Preliminary Proxy
1
Dynex Capital, Inc.
Notice of Special Meeting of Preferred Stockholders
and
Proxy Statement
Special Meeting of Preferred Stockholders
November 14, 2000
DYNEX CAPITAL, INC.
October , 2000
To Our Preferred Stockholders:
You are cordially invited to attend a Special Meeting of the Series A,
Series B and Series C Preferred Stockholders ("Preferred Stockholders") of Dynex
Capital, Inc. (the "Company") to be held in The Atrium at the Highwoods I
building located at 10900 Nuckols Road, Glen Allen, Virginia on Tuesday,
November 14, at 2:00 p.m. Eastern time. The Special Meeting has been called at
the request of a Preferred Stockholder in accordance with Article IIIC, Section
9(a) of the Company's Articles of Incorporation, as amended.
The business of the meeting is to consider and act upon the election of two
additional directors to the Board of Directors of the Company, each for a term
ending on the earlier of (i) 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 have been arrears on six
quarterly dividends on Series A, Series B or Series C Preferred Stock), and (ii)
the next annual meeting of the stockholders of the Company.
While Preferred Stockholders may exercise their right to vote their shares
in person, we recognize that many Preferred Stockholders may not be able to
attend the Special Meeting. Accordingly, we have enclosed a proxy which will
enable you to vote your shares on the matter to be considered at the Special
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.
Sincerely,
Thomas H. Potts
President
DYNEX CAPITAL, INC.
4551 Cox Road
Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
____________________________
NOTICE OF SPECIAL MEETING
OF PREFERRED STOCKHOLDERS
To Our Preferred Stockholders:
A Special Meeting of Dynex Capital, Inc. (the "Company") will be held in
The Atrium at the Highwoods I building located at 10900 Nuckols Road, Glen
Allen, Virginia on Tuesday, November 14, 2000, at 2:00 p.m. Eastern time. The
Special Meeting has been called at the request of a Preferred Stockholder in
accordance with Article IIIC Section 9(a) of the Company's Articles of
Incorporation, as amended, for the following purpose:
1. To elect two additional directors to the Board of Directors of the
Company, each for a term ending on the earlier of (a) 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 have been
arrears on six quarterly dividends on Series A, Series B or Series C Preferred
Stock), and (b) the next annual meeting of the stockholders of the Company.
Only Preferred Stockholders of record at the close of business on October
13, 2000, the record date, will be entitled to vote at the Special Meeting. A
list of Preferred Stockholders entitled to vote will be available for inspection
at the offices of the Company at 4551 Cox Road, Suite 300, Glen Allen, Virginia
23060, for ten days prior to the Special Meeting.
The Board of Directors of the Company has not designated any nominees.
Management desires to have maximum representation at the Special Meeting and
respectfully requests that you date, execute and promptly mail the enclosed
proxy in the accompanying postage-paid envelope whether or not you expect to
attend the meeting in person. A proxy may be revoked by a Preferred 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 Special Meeting
and voting in person.
By order of the Board of Directors
Stephen J. Benedetti
Secretary
Dated: October , 2000
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
0.3 mile. Turn left at first light. Turn right into the parking lot of the
Highwoods I building. The Atrium is located on the first floor.
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 0.3 mile. Turn left at first light. Turn right into
the parking lot of the Highwoods I building. The Atrium is located on the first
floor.
Directions from the South or Downtown: Take Interstate 64 West to
Interstate 295 towards Washington. Take the first exit - Nuckols Road South.
Travel approximately 0.3 mile. Turn left at first light. Turn right into the
parking lot of the Highwoods I building. The Atrium is located on the first
floor.
DYNEX CAPITAL, INC.
4551 Cox Road
Glen Allen, Virginia 23060
(804) 217-5800
____________________________
PROXY STATEMENT
SPECIAL MEETING OF PREFERRED STOCKHOLDERS
November 14, 2000
To Our Preferred 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
Special Meeting of Preferred Stockholders of the Company to be held in The
Atrium at the Highwoods I building located at 10900 Nuckols Road, Glen Allen,
Virginia. The Special Meeting is being held for the purpose set forth in the
accompanying notice of Special Meeting of Preferred Stockholders. This Proxy
Statement, the accompanying proxy card and the notice of Special Meeting are
being provided to Preferred Stockholders beginning on or about October 20, 2000.
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 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 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 preferred stock at the close of business
on October 13, 2000, the record date, are entitled to notice of, and to vote at,
the Special Meeting. The following table sets forth the number of shares of each
class of preferred stock outstanding as of October 13, 2000 and the votes
applicable to each such class:
<TABLE>
<CAPTION>
Class Aggregate # of Shares Aggregate # of Votes Votes per Share
<S> <C> <C> <C> <C> <C>
Series A Cumulative Convertible Preferred 1,309,061 1,047,249 0.8000
Stock ("Series A Preferred Stock")
Series B Cumulative Convertible Preferred 1,912,434 1,561,821 0.8167
Stock ("Series B Preferred Stock")
Series C Cumulative Convertible Preferred 1,840,000 1,840,000 1.0000
Stock ("Series C Preferred Stock")
</TABLE>
Pursuant to the Company's Articles of Incorporation, each share of
preferred stock is entitled to one vote per $30 of stated liquidation preference
As of the record date, the liquidation preference of the Series C Preferred
Stock was $30.00 per share, the liquidation preference of the Series B Preferred
Stock was $24.50 per share, and the liquidation preference of the Series A
Preferred Stock was $24.00 per share. Accordingly, holders of Series A Preferred
Stock will be entitled to 0.8000 votes per share, holders of Series B Preferred
Stock will be entitled to 0.8167 votes per share, and holders of Series C
Preferred Stock will be entitled to 1.0000 vote per share. The presence, in
person or by proxy, of Preferred Stockholders entitled to cast a majority of all
the votes entitled to be cast constitutes a quorum for the transaction of
business at the Special Meeting. The beneficial ownership of each class of the
Company's outstanding stock held by the directors, the nominees, certain
executive officers and holders of 5% or more of any class of stock outstanding
is set forth in the Proxy Statement under the caption "Ownership of Stock".
Voting of Proxies
Shares of preferred stock represented by all properly executed proxies
received in time for the Special 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. No other matters may be brought before the
Special Meeting other than as set forth herein.
Revocability of Proxy
The giving of the enclosed proxy does not preclude the right to vote in
person should the Preferred Stockholder delivering 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 Special Meeting and voting in person.
ELECTION OF DIRECTORS
General
Two additional directors are to be elected to the Board of Directors at the
Special Meeting to serve for a term ending on the earlier of (a) 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 have been arrears on six quarterly dividends on Series A, Series B or Series
C Preferred Stock), and (b) the next annual meeting of the stockholders of the
Company. Mr. Leon A. Felman and Mr. Barry Igdaloff have been nominated by the
holders of the preferred stock for election to the Board of Directors at the
Special Meeting. Unless authorization is withheld, the persons named as proxies
will vote FOR the election of the nominees to the Board of Directors named
above. Each nominee has agreed to serve if elected. Selected biographical
information regarding each nominee is set forth below.
Vote Required
The two additional directors will be elected by a plurality of the votes
per share of preferred stock represented and entitled to vote, in person or by
proxy, at the Special Meeting. Accordingly, abstentions or broker non-votes per
share as to the election of directors will not affect the election of candidates
receiving the plurality of votes per share. Unless instructed to the contrary,
the preferred votes per share represented by the proxies will be voted FOR the
election of each of the two nominees named below as directors. In no event will
the proxies be voted for more than two directors.
Nominees
Leon A. Felman, 65, 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 28 Arby's restaurants in the St. Louis, Missouri metropolitan area. Mr.
Felman graduated from Carnegie Institute of Technology with a B.S. in Industrial
Administration.
Barry Igdaloff, 45, 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.Biographical information regarding the other directors of the Company
is set forth below:
J. Sidney Davenport, 58, 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, 50, has been President and a Director of the Company since
its organization in December 1987. Prior to that, Mr. Potts served in various
positions on behalf of The Ryland Group, Inc. Mr. Potts served as Treasurer of
The Ryland Group, Inc. from May 1987 until April 1992, Executive Vice President
of Ryland Acceptance Corporation ("Ryland Acceptance") from November 1987 until
April 1992, and Executive Vice President of Ryland Mortgage Company from April
1991 until April 1992, and previously Senior Vice President. Mr. Potts also
served as President and Director of Mentor Income Fund, Inc. from its inception
in December 1988 until June 1992.
Barry S. Shein, 60, 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, 65, 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
Mr. Richard C. Leone resigned as a member of the Board of Directors of the
Company, effective as of March 6, 2000. The remaining members of the Board of
Directors did not fill the vacancy created by Mr. Leone and the number of
directors was reduced to four from five.
The members of the Audit Committee during 1999 were Mr. Davenport, Mr.
Shein and Mr. Vaden. The Audit Committee reviews and approves the scope of the
annual internal audit undertaken by the Company's independent certified public
accountants, which is out-sourced to PricewaterhouseCoopers LLP
("Pricewaterhouse"), 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 annual internal audit performed by Pricewaterhouse is in addition to the
annual audit performed by the Company's independent certified public
accountants, Deloitte & Touche LLP. The Audit Committee held three regular
meetings in 1999. The Board of Directors also had a Compensation Committee
during 1999 with the members being Mr. Davenport, Mr. Leone, Mr. Vaden and Mr.
Shein. The Compensation Committee met three times in 1999. The Company has no
other standing committees of the Board of Directors.
The Board of Directors held four regular meetings and thirteen special
meetings in 1999. 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.
OWNERSHIP OF STOCK
The table below sets forth, as of September 30, 2000, the number of shares
of common and preferred stock beneficially owned by owners of more than five
percent of the Company's stock outstanding for each class, each director,
nominee and executive officer of the Company, and the number of shares
beneficially owned by all of the Company's directors, nominees 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Series A Series B Series C Percent of Percent of
Name of Beneficial Owner Common Preferred Preferred Preferred Common Stock Preferred Stock*
J. Sidney Davenport 25,356 - - - 0.22% -
Thomas H. Potts 408,579 (1) - - - 3.57% -
Donald B. Vaden 7,798 (2) - - - 0.07% -
Barry S. Shein 0 - - - 0.0% -
Leon A. Felman 11,570 (3) - - 23,828 (4) 0.10% .54%
Barry Igdaloff 42,700 (5) 62,000 (6) 61,000 (7) 52,500 (8) 0.37% 3.41%
California Investment Fund, LLC 572,178 (9) - - - 5.00% -
Talkot Crossover Fund, L.P. and 758,625 (10) 32,200 52,200 23,200 6.63% 2.05%
Thomas B. Akin, as a group
Wallace R. Weitz and Company 1,504,113 (11) - - - 13.14% -
All Directors, nominees and 496,003 62,000 61,000 76,328 4.33% 3.95%
executive officers as a group
*Based on liquidation preference of each series of preferred stock.
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes 9,077 shares of common stock owned of record by such person's
children and spouse.
(2) Includes 583 shares of common stock owned of record by such person's
spouse.
(3) Includes 87 shares of common stock owned of record by such person's
spouse; 3,150 shares of common stock owned of record by Homebaker Brand Profit
Sharing Plan of which Mr. Felman is the Trustee; and 1,340 shares of common
stock held of record by HLF Corporation of which Mr. Felman is an officer.
(4) Includes 240 shares of Series C Preferred Stock owned of record by Mr.
Felman's spouse; 9,450 shares of Series C Preferred Stock owned of record by
Homebaker Brand Profit Sharing Plan; 350 shares of Series C Preferred Stock
owned of record by Sage Systems, Inc. of which Mr. Felman is an officer and 980
shares of Series C Preferred Stock held of record by HLF Corporation.
(5) Includes 29,700 shares of common stock owned by clients of Rose Capital
of which Mr. Igdaloff is the sole proprietor.
(6) Includes 41,600 shares of Series A Preferred stock owned by clients of
Rose Capital.
(7) Includes 34,700 shares of Series B Preferred Stock owned by clients of
Rose Capital
(8) Includes 10,100 shares of Series C Preferred Stock owned by clients of
Rose Capital.
(9) Address: 550 West C Street, Suite 1000, San Diego, CA 92101. Shares are
held with the shared power to vote and dispose thereof.
(10) Address: 2400 Bridgeway, Suite 200, Sausalito, CA 94965.
(11) Address: 1125 South 103rd Street, Suite 600, Omaha, NE 68124-6008.
Shares are held with sole power to dispose thereof.
</FN>
</TABLE>
Executive Compensation
The Summary Compensation Table below includes individual compensation
information on the President and the four other most highly compensated
executive officers ("Named Officers") during 1999, 1998 and 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
Long-Term
Compensation Awards All Other
-------------------------
Name and Annual Compensation (1) SARs Compensation
-------------------------------
-------------------------------
Principal Position Year Salary ($) Bonus ($) (#) (2) ($) (3)
-------------------------- -------- -------------- --------------- ------------------------- --------------------
Thomas H. Potts 1999 $315,000 $0 (4) 34,815 $34,882
President and 1998 310,000 0 13,978 30,948
Director
1997 299,000 228,000 14,510 46,447
Lynn K. Geurin (5) 1999 170,000 0 (4) 11,743 30,155
Executive Vice 1998 166,667 90,716 4,715 39,113
President
1997 156,667 104,810 4,835 30,500
Brian K. Murray (6) 1999 119,808 70,000 5,803 24,345
Senior Vice President 1998 169,191 77,625 3,254 37,331
1997 154,667 100,000 2,848 19,838
William Robertson (7) 1999 170,000 0 0 47,154
Executive Vice 1998 166,667 97,856 2,829 38,755
President
1997 156,667 79,900 2,903 15,611
William H. West, Jr. (8) 1999 180,000 0 (4) 9,948 23,452
Executive Vice 1998 156,875 44,996 2,840 21,114
President
1997 141,667 58,269 2,630 7,340
<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) Stock Appreciation Rights ("SARs"). Amounts have been adjusted for the
1-for-4 stock split, effective August 1999.
3) Amounts for 1999 for Mr. Potts and Ms. Geurin consist of matching and
profit sharing contributions to the Company's 401(k) Plan and 401(k) Overflow
Plan in the amount of $34,030 and $29,932, respectively. Amounts for 1999 for
Mr. Potts and Ms. Geurin also consist of Group Term Life Insurance in the amount
of $852 and $223, respectively. Amounts for 1999 for Mr. Murray, 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 $24,223, $46,252 and $23,297
respectively. Amounts for 1999 for Mr. Murray, Mr. Robertson and Mr. West also
consist of Group Term Life Insurance in the amount of $122, $902 and $155,
respectively.
4) In lieu of cash bonus, the Compensation Committee awarded, during
January 2000, stock options to Mr. Potts, Ms. Geurin and Mr. West in the amount
of 94,500, 51,000 and 54,000, respectively. The stock options have a strike
price of $8.8125, a three-year term, and a vesting period of one year (which may
be reduced upon certain special circumstances).
5) Lynn K. Geurin had served as Executive Vice President and Chief
Executive Officer since April 1992. Ms. Geurin resigned as an officer of the
Company, effective May 5, 2000.
6) Brian K. Murray had served as Senior Vice President, Specialty Finance
Lending, since October 1997. Mr. Murray resigned as an officer of the Company,
effective as of November 11, 1999, commensurate with the sale of the Company's
model home business.
7) William Robertson had served as Executive Vice President, Manufactured
Housing Lending since November 1995. Mr. Robertson resigned as an officer of the
Company, effective as of December 17, 1999, commensurate with the sale of the
Company's manufactured housing lending business.
8) William H. West, Jr. has served as Executive Vice President, Portfolio
Management, since July 1996. Mr. West resigned as of officer of the Company,
effective May 19, 2000.
</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 1999 and held by the Named Officers at December 31, 1999
(distinguishing between SARs that are exercisable as of December 31, 1999 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,
1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Value of Unexercised
SARs Exercised Number of Unexercised in-the-money
in 1999 SARs at 12-31-99 SARs at 12-31-99 (1) (2)
------------------------------ ----------------------------------- -------------------------------------
Number Value
of SARs Realized Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- -------------- ---------------- ------------- -----------------
Thomas H. Potts 0 $0 52,463 65,507 $85,523 $24,819
Lynn K. Geurin 0 0 16,089 21,681 25,705 7,641
Brian K. Murray 6,642 13,653 - - - -
William Robertson 3,359 2,805 - - - -
William H. West, 0 0 2,460 14,358 1,680 1,873
Jr.
<FN>
1) Includes related DERs.
2) Based on the closing price of $6.44 on the New York Stock Exchange
("NYSE") of the Company's common stock on that date.
</FN>
</TABLE>
SAR Grants In Last Fiscal Year
The following table provides information related to SARs granted to the
Named Officers during fiscal 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Individual Grants
--------------------------------------------------------------------------
Percentage of Potential Realizable Value
Total SARs at Assumed Annual Rates
Number of Granted to Exercise of Stock Price Appreciation
SARs Employees in Price Expiration for SAR Term (1)
------------------------------
Name Granted (2) Fiscal 1999 ($ per share) Date 5% ($) 10% ($)
------------------ ------------- ---------------- --------------- ------------ ------------- ---------------
Thomas H. Potts 139,260 31.12% $14.00 12/2005 $930,866 $2,229,586
Lynn K. Geurin 46,970 10.50% $14.00 12/2005 313,965 752,001
Brian K. Murray 23,210 5.20% $14.00 (3) 0 0
William Robertson 0 0.00% - - 0 0
William H. West, 39,790 8.89% $14.00 12/2005 265,971 637,048
Jr.
<FN>
1) During 1999, no DERs accrued. Assumes a 5% and 10% annual rate of stock
appreciation for the SAR term, and a stock price at the expiration date of
$20.61 and $16.01, 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.
3) Terminated ninety days subsequent to the resignation date of this
officer.
</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.
The Company has no other employment agreements with its executive officers.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 1999 were Mr. Davenport,
Mr. Leone, Mr. Vaden, and effective as of October 23, 1999, Mr. Shein. During
1999, no interlocking relationship existed between any of the members of the
Compensation Committee and the Company.
Certain Relationships and Related Transactions
During 1999, the Company made a loan to Mr. Potts, as evidenced by a
promissory note in the aggregate principal amount of $934,500 with interest
accruing on the outstanding balance at the rate of prime plus one-half percent
per annum (the "Note"). Mr. Potts directly owns 399,502 shares of common stock
of the Company, all of which has been pledged as collateral to secure the Note.
As of September 30, 2000, interest on the Note was current and the outstanding
balance of the Note was $925,000.
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 1999 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 1999.
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
preferred stock at the meeting. The presence in person or by proxy of Preferred
Stockholders entitled to vote a majority of the outstanding shares of Preferred
Stock will constitute a quorum. Preferred shares represented by proxy or in
person at the meeting, including preferred 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
Stockholder Proposals
Any proposal which a stockholder may desire to present to the 2001 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, 2000. Any proposals of Stockholders to be presented at the 2001 Annual
Meeting which are delivered to the Company later than February 28, 2001 will be
voted by the proxy holders designated for the 2001 Annual Meeting in their
discretion.
By the order of the Board of Directors
Thomas H. Potts
President
October , 2000
Dynex Capital, Inc.
2000 Proxy Card Information
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Thomas H. Potts and Stephen J.
Benedetti as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of preferred stock of Dynex Capital, Inc. held of record by the
undersigned on October 13, 2000, at the Special Meeting of Preferred
Stockholders to be held on November 14, 2000, or any adjournment thereof.
The Board of Directors recommends a vote FOR Proposal .
1. Election of Directors
Leon A. Felman |_| FOR |_| AGAINST |_| ABSTAIN |_| WITHHELD
Barry Igdaloff |_| FOR |_| AGAINST |_| ABSTAIN |_| WITHHELD
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted for each of the nominees listed under Proposal 1.
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: _________________________________, 2000
___________________________________________
Signature
___________________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
