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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
May 14, 2002
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DYNEX CAPITAL, INC.
April 10, 2002
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 Tuesday, May 14, 2002, 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, and (ii) approve the appointment of Deloitte &
Touche LLP, independent certified public accountants, as auditors for the
Company.
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 are a common stockholder and desire to
vote your shares of common stock in accordance with management's
recommendations, you need not mark your votes on the proxy but need only sign,
date and return the common proxy card in the enclosed postage-paid envelope in
order to record your vote. If you are a preferred stockholder and desire to vote
your shares of preferred stock for one or both of the preferred nominees, you
must mark your votes on the preferred proxy card and return such proxy card 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
Tuesday, May 14, 2002, at 2:00 p.m. Eastern Time, to consider and act upon the
following matters:
1. Holders of our common stock will:
A. Elect four (4) directors of the Company, to hold office until the next
annual meeting and until their successors are elected and duly qualified;
B. Consider and ratify the selection of Deloitte & Touche LLP, independent
certified public accountants, as auditors for the Company; and
C. Transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
2. Holders of our preferred stock will:
A. Elect two (2) directors of the Company, to hold office until the earlier
of (i) the next annual meeting and until their successors are elected and duly
qualified, or (ii) the date upon which 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
(provided that there shall not then be arrears on the dividends on Series A,
Series B or Series C Preferred Stock).
Only stockholders of record at the close of business on April 8, 2002, 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 10, 2002
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4551 Cox Road, Suite 300
Glen Allen, VA 23060
(804) 217-5800
[OBJECT 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.
[LOGO]
DYNEX CAPITAL, INC.
4551Cox Road, Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 14, 2002
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 Tuesday, May 14,
2002, 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 April 12, 2002.
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 preferred stock and to obtain
authorization for the execution of proxies. The Company will, upon request,
reimburse such parties for their reasonable expenses in forwarding these 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
Common Stock. Holders of shares of the Company's common stock at the close
of business on April 8, 2002, the record date, are entitled to notice of, and to
vote at, the Annual Meeting. On that date 10,873,853 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.
Preferred Stock. Holders of shares of the Company's preferred stock at the
close of business on April 8, 2002, the record date, are entitled to notice of,
and to vote at, the Annual Meeting, voting as a single class, to elect two
directors to the Company's Board of Directors. The holders of preferred stock
are not entitled to vote on any other matter. The following table sets forth the
number of shares of each class of preferred stock outstanding as of April 8,
2002 and the votes applicable to each such class:
Aggregate # Votes Aggregate #
Class of Shares Per Share of Votes
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Series A Cumulative Convertible Preferred Stock 992,038 1.000 992,038
("Series A Preferred Stock")
Series B Cumulative Convertible Preferred Stock 1,378,807 1.021 1,407,762
("Series B Preferred Stock")
Series C Cumulative Convertible Preferred Stock 1,383,532 1.250 1,729,415
("Series C Preferred Stock")
Pursuant to the Company's Articles of Incorporation, each share of
preferred stock is entitled to one vote per $24.00 of stated liquidation
preference. As of the record date, the stated liquidation preference of the
Series A Preferred Stock was $24.00 per share, the stated liquidation preference
of the Series B Preferred Stock was $24.50 per share, and the stated liquidation
preference of the Series C Preferred Stock was $30.00 per share. Accordingly,
holders of the Series A Preferred Stock will be entitled to 1.000 vote per
share, holders of the Series B Preferred Stock will be entitled to 1.021 votes
per share, and holders of Series C Preferred Stock will be entitled to 1.250
votes per share.
Voting of Proxies - Common Stock
A proxy card, indicating COMMON shares, is being sent to the holders of
the Company's common stock (the "common proxy"). Shares of common stock
represented by a properly executed common proxy received in time for the Annual
Meeting will be voted in accordance with the choices specified in such common
proxy. If no instructions are indicated on the common proxy, the shares of
common stock will be voted FOR the election of the nominees named in this Proxy
Statement as common stockholder directors. If no instructions are indicated on
the common proxy, shares of common stock will be voted FOR the appointment of
Deloitte & Touche LLP as the Company's auditors.
Voting of Proxies--Preferred Stock
A proxy card, indicating PREFERRED shares, is being sent to holders of the
Company's preferred stock (the "preferred proxy"). Shares of preferred stock
represented by a properly completed and executed preferred proxy received in
time for the Annual Meeting will be voted in accordance with the choices
specified in such preferred proxy. If a preferred proxy is not completed in
accordance with its instructions or no choices are specified on the preferred
proxy, the shares of preferred stock represented by such preferred proxy will
not be voted.
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, 2001, 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
Common Stock Directors. Four directors of the Company are to be elected by
the holders of the Company's common stock at the Annual Meeting to serve until
the next annual meeting and until their successors are elected and duly
qualified. 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 election
by the holders of the Company's common stock to the Board of Directors at the
Annual Meeting. Unless otherwise indicated, a common proxy representing common
stock will be voted FOR the election of Messrs. Davenport, Potts, Shein and
Vaden to the Board of Directors. Each common stock director nominee has agreed
to serve if elected. In the event any common stock director nominee shall
unexpectedly be unable to serve, each common proxy will be voted for such other
person as the Board of Directors may designate. Selected biographical
information regarding each common stock director nominee is set forth below.
Preferred Stock Directors. Pursuant to Section 9(a) of each of Articles
IIIA, IIIB and IIIC of the Company's Articles of Incorporation, as amended, the
holders of the Company's preferred stock are entitled to elect two directors to
the Board of Directors of the Company, each to serve until the earlier of (a)
the date upon which (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, or (b) the next annual meeting of the stockholders of the Company
and until their successors are elected and duly qualified. Mr. Leon A. Felman
and Mr. Barry Igdaloff were elected at a special meeting of preferred
stockholders held on November 21, 2000 and were re-elected by the holders of the
preferred stock at the June 29, 2001 Annual Meeting of Stockholders of the
Company. Mr. Felman and Mr. Igdaloff have been nominated for election by the
holders of preferred stock to the Board of Directors at the Annual Meeting. Each
preferred stock director nominee has agreed to serve if elected. Selected
biographical information regarding each preferred stock director nominee is set
forth below.
Vote Required
Common Stock Directors. The four directors to be elected by the holders
of the Company's common stock will be elected by a favorable vote of a plurality
of the shares of common stock represented and entitled to vote with respect to
each common stock director, in person or by proxy, at the Annual Meeting.
Accordingly, abstentions or broker non-votes as to the election of the common
stock directors will not affect the election of candidates receiving the
plurality of votes. Unless instructed to the contrary, the shares represented by
each common proxy will be voted FOR the election of each of the four common
stock director nominees named below. Although it is anticipated that each common
stock director nominee will be able to serve as a director, should any common
stock director nominee become unavailable to serve, the shares represented by
each common proxy will be voted for another person or persons designated by the
Company's Board of Directors. In no event will a common proxy be voted for more
than four common stock directors.
Preferred Stock Directors. The two directors to be elected by the holders
of the Company's preferred stock will be elected by a favorable vote of a
plurality of the shares of preferred stock represented and entitled to vote with
respect to each preferred stock director, in person or by proxy, at the Annual
Meeting. Accordingly, abstentions or broker non-votes as to the election of the
preferred stock directors will not affect the election of candidates receiving
the plurality of votes. If a preferred proxy is not completed in accordance with
its instructions or no choices are specified on the preferred proxy, the shares
of preferred stock represented by such preferred proxy will not be voted.
Although it is anticipated that each preferred stock director nominee will be
able to serve as a director, should any nominee become unavailable to serve, the
shares represented by each preferred proxy will not be voted for another person
or persons. In no event will a preferred proxy be voted for more than two
directors.
Common Stock Director Nominees
J. Sidney Davenport, 60, 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, 52, 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 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, 62, 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, 67, 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 Director Nominees
Leon A. Felman, 67, 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 has been a private investor in financial institutions since 1999. Mr.
Felman graduated from Carnegie Institute of Technology with a B.S. in Industrial
Administration.
Barry Igdaloff, 47, 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
The members of the Audit Committee during 2001 were Mr. Davenport, Mr.
Shein and Mr. Vaden. The Audit Committee reviews and approves the scope of the
annual 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 2001. Mr. Davenport, as Chairman of the
Audit Committee, held three meetings with the Company's independent certified
public accountants to review quarterly results. The Board of Directors also had
a Compensation Committee during 2001 with the members being Mr. Davenport, Mr.
Vaden and Mr. Shein. The Compensation Committee met five times in 2001. The
Company has no other standing committees of the Board of Directors.
The Board of Directors held one regular meeting and seventeen special
meetings in 2001. During this period, each of the directors attended at least
75% of the meetings of the Board of Directors and the committees on which he
served.
The directors who are not employed by the Company 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.
OWNERSHIP OF STOCK
The table below sets forth, as of March 29, 2002, the number of shares of
common and preferred stock beneficially owned by owners of more than 5% 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 13,624 - - - * -
J. Sidney Davenport 25,356 - - - * -
Thomas H. Potts 424,876 (1) - - - 3.91% -
Donald B. Vaden 9,483 (2) - - - * -
Barry S. Shein - - - - * -
Leon A. Felman 11,570 (3) - 28,470 (4) * *
Barry Igdaloff 22,280 (5) 62,000 (6) 61,000 (7) 52,500 (8) * 4.67%
Talkot Crossover Fund, L.P. and 757,000 166,212 288,500 159,100 6.96% 19.43%
Thomas B. Akin, as a group(9)
Rockwood Partners L.P., Rockwood 662,200 52,500 50,000 25,000 6.09% 4.25%
Asset Management, Inc. and Demeter
Asset Management, Inc., as a
group(10)
All directors and executive 507,189 62,000 61,000 80,970 4.66% 5.43%
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; 3,600 shares of common stock owned or record by The Leon A. Felman Keogh
Profit Sharing Plan of which Mr. Felman is the Trustee; 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 of which Mr. Felman is the Trustee; 11, 310
shares of Series C Preferred Stock owned of record by The Leon A. Felman Keogh
Profit Sharing Plan of which Mr. Felman is the Trustee; 350 shares of Series C
Preferred Stock owned of record by The Felman Family Trust of which Mr. Felman
is the Trustee; 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: 2400 Bridgeway, Suite 200, Sausalito, CA 94965.
(10) 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 52 Director and President
Stephen J. Benedetti 39 Executive Vice President,
Chief Financial Officer
and Secretary
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 Executive Vice President, Chief
Financial Officer and Secretary since September 2001. From May 2000 to September
2001, Mr. Benedetti had been the Acting Chief Financial Officer and Acting
Secretary. From October 1997 until August 2001, Mr. Benedetti served as Vice
President and Treasurer of the Company; and from September 1994 until December
1998, he served as Vice President and Controller. 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 below includes individual compensation
information on the President and the other most highly compensated executive
officer whose salary and bonus exceeded $100,000 ("Named Officers") during 2001,
2000 and 1999.
Summary Compensation Table
Long-Term
Compensation Awards
Annual Compensation (1) ------------------------- All Other
Name and ------------------------------ SARs Compensation
Principal Position Year Salary ($) Bonus ($) (#) (2) ($) (3)
--------------------------- -------- ------------- -------------- ------------------------- ---------------------
Thomas H. Potts 2001 315,000 0 - 32,315
President and Director 2000 315,000 0 94,500 32,361
1999 315,000 0 34,815 34,882
Stephen J. Benedetti 2001 180,000 60,030 30,000 46,721
Executive Vice President, 2000 150,000 150,000 - 5,348
Chief Financial Officer, 1999 107,000 39,363 1,665 15,570
Secretary
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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 2001 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 2001 for Mr. Benedetti consists of matching and
profit sharing contributions to the Company's 401(k) Plan and 401(k) Overflow
Plan in the amount of $46,581. Amounts for 2001 for Mr. Potts and Mr. Benedetti
also consist of Group Term Life Insurance in the amount of $552 and $140,
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 exercised by the
Named Officers in 2001 and held by the Named Officers at December 31, 2001
(distinguishing between SARs that are exercisable as of December 31, 2001 and
those that had not become exercisable as of that date) and includes the
aggregate amount by which the market value of the SARs (including related
Dividend Equivalent Rights ("DERs")) exceeds the exercise price at December 31,
2001.
Value of Unexercised
SARs Exercised Number of Unexercised in-the-money
in 2001 SARs at 12-31-01 SARs at 12-31-01
----------------------------- ---------------------------------- ----------------------------------------
Number Value
of SARs Realized Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- ------------- ---------------- ------------- -------------------
Thomas H. Potts 0 $0 0 0 0 0
Stephen J. Benedetti 0 0 0 30,000 0 $3,000
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SARs Granted During the Year
The following table provides information related to SARs granted to the
Named Officers during fiscal 2001.
Individual Grants
----------------------------------------------------------------------------------------------------------
Potential Realizable Value
Percentage of at Assumed Annual Rates
Total SARs of Stock Price Appreciation
Number of Granted to Exercise for SAR Term (1)
SARs Employees in Price Expiration -------------------------------
Name Granted (1) Fiscal 2001 ($ per share) Date 5% ($) 10% ($)
---------------------- ------------- ----------------- -------------- ------------ -------------- ----------------
Thomas H. Potts 0 0% $0 n/a n/a n/a
Stephen J. Benedetti 30,000 100% $2.00 6/2004 $23,701 $55,006
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(1) The SARs do not have associated DERs. Assumes a 5% and 10% annual rate
of stock appreciation for the SAR term, and a stock price at expiration date of
$2.79 and $3.83, respectively.
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Employment Agreements
Mr. Potts' employment agreement with the Company expired on September 30,
2001. Mr. Potts and the Company entered into a new agreement effective October
1, 2001. Under the terms of the new agreement, Mr. Potts agreed to continue as
an employee through June 30, 2002 at his prior base salary of $315,000 per
annum. Mr. Potts is also entitled to receive a minimum bonus of $200,000 on June
30, 2002 should he be an employee on such date, or if he should be terminated
without cause prior to such date. Mr. Potts has notified the Board of Directors
of the Company that he does not plan to remain an employee or an officer of the
Company after June 30, 2002.
Mr. Benedetti has entered into an employment agreement with the Company,
effective March 18, 2002. Mr. Benedetti's prior employment agreement dated
September 4, 2001, was made a part of the new agreement. Under such agreement,
which expires June 30, 2004, Mr. Benedetti receives his current base salary of
$180,000 per annum, adjusted each January 1st for inflation. Mr. Benedetti is
also entitled to receive incentive compensation of $120,000 on June 30, 2002 and
up to 66.7% of his base salary for the period ending each June 30th thereafter
as approved by the Compensation Committee. The employment agreement will
terminate in the event of Mr. Benedetti's 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. Benedetti. 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. Benedetti
his salary for a period equal to the lesser of one year, or through the
expiration date of the employment agreement. The Company also agreed to give Mr.
Benedetti six months notice if his employment agreement would not be renewed. If
the Company fails to give such notice by December 31, 2003, his employment
period will be extended for six months from the date such notice is given.
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 charter for the Audit Committee.
The Audit Committee has reviewed and discussed with management and the
independent accountants the Company's audited financial statements for fiscal
year 2001. In addition, the Committee has communicated with the independent
accountants the matters required to be communicated by Statement of 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 as
necessary. 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 2001 for filing with the Securities and
Exchange Commission and recommended that Deloitte & Touche, LLP be retained by
the Company to act as the independent certified public accountants for the year
ending December 31, 2002.
Audit Committee
J. Sidney Davenport, Chairman
Donald B. Vaden
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 and 2000 balanced
with the need to retain executives with knowledge of the Company's operations,
the Compensation Committee during 2001 requested that Mr. Potts continue his
employment with the Company through June 30, 2002 at the same base salary as in
the prior period, and agreed to pay Mr. Potts a minimum bonus of $200,000 should
he remain an employee through such date, subject to the Company's right to
terminate Mr. Potts for "cause." Mr. Potts did not receive a cash bonus in 2001.
Further, during 2001 the Compensation Committee requested that Mr. Benedetti
continue his employment with the Company through June 30, 2002 at the same base
salary as in the prior period, and agreed to pay Mr. Benedetti a minimum bonus
of $120,000 should he remain an employee through such date, subject to the
Company's right to terminate Mr. Benedetti for "cause," all as set forth in an
agreement dated September 4, 2001. In March 2002, the Compensation Committee
requested Mr. Benedetti to enter into an employment agreement with the Company
through June 30, 2004, at his current base salary of $180,000 per annum,
adjusted each January 1st for inflation. Under such agreement, Mr. Benedetti is
also entitled to receive incentive compensation of $120,000 on June 30, 2002 and
up to 66.7% of his base salary for the period ending each June 30th thereafter
as approved by the Compensation Committee. Mr. Benedetti's prior employment
agreement dated September 4, 2001 was made a part of the new agreement. Mr.
Benedetti received a cash bonus of $60,030 in 2001.
The Compensation Committee has historically awarded SARs and related
DERs under the Company's Incentive Plan to its executive officers. During the
calendar year 2001, the Compensation Committee awarded SARs to Mr. Benedetti as
set forth in the table above. The SARs awarded to Mr. Benedetti do not have
associated DERs.
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 2001 were Mr. Davenport,
Mr. Vaden, and Mr. Shein.
During 2001, Mr. Shein acquired from the Company a ninety-eight percent
limited partnership interest in Samma Properties Limited Partnership, a Texas
limited partnership (the "Partnership"), for a purchase price of $198,000, which
was equal to its estimated fair market value. The Board of Directors approved
such sale, with Mr. Shein abstaining. The Partnership is the owner of a
low-income housing tax credit multifamily property ("Property") which
historically had generated tax credits for the Company, but such tax credits can
no longer be used by the Company. By reason of Mr. Shein's investment in the
Partnership, the Company has guaranteed to Mr. Shein that the property will
remain in compliance with the low-income housing tax credit provisions of the
Internal Revenue Code through 2008. During 2001, the Company advanced the
partnership $231,635, and the Company through its subsidiary, Commercial Capital
Access One, Inc., owns a first mortgage loan made in 1992 to the Partnership
secured by the Property, with a current unpaid principal balance of $1,961,388.
The advances bear interest at a rate of Prime plus 3.0% per annum, and the first
mortgage loan carries a fixed rate of interest at 9.25%.
Certain Relationships and Related Transactions
During 2001, the Company and Dynex Commercial, Inc. ("DCI") entered
into a Litigation Cost Sharing Agreement whereby the parties set forth how the
costs of defending against certain litigation where both the Company and DCI
have been named as defendants would be shared. The Company agreed to fund all
costs of such litigation, including DCI's portion. The costs funded by the
Company are considered loans and bear simple interest at the rate of Prime plus
8% per annum. Until December 2000, DCI was a subsidiary of Dynex Holding, Inc.
("DHI"), an affiliate of the Company which was merged into the Company in
December 2000. All litigation against DCI relates to the activities of DCI while
it was a subsidiary of DHI. As of December 31, 2001, the Company has funded
$1,542,196 of litigation costs, including settlement amounts. DCI has no assets,
and has asserted counterclaims in the litigation. The parties agreed that any
proceeds from any counterclaims would be distributed 100% to the Company and 0%
to DCI. ICD Holding, Inc. is the sole shareholder of DCI. Mr. Potts and Mr.
Benedetti are the shareholders of ICD Holding, Inc.
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 through 1999 and for 2000 and 2001, at the short-term monthly
"applicable federal rate" based on tables published by the Internal Revenue
Service (the "Note"). Mr. Potts directly owns 415,799 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 29, 2002, interest on the Note was
current and the outstanding balance of the Note was $261,858.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of all Forms 3, 4 and 5 furnished to the
Company with respect to 2001 and representations made to the Company by certain
reporting persons, the Company knows of no person that failed to file on a
timely basis reports required by Section 16(a) of the Exchange Act during 2001.
Total Return Comparison
The following graph demonstrates a five year comparison of cumulative total
returns for the common stock of Dynex Capital, Inc. ("DX"), the Standard &
Poor's 500 Stock Index ("S&P 500"), the SNL Financial Real Estate Investment
Trust Index (the "SNL Financial REIT") and the SNL All MBS REIT Index (the "Peer
Group"). The table below assumes $100 was invested at the close of trading on
December 31, 1996 in DX common stock, S&P 500, SNL Financial REIT and Peer
Group.
Comparative Five-Year Total Returns *
DX, S&P 500, SNL Financial REIT, Peer Group
(Performance Results through December 31, 2001)
[GRAPH]
--------------- ------------- ------------- ------------- -------------- -------------
1996 1997 1998 1999 2000 2001
----------------------------- --------------- ------------- ------------- ------------- -------------- -------------
DX 100.00 99.21 37.66 13.10 2.04 4.27
----------------------------- --------------- ------------- ------------- ------------- -------------- -------------
S&P 500 100.00 133.37 171.44 207.52 188.62 166.22
----------------------------- --------------- ------------- ------------- ------------- -------------- -------------
SNL Financial REIT 100.00 115.58 104.95 98.37 124.37 146.14
----------------------------- --------------- ------------- ------------- ------------- -------------- -------------
Peer Group 100.00 124.00 84.12 57.12 68.66 120.38
----------------------------- --------------- ------------- ------------- ------------- -------------- -------------
* Cumulative total return assumes reinvestment of dividends. The source of this
information is SNL Financial L.C. The factual material is obtained from sources
believed to be reliable, but SNL Financial is not responsible for any errors or
omissions contained herein.
For the year 2000, the Company had used as its peer group the SNL Financial Real
Estate Investment Trust Index ("SNL Financial Index"). The SNL Financial Index
is primarily comprised of companies that are equity real estate investment
trusts. For the year 2001, the Company changed its peer group to the SNL All MBS
REIT Index ("SNL MBS Index") which is primarily comprised of companies that are
real estate investment trusts with mortgage backed securities. The companies
that are compared in the SNL MBS Index more closely match the Company.
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, 2002. Holders of the
common stock of the Company 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 recommends a vote FOR the proposal to approve Deloitte & Touche LLP as
the Company's auditors for the year ended December 31, 2002.
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, 2001 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 by Deloitte for
information technology services relating to financial information systems design
and implementation during 2001.
ALL OTHER FEES
The aggregate fees billed by Deloitte for services rendered to the
Company, other than the services described above for the fiscal year ended
December 31, 2001, were approximately $37,450.
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 2002 will 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 for all matters upon which holders of the common stock are
entitled to vote. 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 for the matter upon which holders of the preferred stock are entitled to
vote. 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 2003
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
December 13, 2002. Any proposals of Stockholders to be presented at the 2003
Annual Meeting which are delivered to the Company later than February 26, 2003
will be voted by the proxy holders designated for the 2003 Annual Meeting in
their discretion.
By the order of the Board of Directors
Thomas H. Potts
President
April 10, 2002
SUPPLEMENT TO PROXY STATEMENT
-----------------------------
Subsequent to the printing but prior to the distribution to shareholders
of the Company's Proxy Statement, the Company received a request from a holder
of the Company's Preferred Stock to be included in the Company's Proxy Statement
as a preferred stock director nominee. As a result of this request, certain
sections of the Proxy Statement are being amended as set forth below.
Letter to Stockholders from the President
The last sentence of paragraph three shall be deleted in its entirety and the
following inserted in lieu thereof:
"If you are a preferred stockholder and desire to vote your shares of
preferred stock for any of the preferred nominees, you must mark your votes on
the preferred proxy card in the enclosed postage-paid envelope in order to
record your vote."
Election of Directors - General
The third to last sentence of the paragraph titled "Preferred Stock Directors"
shall be deleted in its entirety and the following inserted in lieu thereof:
"Mr. Felman, Mr. Igdaloff and Thomas B. Akin have been nominated for
election by the holders of preferred stock to the Board of Directors at the
Annual Meeting."
Election of Directors--Preferred Stock Director Nominees
A new paragraph shall be added to the section that reads "Preferred Stock
Director Nominees" to read as follows:
"Thomas B. Akin, 49, has served as the managing general partner of Talkot
Capital located in Sausalito, California since 1995. Talkot Capital is the
general partner for various limited partnerships investing in both private and
public companies. From 1991 to 1994, Mr. Akin was the managing director of the
Western United States for Merrill Lynch Institutional Services. Mr. Akin had
been the regional director of the San Francisco and Los Angeles regions for ML
Institutional Services from 1981 to 1991. Prior to Merrill Lynch, Mr. Akin was
an employee of Salomon Brothers from 1978 to his departure in 1981. Mr. Akin is
currently on the Board of Acacia Research, Inc. and Combimatrix, a private
biotech company. Mr. Akin also serves on the compensation committee of Acacia
Research and the audit committee and compensation committee of Combimatrix. Mr.
Akin attended the University of California at Santa Cruz from 1970 to 1974 and
holds a B.A. in Biology. From 1976 to 1978 Mr. Akin studied at the University of
California at Los Angeles for an MBA in Finance."
FORM OF COMMON PROXY
Dynex Capital, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Potts and Stephen J. Benedetti,
and each of them as proxies of the undersigned, with full power of substitution,
and authorizes each of them to represent the undersigned and to vote, as
designated on this card, all the shares of common stock of Dynex Capital, Inc.
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
to be held at The Place At Innsbrook, 4036 Cox Road, Glen Allen, Virginia, on
Tuesday, May 14, 2002 at 2:00 p.m. Eastern Time, or any adjournment or
postponement thereof, upon the matters set forth in the Notice of Annual
Meeting, and the related proxy statement, a copy of which has been received by
the undersigned, and in their discretion upon any adjournments or postponements
of the meeting.
The Board of Directors recommends a vote FOR Proposals 1and 2.
1. Election of Directors
J. Sidney Davenport |_| FOR |_| AGAINST |_| ABSTAIN
Thomas H. Potts |_| FOR |_| AGAINST |_| ABSTAIN
Barry S. Shein |_| FOR |_| AGAINST |_| ABSTAIN
Donald B. Vaden |_| FOR |_| AGAINST |_| ABSTAIN
2. Proposal to ratify the appointment of Deloitte & Touche LLP, independent
certified public accountants, as auditors of the Company.
|_| FOR |_| AGAINST |_| ABSTAIN
If no direction is made, this proxy will be voted FOR each of the nominees
listed under Proposal 1 and FOR Proposal 2.
In their discretion, the proxies are authorized to vote upon other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder.
Please sign exactly as the name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, guardian or agent, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Date: ____________________________, 2002
[NAME OF RECORD HOLDER INSERTED HERE] _________________________________________
Signature
_________________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
FORM OF PREFERRED PROXY
Dynex Capital, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Potts and Stephen J. Benedetti
and each of them as proxies of the undersigned (the "Proxies"), with full power
of substitution, and authorizes each of them to represent and vote all shares of
Preferred Stock of Dynex Capital, Inc. held by the undersigned (the "Preferred
Shares") as directed in connection with the election of the preferred directors
at the Annual Meeting of Stockholders to be held at The Place At Innsbrook, 4036
Cox Road, Glen Allen, Virginia, on Tuesday, May 14, 2002 at 2:00 p.m. Eastern
Time or at any adjournments or postponements thereof.
Please instruct the Proxies how to vote your shares for either one or two
of the nominees listed below by placing an "X" in the appropriate box(es). Do
not mark more than one box for each nominee. Do not vote "FOR" more than two
nominees. Preferred Proxy Cards not properly completed will not be counted.
2. Election of Directors
Leon A. Felman |_| FOR |_| AGAINST |_| ABSTAIN
Barry Igdaloff |_| FOR |_| AGAINST |_| ABSTAIN
Thomas B. Akin |_| FOR |_| AGAINST |_| ABSTAIN
When properly executed, this Preferred Proxy Card will cause the Proxies to vote
the Preferred Shares in the manner directed on this Proxy Card by the
undersigned. If no direction is given or if this Preferred Proxy Card is not
completed in accordance with its instructions, the Proxies will abstain from
voting the Preferred Shares.
Please sign exactly as the name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, guardian or agent, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Date: ____________________________, 2002
[NAME OF RECORD HOLDER INSERTED HERE] _________________________________________
Signature
_________________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.