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Dynex Capital, Inc.
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Notice of Annual Meeting of Stockholders
and
Proxy Statement
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Annual Meeting of Stockholders
June 29, 2001
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DYNEX CAPITAL, INC.
April 30, 2001
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Dynex Capital, Inc. (the "Company") to be held at The Place At Innsbrook located
at 4036 Cox Road, Glen Allen, Virginia on Friday, June 29, 2001, at 2:00 p.m.
Eastern time.
The business of the meeting is to consider and act upon (i) the election
of directors of the Company; (ii) approve the appointment of Deloitte & Touche
LLP, independent certified public accountants, as auditors for the Company, and
(iii) a proposal submitted by a stockholder if presented by such stockholder at
the meeting. Information relating to these proposals is set forth in the Proxy
Statement attached.
While stockholders may exercise their right to vote their shares in
person, we recognize that many stockholders may not be able to attend the Annual
Meeting. Accordingly, we have enclosed a proxy which will enable you to vote
your shares on the issues to be considered at the Annual Meeting even if you are
unable to attend. All you need to do is mark the proxy to indicate your vote,
date and sign the proxy, and return it in the enclosed postage-paid envelope as
soon as conveniently possible. If you desire to vote in accordance with
management's recommendations, you need not mark your votes on the proxy but need
only sign, date and return the proxy in the enclosed postage-paid envelope in
order to record your vote.
Sincerely,
Thomas H. Potts
President
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DYNEX CAPITAL, INC.
4551 Cox Road, Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The Annual Meeting of Dynex Capital, Inc. (the "Company") will be held at
The Place At Innsbrook located at 4036 Cox Road, Glen Allen, Virginia on Friday,
June 29, 2001, at 2:00 p.m. Eastern time, to consider and act upon the following
matters:
1. The election of directors of the Company;
2. The appointment of Deloitte & Touche LLP, independent certified public
accountants, as auditors for the Company;
3. A stockholder proposal, if presented by its proponent at the Annual
Meeting; and
4. Such other matters as may properly come before the Annual Meeting.
Only stockholders of record at the close of business on April 27, 2001,
the record date, will be entitled to vote at the Annual Meeting.
Management desires to have maximum representation at the Annual Meeting
and respectfully requests that you date, execute and promptly mail the enclosed
proxy in the accompanying postage-paid envelope. A proxy may be revoked by a
stockholder by notice in writing to the Secretary of the Company at any time
prior to its use, by presentation of a later-dated proxy, or by attending the
Annual Meeting and voting in person.
By order of the Board of Directors
Stephen J. Benedetti
Secretary
Dated: April 30, 200
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4551 Cox Road, Suite 300
Glen Allen, VA 23060
(804) 217-5800
Directions to The Place at Innsbrook
[MAP OMITTED]
Directions from the North on Interstate 95:
Take the Interstate 295 West-Charlottesville exit. Travel approximately 8.5
miles on Interstate 295 West towards Charlottesville. Take the Nuckols
Road-South Exit. Travel approximately 1.0 miles to the second stop light at the
corner of Cox and Nuckols Road. Turn right on Cox Road. Travel approximately 1.5
miles. Turn right at third stop light at Broad Street. Travel approximately 0.5
miles. Turn right at Dominion Boulevard. Travel approximately 0.2 miles. Turn
right at The Place entrance.
Directions from the Richmond International Airport:
(In regards to the map above - Interstate 64 should be used as a reference
point only) As you leave the airport on 156 North-Airport Drive follow the "to
295-North" signs. You will pass the Interstate 64 East and West exits and the
Interstate 295 South exit. After these exits, continue on 156 North-Airport
Drive approximately 2.5 miles. Take the "295 North to 95-North and 64-West" exit
North towards Washington. Stay on Interstate 295 North for approximately 19.5
miles. Take the Nuckols Road-South Exit. Travel approximately 1.0 miles to the
second stop light at the corner of Cox and Nuckols Road. Turn right on Cox Road.
Travel approximately 1.5 miles. Turn right at third stop light at Broad Street.
Travel approximately 0.5 miles. Turn right at Dominion Boulevard. Travel
approximately 0.2 miles. Turn right at The Place entrance.
Directions from the South or Downtown Richmond:
Take Interstate 64 West to Interstate 295 towards Washington. Take the
first exit - Nuckols Road South. Travel approximately 1.0 miles to the second
stop light at the corner of Cox and Nuckols Road. Turn right on Cox Road. Travel
approximately 1.5 miles. Turn right at third stop light at Broad Street. Travel
approximately 0.5 miles. Turn right at Dominion Boulevard. Travel approximately
0.2 miles. Turn right at The Place entrance.
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DYNEX CAPITAL, INC.
4551Cox Road, Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
June 29, 2001
To Our Stockholders:
This Proxy Statement is furnished with the solicitation by the Board of
Directors of Dynex Capital, Inc. (the "Company") of proxies to be used at the
Annual Meeting of Stockholders of the Company to be held at The Place At
Innsbrook located at 4036 Cox Road, Glen Allen, Virginia on Friday, June 29,
2001, at 2:00 p.m. Eastern time. The Annual Meeting is being held for the
purposes set forth in the accompanying notice of Annual Meeting of Stockholders.
This Proxy Statement, the accompanying proxy card and the notice of Annual
Meeting are being provided to stockholders beginning on or about May 7, 2001.
GENERAL INFORMATION
Solicitation
The enclosed proxy is solicited by the Board of Directors of the Company.
The costs of this solicitation will be borne by the Company. Proxy solicitations
will be made by mail, and also may be made by personal interview, telephone and
telegram by directors and officers of the Company. Brokerage houses and nominees
will be requested to forward the proxy soliciting material to the beneficial
owners of the Company's common stock and to obtain authorization for the
execution of proxies. The Company will, upon request, reimburse such parties for
their reasonable expenses in forwarding proxy materials to such beneficial
owners. Additionally, the Company has engaged the firm of MacKenzie Partners,
Inc., New York, New York, to conduct proxy solicitations on its behalf at a cost
estimated to be $5,000, plus reasonable out-of-pocket expenses.
Voting Rights
Holders of shares of the Company's common stock at the close of business
on April 27, 2001, the record date, are entitled to notice of, and to vote at,
the Annual Meeting. On that date 11,446,206 shares of common stock were
outstanding. Each share of common stock outstanding on the record date is
entitled to one vote for each of four directors to be elected by the holders of
common stock and one vote on each other matter presented to common stockholders
at the Annual Meeting. The presence, in person or by proxy, of common
stockholders entitled to cast a majority of all the votes entitled to be cast
constitutes a quorum for the transaction of business at the Annual Meeting.
Holders of shares of the Company's preferred stock at the close of
business on April 27, 2001, the record date, are entitled to notice of, and to
vote at, the Annual Meeting, voting at a single class, to elect two directors to
the Company's Board of Directors. The following table sets forth the number of
shares of each class of preferred stock outstanding as of April 27, 2001 and the
votes applicable to each such class:
Aggregate Aggregate Votes per
Class # of Shares # of Votes Share
----------------------------------------- ----------- ---------- ---------
Series A Cumulative Convertible Preferred 1,309,061 1,047,24 0.8000
Stock ("Series A Preferred Stock")
Series B Cumulative Convertible Preferred 1,912,434 1,561,821 0.8167
Stock ("Series B Preferred Stock")
Series C Cumulative Convertible Preferred 1,840,000 1,840,000 1.0000
Stock ("Series C Preferred Stock")
Pursuant to the Company's Articles of Incorporation, each share of
preferred stock is entitled to one vote per $30.00 of stated liquidation
preference. As of the record date, the liquidation preference of the Series C
Preferred Stock was $30.00 per share, the liquidation preference of the Series B
Preferred Stock was $24.50 per share, and the liquidation preference of the
Series A Preferred Stock was $24.00 per share. Accordingly, holders of the
Series A Preferred Stock will be entitled to 0.8000 votes per share, holders of
the Series B Preferred Stock will be entitled to 0.8167 votes per share, and
holders of Series C Preferred Stock will be entitled to 1.0000 vote per share.
Holders of preferred stock are not entitled to vote on any other matter.
Voting of Proxies
Shares of common and preferred stock represented by all properly executed
proxies received in time for the Annual Meeting will be voted in accordance with
the choices specified in the proxy. If no instructions are indicated on the
proxy, the shares of common stock will be voted FOR the election of the nominees
named in this Proxy Statement as common stockholder directors and the shares of
preferred stock will be voted FOR the election of the nominees named in the
Proxy Statement as preferred stockholder directors. If no instructions are
indicated in the proxy, shares of common stock will be voted FOR the appointment
of Deloitte & Touche LLP as the Company's auditors. If no instructions are
indicated in the proxy, shares of common stock will be voted AGAINST the
stockholder proposal.
Revocability of Proxy
The giving of the enclosed proxy does not preclude the right to vote in
person should the stockholder giving the proxy so desire. A proxy may be revoked
at any time prior to its exercise by delivering a written statement to the
Secretary of the Company that the proxy is revoked, by presenting to the Company
a later-dated proxy executed by the person executing the prior proxy, or by
attending the Annual Meeting and voting in person.
Annual Report on Form 10-K
The Annual Report on Form 10-K, including financial statements for the
year ended December 31, 2000, which are being mailed to stockholders together
with this Proxy Statement, contains financial and other information about the
activities of the Company, but is not incorporated into this Proxy Statement and
is not to be considered a part of these proxy soliciting materials.
ELECTION OF DIRECTORS
General
Six directors of the Company, constituting the entire Board of Directors,
are to be elected at the Annual Meeting to serve until the next annual meeting
and until their successors are elected and duly qualified. In the case of the
four directors to be elected by the holders of the shares of the Company's
common stock, Mr. J. Sidney Davenport, Mr. Thomas H. Potts, Mr. Barry S. Shein
and Mr. Donald B. Vaden have been nominated by the Board of Directors for
re-election to the Board of Directors at the Annual Meeting. In the case of the
two directors to be elected by the holders of the shares of the Company's
preferred stock, the Company has not received any new nominations and Mr. Leon
A. Felman and Mr. Barry Igdaloff have agreed to stand for re-election to the
Board of Directors at the Annual Meeting. Unless otherwise indicated, a proxy
representing common stock will be voted FOR the election of Messrs. Davenport,
Potts, Shein and Vaden to the Board of Directors and a proxy representing
preferred stock will be voted FOR the election of Messrs. Felman and Igdaloff to
the Board of Directors. Each nominee has agreed to serve if elected. In the
event any nominee shall unexpectedly be unable to serve, the proxies will be
voted for such other person as the Board of Directors may designate. Selected
biographical information regarding each nominee is set forth below.
Vote Required
The six directors will be elected by a favorable vote of a plurality of
the shares of stock represented and entitled to vote with respect to each
director, in person or by proxy, at the Annual Meeting. Accordingly, abstentions
or broker non-votes as to the election of directors will not affect the election
of candidates receiving the plurality of votes. Unless instructed to the
contrary, the shares represented by the proxies will be voted FOR the election
of each of the six nominees named below as directors. Although it is anticipated
that each nominee will be able to serve as a director, should any nominee become
unavailable to serve, the shares represented by the proxies will be voted for
another person or persons designated by the Company's Board of Directors. In no
event will the proxies be voted for more than six directors.
Common Stock Directors
J. Sidney Davenport, 59, has been a director of the Company since its
organization in December 1987. Mr. Davenport retired from The Ryland Group,
Inc., a publicly-owned corporation engaged in residential housing construction
and mortgage-related financial services, where he was a Vice President from
March 1981 to January 1998. Mr. Davenport was Executive Vice President of Ryland
Mortgage Company from April 1992 to January 1998. Mr. Davenport served as a
director of Mentor Income Fund, Inc., a publicly-traded closed-end mutual fund,
from June 1992 to August 1993.
Thomas H. Potts, 51, has been President and a director of the Company since
its organization in December 1987. Prior to that, Mr. Potts served in various
positions on behalf of The Ryland Group, Inc. Mr. Potts served as Treasurer of
The Ryland Group, Inc. from May 1987 until April 1992, Executive Vice President
of Ryland Acceptance Corporation ("Ryland Acceptance") from November 1987 until
April 1992, and Executive Vice President of Ryland Mortgage Company from April
1991 until April 1992, and previously Senior Vice President. Mr. Potts also
served as President and director of Mentor Income Fund, Inc. from its inception
in December 1988 until June 1992.
Barry S. Shein, 61, has been a director of the Company since June 1998. Mr.
Shein has been the President and owner of The Commodore Corporation since 1990.
The Commodore Corporation is a manufactured home producer, operating six
manufacturing facilities located in the eastern half of the U.S. From 1978 to
1990, Mr. Shein served as an officer of The Equity Group in Illinois, a
multi-faceted real estate owner and investor. Mr. Shein is also a non-practicing
certified public accountant.
Donald B. Vaden, 66, has been a director of the Company since January
1988. In March 1995, Mr. Vaden resumed practicing law specializing in mediation
and arbitration, and is certified for general and family mediation by the
Supreme Court of Virginia. He serves as a director of the Virginia Mediation
Network, Inc. He is the retired past Chairman of Residential Home Funding
Corporation where he served from December 1992 until February 1995.
Preferred Stock Directors
Leon A. Felman, 66, has been a director of the Company since November 2000.
Mr. Felman has been a director of Allegiant Bancorp, Inc., a St. Louis, Missouri
based bank holding company, since 1992. From 1968 to 1999, Mr. Felman was the
president and chief executive officer of Sage Systems, Inc., which operated
twenty-eight Arby's restaurants in the St. Louis, Missouri metropolitan area.
Mr. Felman graduated from Carnegie Institute of Technology with a B.S. in
Industrial Administration.
Barry Igdaloff, 46, has been a director of the Company since November 2000.
Mr. Igdaloff has been a registered investment advisor and the sole proprietor of
Rose Capital in Columbus, Ohio, since 1995. Mr. Igdaloff graduated from Indiana
University in 1976 with a B.S.B. in Accounting and in 1978 graduated from Ohio
State University with a J.D. in law. Mr. Igdaloff is a non-practicing certified
public accountant and a non-practicing attorney.
Information Concerning the Board of Directors
Mr. Felman and Mr. Igdaloff were elected at a special meeting of preferred
stockholders held on November 21, 2000. The special meeting was held at the
request of the preferred stockholders in accordance with Section 9(a) of each of
Articles IIIA, IIIB and IIIC of the Company's Articles of Incorporation, as
amended, to elect two additional directors to the Board of Directors of the
Company, each for a term ending on the earlier of the date upon which (a) (i)
the consolidated shareholders' equity of the Company at the end of any
subsequent calendar quarter equals or exceeds 150% of the aggregate liquidation
preference of the then outstanding preferred stock and (ii) quarterly dividends
on the Series A, Series B and Series C preferred stock are current, and (b) the
next annual meeting of the stockholders of the Company.
The members of the Audit Committee during 2000 were Mr. Davenport, Mr.
Shein and Mr. Vaden. The Audit Committee reviews and approves the scope of the
annual internal audit undertaken by the Company's independent certified public
accountants and meets with them on a regular basis to review the progress and
results of their work as well as any recommendations they may make. The Audit
Committee held one regular meeting in 2000. The Board of Directors also had a
Compensation Committee during 2000 with the members being Mr. Davenport, Mr.
Vaden and Mr. Shein. The Compensation Committee met one time in 2000. The
Company has no other standing committees of the Board of Directors.
The Board of Directors held three regular meetings and sixteen special
meetings in 2000. During this period, each of the directors attended at least
75% of these meetings of the Board of Directors and the committees on which he
served.
The directors who are not employed by the Company (the "Outside
Directors") receive an annual fee of $25,000 per year, plus $500 for each
meeting of the Board of Directors, or a committee thereof, they attend. In
addition, these directors are reimbursed for expenses related to their
attendance at Board of Directors and committee meetings.
In 1995, the Company adopted the 1995 Directors Stock Incentive Plan (the
"Directors Plan") pursuant to which directors of the Company as of May 1, 1995,
who were not employees of the Company or its affiliates, each received an
initial grant of 1,750 Stock Appreciation Rights ("SARs"). Under the Directors
Plan, new directors received an initial grant of 1,250 SARs. Subsequent to these
initial grants, eligible directors were granted 552.50 SARs annually. In
December 2000, the SARs under the Directors Plan were cancelled pursuant to a
requirement set forth in the Agreement and Plan of Merger, dated as of November
7, 2000, by and among the Company, California Investment Fund, LLC and certain
other affiliated parties (the "Merger Agreement"). The Merger Agreement was
subsequently terminated as of January 26, 2001 in accordance with certain
provisions of the Merger Agreement. In connection with the cancellation of the
SARs, Mr. Davenport and Mr. Vaden each received $5,865, and Mr. Shein received
$2,512.
OWNERSHIP OF STOCK
The table below sets forth, as of March 15, 2001, the number of shares of
common and preferred stock beneficially owned by owners of more than five
percent of the Company's stock outstanding for each class, each director of the
Company, and each executive officer named in the Summary Compensation Table
under "Management of the Company", and the number of shares beneficially owned
by all of the Company's directors and executive officers as a group. To the
Company's knowledge, no other person beneficially owns more than 5% of the
outstanding shares of each class of stock. Unless otherwise indicated, all
persons named as beneficial owners of common and preferred stock have sole
voting power and sole investment power with respect to the shares beneficially
owned.
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Series A Series B Series C Percent of Percent of
Name of Beneficial Owner Common Preferred Preferred Preferred Common Stock Preferred Stock
------------------------ ------ --------- --------- --------- ------------ ---------------
Stephen J. Benedetti 8,603 - - - * -
J. Sidney Davenport 25,356 - - - * -
Thomas H. Potts 414,350 (1) - - - 3.62% -
Donald B. Vaden 9,483 (2) - - - * -
Barry S. Shein - - - - * -
Leon A. Felman 11,570 (3) - 27,490(4) * *
Barry Igdaloff 22,280 (5) 62,000 (6) 61,000(7) 52,500(8) * 3.47%
California Investment Fund, LLC(9) 572,178 - - - 5.00% -
Talkot Crossover Fund, L.P. and 578,225 166,862 274,600 42,700 5.05% 9.57%
Thomas B. Akin, as a group(10)
Deutsche Bank AG(11) 934,660 - - - 8.17% -
Rockwood Partners L.P., Rockwood 770,300 - - - 6.73% -
Asset Management, Inc.
and Demeter Asset Management,
Inc., as a group(12)
All directors and executive 491,642 62,000 61,000 79,990 4.30% 4.35%
officers as a group
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*Less than 1% of the outstanding shares of stock.
(1) Includes 9,077 shares of common stock owned of record by such
person's children and spouse.
(2) Includes 583 shares of common stock owned of record by such person's
spouse.
(3) Includes 87 shares of common stock owned of record by such person's
spouse; 3,150 shares of common stock owned of record by Homebaker
Brand Profit Sharing Plan of which Mr. Felman is the Trustee; and
1,340 shares of common stock held of record by HLF Corporation of
which Mr. Felman is an officer.
(4) Includes 11,670 shares of Series C Preferred Stock owned of record by
Homebaker Brand Profit Sharing Plan; 350 shares of Series C Preferred
Stock owned of record by Sage Systems Liquidating Trust LLC of which
Mr. Felman is an officer; and 980 shares of Series C Preferred Stock
owned of record by HLF Corporation of which Mr. Felman is an officer.
(5) Includes 22,280 shares of common stock owned by clients of Rose
Capital of which Mr. Igdaloff is the sole proprietor. Shares are held
with shared power to vote and dispose thereof.
(6) Includes 41,600 shares of Series A Preferred Stock owned by clients
of Rose Capital. Shares are held with shared power to
vote and dispose thereof.
(7) Includes 34,700 shares of Series B Preferred Stock owned by clients
of Rose Capital. Shares are held with shared power to vote and
dispose thereof.
(8) Includes 10,100 shares of Series C Preferred Stock owned by clients
of Rose Capital. Shares are held with shared power to vote and
dispose thereof.
(9) Address: 550 West C Street, Suite 1000, San Diego, CA 92101.
Shares are held with the shared power to vote and dispose thereof.
(10) Address: 2400 Bridgeway, Suite 200, Sausalito, CA 94965.
(11) Address: Taunusanlage 12, D-60325, Frankfurt am Main, Federal
Republic of Germany. Shares are held with sole power to vote
and dispose thereof.
(12) Address: 104 Field Point Road, Greenwich, CT 06830. Shares are held
with shared power to vote and dispose thereof.
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MANAGEMENT OF THE COMPANY
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The executive officers of the Company and their positions are as follows:
Name Age Position(s) Held
---- --- ----------------------------
Thomas H. Potts 51 Director and President
Stephen J. Benedetti 38 Vice President and Treasurer
The executive officers serve at the discretion of the Company's Board of
Directors. Biographical information regarding Mr. Potts is provided above.
Information regarding the other executive officer of the Company is set forth
below:
Stephen J. Benedetti has served as Vice President and Treasurer of the
Company since October 1997; and from September 1994 until December 1998, Mr.
Benedetti served as Vice President and Controller. In May 2000, Mr. Benedetti
assumed the responsibilities of Lynn K. Geurin who resigned as Chief Financial
Officer and Secretary of the Company. From March 1992 until September 1994, he
served as Director of Accounting and Financial Reporting for National Housing
Partnerships, a national multifamily housing syndicator and property management
concern. Mr. Benedetti also served as audit manager for Deloitte & Touche from
1985 to 1992, where he provided audit and consulting services to various clients
primarily in the financial services and real estate development industries. Mr.
Benedetti graduated from Virginia Tech in 1985 with a bachelor's degree in
accounting and became a Certified Public Accountant in 1986.
Executive Compensation
The Summary Compensation Table on the following page includes individual
compensation information on the President and the four other most highly
compensated executive officers ("Named Officers") during 2000, 1999 and 1998.
Summary Compensation Table
Long-Term
Compensation Awards
Annual Compensation (1) ------------------------- All Other
------------------------------ SARs Compensation
Principal Position Year Salary ($) Bonus ($) (#) (2) ($) (3)
------------------------ -------- -------------- --------------- ------------------------- --------------------
Thomas H. Potts 2000 315,000 0 94,500 32,361
President and Director 1999 315,000 0 34,815 34,882
1998 310,000 0 13,978 30,948
Stephen J. Benedetti 2000 150,000 150,000 - 5,348
Vice President 1999 107,000 39,363 1,665 15,570
and Treasurer 1998 100,000 28,073 4,435 9,119
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1) Does not include perquisites and other personal benefits, securities or
property where the aggregate amount of such compensation to an
executive officer is the lesser of either $50,000 or 10% of annual
salary and bonus.
2) Stock Appreciation Rights ("SARs"). Amounts have been adjusted for the
1-for-4 stock split, effective August 1999.
3) Amount for 2000 for Mr. Potts consists of matching and profit sharing
contributions to the Company's 401(k) Plan and 401(k) Overflow Plan
in the amount of $31,763. Amount for 2000 for Mr. Benedetti consists
of matching and profit sharing contributions to the Company's 401(k)
Plan in the amount of $5,250. Amounts for 2000 for Mr. Potts and
Mr. Benedetti also consist of Group Term Life Insurance in the
amount of $598 and $98, respectively.
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Aggregated SAR Exercises In Last Fiscal Year
And Year-End SAR Value Table
The table below presents the total number of SARs that were cancelled
by the Company pursuant to a Consent Regarding Cancellation of Stock
Appreciation Rights, dated November 8, 2000 (the "Consent"), which was executed
by each executive officer pursuant to a requirement set forth in the Merger
Agreement. All of the outstanding SARs (vested and uninvested) and associated
DER/SARs were cancelled under the Consent. No SARs were outstanding at December
31, 2000.
Value of Unexercised
SARs Cancelled Number of Unexercised in-the-money
in 2000 (1) (2) SARs at 12-31-00 SARs at 12-31-00
----------------------------- -------------------------------- -------------------------------------
Number Value
of SARs Realized Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- ------------- ---------------- ------------- -----------------
Thomas H. Potts 212,469 $246,561 0 0 0 0
Stephen J. Benedetti 11,222 14,743 0 0 0 0
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1) Includes related Dividend Equivalent Rights ("DERs").
2) The value realized represents the consideration given in exchange for
the cancellation of the SARs under the Consent.
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SARs Granted During the Year
The following table provides information related to SARs granted to the
Named Officers during fiscal 2000.
Individual Grants
--------------------------------------------------------------
Percentage of Potential Realizable Value
Total SARs at Assumed Annual Rates
Number of Granted to Exercise of Stock Price Appreciation
SARs Employees in Price Expiration for SAR Term (1)
Name Granted (2) Fiscal 2000 ($ per share) Date 5% ($) 10% ($)
-------------------- ------------- ----------------- -------------- ------------ -------------- ----------------
Thomas H. Potts 94,500 100% $8.8125 1/2003 n/a n/a
Stephen J. Benedetti 0 0 0 0 n/a n/a
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1) These SARs were cancelled pursuant to the Consent. See prior table.
2) The SARs did not have associated DERs.
--------------------------------------------------------------------------------
Employment Agreements
Mr. Potts has entered into an employment agreement with the Company,
expiring on September 30, 2001. Pursuant to his employment agreement, Mr. Potts
agreed to devote his full business time and efforts to the business of the
Company. Mr. Potts currently receives a base salary of $315,000 per annum; such
base salary is subject to normal periodic review at least annually by the
Compensation Committee based on the salary policies of the Company and Mr.
Potts' contributions to the Company. Mr. Potts is also entitled to receive
incentive compensation as approved by the Compensation Committee.
The employment agreement will terminate in the event of Mr. Potts'
death or total disability, may be terminated by the Company with "cause" (as
defined therein) or for any reason other than cause, and may be terminated by
the resignation of Mr. Potts. If the employment agreement is terminated by the
Company for any reason other than cause, total disability or death, then the
Company shall pay to Mr. Potts his salary and benefits through the expiration
date. The employment agreement contains certain covenants, among other things,
by Mr. Potts requiring him to maintain the confidentiality of information
relating to the Company and restricting his ability to compete with the Company.
The Company has no other employment agreements with its executive
officers.
Audit Committee Report
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of any audits, reviews other professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of internal accounting controls. The Audit Committee is
composed of three directors, each of whom is independent as defined by the
listing standards of the New York Stock Exchange. The Board has adopted a
written Audit Committee Charter which is included as an appendix to this proxy
statement.
The Audit Committee has reviewed and discussed with management and the
independent accountants the Company's audited financial statements for fiscal
year 2000. In addition, the Committee has discussed with the independent
accountants the matters required to be discussed by Statement on Auditing
Standards No. 61, "Communication with Audit Committees".
The Audit Committee has received from the independent accountants
written disclosures and a letter concerning the independent accountants'
independence from the Company, as required by Independence Standards Board
Standard No. 61, "Independence Discussions with Audit Committees." These
disclosures have been reviewed by the Committee and discussed with the
independent accountants. The Audit Committee has considered whether the
provision of non-audit services and financial information systems design and
implementation services by Deloitte & Touche LLP is compatible with maintaining
Deloitte's independence.
Based on these reviews and discussions, the Committee recommended to
the Board that the audited financial statements be included in the Company's
Annual Report on Form 10-K for fiscal year 2000 for filing with the Securities
and Exchange Commission and recommended that Deloitte & Touche be retained by
the Company to act as the independent certified public accountants for the year
ending December 31, 2001.
Audit Committee
Donald B. Vaden
J. Sidney Davenport
Barry S. Shein
Compensation Committee Report
The Compensation Committee of the Company's Board of Directors, which
is comprised exclusively of directors who are not employees of the Company,
administers the Company's executive compensation program. All issues pertaining
to executive compensation are reviewed and approved by the Compensation
Committee.
The Compensation Committee historically designed the executive
compensation structure to reward long-term value created for stockholders and
reflect the business strategies and long-range plans of the Company. The guiding
principles in regard to compensation were (i) to attract and retain key high
caliber executives, (ii) to provide levels of compensation competitive with
those offered by the Company's competitors, (iii) to motivate executives to
enhance long-term stockholder value by linking stock performance (on a total
return basis) with long-term incentive compensation, and (iv) to design a
long-term compensation program that leads to management retention. Executive
officer compensation was based on three principal components: base salary,
annual bonus, and SARs (and related DERs) granted under the Company's Incentive
Plan.
Given the financial performance of the Company during 1999, the
Compensation Committee revised its approach to executive compensation in January
2000. No cash bonuses were paid to the Company's three executive officers
relative to calendar year 1999 (Mr. Benedetti was not an executive officer at
such time). In the alternative, the three executive officers were awarded
options (in the form of SARs) on the common stock of the Company. No additional
SARs were awarded under the Company's Incentive Plan. No bonus plans were
approved for calendar year 2000, and no salary increases were given. As of such
date, the executive officers of the Company were Mr. Potts, Ms. Lynn K. Geurin,
and Mr. W. Hance West.
In May 2000, Mr. West and Ms. Geurin resigned. Mr. Potts assumed the
majority of Mr. West's responsibilities; Mr. Benedetti assumed all of Ms.
Geurin's responsibilities. To induce Mr. Benedetti to stay with the Company
during the balance of 2000, the Compensation Committee retroactively increased
Mr. Benedetti's salary to $150,000 for calendar year 2000, and increased his
bonus percentage to 100% for calendar year 2000 only. At year end 2000, Mr.
Benedetti received a $150,000 bonus for 2000. Mr. Potts received an indirect
bonus for 2000 as a result of a reduced interest rate on his loan with the
Company. Such reduction had a value to Mr. Potts of approximately $24,000.
For calendar year 2001, the Compensation Committee approved a base
salary for Mr. Benedetti of $180,000, and a maximum cash bonus of $120,000. For
Mr. Potts, the Compensation Committee approved a permanent reduction in the
interest rate on his loan with the Company. No increase was made in Mr. Potts'
base salary. While no bonus plan for calendar year 2001 was approved for Mr.
Potts, the Compensation Committee may approve a bonus for Mr. Potts at a later
date. Mr. Potts' employment agreement with the Company terminates on September
30, 2001. No decision has been made by the Compensation Committee as to whether
Mr. Potts' employment agreement will be extended.
The Compensation Committee has historically awarded SARs and related
DERs under the Company's Incentive Plan to its executive officers. The Company
cancelled all outstanding SARS/DERs during December 2000 pursuant to the
requirements of the Merger Agreement, and no such SARs or DERs are now
outstanding. The Compensation Committee may award SARs and DERs in the future.
Compensation Committee
Donald B. Vaden, Chairman
J. Sidney Davenport
Barry S. Shein
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 2000 were Mr. Davenport,
Mr. Vaden, and Mr. Shein. During 2000, no interlocking relationship existed
between any of the members of the Compensation Committee and the Company.
Certain Relationships and Related Transactions
During 1999, the Company made a loan to Mr. Potts, as evidenced by a
promissory note in the aggregate principal amount of $934,500 with interest
accruing on the outstanding balance at the rate of prime plus one-half percent
per annum (the "Note"). Mr. Potts directly owns 399,502 shares of common stock
of the Company, all of which have been pledged as collateral to secure the Note,
except for his 401(k) holdings. As of March 31, 2001, interest on the Note was
current and the outstanding balance of the Note was $ 677,291.
Section 16(a) Beneficial Ownership Reporting Compliance
In November 2000, Mr. Felman and Mr. Igdaloff were elected to the Board of
Directors of the Company and Forms 3, involving the initial statement of
beneficial ownership of securities, for Mr. Felman and Mr. Igdaloff were
inadvertently not timely filed. Such Forms have been filed.
Total Return Comparison
The following graph demonstrates a five year comparison of cumulative
total returns for Dynex Capital, Inc. ("DX"), the Standard & Poor's 500 Stock
Index ("S&P 500"), and the SNL Securities L.C. Real Estate Investment Trust
Index (the "Peer Group"). The table below assumes $100 was invested at the close
of trading on December 31, 1995 in DX common stock, S&P 500, and Peer Group.
Comparative Five-Year Total Returns *
DX, S&P 500, Peer Group
(Performance Results through December 31, 2000)
[GRAPH]
1995 1996 1997 1998 1999 2000
DX 100.00 161.18 159.90 60.70 21.12 3.28
S&P 500 100.00 122.86 163.86 210.64 254.97 231.74
Peer Group 100.00 136.83 158.14 143.60 134.60 170.17
------------------- ------------- -------------- -------------- -------------- -------------- --------------
* Cumulative total return assumes reinvestment of dividends. The source of this
information is SNL Securities L.C. The factual material is obtained from sources
believed to be reliable, but SNL Securities L.C. is not responsible for any
errors or omissions contained herein.
APPOINTMENT OF AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP
("Deloitte"), independent certified public accountants, to examine the financial
statements of the Company for the year ended December 31, 2001. Stockholders
will be asked to approve this appointment at the Annual Meeting. Deloitte has
been the Company's independent accountants since July 1998. A representative of
Deloitte is expected to be present at the Annual Meeting and will be provided
with an opportunity to make a statement and to respond to appropriate questions
from stockholders.
The Board unanimously recommends a vote FOR the proposal to approve Deloitte &
Touche LLP as the Company's auditors for the year ended December 31, 2001.
AUDIT FEES
The aggregate fees billed by Deloitte for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2000 and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for that
fiscal year were $160,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no professional services rendered for information technology
services relating to financial information systems design and implementation
during 2000.
ALL OTHER FEES
There were no other fees billed by Deloitte for services rendered to
the Company, other than the services described above for the fiscal year ended
December 31, 2000.
STOCKHOLDER PROPOSAL
The Company has been advised that on behalf of Leeward Capital, L.P.
the beneficial owner of 10,000 shares of common stock and an aggregate 61,400
shares of preferred stock as of December 21, 2000, Mr. Eric P. Von Der Porten,
the manager of Leeward Investments LLC, general partner of Leeward Capital, 1139
San Carlos Avenue, Suite 302, San Carlos, California 94070, intends to submit
the following proposal at the Annual Meeting:
PROPOSAL: "The stockholders of Dynex Capital, Inc. hereby request that the
Board of Directors prepare a plan of liquidation for the Company and present
that plan for approval by the stockholders at a Special Meeting to be called at
the earliest possible date."
STATEMENT IN SUPPORT: "On the date this proposal was submitted, the
total market value of the Company's Common Stock and Preferred Stock was
approximately $50 million. This represented a 71 percent discount from the $172
million equity value reported by the Company for the period ended September 30,
2000. The Company has proposed a merger with California Investment Fund, LLC.
The proposed consideration of $90 million represents a 48 percent discount from
the Company's stated equity value.
According to its most recent financial statements and press releases,
the Company has satisfied the majority of its recourse debt obligations and is
building a substantial cash reserve. Significant amounts of additional cash are
likely to be available to the Company in 2001 from operating cash flows, from
loan paydowns and asset sales, and from refinancings of securitized loan pools.
Cash flows to the Company may be materially enhanced if short term interest
rates decline, as widely expected, during 2001.
Given these circumstances, it appears likely that an orderly course
liquidation of the Company's assets can, over a several-year period, generate
free cash well in excess of both the Company's current market value and the
proposed merger consideration. Properly executed, a plan of liquidation could
potentially have substantial benefits for the holders of the Company's Common
and Preferred Stock."
The Board of Directors of the Company unanimously recommends a vote AGAINST
this proposal for the reasons set forth below.
The Board of the Company has evaluated over the past eighteen months
various courses of action to improve shareholder value given the depressed
prices of the Company's preferred and common stocks, and to provide greater
liquidity for such stocks. In March 2001, the Company amended certain provisions
of its senior notes due in July 2002 to allow the Company to make distributions
on its capital stock in an amount not to exceed the sum of (a) $26 million, (b)
the cash proceeds of any "permitted subordinated indebtedness", (c) the cash
proceeds of the issuance of any "qualified capital stock", and (d) any
distributions required in order for the Company to maintain its status as a real
estate investment trust.
On April 30, 2001, the Company announced that it will make concurrent
tender offers for its Series A, Series B and Series C preferred stock for an
aggregate cash consideration of $26 million. The Company believes that such
tender offers provide the holders of preferred stock desiring to liquidate their
holdings immediate opportunity to sell their shares in the tender offer at a
premium to the market price. At the same time, the tender offers permit the
Company to purchase shares of preferred stock tendered in the tender offer at a
substantial discount from the book value and liquidation preferences of such
preferred stock and to cancel accrued dividends on such shares.
Assuming the tender offers are fully subscribed, on a proforma basis, as of
December 31, 2000, total shareholders' equity will decline from $157.1 million
to $131.1 million; the aggregate liquidation preference of all series of
preferred stock will decline from $152.8 million to $94.5 million; and the book
value per common share, after accrued and unpaid preferred dividends, will
increase from $0.38 to $3.20 per share.
In light of these actions, the Board believes that the commencement of a
liquidation process at this point in time would not result in an improvement of
shareholders' equity and may hinder or limit future opportunities for improving
shareholder value. The Board will continue to evaluate other courses of action
to improve shareholder value.
For these reasons, the Board unanimously recommends a vote AGAINST the
proposal.
VOTES REQUIRED
The election of four directors to be elected by the holders of the shares
of the Company's common stock requires a plurality of votes by the holders of
the shares of the Company's common stock cast at the meeting. The election of
two directors to be elected by the holders of the shares of the Company's
preferred stock requires a plurality of votes by the holders of the shares of
the Company's preferred stock cast at the meeting. To appoint Deloitte as
independent auditors for the Company fiscal year 2001 and to approve the
stockholder proposal, if presented, will each require a majority of votes by the
holders of the shares of the Company's common stock cast at the meeting.
The following principles of Virginia law apply to the voting of shares of
capital stock at the meeting. The presence in person or by proxy of stockholders
entitled to vote a majority of the outstanding shares of common stock will
constitute a quorum. The presence in person or by proxy of stockholders entitled
to vote a majority of the outstanding shares of preferred stock will constitute
a quorum. Shares represented by proxy or in person at the meeting, including
shares represented by proxies that reflect abstentions, will be counted as
present in the determination of a quorum. An abstention as to any particular
matter, however, does not constitute a vote "for" or "against" such matter.
"Broker non-votes" (i.e., where a broker or nominee submits a proxy specifically
indicating the lack of discretionary authority to vote on a matter) will be
treated in the same manner as abstentions.
OTHER MATTERS
The management and the Board of Directors of the Company know of no
other matters to come before the Annual Meeting other than those stated in the
notice of the meeting. However, if any other matters are properly presented to
the stockholders for action, it is the intention of the proxy holders named in
the enclosed proxy to vote in their discretion on all matters on which the
shares represented by such proxy are entitled to vote.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder may desire to present to the 2002
Annual Meeting of Stockholders and to have included in the Company's Proxy
Statement must be received in writing by the Secretary of the Company prior to
January 3, 2002. Any proposals of Stockholders to be presented at the 2002
Annual Meeting which are delivered to the Company later than March 20, 2002 will
be voted by the proxy holders designated for the 2002 Annual Meeting in their
discretion.
By the order of the Board of Directors
Thomas H. Potts
President
April 30, 2001
APPENDIX A
DYNEX CAPITAL, INC.
AUDIT COMMITTEE CHARTER
The Audit Committee of the Board of Directors of Dynex Capital, Inc. is
established to oversee the financial reporting and internal accounting controls
of the Company. The Committee shall have unrestricted access to the Company's
directors, independent auditors, and the executive and financial management of
the Company.
The Audit Committee shall be composed of at least three independent
("disinterested") directors who shall be appointed by the Board of Directors
annually.
The Audit Committee shall meet on a regular basis, but not less than
annually. Special meetings shall be called as circumstances require. Minutes of
all meetings of the Audit Committee shall be submitted to the Board of Directors
of the Company.
In furtherance of its responsibilities, the Committee shall:
1. Recommend to the Board of Directors the selection of an independent
public accounting firm.
2. Review the scope of the proposed audit each year and the audit
procedures to be utilized. At the conclusion of such audit, the
Committee will review such audit with the independent auditors
including any comments or recommendations.
3. Review the annual financial statements of the Company and significant
accounting policies underlying the statements and their presentation to
the public in the Annual Report and Form 10-K.
4. Review with financial management and its independent public accountants
the adequacy and effectiveness of internal controls and procedures and
the quality of the staff implementing these controls and procedures.