program).

During the first quarter of 2012, after a review of Redwood’s compensation program, and following consultation with Cook & Co., the Committee determined to continue to use in 2012 the same financial metric to underlie the company performance bonus formula that was used in 2011 (and prior years) and the specific financial performance thresholds described below. As noted above, the company performance bonus formula is based on Adjusted ROE, which is defined as income determined in accordance with GAAP divided by average core equity. Average core equity is defined as average GAAP equity excluding unrealized mark-to-market adjustments as reflected in accumulated other comprehensive income (loss). The company performance bonus formula for 2012 was subject to adjustment if circumstances warranted at the discretion of the Committee (although, after this formula was established in the first quarter of 2012, the Committee did not exercise its discretion during 2012 to adjust this aspect of the compensation program).

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The Committee believes that Adjusted ROE generally provides an appropriate measurement of Redwood’s financial performance because, as a company whose primary source of earnings is income from real estate-related debt investments, the use of average core equity reflects the amount of capital Redwood has to invest, as it excludes the effect of unrealized market valuation adjustments.

During the second half of 2011 and the first quarter of 2012, the Committee (in consultation with, and taking into account input from, management, Cook & Co., and the Board of Directors) undertook a review of the formula used in determining the company performance component of annual bonuses for executive officers. This included a review of the company financial performance levels, or thresholds, at which company performance bonuses would be earned at target levels, as well as a review of the company financial performance threshold below which no company performance bonuses would be earned. Also included was a review of the company performance bonuses that would be earned for various levels of company financial performance above and below target performance.

The Committee decided, as a result of its review, to continue its practice of using thresholds determined at the beginning of each year and set based on a risk-free interest rate plus an incremental premium determined by the Committee to be appropriate (each of which can vary from year to year). This decision continued to be premised, as it was in 2011, in large part on the nature of Redwood’s business model, which has had a significant focus on investing in real-estate related debt instruments. Returns that Redwood can earn on new real-estate related debt investments are, to a certain extent, correlated with the market-driven interest rates for these and other types of debt instruments (which rates depend on the perceived risk of these investments). These market-driven interest rates are typically analyzed as the risk-free interest rate for investment in U.S. Treasury obligations (or other debt backed by the full faith and credit of the U.S.) with a comparable duration plus an incremental risk premium above the risk-free rate.

The Committee believes that setting a target Adjusted ROE performance threshold at an appropriate level above the risk-free interest rate (by adding the incremental premium to the risk-free interest rate) establishes an incentive for executives to achieve attractive investment returns for Redwood (and align the interests of executives and stockholders in seeking this level of return), without exposing Redwood to inappropriate risk. If risk-free interest rates were to decline in future years, all other factors being equal, the company financial performance thresholds used in the formula for determining the company performance component of annual bonuses for executive officers would likely be lowered in recognition of the fact that reaching for the same returns in a lower interest environment would necessitate taking greater investment or other risks. Conversely, if risk-free interest rates were to rise significantly in future years, all other factors being equal, the company financial performance thresholds used in the formula for determining the company performance component of annual bonuses for executive officers would likely be increased in recognition of the fact that accomplishing the same returns in a higher interest rate environment would only require lower risk, lower yielding investments. Overall, the Committee believes that the use of a performance target that varies from year to year will provide the Committee with the ability to annually adjust compensation incentives in a manner consistent with Redwood’s business model.

Based on the above-described review of the company performance bonus formula and performance thresholds, and after consultation with Cook & Co., the Committee made the following determinations with respect to company performance bonuses for NEOs for 2012:

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As a result of the Committee’s decisions, including those described above, the company performance bonus formula used in 2012 for NEOs was as follows:

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Using a formula for 2012 that would result in a pro-rated portion of the company performance bonus being earned for Adjusted ROE between the target performance threshold and 4% below that threshold was determined as appropriate to reward some levels of financial performance below the target level; and continuing to maintain a formula that resulted in a company performance bonus in excess of target for Adjusted ROE above 8.75% was determined as appropriate to reward financial performance that exceeded the upper end of the target range.

As in past years, during 2012, the company performance bonus formula was subject to adjustment if circumstances warranted at the discretion of the Committee. In December 2012, the Committee reviewed certain accounting changes that had been implemented by Redwood during 2012 and their impact on the Redwood’s 2012 financial results. In connection with this review, the Committee considered whether any of the accounting changes made after the establishment of the company performance bonus formula for 2012 should result in an adjustment to that formula prior to the use of that formula in the determination of 2012 company performance bonuses. After discussion and consultation with Cook & Co., the Committee determined not to exercise its discretion to make any adjustment to the company performance bonus formula for 2012. The Committee made this determination based on, among other factors, the fact that the Committee did not believe that these accounting changes, had they been implemented prior to the establishment of the company performance bonus formula for 2012, would have had a significant impact on the Committee’s determination of the formula or the underlying performance goals.

In December 2011, the Committee determined, after discussion with Cook & Co., that the target bonus percentages (which are percentages of base salary) for 2012 for Mr. Hughes, Mr. Nicholas, and Mr. Chisholm would be increased from the level established for 2011 and for Mr. Matera and Ms. Merdian would remain the same as they were for 2011. The increases for Mr. Hughes, Mr. Nicholas, and Mr. Chisholm were made after a review of the market-based benchmark for their positions and consideration of competitive factors. As noted above, effective March 9, 2012, Christopher J. Abate was named Redwood’s interim Chief Financial Officer. At the time he was named Redwood’s interim Chief Financial Officer, Mr. Abate’s target bonus percentage for 2012 was set at 75%, which was ratified by the Committee on March 9, 2012. Subsequently, in September 2012, Mr. Abate was named Chief Financial Officer and his 2012 target bonus percentage was increased at that time to 100% with respect to the period from September 2012 through the end of 2012, which was approved by the Committee in August 2012.

The table below sets forth the 2012 target annual bonuses that were established for each NEO assuming achievement of the criteria necessary to achieve 100% of the target annual bonus, together with the company performance and individual performance components of these target annual bonus amounts.

NEO		2012 Base Salary (per annum)				2012 Target Annual Bonus (as % of Base Salary)				Company Performance Component of 2012 Target Annual Bonus ($)				Individual Performance Component of 2012 Target Annual Bonus ($)				Total 2012 Target Annual Bonus ($)
Mr. Hughes, Chief Executive Officer		$	700,000				175	%		$	918,750			$	306,250			$	1,225,000
Mr. Nicholas, President		$	500,000				160	%		$	600,000			$	200,000			$	800,000
Mr. Abate, Chief Financial Officer
January 1 – August 31, 2012		$	250,000				75	%		$	93,750			$	31,250			$	125,000
September 1 – December 31, 2012		$	350,000				100	%		$	87,500			$	29,167			$	116,667
Total – Mr. Abate										$	181,250			$	60,417			$	241,667
Mr. Matera, Chief Investment Officer		$	400,000				100	%		$	300,000			$	100,000			$	400,000
Mr. Chisholm, Managing Director		$	475,000				125	%		$	445,313			$	148,437			$	593,750
Ms. Merdian, Former Chief Financial Officer		$	400,000				100	%		$	300,000			$	100,000			$	400,000

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The Committee also determined prior to the end of the first quarter of 2012 that individual performance in 2012 for each NEO would be reviewed in the context of, among other things, the specific pre-determined goals and factors discussed below under “Performance-Based Annual Bonuses Earned for 2012 — Individual Performance Component of 2012 Annual Bonuses.” As in past years, during 2012 these individual factors and goals were subject to adjustment if circumstances warranted, at the discretion of the Committee.

The Committee also established that the maximum annual bonus (i.e., the maximum sum of the two components of the annual bonus) in 2012 would continue to be $5 million for each of Mr. Hughes and Mr. Nicholas and $2 million for each of the other NEOs. These maximum amounts were determined after consultation with Cook & Co., and were considered appropriate by the Committee as maximum total annual bonuses for each of these NEOs based on their position, responsibilities, level of performance needed to reach the maximum, and competitive considerations.

Form of Payment of 2012 Performance-Based Annual Bonuses.

At its meeting in March 2012, the Committee also decided, after consultation with Cook & Co., that performance-based annual bonuses earned by NEOs for 2012 that exceeded a specified dollar amount would not be paid fully in cash, but would instead be paid in part in the form of vested deferred stock units (DSUs) with a mandatory three-year holding period, with the cash and vested DSU portions to be determined based on the step function formula established in 2011 for this purpose. Subsequently, in December 2012, the Committee reviewed this formula and, after taking into account competitive, equitable, and other considerations, determined to simplify the formula to provide that the cash and vested DSU portions of annual bonuses earned by NEOs for 2012 would be determined as follows: with respect to any 2012 annual bonus amount for an NEO that exceeds an amount equal to the base salary of that NEO as in effect at the end of 2012, that excess amount would not be paid fully in cash, but would instead be paid 50% in cash and 50% in the form of vested DSUs with a mandatory three-year holding period. Under this formula, as the amount of an NEO’s annual bonus increases above the amount equal to that NEO’s base salary, an increasingly smaller percentage of that bonus is paid in cash. Payment of annual bonus amounts in this manner invests a greater portion of NEOs’ annual bonuses in the future financial performance of Redwood, which the Committee believes results in a greater alignment of executive and stockholder interests.

Performance-Based Annual Bonuses Earned for 2012

Annual performance-based bonuses earned by NEOs for 2012 consisted of both a company performance component and an individual performance component. A further discussion of the Committee’s process for determining each of these components is set forth below.

Company Performance Component of 2012 Annual Bonuses.  The company performance component of each NEO’s annual bonus for 2012 was determined by the Committee in the context of Redwood’s financial performance during the year. As described above on page 21 of this Proxy Statement within the “Executive Summary of CD&A,” Redwood’s financial performance in 2012 was strong. During 2012, Redwood reported annual net income of $132 million, resulting in a 13.35% return on equity (ROE), based on its 2012 financial results as reported under GAAP. Over the course of 2012, Redwood’s book value per share increased by $2.59 per share (or approximately 23%) while Redwood continued to pay a dividend of $0.25 per share per quarter. Additionally, Redwood’s total stockholder return (TSR) for 2012 was approximately 79%.

Under the company performance bonus formula for 2012, which is described above on pages 29 – 33 of this Proxy Statement under the heading “2012 Performance-Based Annual Bonus Compensation,” Adjusted ROE for 2012 was 13.97%, which was above the target performance threshold established by the Committee for 2012. (As described above, Adjusted ROE is defined as income determined in accordance with GAAP divided by average core equity. Average core equity is defined as average GAAP equity excluding unrealized mark-to-market adjustments as reflected in accumulated other comprehensive income (loss).)

Accordingly, the company performance component of each NEO’s annual bonus for 2012 was determined by applying 2012 Adjusted ROE to the previously established bonus formula, with the result that each NEO (other than Ms. Merdian, whose employment as Chief Financial Officer terminated on

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March 9, 2012) earned a company performance component of annual bonus that was above that NEO’s target amount for the company performance component. The target amount of this component of annual bonus, the percentage of that target amount earned, and the total amount of the 2012 company performance component of annual bonus earned for each NEO is set forth in the table below.

NEO(1)		Company Performance Component of 2012 Target Annual Bonus ($)				% of Company Performance Component Earned				2012 Company Performance Component of Annual Bonus Earned ($)(2)
Mr. Hughes, Chief Executive Officer		$	918,750				285	%		$	2,622,643
Mr. Nicholas, President		$	600,000				285	%		$	1,712,747
Mr. Abate, Chief Financial Officer		$	181,250				220	%		$	399,411
Mr. Matera, Chief Investment Officer		$	300,000				285	%		$	856,373
Mr. Chisholm, Managing Director		$	445,313				285	%		$	1,271,179

Individual Performance Component of 2012 Annual Bonuses.  For 2012, the individual performance components of annual bonuses were determined after a review of the individual achievements of each NEO and each NEO’s contribution to the collective achievements of the senior management team, as well as a review of competitive considerations. The Committee’s review of individual performance included a review of each NEO’s self-assessment, the assessment by Mr. Hughes of Mr. Nicholas, the joint assessment by Mr. Hughes and Mr. Nicholas of the other NEOs, and input from Cook & Co. Among other factors, the Committee considered each of the goals noted below in assessing individual performance for 2012. With respect to each of these goals, the Committee noted various factors in evaluating the level of attainment of the goal and each NEO’s contribution to achieving the goal, including the principal factors described below and the related level of attainment (presented in italics after each listed goal). In considering these goals and factors, the Committee did not assign specific weightings to each factor and goal, but instead considered them together as part of a comprehensive review.

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Based on the above-described review of each NEO’s individual achievements and their contribution to the collective achievements of the executive team, the Committee determined the individual performance component of annual bonuses for each NEO for 2012. The target amount of this component of annual bonus, the percentage of that target amount earned, and the resulting 2012 individual performance component of annual bonus for each NEO is set forth in the table below.

NEO(1)		Individual Performance Component of 2012 Target Annual Bonus ($)				% of Individual Performance Component Earned				2012 Individual Performance Component of Annual Bonus Earned ($)(2)
Mr. Hughes, Chief Executive Officer		$	306,250				150	%		$	459,375
Mr. Nicholas, President		$	200,000				150	%		$	300,000
Mr. Abate, Chief Financial Officer		$	60,417				100	%		$	60,417
Mr. Matera, Chief Investment Officer		$	100,000				200	%		$	200,000
Mr. Chisholm, Managing Director		$	148,437				100	%		$	148,438

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Application of Formula for Determining Form of Payment of Performance-Based Annual Bonuses to Total Bonus Amounts Earned for 2012

As described above on page 33 of this Proxy Statement under the heading “Form of Payment of 2012 Performance-Based Annual Bonuses,” the Committee determined that any 2012 annual bonus amount for an NEO that exceeded an amount equal to the base salary of that NEO as in effect at the end of 2012 would be paid 50% in cash and 50% in the form of vested deferred stock units (DSUs) with a mandatory three-year holding period. As noted above, annual bonuses earned by NEOs for 2012 consisted of both a company performance component and an individual performance component, with the sum of the two components also being referred to as an NEO’s total 2012 annual bonus. The table below sets forth the application of this formula to the total 2012 annual bonus amounts for each NEO and shows the portions of each NEO’s total 2012 annual bonus that were paid in cash and in the form of vested DSUs with a mandatory three-year holding period.

NEO(1)		Total 2012 Annual Bonus Earned ($)				Portion of Total 2012 Bonus Paid in Cash ($/%)				Portion of Total 2012 Bonus Paid in DSUs(2) ($/%)
Mr. Hughes, Chief Executive Officer		$	3,082,018			$	1,891,009/61	%		$	1,191,009/39	%
Mr. Nicholas, President		$	2,012,747			$	1,256,374/62	%		$	756,373/38	%
Mr. Abate, Chief Financial Officer		$	459,828			$	404,915/88	%		$	54,913/12	%
Mr. Matera, Chief Investment Officer		$	1,056,373			$	728,187/69	%		$	328,186/31	%
Mr. Chisholm, Managing Director		$	1,419,617			$	947,309/67	%		$	472,308/33	%

2012 Long-Term Equity-Based Incentive Awards

As discussed above, 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-based awards. The Committee, in consultation with Cook & Co., determines guidelines and procedures for the issuance of those awards to NEOs. The type and size of awards granted are made based upon a number of factors, including the NEO’s position, responsibilities, and total compensation level, individual and Redwood financial performance, competitive factors, and market-based benchmarks. The Committee also takes into consideration each NEO’s past awards and outstanding awards.

The Committee’s normal practice is to make long-term equity-based awards to the NEOs (and to other executives and employees) at the regularly scheduled fourth quarter meeting of the Committee (which for 2012 occurred on December 7, 2012). The date of this meeting was determined more than six months in advance as part of the normal process for scheduling Board of Directors and Committee meetings. On December 7, 2012, the Compensation Committee made 2012 year-end long-term equity-based awards to NEOs in two forms: deferred stock units (DSUs) and performance stock units (PSUs). The terms of each of these two types of awards are summarized below.

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The terms of the DSUs granted on December 7, 2012 are generally consistent with the terms of the DSUs awarded to NEOs in December 2011. These terms are established under a deferred stock unit award agreement and Redwood’s 2002 Incentive Plan and include provisions relating to dividend equivalent rights, forfeiture, mandatory net settlement for income tax withholding purposes, and change-in-control.

Under the terms of the PSUs, (i) “three-year cumulative TSR” is defined as the percentage by which the Per Share Price (defined below) as of December 6, 2015 has increased or decreased, as applicable, relative to the Per Share Price as of December 7, 2012 (which was $15.50), adjusted to include the impact on such increase or decrease that would be realized if all cash dividends paid on a share of Redwood common stock during such three-year period were reinvested in Redwood common stock on the applicable dividend payment dates, and (ii) “Per Share Price” is defined, as of any date, as the average of the closing prices of a share of Redwood common stock on the NYSE during the forty (40) consecutive trading days ending on the trading day prior to such date. The TSR performance thresholds for determining whether 0%, 100%, or 200% (or some other percentage in between those levels) of the underlying shares of Redwood common stock will vest were determined by the Committee based on a 25% cumulative TSR over three years being an attractive level of total stockholder return for investors, with the minimum and maximum vesting thresholds also reflecting an appropriate level of vesting for the related level of cumulative TSR over the three year period.

Subject to vesting, the shares of Redwood common stock underlying these PSUs will be distributed to the recipients not later than December 31, 2015, unless distribution is electively deferred by a recipient under the terms of the Redwood’s Executive Deferred Compensation Plan. Prior to vesting, no dividend equivalent rights are paid in respect of PSUs. At the time of vesting, the value of any dividends paid during the vesting period will be reflected in the PSUs by increasing the target

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number of PSUs granted by an amount corresponding to the incremental number of shares of Redwood common stock that a stockholder would have acquired during the three-year TSR measurement period had all dividends during that period been reinvested in Redwood common stock on the applicable dividend payment dates. After the vesting of these PSUs in December 2015 (if any vest) and until the delivery of the underlying shares of Redwood common stock, the underlying vested award shares will have attached dividend equivalent rights, resulting in the payment of dividend equivalents each time Redwood pays a common stock dividend during that period.

The terms of the PSUs granted on December 7, 2012 are established under a performance stock unit award agreement and Redwood’s 2002 Incentive Plan. These terms include provisions relating to forfeiture, retirement, mandatory net settlement for income tax withholding purposes, and change-in-control.

An example of how vesting of the PSUs granted on December 7, 2012 could occur is set forth in the bullet points below:

The long-term equity-based awards granted to NEOs in the fourth quarter of 2012 were determined by the Committee in accordance with Redwood’s compensation philosophy (as described above on pages 24 – 26 of this Proxy Statement under the headings “Overall Compensation Philosophy and Objectives” and “Components of Compensation in 2012”) and after receiving input from Cook & Co. The Committee believes that these 2012 long-term equity-based incentive awards reinforce the linkage between the interests of Redwood’s NEOs and its long-term stockholders by encouraging ownership of Redwood stock by executives and rewarding stockholder value creation.

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The number and grant date fair value of DSUs and PSUs comprising the 2012 long-term equity-based awards granted to each NEO are set forth in the table below:

		Deferred Stock Units (“DSUs”)								Performance Stock Units (“PSUs”)
NEO(1)		#				Aggregate Grant Date Fair Value(2)				#				Aggregate Grant Date Fair Value(2)
Mr. Hughes, Chief Executive Officer			69,824			$	1,150,000				92,966			$	1,150,000
Mr. Nicholas, President			48,573			$	800,000				64,672			$	800,000
Mr. Abate, Chief Financial Officer			12,143			$	200,000				16,168			$	200,000
Mr. Matera, Chief Investment Officer			22,769			$	375,000				30,314			$	375,000
Mr. Chisholm, Managing Director			16,697			$	275,000				22,231			$	275,000

DSUs awarded in 2012 have attached dividend equivalent rights, resulting in the payment of dividend equivalents each time Redwood pays a common stock dividend. PSUs awarded in 2012 have attached dividend equivalent rights, resulting in the payment of dividend equivalents (after any vesting in December 2015) each time Redwood pays a common stock dividend. Prior to vesting, no dividend equivalent rights are paid in respect of PSUs; however, at the time of vesting, the value of any dividends paid during the vesting period will be reflected in the PSUs by increasing the target number of PSUs granted by an amount corresponding to the incremental number of shares of Redwood common stock that a stockholder would have acquired during the three-year vesting period had all dividends during that period been reinvested in Redwood common stock on the applicable dividend payment dates. The value of these dividend equivalent rights and the value of any increase in the target number of PSUs to reflect dividends paid during the vesting period were taken into account in establishing the grant date fair value of these DSUs and PSUs under FASB Accounting Standards Codification Topic 718 at the time the awards were granted. Therefore, dividend equivalent right payments and any increase in the target number of PSUs to reflect dividends paid during the vesting period are not considered part of the compensation or other amounts reported above in the table of non-employee director compensation under “Director Compensation,” reported below in the summary table of NEO compensation under “Executive Compensation Tables — Summary Compensation,” or reported below under “Executive Compensation Tables — Grants of Plan-Based Awards.”

Mandatory Holding Periods for Long-Term Equity-Based Incentive Awards

All long-term equity-based incentive awards granted to NEOs during 2012 and to date in 2013 were subject to a mandatory holding period, as described below.

DSUs Granted in February 2012 and September 2012.  In February 2012, Mr. Hughes was paid a portion of his 2011 annual bonus in the form of vested DSUs with a mandatory three-year holding period. Consequently, the earliest these DSU awards will be distributed to Mr. Hughes in shares of Redwood common stock (and, as a result, the earliest these shares could be sold or transferred) is May 1, 2015.

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In September 2012, in connection with his promotion to Chief Financial Officer, Mr. Abate received a long-term equity-based incentive award in the form of DSUs with a four-year vesting schedule. Notwithstanding this vesting schedule, Mr. Abate is subject to a mandatory holding period with respect to all shares underlying the DSU award made in September 2012 that vest prior to the distribution date (and, as a result, the earliest these shares could be sold or transferred) is May 1, 2017.

DSUs Granted in December 2012.  The DSUs granted to NEOs in December 2012 have the four-year vesting schedule described above on pages 36 – 39 of this Proxy Statement under the heading “2012 Long-Term Equity-Based Incentive Awards.” Notwithstanding this vesting schedule, the NEOs are subject to a mandatory holding period with respect to all shares underlying the DSU awards made in December 2012 that vest prior to the distribution date. Consequently, assuming continued employment of the NEOs receiving those awards, the earliest these DSU awards will be distributed to recipients in shares of Redwood common stock (and, as a result, the earliest these shares could be sold or transferred) is December 19, 2016.

PSUs Granted in December 2012.  The PSUs granted to NEOs in December 2012 have the three-year cliff vesting schedule described above on pages 36 – 39 of this Proxy Statement under the heading “2012 Long-Term Equity-Based Incentive Awards.” Consequently, assuming continued employment of the NEOs receiving these awards, if any of these PSUs vest, the earliest these PSUs will be distributed to recipients in shares of Redwood common stock (and, as a result, the earliest these shares could be sold or transferred) is December 6, 2015.

DSUs Granted in February 2013.  As previously noted, in accordance with the function described above on page 33 of this Proxy Statement under the heading “Form of Payment of 2012 Performance-Based Annual Bonuses,” a significant portion of each NEO’s 2012 annual bonus was paid in the form of vested DSUs with a mandatory three-year holding period. Consequently, the earliest these DSU awards will be distributed to recipients in shares of Redwood common stock (and, as a result, the earliest these shares could be sold or transferred) is May 1, 2016.

Executive Stock Ownership Guidelines

As described on page 7 of this Proxy Statement under the heading “Stock Ownership Requirements — Required Stock Ownership by Executive Officers,” the Committee has established executive stock ownership guidelines with respect to Redwood’s executive officers. These guidelines are summarized below and the Committee believes that they reinforce the linkage between the interests of Redwood’s executives and its long-term stockholders by requiring ownership of Redwood stock by executives and rewarding stockholder value creation. In December 2012, the Committee conducted a review of its executive stock ownership guidelines and determined to increase the guideline applicable to the CEO. As a result, under the guidelines Redwood’s CEO is now required to own stock with a value at least equal to six times his current salary.

Executive Stock Ownership Guidelines

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For purposes of determining compliance, the original purchase or acquisition price is used as the value of shares held and, as of the date of this Proxy Statement, all of Redwood’s executive officers were in compliance with these guidelines either because he or she owned the requisite number of shares or because he or she was within the time period during which the executive is permitted to attain the required level of ownership.

Prohibition on Use of Margin, Pledging, and Hedging in Respect of Redwood Shares Held by Executives

Under Redwood’s Insider Trading Policy, Redwood’s executive officers may not acquire securities issued by Redwood using borrowed funds, may not use margin in respect of securities issued by Redwood, may not pledge securities issued by Redwood as collateral, and may not engage in hedging or other transactions with respect to their ownership of securities issued by Redwood, each of which the Committee believes would be inconsistent with the purposes and intent of the executive stock ownership guidelines. Accordingly, Redwood has an established policy applicable to executive officers that prohibits the following:

Compensation Determinations Relating to 2013

In accordance with its normal practice, at meetings in December 2012 and March 2013, the Committee made certain decisions relating to 2013 compensation for certain NEOs, as further described below.

2013 Base Salaries.  In accordance with its above-described policy and practice relating to establishing base salaries (see discussion above under the heading “2012 Base Salaries” on pages 28 – 29 of this Proxy Statement), the Committee reviewed the base salaries of certain of the NEOs for 2013. This review was made after consultation with Cook & Co. and after review of the market-based benchmark for this component of compensation, analysis of the type described above under “Compensation Benchmarking for 2012,” and consideration of competitive factors. As a result of this review:

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The Committee retains the discretion to make adjustments to these base salaries prior to its annual year-end review in December 2013, although it does not currently contemplate any such intra-year adjustments.

2013 Targets for Performance-Based Annual Bonuses.  The Committee also made two determinations regarding 2013 targets for performance-based annual bonuses for NEOs. First, the Committee determined, after consultation with Cook & Co., that 2013 target annual bonuses for each NEO would continue to be weighted 75% based on Redwood company financial performance (i.e., based on Adjusted ROE) and 25% based on individual performance. Second, in accordance with its above-described policy and practice relating to establishing target annual bonuses (see discussion above under the heading “2012 Performance-Based Annual Bonus Compensation” on pages 29 – 33 of this Proxy Statement), and after consultation with Cook & Co. and review of the market-based benchmark for this component of compensation, analysis of the type described above under “Compensation Benchmarking for 2012,” and consideration of competitive factors, the Committee determined 2013 target annual bonus amounts for certain NEOs.

The table below sets forth the 2013 target annual bonuses (expressed both as a percentage of base salary and in dollars) for certain NEOs assuming achievement of the criteria necessary to achieve 100% of the target annual bonus, together with the company performance and individual performance components of the 2013 target annual bonus and a comparison to the target annual bonus percentages that were for applicable for 2012.

NEO		2013 Base Salary				2013 Target Annual Bonus (%)				Change from Total 2012 Target Annual Bonus Percentage (%)(1)				Company Performance Component of 2013 Target Annual Bonus ($)				Individual Performance Component of 2013 Target Annual Bonus ($)				Total 2013 Target Annual Bonus ($)(2)
Mr. Hughes, Chief Executive Officer		$	700,000				175	%			0	%		$	918,750			$	306,250			$	1,225,000
Mr. Nicholas, President		$	575,000				160	%			0	%		$	690,000			$	230,000			$	920,000
Mr. Abate, Chief Financial Officer		$	350,000				100	%			0	%		$	262,500			$	87,500			$	350,000
Mr. Matera, Chief Investment Officer		$	500,000				125	%			25	%		$	468,750			$	156,250			$	625,000

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In addition, as was the case in 2012, the Committee determined that the maximum sum of the two annual bonus components (i.e., the maximum total annual bonus) for 2013 will continue to be $5 million for each of Mr. Hughes and Mr. Nicholas, and $2 million for each of the other NEOs. These maximum amounts were determined after consultation with Cook & Co., and were considered appropriate by the Committee as maximum total annual bonuses for each of these NEOs based on their position, responsibilities, level of performance needed to reach the maximum, and competitive considerations.

The Committee also determined to continue the practice it adopted for 2012 relating to the form of payment of annual bonuses to NEOs. Accordingly, with respect to any annual bonus paid to an NEO for 2013 that exceeds an amount equal to the base salary of that NEO as in effect at the end of 2013, that excess amount would not be paid fully in cash, but would instead be paid 50% in cash and 50% in the form of vested DSUs with a mandatory three-year holding period.

Individual Performance Component of 2013 Target Bonus.  During the first quarter of 2013, the Committee reviewed and approved factors and goals that will be used over the course of 2013 to evaluate each NEO’s individual performance in 2013 and which will be used at the end of 2013 as a basis for the Committee’s individual performance bonus determinations. As in past years, during 2013 these individual factors and goals will be subject to adjustment should circumstances warrant at the discretion of the Committee. Consistent with its determination for 2012, the Committee also determined that for 2013 the individual performance component of the bonus could be earned up to 200% of the target amount for that component depending on the Committee’s assessment of individual performance, subject to adjustment when circumstances warrant at the discretion of the Committee.

Company Performance Component of 2013 Target Bonus.  During the first quarter of 2013, the Committee made the following determinations with respect to company performance bonus formula for use in 2013 for NEOs:

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As a result of the Committee’s determinations, including those described above, the company performance bonus formula for use in 2013 for NEOs will be as follows:

Using a formula that resulted in a pro-rated portion of the company performance bonus being earned for Adjusted ROE between the target performance threshold and 4% below that threshold was determined as appropriate to reward some levels of financial performance below the target level; and using a formula that resulted in a company performance bonus in excess of target for Adjusted ROE above 9.5% was determined as appropriate to reward financial performance that exceeded the upper end of the target range. As in past years, during 2013, the company performance bonus formula will be subject to adjustment when circumstances warrant at the discretion of the Committee.

Deferred Compensation

Under Redwood’s Executive Deferred Compensation Plan, executive officers (including NEOs) may elect to defer up to 100% of their cash compensation as well as dividend equivalent right payments on deferred stock units (DSUs), options, and vested performance stock units (PSUs) and under certain circumstances, can also elect to re-defer scheduled distributions of cash or stock from the plan. Additionally, delivery of shares of Redwood common stock underlying DSUs and PSUs granted to executives under Redwood’s 2002 Incentive Plan are 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 retirement, at which time the balance in the executive’s account will be delivered 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 IRS. As an example, for December 2012, 120% of the long-term applicable federal rate was 2.62% per annum. Cash balances deferred under the Executive Deferred Compensation Plan remain available to Redwood for general corporate purposes pending the obligation to deliver the deferred amounts to the recipients on the deferral date. The ability of recipients to elect to receive interest on deferred amounts is one incentive to participate in this Plan, thereby making funds available for Redwood’s use at a cost that is generally below Redwood’s normal cost of capital.

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Redwood also matches 50% of cash compensation deferred by participants in the Executive Deferred Compensation Plan, provided that total matching payments and contributions made by Redwood to participants in the Executive Deferred Compensation Plan and Redwood’s 401(k) plan (discussed below) are limited to 6% of base salary. Vesting of the matching payments is based on the employee’s tenure with Redwood, 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. Redwood believes the Executive Deferred Compensation Plan provides for, among other things, a vehicle for Redwood’s executives to plan for retirement and tax planning flexibility.

Employee Stock Purchase Plan

Redwood offers all eligible employees (including NEOs) the opportunity to participate in a tax-qualified Employee Stock Purchase Plan (ESPP). Through payroll deductions, employees can purchase shares of Redwood’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% of the fair market value per share on the first day of each 12-month offering period (January 1^st) or (b) 85% of the fair market value per share on the purchase date (the end of each calendar quarter, March 31^st, June 30^th, September 30^th, and December 31^st). An employee is eligible to participate in the ESPP at the beginning of the quarter following 90 consecutive days of employment.

401(k) Plan and Other Matching Contributions

Redwood offers a tax-qualified 401(k) Plan to all employees (including NEOs) for retirement savings. Under this Plan, employees are allowed to defer and invest up to 100% of their cash earnings, subject to the maximum 401(k) contribution amount (which, in 2012, was $17,000 for those under 50 years of age and $22,500 for those 50 years of age or older). Contributions can be invested in a diversified selection of mutual funds.

In order to encourage participation and to provide a retirement planning benefit to employees, Redwood also provides a matching contribution of 50% of employees’ 401(k) Plan contributions, provided that matching contributions to the 401(k) Plan are limited to the lesser of 4% of an employee’s cash compensation and, in 2012, $8,500. Vesting of the 401(k) Plan matching contributions is based on the employee’s tenure with Redwood, and over time, an employee becomes increasingly vested in both prior and new matching contributions. Employees are fully vested in all prior and all new matching contributions after six years of employment.

As noted above, Redwood also matches up to 50% of cash compensation deferred by participants in its Executive Deferred Compensation Plan. Total matching payments made by Redwood to participants in the Executive Deferred Compensation Plan (including deferred compensation matching plus matches in the 401(k) Plan) are limited to 6% of base salary.

Other Benefits

In addition to cash compensation and equity-based awards, Redwood currently provides all employees (including NEOs) with certain other health and welfare benefits consisting of: medical, dental, vision, disability, and life insurance, a disability income continuation program (which can supplement disability insurance payments), an employee assistance program (which is a standard package of assistance benefits such as counseling and legal and financial consultation and referral services), and a flexible spending account program. The provision of these types of benefits is important in attracting and retaining employees. During 2012, Redwood paid approximately two-thirds of all employees’ monthly premium for medical and dental coverage, and 100% of all employees’ premiums for basic long-term disability and life insurance provided through Redwood plans.

Severance and Change of Control Arrangements

Prior to 2006, two of Redwood’s NEOs, Mr. Hughes and Mr. Nicholas, entered into employment agreements with Redwood, which provided for severance payments in the event Redwood terminates the executive’s employment without “cause” or the executive terminates his employment for “good reason.” Similarly, prior to 2006, another executive officer, Harold F. Zagunis entered into an employment agreement with Redwood, which also provided for severance payments in the event Redwood terminates the executive’s

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employment without “cause” or the executive terminates his employment for “good reason.” These 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 or substitute equivalent awards, the executive’s outstanding options and equity-related awards will immediately vest and become exercisable (i.e., based on a “double-trigger”). These agreements were entered into in order to attract and retain these executives in the competitive marketplace for executive talent.

The various levels of post-termination benefits for each of Mr. Hughes, Mr. Nicholas, and Mr. Zagunis were determined by the Committee to be appropriate based on that executive’s duties and responsibilities with Redwood and were the result of arm’s-length negotiations with these individuals. The different levels were also determined to be appropriate and reasonable when generally compared to post-termination benefits provided by Redwood’s peers to executives with similar titles and similar levels of responsibility. The different levels of benefit were also intended to take into account the expected length of time and difficulty the executive may experience in trying to secure new employment. The amount of the severance is balanced against Redwood’s need to be responsible to its stockholders and also takes into account the potential impact the severance payments may have on other potential parties to a change in control transaction.

The terms of these severance and change of control arrangements are described in more detail below under “Other Compensation Matters — Potential Payments upon Termination or Change of Control.” No other executive officer of Redwood is currently party to an employment agreement that provides for severance payments in the event of the termination of the executive’s employment or in the event of a change of control, although the award agreements for deferred stock units (DSUs) and performance stock units (PSUs) granted to executive officers provide for full vesting of the DSUs or PSUs granted in the event of death or disability, and, in the case of PSUs, partial vesting of the PSUs granted in the event of a termination without cause or retirement.

Redwood does not provide for excise tax gross-ups for change-in-control severance payments.  In March 2011, each of the three outstanding employment agreements between an executive officer and Redwood was amended to eliminate the provisions of those agreements that provided for tax gross-ups with respect to excise taxes that could be imposed on change-in-control severance payments made under these agreements in the future. As a result, Redwood does not have any employment agreements in place with any executive (or any other employee) that provide for an excise tax gross-up. The Committee does not intend to offer excise tax gross-up provisions in any future employment agreements.

Tax Considerations

Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), limits the tax deductibility by Redwood of annual compensation in excess of $1,000,000 paid to Redwood’s chief executive officer and Redwood’s three other most highly compensated executive officers employed at the end of the year other than the chief financial officer. However, certain performance-based compensation that is paid pursuant to a compensation plan that has been approved by stockholders (such as Redwood’s 2002 Incentive Plan) 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 the board of directors that establishes those goals consists only of “outside directors.” All members of the Committee qualify as outside directors.

The Committee considers the anticipated tax treatment to Redwood and to executive officers when reviewing executive compensation and Redwood’s 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, that impact is evaluated in light of the Committee’s overall compensation philosophy and objectives. The Committee will consider 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

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executive talent. The Committee may determine to provide significant amounts of compensation to NEOs that are not fully tax deductible to Redwood because, for example, these compensation amounts are consistent with its philosophy and are in Redwood’s best interests, and the compensation amounts not being fully deductible is not significant enough to Redwood (including, among other factors, as a result of its structure as a REIT) to outweigh these other factors.

Clawback Policy with Respect to Bonus and Incentive Compensation

Redwood continues to maintain a “clawback” policy with respect to bonus and incentive payments made to executive officers whose fraud or misconduct resulted in a financial restatement. Pursuant to this policy, in the event of a significant restatement of Redwood’s financial results due to fraud or misconduct, the Board of Directors of Redwood will review all bonus and incentive compensation payments made on the basis of Redwood 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, in its discretion and to the extent permitted by law, seek to recoup from the executive officers whose fraud or misconduct materially contributed to the restatement the excess value or benefit of the prior payments made to the executive officers.

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:
Georganne C. Proctor, Chair
Richard D. Baum
Mariann Byerwalter
Jeffrey T. Pero

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Executive Compensation Tables

Summary Compensation

The following table includes information concerning compensation earned by the NEOs for the years ended December 31, 2012, 2011, and 2010. Titles shown in the table are those held by the NEO on December 31, 2012.

Name and Principal Position		Year				Salary(1)				Stock Awards(2)				Option Awards				Non-Equity Incentive Plan Compensation(3)				All Other Compensation(4)				Total
Martin S. Hughes, Chief Executive Officer			2012			$	700,000			$	3,491,000				—			$	1,891,009			$	42,000			$	6,124,009
			2011			$	700,000			$	2,215,500				—			$	273,250			$	42,000			$	3,230,750
			2010			$	624,680			$	2,775,000				—			$	1,165,109			$	30,000			$	4,594,789
Brett D. Nicholas, President			2012			$	500,000			$	2,356,363				—			$	1,256,374			$	30,000			$	4,142,737
			2011			$	500,000			$	1,575,009				—			$	187,500			$	30,000			$	2,292,509
			2010			$	500,000			$	1,600,000				—			$	871,819			$	30,000			$	3,001,819
Christopher J. Abate, Chief Financial Officer			2012			$	283,333			$	704,902				—			$	404,914			$	15,000			$	1,408,149
			2011			$	215,000			$	200,000				—			$	26,875			$	12,900			$	454,755
			2010			$	215,000			$	135,000				—			$	111,620			$	12,900			$	474,520
Fred J. Matera, Managing Director			2012			$	400,000			$	1,078,186				—			$	728,187			$	8,500			$	2,214,863
			2011			$	400,000			$	600,000				—			$	100,000			$	8,500			$	1,108,500
			2010			$	400,000			$	525,000				—			$	464,970			$	24,000			$	1,413,970
Scott M. Chisholm, Managing Director			2012			$	475,000			$	1,022,305				—			$	947,309			$	8,500			$	2,453,114
			2011			$	400,000			$	699,997				—			$	150,000			$	8,250			$	1,258,247
			2010			$	400,000			$	525,000				—			$	348,728			$	115,094			$	1,388,822
Diane L. Merdian, Former Chief Financial Officer(5)			2012			$	77,436				—				—				—			$	204,125			$	281,561
			2011			$	400,000			$	550,005				—			$	100,000			$	14,250			$	1,064,255
			2010			$	297,179			$	1,025,000				—			$	264,658			$	224,000			$	1,810,837

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Grants of Plan-Based Awards

The following table reflects estimated possible payouts to the NEOs in 2012 under Redwood’s performance-based compensation plan, as well as actual equity-related grants made in 2012 under Redwood’s Incentive Plan. Actual payouts for performance in 2012 are reflected in the “Summary Compensation” table above. As discussed above under “Executive Compensation — Compensation Discussion and Analysis — 2012 Performance-Based Annual Bonus Compensation,” 2012 target annual performance-based bonuses were weighted 75% on Adjusted ROE and 25% on achievement of pre-established individual goals. Annual bonuses are subject to an overall maximum 2012 annual total incentive award of $5 million for Mr. Hughes and Mr. Nicholas and $2 million for each of the other NEOs.

										Estimated Possible Payouts Under Non-Equity Incentive Plan Awards ($)												Estimated Possible Payouts Under Equity Incentive Plan Awards (#)												All Other Stock Awards: Number of Shares of Stock or Units (#)(12)				Grant Date Fair Value of Stock and Option Awards ($)(12)
Name		Type of Award(1)				Grant Date				Threshold(7)				Target(8)				Maximum(9)				Threshold				Target(10)				Maximum(11)
Martin S. Hughes			—				—				—			$	962,500			$	2,850,000				—				15,542				127,294				—				—
			DSU				2/28/2012	(2)																											1,292			$	15,500
			DSU				12/7/2012	(3)			—				—				—				—				—				—				69,824			$	1,150,001
			DSU				2/26/2013	(4)			—				—				—				—				—				—				60,396			$	1,191,009
			PSU				12/7/2012	(5)			—				—				—				—				92,966				185,932				92,966			$	1,149,989
Brett D. Nicholas			—				—				—			$	747,500			$	2,750,000				—				10,213				133,215				—				—
			DSU				12/7/2012	(3)			—				—				—				—				—				—				48,573			$	799,997
			DSU				2/26/2013	(4)			—				—				—				—				—				—				38,356			$	756,373
			PSU				12/7/2012	(5)			—				—				—				—				64,672				129,344				64,672			$	799,993
Christopher J. Abate			—				—				—			$	350,000			$	1,175,000				—				—				48,845				—				—
			DSU				9/5/2012	(6)			—				—				—				—				—				—				17,253			$	249,996
			DSU				12/7/2012	(3)			—				—				—				—				—				—				12,143			$	199,995
			DSU				2/26/2013	(4)			—				—				—				—				—				—				2,785			$	54,914
			PSU				12/7/2012	(5)			—				—				—				—				16,168				32,336				16,168			$	199,998
Fred J. Matera			—				—				—			$	562,500			$	1,200,000				—				3,700				47,365				—				—
			DSU				12/7/2012	(3)			—				—				—				—				—				—				22,769			$	375,005
			DSU				2/26/2013	(4)			—				—				—				—				—				—				16,642			$	328,186
			PSU				12/7/2012	(5)			—				—				—				—				30,314				60,628				30,314			$	374,984
Scott M. Chisholm			—				—				—			$	534,375			$	1,237,500				—				3,515				45,145				—				—
			DSU				12/7/2012	(3)			—				—				—				—				—				—				16,697			$	275,000
			DSU				2/26/2013	(4)			—				—				—				—				—				—				23,951			$	472,308
			PSU				12/7/2012	(5)			—				—				—				—				22,231				44,462				22,231			$	274,997

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Three-Year TSR		Vesting/Crediting of Target Shares
Less than 0%			0	%
25%			100	%
125% or greater			200	%

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.

From 2005 to 2009, equity grants to the NEOs were made solely in the form of deferred stock units. Deferred stock units outstanding receive dividend equivalent rights each time Redwood pays a common stock dividend. In general, the deferred stock units represented in the table below were granted in the month of December and follow a four year pro rata vesting schedule.

In 2010, 2011, and 2012, annual grants were made in the form of deferred stock units and performance stock units which are both reflected in the table below. Deferred stock units are included as unvested stock units in the table below whereas performance stock units are reflected as being unearned as of December 31, 2012.

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The following table sets forth certain information regarding outstanding equity awards for each NEO as of December 31, 2012.

		Option Awards												Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable(1)				Option Exercise Price ($)(2)				Option Expiration Date				Number of Shares or Units of Stock That Have Not Vested (#)(3)				Market Value of Shares or Units of Stock That Have Not Vested ($)(4)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(5)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, That Have Not Vested ($)(6)
Martin S. Hughes			—				—				—				275,348			$	4,650,628				281,379			$	4,752,497
Brett D. Nicholas			25,000			$	52.46				12/10/2013				—				—				—				—
			18,891			$	58.23				12/1/2014				—				—				—				—
			—				—				—				188,870			$	3,190,014				199,174			$	3,364,049
Christopher J. Abate			—				—				—				56,867			$	960,484				16,168			$	273,078
Fred J. Matera			—				—				—				73,602			$	1,243,138				78,534			$	1,326,439
Scott M. Chisholm			—				—				—				69,084			$	1,166,829				75,362			$	1,272,864

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, 2012. The table also shows the value of accumulated deferred stock unit awards that vested during 2012.

		Option Awards								Stock Awards
Name		Number of Shares Acquired on Exercise (#)				Value Realized upon Exercise ($)				Number of Shares Acquired on Vesting (#)				Value Realized on Vesting ($)(1)
Martin S. Hughes			—				—				165,244			$	1,922,745
Brett D. Nicholas			—				—				120,098			$	1,385,754
Christopher J. Abate			—				—				6,537			$	74,295
Diane Merdian			—				—				6,722			$	68,428
Fred J. Matera			—				—				25,674			$	302,163
Scott M. Chisholm			—				—				15,661			$	182,510

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Non-Qualified Deferred Compensation

Our Executive Deferred Compensation Plan 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 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 our Executive Deferred Compensation Plan. Each of our NEOs other than Mr. Chisholm and Mr. Matera voluntarily deferred a portion of his or her cash earnings during fiscal year 2012.

In addition, deferred stock units awarded were deferred into this plan. Interest accrual in respect of amounts deferred in our Executive Deferred Compensation Plan is described above under “Executive Compensation — Compensation Discussion and Analysis — Deferred Compensation.” Our NEOs are also entitled to a Redwood match on all or a portion of their executive deferred compensation cash deferrals subject to vesting requirements and a matching contribution limit, as described above under “Executive Compensation — Compensation Discussion and Analysis — Deferred Compensation.” As of December 31, 2012, all of our NEOs, with the exception of Ms. Merdian, Mr. Chisholm and Mr. Matera, were fully vested in matching payments made under our 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, 2012.

Name		Executive Contributions in 2012 ($)				Registrant Contributions in 2012 ($)				Aggregate Earnings in 2012 ($)(1)				Aggregate Withdrawals/ Distributions in 2012 ($)				Aggregate Balance at 12/31/2012 ($)(2)
Martin S. Hughes(3)		$	1,989,745			$	33,500			$	6,148			$	(1,612,902	)		$	5,444,864
Brett D. Nicholas(4)		$	1,428,754			$	21,500			$	4,583			$	(1,563,750	)		$	3,263,157
Christopher J. Abate(5)		$	87,295			$	6,500			$	909			$	(15,893	)		$	187,614
Diane L. Merdian(6)		$	68,428				—			$	1,551			$	(347,814	)			—
Fred J. Matera(7)		$	302,163				—			$	1,125			$	(61,778	)		$	1,184,041
Scott M. Chisholm(8)		$	182,510				—			$	400			$	(16,664	)		$	522,684

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OTHER COMPENSATION MATTERS

Review of Prior Commitment Regarding Volume of Awards Under Redwood’s 2002 Incentive Plan

In Redwood’s annual proxy statement for its 2010 annual meeting of stockholders, which proxy statement was filed with the SEC on April 2, 2010, the Compensation Committee made a commitment regarding its average annual rate of Incentive Plan usage over the course of the three-year period commencing on May 19, 2010. Each aspect of that commitment is set forth below, along with a review of the Compensation Committee’s satisfaction, to date, of that aspect of the commitment.

Commitment.  Over the course of the three-year period commencing on May 19, 2010, the Compensation Committee will not grant equity awards to officers, employees, and non-employee directors, in the aggregate, at an average annual rate of Incentive Plan usage greater than 2% of the number of shares of our common stock that the Compensation Committee believes will be outstanding over that three-year period.

For purposes of calculating the average rate of Incentive Plan usage during any period, (i) performance-based equity awards are counted toward Incentive Plan usage during the period when they are delivered to, and freely transferable by, the recipient following vesting and any mandatory holding period, (ii) equity awards denominated in shares of common stock (such as deferred stock unit awards and restricted stock awards) will count as 1.5 awards per share of underlying common stock, whereas equity awards in the form of stock options will count as one award per option, and (iii) outstanding shares will be calculated using weighted-average shares outstanding over the period.

In satisfaction of this aspect of the commitment, (i) the average annual rate of Incentive Plan usage during the period of May 19, 2010 through May 18, 2011 was 0.89% of shares of common stock outstanding, (ii) the average annual rate of Incentive Plan usage during the period of May 19, 2011 through May 18, 2012 was 1.36% of shares of common stock outstanding, and (iii) based on an estimate of shares expected to be granted between the date of this Proxy Statement and May 18, 2013, the average annual rate of Incentive Plan usage during the period of May 19, 2012 through May 18, 2013 is expected to be 1.19% of shares of common stock outstanding. The tables set forth on the following pages show the actual and estimated Incentive Plan usage during these periods and the calculation of the annual rate of usage over these periods.

Commitment.  The Compensation Committee will disclose to stockholders in a separate table within its annual proxy statement the average rate of Incentive Plan usage for (i) each 12 month period beginning on May 19, 2010 or (ii) for any 12 month period that is not complete at the time of the filing of the proxy statement, the shorter period that is complete, supplemented by an estimate of shares expected to be granted between the time of filing and the upcoming May 18.

The separate tables referred to in this aspect of the commitment are set forth on the following pages.

Commitment.  If the Compensation Committee determines that this commitment is not consistent with the best interests of Redwood, it will disclose that determination and any related impact on its continued adherence to the commitment.

To date, the Compensation Committee has not determined that this commitment is inconsistent with the best interests of Redwood.

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The following tables set forth the average rate of Incentive Plan usage calculated in the manner described above for (i) the 12 month period beginning on May 19, 2010 and ending May 18, 2011, (ii) the 12 month period beginning on May 19, 2011 and ending May 18, 2012, and (iii) the 12 month period beginning on May 19, 2012 and ending May 18, 2013, based on actual Incentive Plan usage for the period beginning on May 19, 2012 and ending on the date of this Proxy Statement and an estimate of Incentive Plan usage for the period between the date of this Proxy Statement and May 18, 2013.

		May 19, 2010 to May 18, 2011 Annual Period
		Number of Equity-Based Awards Granted During Annual Period(1),(2)				Multiplier				Number of Securities Granted for Purposes of Determining Average Annual Rate of Plan Usage
Full Value Awards(3)
Actual			465,643				1.5				698,465
Options(4)			—				1				—
Total			465,643								698,465
Weighted Average Shares Outstanding(5)											78,069,489
Average Annual Rate of Plan Usage											0.89	%

		May 19, 2011 to May 18, 2012 Annual Period
		Number of Equity-Based Awards Granted During Annual Period(1),(2)				Multiplier				Number of Securities Granted for Purposes of Determining Average Annual Rate of Plan Usage
Full Value Awards(3)
Actual			711,321				1.5				1,066,982
Options(4)			—				1				—
Total			711,321								1,066,982
Weighted Average Shares Outstanding(5)											78,455,235
Average Annual Rate of Plan Usage											1.36	%

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		May 19, 2012 to May 18, 2013 Annual Period
		Number of Equity-Based Awards Granted During Annual Period (1),(2)				Multiplier				Number of Securities Granted for Purposes of Determining Average Annual Rate of Plan Usage
Full Value Awards(3)
Actual			618,025				1.5				927,038
Estimated(4)			23,333				1.5				35,000
Options(5)			—				1				—
Total			641,358								962,038
Weighted Average Shares Outstanding(6)											80,714,184
Average Annual Rate of Plan Usage											1.19	%

Potential Payments upon Termination or Change of Control

Two of our Named Executive Officers, Mr. Hughes and Mr. Nicholas, and one of our other officers, Mr. Zagunis, had, as of December 31, 2012, an employment agreement with Redwood. These employment agreements continue to remain in place and provide 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 one year terms ending on December 31 of each year and are subject to automatic one-year renewals if not terminated by either party. No other executive officers of Redwood are party to an employment agreement with Redwood.

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 resigns for “good reason” (each as defined below). The severance payments would be in addition to payment of the executive’s base salary to the date of termination of the executive’s employment. If terminated without “cause” or if the executive had terminated for “good reason” on December 31, 2012, the aggregate amount of these severance payments would have been equal to:

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In addition, all outstanding stock options and equity-related awards granted to these executives would immediately vest upon either such type of termination, unless otherwise provided in the grant agreement for an equity-related award. These executives would also receive the sum of dividend equivalent rights that would be payable on unexercised stock options over the one-year period following the termination of employment, 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, these executives would be entitled to receive all life insurance, disability insurance, and medical coverage fringe benefits as if the executive had not been terminated.

The employment 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.

In February 2011 the employment agreements with these executives were amended to eliminate the provisions of those agreements that provided for excise tax gross-ups with respect to excise taxes that may be imposed on change-in-control severance payments made under these agreements. The amendments provide that in the event that any payments or benefits under these employment agreements constitute an “excess parachute payment” for purposes of Section 280G of the Code, the amounts otherwise payable and benefits otherwise due under these employment agreements will either (i) be delivered in full or (ii) be reduced or limited to the minimum extent necessary to ensure that no payments under these employment agreements will be subject to the excise tax imposed under Section 4999 of the Code, whichever of the foregoing amounts, taking into account applicable federal, state and local income and employment taxes and the excise tax imposed under Section 4999 of the Code, results in the largest benefit to the executive on an after-tax basis, notwithstanding that all or some portion of such payments and/or benefits may be subject to the excise tax imposed under Section 4999 of the Code.

All severance benefits under each agreement are contingent on the executive agreeing to execute an agreement releasing all claims against Redwood and the executives are subject to non-solicitation restrictions for a year following a termination for which severance is paid.

“Cause” for Mr. Hughes, Mr. Nicholas, and Mr. Zagunis is defined as (i) the executive’s material failure to substantially perform the reasonable and lawful duties of his position for Redwood, 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 Mr. Hughes, Mr. Nicholas, and Mr. Zagunis 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 or substitute equivalent awards, the executive’s outstanding options and equity-related awards will immediately vest and become exercisable. If the awards are assumed or substituted, then acceleration only would occur upon a qualifying employment termination (involuntary without cause or voluntary for good reason).

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In addition, in the event of termination due to the executive’s death or disability, the employment agreements provide for (i) the payment to the executive or his estate of (a) the executive’s base salary to the date of termination, and (b) the executive’s target annual bonus for the year, prorated to the date of termination, and (ii) vesting in full of all of the executive’s outstanding stock options and other equity-related awards, unless otherwise provided in the grant agreement for an equity-related award.

“Change of control” is defined as the occurrence of any of the following:

If any of Mr. Hughes, Mr. Nicholas, or Mr. Zagunis had been terminated as of December 31, 2012 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, as calculated in accordance with the terms of the respective employment agreements in place on December 31, 2012. Any executive officer not entitled to severance benefits is not listed in the table below.

Name		Salary & Target Bonus ($)				Accelerated Vesting of Stock Options and Deferred Stock Units ($)(1)				Dividend Equivalent Rights for Options ($)(2)				Benefits ($)(3)				Excise Tax & Excise Tax Gross Up ($)(4)				Total Payment Involuntary Termination Without “Cause” or Voluntary Termination for “Good Reason” ($)
Martin S. Hughes(5)		$	2,800,000			$	4,650,628				—			$	38,898				—			$	7,489,526
Brett D. Nicholas		$	2,000,000			$	3,190,014			$	37,641			$	38,645				—			$	5,266,300
Harold F. Zagunis		$	1,200,000			$	1,120,874			$	23,271			$	38,898				—			$	2,383,043

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Compensation Risks

As noted above, the Compensation Committee reviews risks that may arise from Redwood’s compensation policies and practices. In particular, during the fourth quarter of 2012, management, in consultation with Cook & Co. and the Compensation Committee, prepared a framework for performing a compensation risk assessment, which framework provided for assessment of risks relating to, among other things, components of compensation, performance metrics, performance-based compensation leverage, the timing of compensation delivery, equity-based incentive compensation, stock ownership requirements, stock trading policies, methods for assessing performance, and performance culture. Subsequently, management utilized the framework to prepare a compensation risk assessment for review and consideration by the Compensation Committee and the Audit Committee. Following the review and discussion of this assessment by those Committees, as well as other reviews and discussions relating to risks that may arise from Redwood’s compensation policies and practices, the Compensation Committee determined, after consultation with Cook & Co., that it does not currently believe that Redwood’s compensation policies and practices are reasonably likely to have a material adverse effect on Redwood.

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ADDITIONAL INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than 10% of our common stock, to file reports of ownership of, and transactions in, our common stock with the SEC within certain time periods following events giving rise to such filing requirements. Their initial report must be filed using the SEC’s Form 3 and subsequent stock purchases, sales, option exercises and other changes must be reported on the SEC’s Form 4, which must be filed within two business days of most transactions. In some cases, such as changes in ownership arising from gifts and inheritances, the SEC allows delayed reporting at year-end on the SEC’s Form 5. Based solely on a review of the copies of such reports, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers, and stockholders were complied with during 2012.

Absence of Compensation Committee Interlocks and No Insider Participation on Compensation Committee

Our Compensation Committee currently consists of Ms. Proctor (the Chair), Mr. Baum, Ms. Byerwalter, and Mr. Pero. 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 Board of Directors 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. Except as described below, there were no relationships or related party transactions between Redwood and any affiliated parties that are required to be reported in this Proxy Statement.

Relationship with Latham & Watkins LLP.  Mr. Pero is a retired partner of Latham & Watkins LLP and has been a director of Redwood since November 2009. Latham & Watkins LLP provides legal services to Redwood. Mr. Pero’s retirement payments from Latham & Watkins LLP are adjusted to exclude any proportionate benefit received from the fees paid by Redwood to Latham & Watkins LLP.

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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 and risk 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 2012 and 2013 with management and the independent registered public accounting firm (including private sessions with the independent registered public accounting firm, and Redwood’s head of internal audit, Chief Financial Officer, and Controller). During these meetings, the Audit Committee, among other things, 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 2012. 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, 2012 for filing with the Securities and Exchange Commission.

Audit Committee:
Greg H. Kubicek, Chair
Mariann Byerwalter
Georganne C. Proctor
Charles J. Toeniskoetter

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Fees to Independent Registered Public Accounting Firm for 2012 and 2011

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, 2012 and 2011. The following is a summary of the fees billed to Redwood by Grant Thornton LLP for professional services rendered for 2012 and 2011:

		Fiscal Year 2012				Fiscal Year 2011
Audit Fees		$	1,358,970			$	1,385,770
Tax Fees			57,166				260,242
Audit Related Fees			—				145,975
Total Fees		$	1,416,136			$	1,791,987

Audit Fees were for the audits of our annual consolidated financial statements included in our Annual Report on Form 10-K, reviews of the financial statements included in our Quarterly Reports on Form 10-Q, other assistance required to complete the year-end audits, costs associated with Sarbanes-Oxley attestation requirements, other services rendered for comfort letters, and consents.

Tax Fees were for services rendered related to tax compliance and reporting.

Audit Related Fees reflect fees incurred with attestation services related to financial reporting that are not required by statute or regulation.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public 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 Independent Registered Accounting Firm, subject to de minimis exceptions for non-audit services which are approved by the Audit Committee prior to the completion of the audit.

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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, 2013, 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 of Directors 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, and 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, 2013. 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 RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF GRANT THORNTON LLP AS REDWOOD’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2013.

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ITEM 3 — VOTE ON ADVISORY RESOLUTION TO APPROVE
NAMED EXECUTIVE OFFICER COMPENSATION

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), provides Redwood’s stockholders with an opportunity to vote on a resolution to approve, on an advisory (non-binding) basis, the compensation of Redwood’s Named Executive Officers (also referred to as NEOs) as disclosed in this Proxy Statement in the Compensation Discussion and Analysis section and the related executive compensation tables. This proposal, commonly known as a “say-on-pay” proposal, gives Redwood’s stockholders the opportunity to express their views on the compensation of Redwood’s Named Executive Officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of Redwood’s Named Executive Officers and the executive compensation philosophy, objectives, programs, plans, policies, and practices described in this Proxy Statement. Redwood’s NEOs are the officers listed in the various compensation tables of the Compensation Discussion and Analysis section of this Proxy Statement and the related executive compensation tables that follow that Compensation Discussion and Analysis section.

The Compensation Committee of Redwood’s Board of Directors acts on behalf of the Board of Directors in administering Redwood’s executive compensation plans and programs. As described in detail within the Compensation Discussion and Analysis section of this Proxy Statement, Redwood has a performance-based executive compensation philosophy that seeks to provide incentives to achieve both short-term and long-term business objectives and ensure that Redwood can hire and retain talented individuals in a competitive marketplace. Based on this compensation philosophy, Redwood’s executive compensation objectives are as follows:

Please read the Compensation Discussion and Analysis section of this Proxy Statement, which begins on page 20, and the related executive compensation tables, which begin on page 48, for more information about the compensation of Redwood’s NEOs for 2012. The Compensation Committee is committed to providing disclosure within the Compensation Discussion and Analysis section of this Proxy Statement that gives insight into the process by which it arrives at determinations relating to executive compensation and the underlying rationale for those determinations. Among other things, the Compensation Discussion and Analysis describes:

Each year the Compensation Committee reviews Redwood’s compensation philosophy and its executive compensation plans and programs and, after taking into account the outcome of the most recent stockholder “say-on-pay” vote, makes compensation determinations it believes are necessary or appropriate in light of its executive compensation objectives. At both of Redwood’s 2012 and 2011 annual meetings of stockholders, stockholders had the opportunity to cast an advisory vote on executive compensation. At both of those annual meetings, more than 90% of the votes cast in respect of “say-on-pay” were voted “For” approval of the compensation of the named executive officers (NEOs) as disclosed in the 2012 and 2011 proxy statements,

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respectively. The Compensation Committee has considered the results of the 2012 and 2011 “say-on-pay” votes and believes that the overwhelming support of Redwood stockholders in these votes generally reflects support for Redwood’s approach to executive compensation. This support was one of the factors the Compensation Committee took into account in not making material changes during 2012 to Redwood’s performance-based compensation philosophy for executive officers or to the components of executive compensation. At Redwood’s 2011 annual meeting of stockholders, stockholders also voted in favor of a proposal to hold a “say-on-pay” vote every year. In the future, the Compensation Committee will continue to consider the outcome of the annual “say-on-pay” vote when making compensation decisions regarding executive officers.

Highlighted below are summaries of the key determinations made by the Committee with respect to 2012 and, in some cases, 2013. Each of these key determinations is discussed more fully within the Compensation Discussion and Analysis section of this Proxy Statement, which begins on page 20. The Board of Directors and the Compensation Committee believe these determinations should be taken into consideration by stockholders in exercising their advisory vote on executive compensation.

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CEO Compensation — 2012

Aggregate NEO Compensation  — 2012

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At this 2013 Annual Meeting, stockholders are being asked to indicate their support for the compensation of Redwood’s Named Executive Officers as disclosed in this Proxy Statement. As noted above, this vote is not intended to address any one specific item of compensation, but rather the overall compensation of Redwood’s Named Executive Officers and the executive compensation philosophy, objectives, programs, plans, policies, and practices described in this Proxy Statement.

The Board of Directors has determined to hold an advisory “say on pay” vote every year. Accordingly, Redwood’s stockholders are asked to vote “FOR” the following advisory resolution at the Annual Meeting:

“RESOLVED, that the compensation of the Named Executive Officers, as disclosed in the Annual Proxy Statement for the 2013 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and disclosure, is hereby approved.”

This “say-on-pay” vote is a non-binding advisory vote. The approval or disapproval of this resolution by stockholders will not require the Board of Directors or the Compensation Committee to take any action regarding Redwood’s executive compensation practices. The final decision on the compensation and benefits of Redwood’s Named Executive Officers and on whether, and if so, how, to address stockholder disapproval of this resolution remains with the Board of Directors and the Compensation Committee. Unless the Board of Directors modifies its determination of the frequency of future “say on pay” advisory votes, the next “say on pay” advisory vote will be held at Redwood’s 2014 annual meeting of stockholders.

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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, on an advisory basis, the resolution approving the compensation of Redwood’s Named Executive Officers. Abstentions and broker non-votes will not be counted as votes cast and will have no effect on the result of the vote.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE NON-BINDING RESOLUTION APPROVING THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.

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ITEM 4 — VOTE ON AN AMENDMENT TO REDWOOD’S CHARTER TO INCREASE
THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE

Under Redwood’s charter, as currently in effect (the Charter), Redwood has authority to issue an aggregate of 165,000,000 shares of capital stock. At a meeting on March 21, 2013, 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 180,000,000 as follows:

“The total number of shares of stock of all classes which the Corporation has authority to issue is one hundred eighty million (180,000,000) shares of capital stock, par value one cent ($0.01) per share, amounting in aggregate par value of One Million Eight Hundred Thousand Dollars ($1,800,000).”

Purpose and Effect of the Amendment

In order to maintain Redwood’s status as a real estate investment trust for federal income tax purposes, Redwood is required to distribute 90% of its REIT taxable income. Accordingly, access to external sources of capital at attractive rates is important to Redwood’s ability to grow.

As of March 28, 2013, Redwood had 81,696,701 shares of capital stock issued and outstanding, leaving 83,303,299 shares of capital stock available for future issuances, of which approximately 4,324,275 shares are reserved for issuances upon the exercise of outstanding stock options and delivery of shares of common stock underlying outstanding deferred stock units and performance stock units. Redwood has also reserved additional shares for issuance under its 2002 Incentive Plan, its 2002 Employee Stock Purchase Plan, and its Direct Stock Purchase and Dividend Reinvestment Plan. In addition, Redwood has reserved 11,825,450 shares for issuance upon conversion of the convertibles notes it issued on March 6, 2013, which convertible notes are further described below. The Board of Directors believes that the number of remaining shares authorized for issuance may not be adequate for additional capital raising opportunities that could arise in the future. Approval of an amendment to the Charter increasing the authorized number of shares will provide Redwood with valuable flexibility to take advantage of opportunities to raise additional capital to finance the growth of Redwood’s business and its operations.

For example, on March 6, 2013, Redwood issued $287.5 million of 4.625% Convertible Senior Notes due 2018 in an underwritten public offering. The resulting aggregate net proceeds to Redwood from this offering were approximately $278.3 million, after deducting underwriting discounts and estimated expenses. Redwood intends to use the net proceeds from this offering to fund its business and investment activity, which may include funding purchases of residential mortgage loans, funding the origination of commercial loans, and acquiring mortgage-backed securities for its investment portfolio, as well as for other general corporate purposes. Holders of these convertible notes may convert any of their convertible notes into shares of Redwood’s common stock at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day prior to April 15, 2018, which is the maturity date of the convertible notes. The initial conversion rate is 41.1320 shares of common stock per $1,000 principal amount of convertible notes, which is equivalent to an initial conversion price of approximately $24.31 per share. The initial conversion price represents a premium of approximately 20.0% over the closing price of the Redwood’s common stock on February 28, 2013. The conversion rate is subject to adjustment in certain circumstances, including for increases in our quarterly dividend rate. At the initial conversion rate, the $287.5 million aggregate principal amount of convertible notes is convertible into approximately 11.8 million shares of our common stock.

Redwood currently has no specific plans, arrangements, or agreements relating to the issuance of the additional shares of capital stock, other than the shares reserved for issuance described above. If the amendment and restatement of Redwood’s 2002 Incentive Plan and the amendment to Redwood’s 2002 Employee Stock Purchase Plan contemplated by Items 5 and 6, respectively, of this Proxy Statement are approved by stockholders, then additional shares of capital stock will be reserved for issuance in amounts corresponding to the amendment and restatement and amendment, respectively. Additional shares of capital stock may be reserved for future issuance or 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 Redwood’s business and investment activity or for other general corporate purposes. The issuance of additional shares of common stock or securities convertible into common stock could have the effect of

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diluting existing stockholder earnings per share, book value per share, and voting power. Redwood’s stockholders do not have any preemptive right to purchase or subscribe for any part of any new or additional issuances of securities by Redwood.

The 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. 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 State Department of Assessments and Taxation of Maryland.

Vote Required

The affirmative vote of stockholders entitled to cast a majority of the votes entitled to be cast at the Annual Meeting is required to approve this amendment to Redwood’s Charter. Abstentions and broker non-votes will not be counted as votes cast and will have the effect of a vote against this amendment to Redwood’s Charter.

If this amendment to the Charter 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, which we would expect to accomplish promptly after the Annual Meeting. If this amendment to the Charter is not approved by the stockholders, the first sentence of Section A of Article VI of the Charter will remain as currently in effect.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THIS AMENDMENT TO THE CHARTER TO INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE.

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ITEM 5 — APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE 2002 INCENTIVE PLAN, INCLUDING AN AMENDMENT TO INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE THEREUNDER

At a meeting on March 21, 2013, our Board of Directors adopted, subject to approval of our stockholders, an amendment and restatement of the 2002 Redwood Trust, Inc. Incentive Plan, as amended (the 2002 Incentive Plan or Plan), including an amendment increasing the number of shares available for grants under the Plan.

Upon stockholder approval of the amended and restated Plan, the amended and restated Plan will become effective and no further awards may be made under the Plan as in effect prior to the amendment and restatement. If our stockholders do not approve the amendment and restatement of the Plan, the amended and restated Plan will not become effective, the Plan will continue in effect, and Redwood may continue to grant awards under the Plan, subject to the terms, conditions and limitations set forth therein (without giving effect to the amended and restated Plan).

As discussed above under “Compensation Discussion and Analysis,” Redwood has adopted a performance-based compensation philosophy for its executive officers. Under that philosophy, Redwood seeks to provide incentives to achieve both short-term and long-term business objectives, align the interests of executive officers with the interests of Redwood’s long-term stockholders, and ensure that Redwood can hire and retain talented individuals in a competitive marketplace. Redwood believes that equity ownership provides an important link between the interests of long-term stockholders and executives by rewarding the creation of stockholder value. To meet this objective, equity awards are a key component of executive compensation.

As of December 31, 2012, 666,610 shares authorized for issuance under the Plan remained available for future grants. If the number of shares available for future equity-based awards is not increased, Redwood’s ability to continue to use equity-based awards as a key component of executive compensation will be restricted. Consequently, Redwood’s Board of Directors approved an amendment and restatement of the Plan, including an amendment to increase the number of shares of Redwood common stock authorized for issuance under the Plan by 1,000,000 shares and certain other amendments described below. An increase in the number of authorized shares will provide Redwood with the ability to use equity-based awards to attract, retain, and motivate executive officers, and other key employees, agents, and consultants upon whose judgment, dedication, and special effort the successful conduct of Redwood’s business is largely dependent.

In addition, we are asking stockholders to approve the amendment and restatement of the Plan in order to continue to satisfy the stockholder approval requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (Code Section 162(m)). In general, Code Section 162(m) places a limit on the deductibility for federal income tax purposes of the compensation paid to our Chief Executive Officer or any of our three other most highly compensated executive officers (other than our Chief Financial Officer). Under Code Section 162(m), compensation paid to such persons in excess of $1 million in a taxable year generally is not deductible. However, compensation that qualifies as “performance-based” under Code Section 162(m) does not count against the $1 million deduction limitation. One of the requirements of “performance-based” compensation for purposes of Code Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by our stockholders. Stockholder approval of the amendment and restatement of the Plan will constitute approval of the material terms of the performance goals under the amended and restated Plan for purposes of the stockholder approval requirements of Code Section 162(m). Stockholder approval of the amended and restated Plan is only one of several requirements under Code Section 162(m) that must be satisfied for amounts awarded under the amended and restated Plan to continue to qualify for the “performance-based” compensation exemption under Code Section 162(m), and submission of the material terms of the amended and restated Plan’s for stockholder approval should not be viewed as a guarantee that we will be able to deduct all compensation paid under the amended and restated Plan. Nothing in this proposal precludes us or the Compensation Committee from making any payment or granting awards that do not qualify for tax deductibility under Code Section 162(m).

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Set forth below is a description of the material differences between the existing Plan and the amended and restated Plan as adopted by the Board of Directors on March 21, 2013, as well as a summary of the other changes to the Plan and of the principal features of the amended and restated Plan approved by the Board of Directors. This description is not intended to be complete and is qualified in its entirety by the terms of the amended and restated Plan, a copy of which is attached to this Proxy Statement as Appendix A and is incorporated herein by reference.

Material Differences: Increase in Authorized Shares Under the Plan; Increase in Maximum Size of Annual Plan Awards; and Cap on Value of Annual Plan Awards to Non-Employee Directors

There are three material differences between the existing Plan and the amended and restated Plan adopted by the Board of Directors on March 21, 2013. A description of each of these material differences is set forth below.

Increase in Authorized Shares Under the Plan. Under the existing Plan, as of December 31, 2012, 666,610 shares authorized for issuance remained available for future grants. On March 21, 2013, the Board of Directors adopted, subject to stockholder approval, an amendment and restatement of the Plan which includes an amendment to increase by 1,000,000 shares the number of shares authorized for issuance under the Plan. Redwood currently estimates that, if this increase is approved, there will be a sufficient number of shares authorized for issuance under the 2002 Incentive Plan to grant anticipated equity awards through the end of 2014 and possibly beyond that time in a manner consistent with past practice. However, this estimate depends on certain factors such as Redwood’s performance and Redwood’s stock price at the time grants are awarded, which cannot be predicted with certainty at this time. Further discussion of the quantitative analysis conducted in respect of the proposed increase in authorized shares under the Plan is set forth below under the heading “Quantitative Analysis Underlying Increase in Authorized Shares Under the Plan.”

Increase in Maximum Size of Annual Plan Awards. Under the amendment and restatement of the Plan adopted by the Board of Directors on March 21, 2013, the maximum number of shares that may be the subject of awards granted as stock options and stock appreciation rights during any calendar year cannot exceed 1,000,000 shares and no more than 1,000,000 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 for purposes of Section 162(m).

Cap on Value of Annual Plan Awards to Non-Employee Directors. Under the amendment and restatement of the Plan ) adopted by the Board of Directors on March 21, 2013, non-employee directors of Redwood may not be granted awards under the Plan during any one-calendar-year period having a value determined on the date of grant in excess of $500,000.

Other Differences: Plan Awards Subject to Redwood’s Clawback Policy

Another difference between the existing Plan and the amended and restated Plan adopted by the Board of Directors on March 21, 2013 is that the Plan has been amended to clarify that all awards under the amended and restated Plan (including any proceeds, gains or other economic benefit actually or constructively received upon any receipt or exercise of any award or upon the receipt or resale of any shares of stock underlying the award) are subject to the provisions of any clawback policy implemented by Redwood, including, without limitation, any clawback policy adopted to comply with the requirements of applicable law, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such clawback policy and/or in the applicable award agreement. A description of Redwood’s current clawback policy is set forth on page 47 of this Proxy Statement within the Compensation Discussion and Analysis section under the heading “Clawback Policy with Respect to Bonus and Incentive Compensation.”

TABLE OF CONTENTS

Quantitative Analysis Underlying Increase in Authorized Shares Under the Plan