Dynex Capital, Inc.
- -------------------------------------------------------------------------------
Notice of Annual Meeting of Stockholders
and
Proxy Statement
- -------------------------------------------------------------------------------
Annual Meeting of Stockholders
June 15, 1999
<PAGE>
DYNEX CAPITAL, INC.
April 30, 1999
To Our Stockholders:
You are cordially invited to attend the 1999 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, June 15, 1999, 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.
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
<PAGE>
DYNEX CAPITAL, INC.
10900 Nuckols Road
Glen Allen, Virginia 23060
(804) 217-5800
____________________________
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, June 15, 1999, 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; and
3. Such other business as may properly come before the Annual Meeting.
Only stockholders of record at the close of business on April 9, 1999, 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
Lynn K. Geurin
Secretary
Dated: April 30, 1999
<PAGE>
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 mile to the first 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 0.5 miles. Turn right at The Place entrance.
Directions from the 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 mile to the first 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 0.5 miles. Turn right at The
Place entrance.
Directions from the South or Downtown: Take Interstate 64 West to
Interstate 295 towards Washington. Take the first exit - Nuckols Road South.
Travel approximately 1.0 mile to the first 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 0.5 miles. Turn right at The Place
entrance.
<PAGE>
DYNEX CAPITAL, INC.
10900 Nuckols Road
Glen Allen, Virginia 23060
(804) 217-5800
____________________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
June 15, 1999
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, June 15,
1999 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 30, 1999.
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 9, 1999, the record date, are entitled to notice of, and to vote at, the
Annual Meeting. On that date 46,034,814 shares of common stock were outstanding.
Each share of common stock outstanding on the record date is entitled to one
vote on each matter presented at the Annual Meeting. The presence, in person or
by proxy, of stockholders 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.
Voting of Proxies
Shares of common 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. Unless contrary instructions are indicated on
the proxy, the shares will be voted FOR the election of the nominees named in
this Proxy Statement as Directors, and FOR the appointment of Deloitte & Touche
LLP as the Company's auditors.
The management and the Board of Directors of the Company know of no matters
to be brought before the Annual Meeting other than as set forth herein; no
stockholder proposals were received by the Company for inclusion of such
proposals in this Proxy Statement.
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, 1998, 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
Five Directors of the Company, constituting the entire Board of Directors,
are to be elected at the 1999 Annual Meeting to serve until the next annual
meeting and until their successors are elected and duly qualified. Mr. J. Sidney
Davenport, Mr. Richard C. Leone, 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. Unless authorization is withheld,
the persons named as proxies will vote FOR the election of the nominees of the
Board of Directors named above. 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; Board Recommendation
The five directors will be elected by a favorable vote of a plurality of
the shares of stock represented and entitled to vote, 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 five 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 five directors.
J. Sidney Davenport, 57, 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.
Richard C. Leone, 58, has been a Director of the Company since January
1988. He currently is the President of The Century Foundation, formerly The
Twentieth Century Fund, Inc., a tax-exempt research foundation engaged in
economic, political and social policy studies. Mr. Leone is also a Director of
seven Dreyfus mutual funds.
Thomas H. Potts, 49, 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, and previously Senior Vice President
of Ryland Mortgage Company from April 1991 until April 1992. 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, 58, 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, 64, 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.
Information Concerning the Board of Directors
Paul S. Reid resigned as a member of the Board of Directors of the Company,
effective as of January 22, 1999. Mr. Reid resigned from the Board as a result
of taking a position as the Executive Vice President of the Mortgage Bankers
Association. The remaining members of the Board of Directors did not fill the
vacancy created by Mr. Reid and the number of directors was reduced to five from
six.
The members of the Audit Committee during 1998 were Mr. Davenport, Mr. Reid
and Mr. Vaden. The Audit Committee reviews and approves the scope of the annual
audit undertaken by the Company's independent certified public accountants,
which is out-sourced to PricewaterhouseCoopers LLP, 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 three regular meetings
in 1998. The Board of Directors also had a Compensation Committee during 1998
with the members being Mr. Davenport, Mr. Leone, Mr. Reid and Mr. Vaden. The
Compensation Committee met two times in 1998. The Company has no other standing
committees of the Board of Directors.
The Board of Directors held four regular meetings and eight special
meetings in 1998. 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 7,000 Stock Appreciation Rights ("SARs"). Under the Directors
Plan, new Directors receive an initial grant of 5,000 SARs. Subsequent to these
initial grants, eligible Directors are granted 2,000 SARs annually through May
1, 1998. The exercise price of the SARs is equal to the market value of the
Company's common stock on the date of each grant. The SARs may be settled only
in cash. As authorized by the Directors Plan, on May 1, 1998, each eligible
Director received a grant of 2,000 SARs.
OWNERSHIP OF COMMON STOCK
The table below sets forth, as of December 31, 1998, the number of shares
of common stock beneficially owned by owners of more than five percent of the
Company's common stock outstanding, each Director of the Company, the President,
each of the other four executive officers 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 common stock. Unless otherwise indicated, all persons
named as beneficial owners of common stock have sole voting power and sole
investment power with respect to the shares beneficially owned. The address of
each Director of the Company is the same as the Company's address.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Common Stock
<S> <C> <C>
J. Sidney Davenport 101,424 *
Richard C. Leone 3,200 (1) *
Thomas H. Potts 1,623,441 (2) 3.48%
Paul S. Reid 5,682 *
Donald B. Vaden 31,192 (3) *
Lynn K. Geurin 37,169 (4) *
William J. Moore 2,551 *
William Robertson 5,844 (5) *
Barry S. Shein 4,000 *
William H. West, Jr. 8,930 *
Wellington Management Company, LLP (6) 4,119,000 8.83%
Wallace R. Weitz & Co. (7) 2,809,650 6.03%
All Directors and executive officers as a group 1,823,433 3.91%
- --------------------------------------------------------------------------------------------------------------------------
<FN>
* Less than 1% of the outstanding shares of common stock.
(1) Includes 600 shares of common stock owned of record by such person's
children.
(2) Includes 28,660 shares of common stock owned of record by such person's
children and spouse.
(3) Includes 2,330 shares of common stock owned of record by such person's
spouse.
(4) Includes 2,000 shares of common stock owned of record by such person's
spouse.
(5) Includes 3,460 shares of common stock owned of record by such person's
children and spouse.
(6) Address: 75 State Street, 19th Floor, Boston, Massachusetts 02109. Shares
are held by various clients of Wellington Management, each having power to
dispose thereof.
(7) Address: 1125 South 103rd Street, Suite 600, Omaha, NE 68124-6008. Shares
are held with sole power to dispose thereof.
</FN>
</TABLE>
MANAGEMENT OF THE COMPANY
The executive officers of the Company and their positions are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) Held
<S> <C> <C>
Thomas H. Potts 49 Director and President
Lynn K. Geurin 42 Executive Vice President, Chief Financial Officer, Secretary
Brian K. Murray 41 Senior Vice President
William Robertson 54 Executive Vice President
William H. West, Jr. 35 Executive Vice President
</TABLE>
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 officers of the Company is set forth
below:
Lynn K. Geurin has served as Executive Vice President and Chief Financial
Officer of the Company since April 1992 and Secretary since February 1995. From
December 1987 until April 1992, Ms. Geurin served as Secretary and Treasurer of
the Company. From September 1987 until June 1992, she also served as Controller
of Ryland Acceptance and its subsidiaries. Ms. Geurin served as Secretary and
Treasurer of Mentor Income Fund, Inc. from December 1988 until June 1992.
Brian K. Murray has served as Senior Vice President, Specialty Finance
Lending, since October 1997. From 1992 until 1997, Mr. Murray served as the
Treasurer of the Company. From 1987 until joining the Company, Mr. Murray served
as the Assistant Treasurer of The Ryland Group, Inc. Mr. Murray served as a
supervising senior accountant at KPMG Peat Marwick LLP from 1981 to 1985.
William Robertson has served as Executive Vice President, Manufactured
Housing Lending, since November 1995. From 1993 until joining the Company in
1995, Mr. Robertson served as Senior Vice President for Household Financial
Services. From 1992 until 1993, Mr. Robertson served as Vice President of ITT
Consumer Financial Corporation. From 1989 until 1992, he served as Vice
President of Residential Mortgage Operations for Chemical Bank.
William H. West, Jr. has served as Executive Vice President, Portfolio
Management, since July 1996. Since January 1999, Mr. West has also served as
Executive Vice President of Commercial Real Estate Lending. From October 1995
until June 1996, Mr. West served as Managing Director and Co-Head of the Fixed
Asset Income Investment department at Mentor Investment Group, a unit of Wheat
First Union. From August 1993 until October 1995, he served as Vice
President/Portfolio Manager at Mentor Investment Group. From December 1990 until
August 1993, he served as Vice President/Portfolio Manager for Ryland Capital
Management.
In July 1995, the Securities and Exchange Commission ("SEC") approved the
settlement of its investigation with respect to a 1992 purchase of the Company's
common stock by the Company's President, Thomas H. Potts. In connection with
such settlement, the SEC filed a complaint in the United States District Court
for the District of Maryland, and Mr. Potts agreed to (i) entry of an injunction
permanently enjoining him from violating Section 10(b) of the Act, (ii) pay a
civil penalty, and (iii) disgorge the implied profit on the purchase plus
interest. The Company concurs with Mr. Potts' decision to settle this matter and
has full confidence in Mr. Potts. Mr. Potts has been a consistent purchaser of
the Company's stock throughout his tenure with the Company, has never sold
shares of the Company's stock and made the April 1992 purchases as a long-term
investor. The Company does not expect this settlement to have any impact on the
Company or the fulfillment of Mr. Potts' responsibilities as President.
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 1998, 1997 and 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
---------------------------------- All Other
Name and Annual Compensation (1) Restricted Stock SARs Compensation
-------------------------------
Principal Position Year Salary ($) Bonus ($) Award (#) (2) (#) (3) ($) (4)
- -------------------------- -------- -------------- --------------- ------------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Potts 1998 $310,000 $0 - 55,910 $30,948
President and 1997 299,000 228,000 - 58,040 46,447
Director
1996 293,333 220,000 - 58,036 257,648
Lynn K. Geurin 1998 166,667 90,716 - 18,860 39,113
Executive Vice 1997 156,667 104,810 - 19,340 30,500
President
1996 143,333 104,275 10,440 18,136 54,271
William J. Moore (5) (6) 1998 169,191 77,625 - 13,015 37,331
Executive Vice 1997 154,667 100,000 - 11,390 19,838
President
1996 50,000 33,333 - - 5,320
William Robertson (5) 1998 166,667 97,856 - 11,315 38,755
Executive Vice 1997 156,667 79,900 - 11,610 15,611
President
1996 145,000 71,688 - 10,882 -
William H. West, Jr. (5) 1998 156,875 44,996 - 11,360 21,114
Executive Vice 1997 141,667 58,269 - 10,520 7,340
President
1996 67,500 31,725 - 5,600 -
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
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) As of December 31, 1998, Ms. Geurin holds 10,440 shares of restricted
stock valued at $48,285, which have been adjusted for the 2-for-1 stock
split, effective May 1997. As of December 31, 1998, 3,480 shares, which
is one-third of the shares, remain to be vested.
3) Stock Appreciation Rights ("SARs"). Amounts for 1996 have been adjusted
for the 2-for-1 stock split, effective May 1997.
4) Amounts for 1998 for Mr. Potts and Ms. Geurin consist of matching and
profit sharing contributions to the Company's Executive Deferred
Compensation Plan ("EDC Plan") and the Company's 401(k) Plan and 401(k)
Overflow Plan in the amount of $30,252 and $38,866, respectively. Amounts
for 1998 for Mr. Potts and Ms. Geurin also consist of Group Term
Life Insurance in the amount of $696 and $247, respectively. Amounts for
1998 for Mr. Moore, Mr. Robertson and Mr. West consist of matching and
profit sharing contributions to the 401(k) Plan and 401(k) Overflow
Plan in the amount of $36,117, $38,083 and $20,970, respectively.
Amounts for 1998 for Mr. Moore, Mr. Robertson and Mr. West also consist
of Group Term Life Insurance in the amount of $1,214, $672 and $144,
respectively.
5) Compensation for Mr. Moore and Mr. West reflects salary from their dates
of hire, which were August 31, 1996 and July 1, 1996, respectively.
6) William J. Moore had served as Executive Vice President, Commercial Real
Estate Lending, since September 1996. Mr. Moore retired as an officer of
the Company, effective as of January 29, 1999.
</FN>
</TABLE>
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 1998 and held by the Named Officers at December 31, 1998
(distinguishing between SARs that are exercisable as of December 31, 1998 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,
1998.
<TABLE>
<CAPTION>
Value of Unexercised
SARs Exercised Number of Unexercised in-the-money
in 1998 SARs at 12-31-98 SARs at 12-31-98 (1) (2)
------------------------------ ----------------------------------- -------------------------------------
Number Value
of SARs Realized Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- -------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Potts - $ - 148,620 183,996 $186,308 $268,298
Lynn K. Geurin 20,000 (1) 275,756 45,234 58,572 56,026 81,857
William J. Moore - - 2,278 26,683 820 11,580
William Robertson - - 6,675 27,132 4,672 21,361
William H. West, - - 4,344 23,136 2,361 14,830
Jr.
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
1) Includes related DERs.
2) Based on the closing price ($4.625) on the New York Stock Exchange ("NYSE")
of the Company's common stock on that date.
</FN>
</TABLE>
SAR Grants In Last Fiscal Year
The following table provides information related to SARs granted to the
Named Officers during fiscal 1998.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Percentage of Potential Realizable Value
Total SARs at Assumed Annual Rates
Number of Granted to Exercise of Stock Price Appreciation
SARs Employees in Price Expiration for SAR Term (1)
------------------------------
Name Granted (2) Fiscal 1998 ($ per share) Date 5% ($) 10% ($)
- ------------------ ------------- ---------------- --------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Potts 55,910 25.87% $11.750 12/2004 $142,291 $193,840
Lynn K. Geurin 18,860 8.73% 11.750 12/2004 47,999 65,388
William J. Moore 13,015 6.02% 11.750 12/2004 33,123 45,123
William Robertson 11,315 5.24% 11.750 12/2004 28,797 39,229
William H. West, 11,360 5.26% 11.750 12/2004 28,911 39,385
Jr.
<FN>
1) Excludes any value relative to the DERs associated with the SARs, except
for DERs accrued as of December 31, 1998. However, the SARs will continue
to accrue DERs over the period until exercise or expiration. The number
of DERs that accrue on a SAR is based on the amount by which the dividends
paid on common stock during the accrual period exceed a benchmark
established by the Compensation Committee for such period. Each DER
is equivalent to an additional SAR with the same exercise price as the
SAR to which it is related. As of December 31, 1998, there were 22.1 DERs
accrued per 1,000 SARs. Each such DER is convertible into one additional
SAR and had a value of $0.10 at December 31, 1998. Assuming 5% and 10%
annual rates of stock price appreciation over the SAR term from the SAR
grant date, at the expiration date each such DER would have a value of
$2.55 and $3.47, respectively.
2) The SARs, which were granted under the Company's Incentive Plan and
have an exercise price equal to the closing price of the Company's common
stock on the NYSE on the date of grant, become exercisable in annual 20%
increments from the date of grant.
</FN>
</TABLE>
Employment Agreements
Mr. Potts has entered into an employment agreement with the Company,
effective September 30, 1994. The employment agreement has a term of seven
years. 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.
Mr. Moore entered into an employment agreement with the Company, effective
as of August 31, 1996. On January 29, 1999, Mr. Moore retired from the Company.
At that time, Mr. Moore submitted his resignation whereby his employment
agreement with the Company terminated.
The Company has no other employment agreements with its executive officers.
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 believes that executive compensation should
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 are (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 is based on three principal components: base
salary, annual bonus, and SARs (and related DERs) granted under the Company's
Incentive Plan. The base salaries of executive officers, including Mr. Potts,
are determined annually by the Compensation Committee. Base salary is intended
to be set at a level competitive with the amounts paid to the management of
companies with similar business structure, size and marketplace orientation,
with additional emphasis on professional experience.
In accordance with the Company's philosophy that the compensation package
of the executive officers be directly and materially linked to operating
performance and the total return of the Company's common stock, the bonus
component of annual compensation is directly tied to the achievement of
pre-established target earnings per share goals established by the Compensation
Committee. In addition, the payment of a portion of the annual bonus for each
executive officer, except Mr. Potts, depends upon the attainment of planned
objectives established at the beginning of the year specifically for that
executive. Whether or not an executive officer earns a bonus in any year is
determined based upon the achievement of these earnings goals and specific
objectives. Partial bonuses may be awarded for partial completion of planned
objectives and the achievement of earnings above a minimum level but lower than
the target. For executive officers, the maximum percentage of base salary
payable as bonus ranges from 50% to 75%. Mr. Potts' maximum potential bonus,
which is based solely on earnings per share targets pre-established by the
Compensation Committee, is 75% of base salary. Mr. Potts' compensation is
heavily weighted toward attainment of long-term value through the Incentive Plan
awards. Each year the President establishes bonus programs for all executive
officers (other than himself) in the first quarter. The Compensation Committee
reviews and approves the plans at their annual Compensation Committee meeting.
In 1998, partial bonuses were paid in respect of achievement of earnings per
share goals above the minimum level but below the target and for full or partial
attainment of planned objectives.
The Company also uses SARs and related DERs to align the long-range
interest of its executive officers with the interests of stockholders. The
amount of SARs that are granted to executive officers is determined by the
Compensation Committee, taking into consideration the officer's position with
the Company, overall individual performance, and an estimate of the long-term
value of the SARs and related DERs in light of the officer's current base
salary. The Compensation Committee applies its collective judgment to determine
the grants appropriate under the Incentive Plan, with emphasis placed on the
anticipated long-term value of the award considering current base salary. As
noted above, a larger percentage of Mr. Potts' overall compensation package is
comprised of grants of SARs and related DERs reflecting the Compensation
Committee's view that compensation for the President should depend heavily on
the long-term total return performance of the Company's common stock.
Section 162(m) of the Internal Revenue Code ("Code") limits deductibility
of compensation for the Chief Executive Officer and the additional four
executive officers who are the most highly paid and employed at year end to $1
million per year per individual, effective for tax years beginning on or after
January 1, 1994. If certain conditions are met, some compensation may be
excluded from consideration in computing the $1 million limit. One of such
conditions is that a committee composed solely of "outside" directors as defined
in the Code be appointed to consider and approve compensation intended to
qualify for exclusion from the $1 million limit. Therefore, the Compensation
Committee has established a subcommittee satisfying these requirements. The
Compensation Committee will review and may ratify the recommendations of such
subcommittee. As a result of the exercise of certain SARs during 1997, Mr. Potts
received compensation in excess of $1 million in 1997, which was fully
deductible by the Company. To date, no other executive officer has received
compensation in excess of $1 million per year. The policy of the Compensation
Committee relative to this provision of the Code is to establish and maintain a
compensation program which maximizes the creation of long-term stockholder
value.
The Company's Incentive Plan and the Company's Bonus Plan provide for
certain executive officers and key employees to meet the conditions necessary
for compensation paid pursuant to those plans to be excluded from consideration
in computing the $1 million limit. It must be noted, however, that the
Compensation Committee is obligated to the Board of Directors and the
stockholders of the Company to recognize and reward performance which increases
the value of the Company. Accordingly, the Compensation Committee will continue
to exercise discretion in those instances where the mechanistic approaches
necessary under tax law considerations would compromise the interests of
stockholders.
Richard C. Leone, Chairman
J. Sidney Davenport
Donald B. Vaden
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 1998 were Mr. Davenport,
Mr. Leone, Mr. Reid, and Mr. Vaden.
Mr. Davenport served as an officer of The Ryland Group, Inc. ("Ryland")
until January 1998. During 1998, the Company acquired model homes from Ryland
for an aggregate purchase price of $6,981,390.
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 1998 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 1998.
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 Value Line, Inc. Real Estate Investment Trust Index (the
"Peer Group"). The table below assumes $100 was invested at the close of trading
on December 31, 1993 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, 1998)
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
------------- ------------- --------------- -------------- -------------- --------------
1993 1994 1995 1996 1997 1998
----------------- ------------- ------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
DX $ 100.00 42.41 87.28 140.78 143.05 54.30
----------------- ------------- ------------- --------------- -------------- -------------- --------------
S&P 500 $ 100.00 101.60 139.71 172.18 229.65 294.87
----------------- ------------- ------------- --------------- -------------- -------------- --------------
Peer Group $ 100.00 108.66 126.65 176.09 206.72 149.06
----------------- ------------- ------------- --------------- -------------- -------------- --------------
<FN>
* Cumulative total return assumes reinvestment of dividends. The source of
this information is Value Line, Inc. The factual material is obtained from
sources believed to be reliable, but Value Line, Inc. is not responsible for any
errors or omissions contained herein.
</FN>
</TABLE>
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, 1999. 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.
On July 21, 1998, the Audit Committee of the Company approved the
appointment of Deloitte as the independent auditors for the year ending December
31, 1998 to replace KPMG Peat Marwick LLP ("KPMG"), who were dismissed as the
independent accountants effective with such appointment.
The reports of the independent public accountants on the Company's
consolidated financial statements for each of the two years ended December 31,
1998 and 1997 did not contain an adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with the audits of the Company's consolidated
financial statements for the two years ended December 31, 1998 and 1997, there
have been no disagreements between the Company and Deloitte or KPMG on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which, if not resolved to the satisfaction of
Deloitte or KPMG, would have caused them to make reference thereto in their
report on the financial statements for such years.
During the two fiscal years ended December 31, 1998 and 1997, the Company
has not consulted with Deloitte or KPMG regarding either (i) the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements; or (ii) any matter that was either the subject of a disagreement, as
that term is defined in Item 304 (a) (1) (iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a) (1) (v) of Regulation S-K.
The Board recommends a vote FOR the proposal to approve Deloitte & Touche
LLP as the Company's auditors for the year ended December 31, 1999.
<PAGE>
VOTES REQUIRED TO ADOPT RESOLUTIONS
The election of Directors requires a plurality of votes cast at the
meeting.
The following principles of Virginia law apply to the voting of shares of
common 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. 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 2000 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
31, 1999. Any proposals of Stockholders to be presented at the 2000 Annual
Meeting which are delivered to the Company later than March 16, 2000 will be
voted by the proxy holders designated for the 2000 Annual Meeting in their
discretion.
By the order of the Board of Directors
Thomas H. Potts
President
April 30, 1999
