Note 17. Equity Compensation Plans

At December 31, 2013 and 2012, 1,683,956 and 666,610 shares of common stock, respectively, were available for grant under Redwood’s Incentive Plan. The unamortized compensation cost under the Incentive Plan and the Employee Stock Purchase Plan totaled $21 million at December 31, 2013, as shown in the following table.


	Year Ended December 31, 2013
(In Thousands)	Stock Options		Restricted Stock		Deferred Stock Units		Performance Stock Units		Employee Stock Purchase Plan		Total
Unrecognized compensation cost at beginning of period	$	-	$	1,822	$	13,378	$	6,484	$	-	$	21,684
Equity grants		-		1,046		7,132		3,175		217		11,570
Equity grant forfeitures		-		(350)		(1,221)		(876)		-		(2,447)
Equity compensation expense		-		(649)		(6,245)		(2,966)		(217)		(10,077)

Unrecognized Compensation Cost at End of Period	$	-	$	1,869	$	13,044	$	5,817	$	-	$	20,730

At December 31, 2013, the weighted average amortization period remaining for all of our equity awards was less than two years.

Stock Options

The following table summarizes the activity related to stock options for the years ended December 31, 2013, 2012, and 2011.

Stock Options Activity


	Year Ended December 31,
	2013				2012				2011
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of period		287,516	$	54.18		380,779	$	53.91		459,115	$	53.13
Granted		-		-		-		-		-		-
Exercised		-		-		-		-		-		-
Forfeited		(3,016)		50.15		(4,500)		49.73		-		-
Expired		(204,965)		53.15		(88,763)		53.23		(78,336)		49.37

Outstanding at End of Period		79,535	$	57.00		287,516	$	54.18		380,779	$	53.91

Exercisable at End of Period		79,535	$	57.00		287,516	$	54.18		380,779	$	53.91

At December 31, 2013 and 2012, there were 79,535 and 287,516 fully vested stock options outstanding, respectively. As of December 31, 2011 all outstanding stock options were fully vested. There was no aggregate intrinsic value for the options outstanding and exercisable at December 31, 2013. For the years ended December 31, 2013, 2012 and 2011, there were no stock options exercised.

The following table summarizes information about outstanding and exercisable stock options at December 31, 2013.

Outstanding Stock Options as of December 31, 2013


	Options Outstanding and Exercisable
Range of Exercise Prices	Number Outstanding		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price
$0 to $40		-		-	$	-
$40 to $50		10,000		0.35		48.48
$50 to $60		69,535		0.80		58.23

$0 to $60		79,535		0.74	$	57.00

Restricted Stock

The following table summarizes the activity related to restricted stock for the years ended December 31, 2013, 2012, and 2011.

Restricted Stock Activity


	Year Ended December 31,
	2013				2012				2011
	Shares		Weighted Average Grant Date Fair Market Value		Shares		Weighted Average Grant Date Fair Market Value		Shares		Weighted Average Grant Date Fair Market Value
Outstanding at beginning of period		190,088	$	13.12		184,409	$	12.87		119,071	$	15.68
Granted		52,103		18.71		43,111		16.47		85,218		10.62
Vested		(48,615)		12.63		(32,812)		16.17		(18,948)		20.15
Forfeited		(26,635)		13.14		(4,620)		12.57		(932)		18.44

Outstanding at End of Period		166,941	$	15.01		190,088	$	13.12		184,409	$	12.87

There were 52,103 restricted stock awards granted during the year ended December 31, 2013. For each of the years ended December 31, 2013, 2012, and 2011, the expenses recorded for restricted stock awards were less than $1 million. As of December 31, 2013, there was $2 million of unrecognized compensation cost related to unvested restricted stock. This cost will be recognized over a weighted average period of two years. Restrictions on shares of restricted stock outstanding lapse through 2018.

Deferred Stock Units

The following table summarizes the activity related to DSUs for the years ended December 31, 2013, 2012, and 2011.

Deferred Stock Units Activity


	Year Ended December 31,
	2013				2012				2011
	Units		Weighted Average Grant Date Fair Market Value		Units		Weighted Average Grant Date Fair Market Value		Units		Weighted Average Grant Date Fair Market Value
Outstanding at beginning of period		2,361,285	$	14.46		2,476,171	$	15.23		2,351,804	$	18.60
Granted		552,250		19.31		503,174		15.17		598,542		11.05
Distributions		(558,008)		15.51		(520,909)		19.10		(456,638)		27.14
Forfeitures		(89,054)		11.18		(97,151)		12.98		(17,537)		14.43

Balance at End of Period ⁽¹⁾		2,266,473	$	15.41		2,361,285	$	14.46		2,476,171	$	15.23

(1)	PSU activity, including the number of PSUs outstanding, granted, distributed, and forfeited is not included in this table and is described below under the heading “Performance Stock Units”.

We generally grant DSUs annually, in the fourth quarter, as part of our compensation process. In addition, DSUs are granted from time-to-time in connection with hiring and promotions and in lieu of the payment in cash of a portion of annual bonus earned. As of December 31, 2013, 2012, and 2011, the number of outstanding DSUs that were unvested was 1,003,053, 1,241,532, and 1,407,888, respectively. The weighted average grant-date fair value of these unvested DSUs was $15.55, $13.41, and $13.21, as of December 31, 2013, 2012, and 2011, respectively. Unvested DSUs at December 31, 2013 will vest through 2017.

Expenses related to DSUs were $6 million, $7 million, and $7 million for the years ended December 31, 2013, 2012, and 2011, respectively. As of December 31, 2013, there was $13 million of unrecognized compensation cost related to unvested DSUs. This cost will be recognized over a weighted average period of less than two years. As of December 31, 2013, 2012, and 2011, the number of outstanding DSUs that had vested was 1,263,420, 1,119,753, and 1,068,283, respectively.

Performance Stock Units

During 2013, 2012, and 2011, 223,749, 291,023, and 348,725 target number of PSUs were granted, respectively, with per unit grant date fair values of $14.19, $12.37, and $9.83, respectively. PSUs cliff vest, if at all, on the third anniversary of their grant date, with performance-based vesting contingent on total stockholder return over the three-year vesting period. For PSUs, the number of underlying shares of our common stock that vest at the end of the three-year vesting period will generally range from 0% to 200% of the target number of PSUs granted, with the target number of PSUs granted being adjusted to reflect the value of any dividends paid on our common stock during the vesting period. During the years ended December 31, 2013 and 2012, there were 75,362 and 45,764 target number of PSUs forfeited due to employee departures, respectively. As of December 31, 2013, the target number of PSUs that were unvested was 779,871.

The grant date fair values of PSUs were determined through Monte-Carlo simulations using the following assumptions: our common stock closing price on the day prior to the grant date, the average closing price of our common stock price for the 40 trading days prior to the grant date for the 2013 and 2012 grants (20 trading days prior to the grant date for 2011 grants), and the range of performance-based vesting based on total stockholder return over three years from the grant date. For the 2013 PSU grant, an implied volatility assumption of 27% (based on historical volatility), a risk free rate of 0.62% (the three-year Treasury rate on the grant date), and a 0% dividend yield (the mathematical equivalent to reinvesting the dividends over the three-year performance period as is consistent with the terms of the PSUs), were used. For the 2012 PSU grant, an implied volatility assumption of 25% (based on historical volatility), a risk free rate of 0.32% (the three-year Treasury rate on the grant date), and a 0% dividend yield (the mathematical equivalent to reinvesting the dividends over the three-year performance period as is consistent with the terms of the PSUs), were used. For the 2011 PSU grant, an implied volatility assumption of 40% (based on historical volatility), a risk free rate of 0.41% (the three-year Treasury rate on the grant date), and a 0% dividend yield were used.

Expenses related to PSUs were $3 million, $2 million, and $1 million for the years ended December 31, 2013, 2012, and 2011, respectively. As of December 31, 2013, there was $6 million of unrecognized compensation cost related to unvested PSUs.

With respect to PSUs granted in 2010, the three-year performance period ended during the fourth quarter of 2013, resulting in the vesting of 351,640 shares of our underlying common stock. The distribution of these underlying shares of common stock will occur after December 31, 2013, in accordance with the terms of the PSUs and our Executive Deferred Compensation Plan.

Employee Stock Purchase Plan

The ESPP allows a maximum of 450,000 shares of common stock to be purchased in aggregate for all employees. As of December 31, 2013, 2012, and 2011, 243,020, 207,031, and 152,212, shares have been purchased, respectively, and there remained a negligible amount of uninvested employee contributions in the ESPP at December 31, 2013.

The following table summarizes the activity related to the ESPP for the years ended December 31, 2013, 2012, and 2011.

Employee Stock Purchase Plan Activity


	Year Ended December 31,
(In Thousands)	2013		2012		2011
Balance at beginning of period	$	3	$	8	$	-
Employee purchases		518		474		332
Cost of common stock issued		(518)		(479)		(324)

Balance at End of Period	$	3	$	3	$	8

Executive Deferred Compensation Plan

The following table summarizes the activity related to the EDCP for the years ended December 31, 2013, 2012, and 2011.

EDCP Cash Accounts Activity


	Year Ended December 31,
(In Thousands)	2013		2012		2011
Balance at beginning of period	$	1,516	$	1,494	$	1,210
New deferrals		656		839		505
Accrued interest		58		44		59
Withdrawals		(348)		(861)		(280)

Balance at End of Period	$	1,882	$	1,516	$	1,494

Deferrals of less than $1 million were made to the cash accounts of the EDCP for each of the years ended December 31, 2013, 2012, and 2011.