DEF 14A: Definitive proxy statements
Published on June 18, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under $ 240.14a-12
DYNEX CAPITAL, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction apples:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offset fee was paid
previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party
(4) Date Filed:
Dynex Capital, Inc.
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Notice of Annual Meeting of Shareholders
and
Proxy Statement
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Annual Meeting of Shareholders
July 20, 2004
DYNEX CAPITAL, INC.
June 19, 2004
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dynex Capital, Inc. (the "Company") to be held at the "Traders" Conference Room
of the New York Marriott Financial Center located at 85 West Street, New York,
New York on Tuesday, July 20, 2004, at 9:00 a.m. Eastern Time.
The business of the meeting is to consider and act upon (i) the election of
directors of the Company, (ii) the approval of the Dynex Capital, Inc. 2004
Stock Incentive Plan and (iii) the approval of a proposal to authorize
adjournment of the Annual Meeting, if necessary.
While shareholders may exercise their right to vote their shares in person,
we recognize that many shareholders 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 shareholder 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 shareholder and desire to vote
your shares of Series D 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,
/s/ Thomas B. Akin
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Thomas B. Akin
Chairman of the Board
/s/ Stephen J. Benedetti
---------------------------------------------
Stephen J. Benedetti
Executive Vice President and
Chief Financial Officer
DYNEX CAPITAL, INC.
4551 Cox Road, Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
The Annual Meeting of Dynex Capital, Inc. (the "Company") will be held at
the "Traders" Conference Room of the New York Marriott Financial Center located
at 85 West Street, New York, New York on Tuesday, July 20, 2004, at 9:00 a.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. Approve the Dynex Capital, Inc. 2004 Stock Incentive
Plan;
C. Approve an adjournment of the meeting to a later date
or dates, if necessary, in order to permit the
further solicitation of proxies; and
D. Transact such other business as may properly come
before the meeting or any adjournment or adjournments
thereof.
2. Holders of our Series D preferred stock will:
A. Elect two (2) directors of the Company, to hold
office until the next annual meeting and until their
successors are elected and duly qualified, or as
otherwise provided in the Company's Articles of
Incorporation.
Only shareholders of record at the close of business on June 17, 2004, 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
shareholder 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
/s/ Stephen J. Benedetti
---------------------------------------------
Stephen J. Benedetti
Secretary
Dated: June 19, 2004
DYNEX CAPITAL, INC.
4551Cox Road, Suite 300
Glen Allen, Virginia 23060
(804) 217-5800
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
July 20, 2004
To Our Shareholders:
This Proxy Statement is furnished to the holders of the common stock
("Common Stock") and Series D 9.50% Cumulative Convertible Preferred Stock
("Series D Preferred Stock") of Dynex Capital, Inc. (the "Company") in
connection with the solicitation by the Company's Board of Directors of proxies
to be used at the Annual Meeting of Shareholders of the Company to be held at
the "Traders" Conference Room of the New York Marriott Financial Center located
at 85 West Street, New York, New York on Tuesday, July 20, 2004, at 9:00 a.m.
Eastern Time. The Annual Meeting is being held for the purposes set forth in the
accompanying notice of Annual Meeting of Shareholders. This Proxy Statement, the
accompanying proxy card and the notice of Annual Meeting are being provided to
shareholders beginning on or about June 19, 2004.
GENERAL INFORMATION
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Solicitation
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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 shares of Common Stock and Series D 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 $6,000, plus reasonable
out-of-pocket expenses.
Preferred Stock Recapitalization Plan
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On May 19, 2004, the Company completed a recapitalization plan pursuant to
an offer to its then existing preferred shareholders to exchange the outstanding
shares of the Company's Series A, Series B and Series C preferred stock for
Senior Notes due 2007, and to convert the remaining shares of Series A, Series B
and Series C preferred stock into shares of a new Series D Preferred Stock
series and Common Stock. The recapitalization plan received the required
approval of all classes of the Company's stock. The three classes of Series A,
Series B and Series C preferred stock were converted into Series D Preferred
Stock and Common Stock effective May 19, 2004. The Company no longer has any
Series A, Series B or Series C preferred stock authorized or outstanding.
Voting Rights
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Common Stock. Holders of shares of Common Stock at the close of business on
June 17, 2004, the record date, are entitled to notice of, and to vote at, the
Annual Meeting. On that date, 12,162,391 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
shares of Common Stock and one vote on each other matter presented to such
holders at the Annual Meeting. The presence, in person or by proxy, of holders
of shares of Common Stock 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.
Series D Preferred Stock. Holders of shares of Series D Preferred Stock at
the close of business on June 17, 2004, 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 Series D Preferred
Stock are not entitled to vote on any other matter. There were 5,628,737 shares
of Series D Preferred Stock outstanding as of June 17, 2004.
Voting of Proxies - Common Stock
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A proxy card, indicating COMMON STOCK shares, is being sent to the holders
of shares of 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 shareholder directors, FOR the approval of the Dynex
Capital, Inc. 2004 Stock Incentive Plan and FOR an adjournment of the Annual
Meeting to a later date or dates, if necessary.
Voting of Proxies - Series D Preferred Stock
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A proxy card, indicating SERIES D PREFERRED STOCK shares, is being sent to
holders of shares of Series D Preferred Stock (the "preferred proxy"). Shares of
Series D 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 Series D Preferred Stock
represented by such preferred proxy will not be voted.
Revocability of Proxy
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The giving of the enclosed proxy does not preclude the right to vote in
person should the shareholder 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.
Quorum
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The following principles of Virginia law apply to the voting of shares of
capital stock at the Annual Meeting. The presence in person or by proxy of
shareholders entitled to vote a majority of the outstanding shares of Common
Stock will constitute a quorum for all matters upon which holders of shares of
Common Stock are entitled to vote. The presence in person or by proxy of
shareholders entitled to vote a majority of the outstanding shares of Series D
Preferred Stock will constitute a quorum for the matter upon which holders of
shares of Series D Preferred Stock are entitled to vote. Shares represented by
proxy or in person at the Annual 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
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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 Annual Meeting. However, if any other matters are properly presented to
the shareholders 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.
Annual Report on Form 10-K
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The Company's Annual Report on Form 10-K, including financial statements
for the year ended December 31, 2003, which are being mailed to shareholders
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.
PROPOSAL ONE
ELECTION OF DIRECTORS
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General
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Common Stock Directors. Four directors of the Company are to be elected by
the holders of shares of Common Stock at the Annual Meeting to serve until the
next annual meeting and until their successors are elected and duly qualified.
On the recommendation of the Nominating & Corporate Governance Committee, the
Board of Directors has nominated Thomas B. Akin, J. Sidney Davenport, Donald B.
Vaden and Eric P. Von der Porten for election by the holders of shares of Common
Stock to the Board of Directors at the Annual Meeting. Unless otherwise
indicated, a common proxy representing shares of Common Stock will be voted FOR
the election of Messrs. Akin, Davenport, Vaden and Von der Porten 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. Thomas H. Potts is not standing for
re-election, and his term as a director will expire at the Annual Meeting.
Series D Preferred Stock Directors. Pursuant to Section 10 of Article IIID
of the Company's Articles of Incorporation, as amended, the holders of shares of
Series D Preferred Stock are entitled to elect two directors to the Board of
Directors of the Company. Except as otherwise provided in the Company's Articles
of Incorporation, each such director will serve until the next annual meeting of
the shareholders of the Company and until their successors are elected and duly
qualified. Mr. Leon A. Felman and Mr. Barry Igdaloff have been nominated for
election by holders of shares of Series D 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
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Common Stock Directors. The four directors to be elected by the holders of
shares of 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 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.
Series D Preferred Stock Directors. The two directors to be elected by the
holders of shares of Series D Preferred Stock will be elected by a favorable
vote of a plurality of the shares of Series D 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 Series D 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
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The following information sets forth as of December 31, 2003, the names,
ages, principal occupations and business experience for the Company's common
stock director nominees. Unless otherwise indicated, the business experience and
principal occupations shown for each director has extended five or more years.
Thomas B. Akin (51), has been a director of the Company since May 2003, and
Chairman since May 30, 2003. He also has served as the managing general partner
of Talkot Capital, LLC located in Sausalito, California since 1995. Talkot
Capital is the general partner for various limited partnerships investing in
both private and public companies.(1) From 1991 to 1994, Mr. Akin was the manag-
ing 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 Merrill Lynch Institutional Services from 1981 to 1991.
Prior to Merrill Lynch, Mr. Akin was an employee of Salomon Brothers from 1978
to 1981. Mr. Akin is currently on the board of directors of Acacia Research Inc.
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(1) Mr. Akin is the managing general partner of Talkot Capital, LLC. During
1999, Talkot Capital and several other investors invested in Infotec Commercial
Systems, Inc. ("Infotec"), a privately held company that provided training in
computer technology to businesses throughout the United States. In 2001, Mr.
Akin served as Chairman of the Board of Directors of Infotec, which filed for
relief under Chapter VII of the United States Bankruptcy Code resulting in the
liquidation of the company's assets. The investors of Infotec, including Talkot
Capital, did not receive any return on capital.
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J. Sidney Davenport (62), 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.
Donald B. Vaden (68), has been a director of the Company since January
1988. He is the retired past Chairman of Residential Home Funding Corporation
where he served from December 1992 until February 1995. 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.
Eric P. Von der Porten (46), has been a director of the Company since May
2002. Since 1997, Mr. Von der Porten has served as the managing member of
Leeward Investments, LLC, the general partner of Leeward Capital, L.P. Mr. Von
der Porten earned an A.B. from the University of Chicago and an M.B.A. from the
Stanford Graduate School of Business.
Series D Preferred Stock Director Nominees
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The following information sets forth as of December 31, 2003, the names,
ages, principal occupations and business experience for the Company's preferred
stock director nominees. Unless otherwise indicated, the business experience and
principal occupations shown for each director has extended five or more years.
Leon A. Felman (68), has been a director of the Company since November
2000. As of December 31, 2003, Mr. Felman was a director of Allegiant Bancorp,
Inc., a St. Louis, Missouri based bank holding company, a position he has held
since 1992, and of Allegiant Bank & Trust Company, Inc., a position he has held
since 2001. Allegiant Bancorp was sold in 2004 and Mr. Felman no longer serves
on either board. Mr. Felman also served on the audit committee, the real estate
committee and chaired both the Nominating and Corporate Governance Committee and
the Ethics Committee while on the Board of Allegiant Bancorp. 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. He also currently serves as the managing operating partner of
Sage Systems Liquidating Trust, LLC and is the managing partner of Felman Family
Partnership, LP. 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 (49), 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.
CORPORATE GOVERNANCE
AND THE BOARD OF DIRECTORS
--------------------------
General
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The business and affairs of the Company are managed under the direction of
the Board of Directors in accordance with the Virginia Stock Corporation Act and
the Company's Articles of Incorporation and Bylaws. Members of the Board are
kept informed of the Company's business through discussions with the Chairman of
the Board and chief executive officer (or, in his absence, the principal
executive officer) and other officers, by reviewing materials provided to them
and by participating in meetings of the Board and its committees. The corporate
governance practices followed by the Company are summarized below.
Corporate Governance Guidelines
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The Board of Directors has adopted Corporate Governance Guidelines that set
forth the practices of the Board with respect to its size, criteria for
membership and selection to the Board, committees of the Board, meetings and
access to management, director compensation, director orientation and continuing
education, an annual performance evaluation of the Board, director
responsibilities, an annual review of performance of the president and chief
executive officer (or, in his absence, the principal executive officer) and
management succession and ethics and conduct. The Guidelines are available on
the Company's web page at www.dynexcapital.com. A printed copy is available to
any shareholder upon written request to the Secretary of the Company, 4551 Cox
Road, Suite 300, Glen Allen, Virginia 23060.
The Board of Directors in its business judgment has determined that all of
its members are independent as defined by New York Stock Exchange listing
standards. In reaching this conclusion, the Board considered whether the Company
and its subsidiaries conduct business and have other relationships with
organizations of which certain members of the Board or members of their
immediate families are or were directors or officers. Consistent with the New
York Stock Exchange listing standards, the Company's Corporate Governance
Guidelines establish categorical standards under which a director will not be
considered to have a material relationship with the Company if:
o during each of the current fiscal year and three most recent
fiscal years, neither the director nor any immediate family member
of the director received more than $100,000 per year in direct
compensation from the Company, other than director and committee
fees and pension or other forms of deferred compensation for prior
service (provided that such compensation is not contingent on
continued service);
o during each of the current fiscal year and three most recent
fiscal years, the director is not, and was not an executive
officer or an employee, or whose immediate family member is not,
or was not, an executive officer of another company that made
payments to, or received payments from, the Company for property
or services in an amount which, in any single fiscal year,
exceeded the greater of $1,000,000 or 2% of such other company's
consolidated gross revenues; or
o he director serves as an executive officer of a charitable
organization to which during each of the three preceding fiscal
years the Company made charitable contributions that did not
exceed the greater of $1,000,000 or 2% of such charitable
organization's consolidated gross revenues.
None of the Company's non-employee directors, their immediate family
members, or organizations in which they are a partner, shareholder or officer,
are engaged in relationships with the Company not meeting the criteria set forth
above.
Code of Ethics
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The Board of Directors has approved a Code of Business Conduct and Ethics
for directors, officers and employees of the Company and each of its
subsidiaries, including the Company's chief executive officer (or, in his
absence, the principal executive officer) and principal financial officers. The
Code addresses such topics as compliance with applicable laws, conflicts of
interest, use and protection of Company assets, confidentiality, dealings with
the press and communications with the public, accounting and financial reporting
matters, fair dealing, discrimination and harassment and health and safety. It
is available on the Company's web page at www.dynexcapital.com. A printed copy
of the Code is available to any shareholder upon written request to the
Secretary of the Company at the address set forth above.
Board and Committee Meeting Attendance
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In 2003, there were seven meetings of the Board of Directors. Each director
attended 75% or more of the total aggregate number of meetings of the Board and
of the committees on which he or she served.
Executive Sessions
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Executive sessions where non-employee directors meet on an informal basis
are scheduled either before or after regularly scheduled Board meetings. At
least once a year the Board schedules an executive session including only
independent directors. Thomas B. Akin, the Chairman of the Board, serves as
chairman for executive sessions.
Communications with Directors
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Any director may be contacted by writing to him c/o the Secretary of the
Company at the address set forth above. Communications to the non-management
directors as a group may be sent to the Chairman of the Board c/o the Secretary
of the Company at the same address. The Company promptly forwards, without
screening, all such correspondence to the indicated director(s).
Committees of the Board
- -----------------------
The Board of Directors has a standing Audit Committee, Compensation
Committee and Nominating & Corporate Governance Committee.
Audit Committee
---------------
The Audit Committee assists the Board of Directors in fulfilling the
Board's oversight responsibility to the shareholders relating to the integrity
of the Company's financial statements, the Company's compliance with legal and
regulatory requirements, the qualifications, independence and performance of the
Company's independent auditor and the performance of the internal audit
function. The Committee is directly responsible for the appointment,
compensation, retention and oversight of the work of the independent auditor
engaged for the purpose of preparing or issuing an audit report or performing
other audit, review or attestation services for the Company. The Committee
operates under a written charter last amended by the Board in June 2004. The
Audit Committee Charter is set forth in Appendix A to this Proxy Statement and
is available on the Company's web page at www.dynexcapital.com.
The members of the Audit Committee are Messrs. Von der Porten (Chairman),
Felman, Igdaloff and Vaden, all of whom the Board in its business judgment has
determined are independent as defined by regulations of the Securities and
Exchange Commission and the New York Stock Exchange listing standards. The Board
of Directors also has determined that all of the Committee members are
financially literate as defined by the New York Stock Exchange listing standards
and that Mr. Igdaloff qualifies as an audit committee financial expert as
defined by regulations of the Securities and Exchange Commission.
The Audit Committee met six times in 2003. For additional information
regarding the Committee, see "Audit Information - Audit Committee Report" on
page 21 of this Proxy Statement.
Compensation Committee
----------------------
The Compensation Committee performs the responsibilities of the Board of
Directors relating to compensation of the Company's executives. The Committee's
responsibilities include reviewing and approving corporate goals and objectives
relevant to compensation of the Company's chief executive officer, evaluating
the chief executive officer's performance in light of those goals and objectives
and determining and approving the chief executive officer's compensation level
based on this evaluation; reviewing and approving the compensation for senior
executive officers, including their corporate goals and objectives; producing a
report on executive compensation as required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement;
reviewing and approving any employment-related agreement, other compensation
arrangement, or transaction with senior management; making recommendations to
the Board with respect to annual and long-term incentive compensation and
equity-based plans; administering the Company's equity-based, deferral and other
compensation plans approved by the Board from time to time; reviewing any
significant changes in the Company's tax-qualified employee benefit plans; and
reviewing annually with the chief executive officer succession planning and
management development activities and strategies. The Committee operates under a
written charter last amended by the Board in June 2004. The Charter of the
Compensation Committee is available on the Company's web page at
www.dynexcapital.com. A printed copy is available to any shareholder upon
written request to the Secretary of the Company at the address set forth above.
The members of the Compensation Committee are Messrs. Davenport (Chairman),
Akin and Vaden, all of whom the Board in its business judgment has determined
are independent as defined by the New York Stock Exchange listing standards. The
Committee met two times in 2003. For additional information regarding the
Committee, see "Management of the Company and Executive
Compensation--Compensation Committee Report" on page 11 of this Proxy Statement.
Nominating & Corporate Governance Committee
-------------------------------------------
The Nominating & Corporate Governance Committee develops qualifications for
director candidates, recommends to the Board of Directors persons to serve as
directors of the Company and monitors developments in, and makes recommendations
to the Board concerning corporate governance practices. The Committee acts as
the Company's nominating committee. The Committee operates under a written
charter last amended by the Board in June 2004. The Charter of the Corporate
Governance Committee is available on the Company's web page at
www.dynexcapital.com. A printed copy is available to any shareholder upon
written request to the Secretary of the Company at the address set forth above.
The members of the Nominating & Corporate Governance Committee are Messrs.
Felman (Chairman), Vaden and Von der Porten, all of whom the Board in its
business judgment has determined are independent as defined by the New York
Stock Exchange listing standards. The Committee met three times in 2003.
The Nominating & Corporate Governance Committee considers candidates for
the Board based upon several criteria, including but not limited to their
broad-based business and professional skills and experience, concern for the
long-term interest of the Company's shareholders, personal integrity and
judgment, and knowledge and experience in the Company's industry. The Committee
further considers each candidate's independence, as defined by the New York
Stock Exchange listing standards. All candidates must have time available to
devote to Board duties and responsibilities.
The Nominating & Corporate Governance Committee utilizes a variety of
methods for identifying and evaluating nominees for director. The Committee will
regularly assess the appropriate size of the Board and whether any vacancies on
the Board are expected due to retirement or otherwise. In the event that
vacancies are anticipated, or otherwise arise, the Committee will consider
various potential candidates for director. Candidates may come to the attention
of the Committee through current Board members, professional search firms,
shareholders or other persons. These candidates are evaluated at regular or
special meetings of the Committee and may be considered at any point during the
year.
Shareholders entitled to vote for the election of directors may submit
candidates for consideration by the Nominating & Corporate Governance Committee
if the Company receives timely written notice, in proper form, for each such
recommended director nominee. If the notice is not timely and in proper form,
the nominee will not be considered by the Committee. Under the regulations of
the Securities and Exchange Commission, any shareholder desiring to recommend a
nominee to be acted upon at the 2005 annual meeting of shareholders must cause
such nominee to be received, in proper form, by the Secretary of the Company no
later than February 19, 2005 in order for the nominee to be considered for
inclusion in the Company's Proxy Statement for that meeting. Any nominees that
are received after that date may be considered by the Nominating & Corporate
Governance Committee outside of the proxy statement process.
In evaluating nominations, the Nominating & Corporate Governance Committee
seeks to achieve a balance of knowledge, experience and capability on the Board.
Annual Meeting Attendance
- -------------------------
The Company encourages members of the Board of Directors to attend the
annual meeting of shareholders. All of the directors attended the 2003 annual
meeting of shareholders.
Directors' Compensation
- -----------------------
The independent directors receive an annual fee of $25,000 per year, plus
$500 for each meeting of the Board of Directors, or 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
------------------
Management and Certain Beneficial Owners
- ----------------------------------------
The following table sets forth information regarding the beneficial
ownership of each of shares of Common Stock and shares of Series D Preferred
Stock as of June 4, 2004, by: (a) each director of the Company, (b) the
Company's sole executive officer, (c) all directors and the executive officer of
the Company as a group, and (d) all other shareholders known by the Company to
be beneficial owners of more than 5% of the outstanding shares of any class of
the Company's stock.
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 transactions in the 2003 year 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 2003, except for Mr. Potts, who inadvertently filed late one Form 4 with
respect to a sale of shares of Common Stock.
MANAGEMENT OF THE COMPANY AND EXECUTIVE COMPENSATION
----------------------------------------------------
The executive officer of the Company and his position is as follows:
Name Age Position(s) Held
---- --- ----------------
Stephen J. Benedetti 41 Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
The executive officer serves at the discretion of the Company's Board of
Directors. Biographical information regarding Mr. Benedetti is set forth below.
Stephen J. Benedetti has served as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer since September 2001. As Executive
Vice President, Mr. Benedetti serves as the principal executive officer of the
Company. 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 is a
Certified Public Accountant.
Compensation Committee Report
- -----------------------------
The Compensation Committee of the Company's Board of Directors, which is
comprised exclusively of the independent directors listed below, administers the
Company's executive compensation program. All issues pertaining to executive
compensation are reviewed and approved by the Compensation Committee.
The Compensation Committee has designed the executive compensation
structure to reward long-term value that is created for shareholders and to
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 that are competitive
with those levels offered by the Company's competitors, (iii) to motivate
executives to enhance long-term shareholder 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.
The components of executive officer compensation are base annual salary and
annual bonus. Additional components in prior years included grants and awards
under the Dynex Capital, Inc. 1992 Stock Incentive Plan (the "1992 Plan"), which
has expired. The Company is presenting the Dynex Capital, Inc. 2004 Stock
Incentive Plan, which will replace the 1992 Plan, for approval by shareholders
at the Annual Meeting.
The Company's only executive officer is Stephen J. Benedetti, who is the
Company's Executive Vice President, Chief Financial Officer, Secretary and
Treasurer. For 2003, Mr. Benedetti was compensated pursuant to an employment
agreement, which is described in the "Employment Agreements" section below, that
was effective as of March 18, 2002. His base annual salary for 2003 was
$183,960, which reflected the initial base salary set forth in the employment
agreement, as adjusted for inflation. In addition, the employment agreement
entitles Mr. Benedetti to receive annual incentive compensation, in the form of
a bonus, in an amount equal to up to 66.7% of his base salary as approved by the
Compensation Committee. For 2003, the Compensation Committee set this amount at
$102,000, based on the financial performance of the Company, achievements in
implementing the Company's long-term strategy and the personal observations of
his performance by the Compensation Committee, in addition to the guiding
principles described above. No particular weight was given to any particular
aspects of the performance of the executive officer.
Mr. Benedetti's employment agreement will expire in June 2004. In June
2004, the Company and Mr. Benedetti entered into a severance agreement that will
cover certain terms of his employment in the future. These terms are described
in the "Employment Agreements" section below.
There were no grants or awards of stock options or stock appreciation
rights during 2003.
Compensation Committee
J. Sidney Davenport, Chairman
Thomas B. Akin
Donald B. Vaden
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
During 2003, no interlocking relationship existed between any member of the
Compensation Committee and the Company.
Executive Compensation
- ----------------------
The Summary Compensation Table below includes individual compensation
information for 2003, 2002 and 2001 on the most highly compensated executive
officer whose salary and bonus exceeded $100,000 (the "Named Officer").
Summary Compensation Table
--------------------------
The Company did not grant any SARs during 2003. The table below presents
the total number of SARs exercised by the Named Officers in 2003 and held by the
Named Officers at December 31, 2003 (distinguishing between SARs that are
exercisable as of December 31, 2002 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, 2003.
Aggregated SAR Exercises in Last Fiscal Year
and Fiscal Year-End SAR Value Table
-----------------------------------
Equity Compensation Plan Information
- ------------------------------------
The Company does not currently have any compensation plans or other
arrangements under which equity securities are authorized for issuance.
Employment Agreements
- ---------------------
The Company and Mr. Benedetti are parties to an employment agreement that
is effective as of March 18, 2002 and expires June 30, 2004. Under the terms of
the employment agreement, Mr. Benedetti receives a current base salary of
$180,000 per annum, adjusted January 1 of each year for inflation. In addition,
he is entitled to receive up to 66.7% of his base salary as incentive
compensation, 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 in the
agreement) 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. In lieu
of renewing his employment agreement, the Company and Mr. Benedetti have entered
into a severance agreement, as described below.
The Company and Mr. Benedetti are parties to a severance agreement that is
effective as of June 11, 2004 and that will stay in effect for the duration of
Mr. Benedetti's employment with the Company. The severance agreement provides
generally that a lump sum payment will be made to Mr. Benedetti under certain
circumstances upon his termination of employment with the Company. Such
circumstances include the termination of employment by Mr. Benedetti for "good
reason" (as defined in the agreement), such as the occurrence of a change in
control of the Company, or the termination of his employment by the Company
without "cause" (as defined in the agreement). In such events, Mr. Benedetti
will have the right to receive a lump sum payment equal to the sum of (i) Mr.
Benedetti's base salary and bonus that has accrued but has not been paid, (ii)
the equivalent of Mr. Benedetti's annual base salary of one year for every fifty
months that Mr. Benedetti has been employed by the Company prorated for any
period of less than fifty months and (iii) any other amounts or benefits Mr.
Benedetti is entitled to receive under any plan, program, policy or practice or
contract or agreement of the Company. Mr. Benedetti also will become fully
vested in any options, stock appreciation rights or other forms of incentive
stock compensation granted to Mr. Benedetti under the 2004 Stock Incentive Plan
if he terminates his employment for good reason or if he is terminated without
cause. If a termination under the severance agreement had occurred as of June
11, 2004, the payments due to Mr. Benedetti would have equaled $436,087.
Certain Relationships and Related Transactions
- ----------------------------------------------
The Company and Dynex Commercial, Inc., now known as DCI Commercial, Inc
("DCI"), have been jointly named in various litigation regarding the activities
of DCI while it was an operating subsidiary of an affiliate of the Company,
Dynex Holding, Inc. The Company and DCI entered into a Litigation Cost Sharing
Agreement whereby the parties set forth how the costs of defending against
litigation would be shared, and whereby the Company agreed to fund all costs of
such litigation, including DCI's portion. DCI's cumulative portion of costs
associated with the various litigation and funded by the Company is
approximately $2.5 million and is secured by the proceeds of any counterclaims
that DCI may receive in the litigation. DCI costs funded by the Company are
considered loans, and bear simple interest at the rate of Prime plus 8.0% per
annum. At December 31, 2003, the total amount due the Company under the
Litigation Cost Sharing Agreement, including interest, was approximately $3.0
million, which has been fully reserved by the Company. DCI is currently
wholly-owned by ICD Holding, Inc. Thomas H. Potts and Stephen J. Benedetti are
the sole shareholders of ICD Holding. For more information on this litigation,
see "Item 3. Legal Proceedings" of the Company's Annual Report on Form 10-K for
the year ended December 31, 2003, which accompanies this Proxy Statement.
Stock Performance Graph
- -----------------------
The following graph demonstrates a five year comparison of cumulative total
returns for shares of Common Stock (listed as "DX"), the Standard & Poor's 500
Stock Index ("S&P 500"), the SNL Financial REIT Index and the Bloomberg Mortgage
REIT Index. The table below assumes $100 was invested at the close of trading on
December 31, 1998 in the shares of Common Stock, S&P 500, the SNL Financial REIT
Index and the Bloomberg Mortgage REIT Index.
Comparative Five-Year Total Returns *
DX, S&P 500, SNL Financial REIT Index and Bloomberg Mortgage REIT Index
(Performance Results through December 31, 2003)
[GRAPH OMITTED]
* 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.
PROPOSAL TWO
APPROVAL OF THE
DYNEX CAPITAL, INC. 2004 STOCK INCENTIVE PLAN
---------------------------------------------
The Board of Directors has adopted unanimously, and recommends that the
Company's shareholders approve, the Dynex Capital, Inc. 2004 Stock Incentive
Plan (the "Incentive Plan"). The Company's experience with stock-based
incentives has convinced the Board of Directors of their important role in
recruiting and retaining officers, directors and employees with ability and
initiative and in encouraging such persons to have a greater financial
investment in the Company. The Incentive Plan will succeed the Dynex Capital,
Inc. 1992 Stock Incentive Plan, the term of which has expired.
The complete text of the Incentive Plan is attached to this Proxy Statement
as Appendix B. The following general description of the principal features of
the Incentive Plan is qualified in its entirety by reference to Appendix B.
General Information
- -------------------
The Incentive Plan authorizes the Compensation Committee of the Board of
Directors (the "Committee") to grant, subject to approval of the Board of
Directors, one or more of the following awards to directors, officers, key
employees, consultant and advisors to the Company and its subsidiaries who are
designated by the Committee:
o options (both incentive and non-qualified);
o stock appreciation rights;
o stock awards;
o dividend equivalent rights;
o performance stock awards; and
o stock units.
The Committee will administer the Incentive Plan and may delegate all or
part of its authority to one or more officers. However, the Committee may not
delegate its responsibility with respect to individuals who are subject to
Section 16 of the Exchange Act. As used in this summary, the term
"administrator" means the Compensation Committee and any delegate of the
compensation committee.
The Compensation Committee has not made any determination as to any grants
or awards under the Incentive Plan and, therefore, the benefits to be allocated
to any individual or group of eligible participants are not presently
determinable.
If the shareholders approve the Incentive Plan, the Company will be
authorized to issue under the Incentive Plan up to 1,500,000 shares of Common
Stock. The maximum aggregate number of shares that may be issued under the
Incentive Plan in settlement of Performance Shares is 500,000 and in settlement
of Stock Units is 500,000.
Generally, if an award is terminated, the shares allocated to that award
under the Incentive Plan may be reallocated to new awards under the Incentive
Plan. Shares surrendered in satisfaction of tax withholding requirements under
the Incentive Plan may also be reallocated to other awards.
The Incentive Plan provides that if there is a stock split, stock dividend
or other event that affects the Company's capitalization, appropriate
adjustments will be made in the number of shares that may be issued under the
Incentive Plan and in the number of shares and price in all outstanding grants
and awards made before such event.
The Incentive Plan also provides that no award may be granted more than 10
years after the date it is approved by the Company's shareholders.
The Company intends to expense the grants and awards that it makes under
the Incentive Plan, to the extent that generally accepted accounting principles,
as they apply to the Company, allow such an accounting treatment.
Grants and Awards under the Incentive Plan
- ------------------------------------------
The principal features of awards under the Incentive Plan are summarized
below.
Stock Options
-------------
The Incentive Plan permits the grant of non-qualified stock options and
incentive stock options ("ISOs") under Section 422 of the Internal Revenue Code
(the "Code"). The exercise price for options will not be less than the fair
market value of a share of Common Stock on the date of grant. Other than in
connection with a corporate recapitalization, the option price may not be
reduced after the date of grant. The period in which an option may be exercised
is determined by the Committee on the date of grant, but may not exceed 10
years. No employee may be granted ISOs (under the Incentive Plan or any other
plan of the Company) that are first exercisable in a calendar year covering
shares of Common Stock having an aggregate fair market value (determined as of
the date the option is granted) exceeding $100,000. Payment of the option
exercise price may be in cash, in a cash equivalent acceptable to the
administrator, using a cashless exercise with a broker, with shares of Common
Stock or with a combination of cash and shares of Common Stock. If the grant
agreement provides, payment may be by the Company withholding shares of Common
Stock upon exercise to the extent permitted under the applicable laws and
regulations. The Incentive Plan provides that a participant may not be granted
options in a calendar year for more than 150,000 shares of Common Stock.
Stock Appreciation Rights (SARs)
--------------------------------
SARs may also be granted either independently or in combination with
underlying stock options. Each SAR will entitle the holder upon exercise to
receive the excess of the fair market value of a share of Common Stock at the
time of exercise over the SAR's initial value, which cannot be less than the
fair market value of a share of Common Stock on the date of grant of the SAR.
Other than in connection with a corporate recapitalization, the initial value of
any SAR may not be reduced after the date of grant. At the discretion of the
Committee, all or part of the payment in respect of a SAR may be in cash, shares
of Common Stock or a combination thereof. The maximum period in which a SAR may
be exercised is 10 years from the date of its grant. No participant may be
granted SARs in a calendar year covering more than 150,000 shares of Common
Stock. For purposes of this limitation and the individual limitation on the
grant of options, a SAR and a related option are treated as a single award.
Stock Awards
------------
The Company may also grant stock awards that entitle the participant to
receive shares of Common Stock, including shares that are issued to settle the
Company's obligations under its incentive compensation or deferral plan or any
successor plan. A participant's rights in the stock award will be forfeitable or
otherwise restricted for a period of time or subject to conditions set forth in
the grant agreement. The restrictions must include a period of restriction for
at least 3 years, unless the stock award is granted in connection with the
settlement of performance shares or in the case of a substituted award. The
administrator may, in its discretion, waive the requirements for vesting or
transferability for all or part of the stock awards in connection with a
participant's termination of employment or service. The Incentive Plan provides
that no participant may be granted stock awards in any calendar year for more
than 150,000 shares of Common Stock.
Dividend Equivalent Rights (DERs)
---------------------------------
The Committee also may grant DERs in connection with the grant of options
or SARs. The Committee will determine whether the DERs entitle the holder to
receive (i) shares of Common Stock, (ii) additional options or SARs, or (iii)
cash. DERs will accrue with respect to an option or SAR based on the rate at
which the Company pays dividends in excess of the return on the Company's
average net worth for the applicable period (as determined based on a yield set
by the Committee for such period).
Performance Shares
------------------
Performance share awards entitle the participant to receive a payment
equal to the fair market value of a specified number of shares of Common Stock
if certain performance objectives or other conditions prescribed by the
administrator and set forth in the award agreement are satisfied. The
performance period may be shortened and the administrator may adjust the
performance objectives for all or part of the performance shares in connection
with a participant's termination of employment if the administrator finds that
the circumstances of the particular case justify doing so. To the extent that
the performance shares are earned, the Company's payment obligation may be
settled in cash, shares of Common Stock, the grant of stock units, or a
combination of the three. The Incentive Plan provides that no participant may be
granted more than 150,000 performance shares in a calendar year.
Stock Units
-----------
The Committee may also award stock units, which is an award stated with
reference to a number of shares of Common Stock. The award may entitle the
recipient to receive, upon the end of a 3 year period of restriction or the
satisfaction of performance objectives prescribed by the administrator and set
forth in the award agreement, cash, shares of Common Stock or a combination of
both. The Incentive Plan provides that no participant may be granted more than
150,000 stock units in a calendar year.
Performance Criteria
- --------------------
The performance objectives stated with regard to an award may be based on
one or more of the following performance criteria: (a) cash flow and/or free
cash flow (before or after dividends), (b) earnings per share (including
earnings before interest, taxes, depreciation and amortization) (diluted and
basic earnings per share), (c) the price of shares of Common Stock, (d) return
on equity, (e) total shareholder return, (f) return on capital (including return
on total capital or return on invested capital), (g) return on assets or net
assets, (h) market capitalization, (i) income or net income (before or after
taxes), (j) operating income or net operating income, (k) operating profit or
net operating profit, (l) operating margin or profit margin, (m) return on
operating revenue, (n) market share, (o) revenue growth, (p) net interest
margin, (q) sales, (r) delinquency ratios, (s) credit loss levels, (t) expenses,
(u) total shareholder equity, (v) return the portfolio assets, (w) portfolio
growth, (x) servicing volume, (y) production volume and (z) dividends.
Change of Control Provisions
- ----------------------------
The Incentive Plan provides that in the event of a "Change of Control" (as
defined in the Incentive Plan), all outstanding awards may become fully
exercisable and the applicable restrictions to such awards will lapse if
provided in the agreements governing such awards.
Federal Income Tax Consequences
- -------------------------------
The principal federal tax consequences to participants and to the Company
of grants and awards under the Incentive Plan are summarized below.
Non-Qualified Stock Options
---------------------------
Non-qualified stock options granted under the Incentive Plan are not
taxable to an optionee at grant but result in taxation at exercise, at which
time the individual will recognize ordinary income in an amount equal to the
difference between the option exercise price and the fair market value a share
of Common Stock on the exercise date. The Company will be entitled to deduct a
corresponding amount as a business expense in the year the optionee recognizes
this income.
Incentive Stock Options (ISO)
-----------------------------
An employee will generally not recognize income on receipt or exercise of
an ISO so long as he or she has been an employee of the Company or its
subsidiaries from the date the option was granted until three months before the
date of exercise; however, the amount by which the fair market value of shares
of Common Stock at the time of exercise exceeds the option price is a required
adjustment for purposes of the alternative minimum tax applicable to the
employee. If the employee holds the shares of Common Stock received upon
exercise of the option for one year after exercise (and for two years from the
date of grant of the option), any difference between the amount realized upon
the disposition of the stock and the amount paid for the stock will be treated
as long-term capital gain (or loss, if applicable) to the employee. If the
employee exercises an ISO and satisfies these holding period requirements, the
Company may not deduct any amount in connection with the ISO.
In contrast, if an employee exercises an ISO but does not satisfy the
holding period requirements with respect to the shares of Common Stock acquired
on exercise, the employee generally will recognize ordinary income in the year
of the disposition equal to the excess, if any, of the fair market value of
shares of Common Stock on the date of exercise over the option price; and any
excess of the amount realized on the disposition over the fair market value on
the date of exercise will be taxed as long-or short-term capital gain (as
applicable). If, however, the fair market value of shares of Common Stock on the
date of disposition is less than on the date of exercise, the employee will
recognize ordinary income equal only to the difference between the amount
realized on disposition and the option price. In either event, the Company will
be entitled to deduct an amount equal to the amount constituting ordinary income
to the employee in the year of the premature disposition.
Stock Appreciation Rights
-------------------------
There are no immediate federal income tax consequences to a participant
when a SAR is granted. Instead, the participant realizes ordinary income upon
exercise of an SAR in an amount equal to the cash and/or the fair market value
(on the date of exercise) of the shares of Common Stock received. The Company
will be entitled to deduct the same amount as a business expense at the time.
Stock Awards
------------
The federal income tax consequences of stock awards depend on the
restrictions imposed on the stock. Generally, the fair market value of the stock
received will not be includable in the participant's gross income until such
time as the stock is no longer subject to a substantial risk of forfeiture or
becomes transferable. The participant may, however, make a tax election to
include the value of the stock in gross income in the year of receipt despite
such restrictions. Generally, the Company will be entitled to deduct the fair
market value of the stock transferred to the participant as a business expense
in the year the participant includes the compensation in income.
Dividend Equivalent Rights
--------------------------
There are no immediate federal income tax consequences to a participant
when a DER is granted. Instead, the participant realizes ordinary income when a
related SAR or option is exercised in an amount equal to the cash and/or the
fair market value (on the date of exercise) of the shares of Common Stock or
additional options or SARs received. The Company will be entitled to deduct the
same amount as a business expense at the time.
Performance Share Awards
------------------------
A participant generally will not recognize taxable income upon the award of
performance share awards. The participant, however, will recognize ordinary
income when the participant receives payment of cash and/or shares of Common
Stock for the performance share award. The amount included in the participant's
income will equal the amount of cash and the fair market value of the shares of
Common Stock received. The Company generally will be entitled to a corresponding
tax deduction at the time the participant recognizes ordinary income with
respect to performance share awards.
Stock Units
-----------
A participant generally will not recognize taxable income upon the award of
stock units. The participant, however, will recognize ordinary income when the
participant receives payment of cash and/or shares of Common Stock for the stock
unit. The amount included in the participant's income will equal the amount of
cash and the fair market value of the shares of Common Stock received. The
Company generally will be entitled to a corresponding tax deduction at the time
the participant recognizes ordinary income with respect to stock unit.
Section 162(m) of the Internal Revenue Code places a $1 million annual
limit on the deductible compensation of certain executives of publicly traded
corporations. The limit, however, does not apply to "qualified performance-based
compensation." The Company believes that grants of options and SARs under the
Incentive Plan will qualify for the performance-based compensation exception to
the deductibility limit, assuming that the Incentive Plan, as amended and
restated, is approved by the shareholders.
State tax consequences may in some cases differ from those described above.
Grants and awards under the Incentive Plan may in some instances be made to
employees who are subject to tax in jurisdictions other than the United States
and may result in tax consequences differing from those described above.
Amendment and Termination
- -------------------------
The Board of Directors may amend or terminate the Incentive Plan at any
time, provided that no such amendment will be made without shareholder approval
if (i) the amendment would increase the aggregate number of shares of Common
Stock that may be issued under the Incentive Plan (other than as permitted under
the Incentive Plan), (ii) the amendment changes the class of individuals
eligible to become participant or (iii) such approval is required under any
applicable law, rule or regulation.
Vote Required
- -------------
The Incentive Plan must be approved by the affirmative vote of a majority
of the votes cast by holders of record of shares of Common Stock. Under
applicable New York Stock Exchange listing standards, the total vote cast on the
proposal must also represent over 50% of all shares of Common Stock outstanding
on the record date. Shareholders may direct that their votes be cast for or
against this proposal, or shareholders may abstain from this proposal. The New
York Stock Exchange listing standards consider abstentions to be votes cast for
purposes of this proposal. Broker non-votes that are not voted on this proposal
are not considered votes cast and will not affect the outcome of the vote.
The Board of Directors recommends that the shareholders vote FOR Proposal
Two.
PROPOSAL THREE
APPROVAL OF THE
PROPOSAL FOR ADJOURNMENT
------------------------
Due to the voting requirements on one or more proposals that the Company is
presenting to shareholders for approval at the Annual Meeting, the Company has
included an additional proposal with respect to the adjournment of the Annual
Meeting. It is possible that the Company may not receive by the Annual Meeting a
sufficient number of votes to (i) constitute a quorum for the conduct of
business or (ii) approve one or more proposals being presented. In either event,
the Company would consider adjourning the Annual Meeting to a later date or
dates in order to permit the further solicitation of proxies. Accordingly, the
Company is submitting the question of adjournment to its shareholders as a
separate proposal for their consideration, if necessary, in order to allow
proxies that the Company has received at the time of the Annual Meeting to be
voted for an adjournment.
Upon any adjournment of the Annual Meeting, no written notice of such
adjourned meeting is required to be given to shareholders if the record date of
the Annual Meeting will not change and an announcement is made at the Annual
Meeting of the place, date and time to which the Annual Meeting is adjourned.
The Board of Directors recommends that the shareholders vote FOR Proposal
Three.
APPOINTMENT OF AUDITORS
-----------------------
The Board of Directors has not appointed auditors to examine the financial
statements of the Company for the year ending December 31, 2004. Deloitte &
Touche LLP audited the consolidated financial statements of the Company for the
fiscal years ended December 31, 2003 and 2002. 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
shareholders.
AUDIT INFORMATION
-----------------
Fees of Independent Public Accountants
- --------------------------------------
The following information is furnished with respect to fees billed for
professional services rendered to the Company by Deloitte & Touche LLP for the
2003 and 2002 fiscal years.
Audit Fees
----------
The aggregate fees billed by Deloitte & Touche LLP for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal years ended December 31, 2003 and 2002, and for the review of the
financial statements included in the Company's Quarterly Reports on Form 10-Q,
and services that are normally provided in connection with statutory and
regulatory filings and engagements, for those fiscal years were $254,331 for
2003 and $274,154 for 2002.
Audit Related Fees
------------------
The aggregate fees billed by Deloitte & Touche LLP for professional
services for assurance and related services that are reasonably related to the
performance of the audit or review of the Company's financial statements and not
reported under the heading "Audit Fees" above for the fiscal years ended
December 31, 2003 and December 31, 2002 were $15,500 and $55,490, respectively.
During 2003, these services included professional services rendered in
connection with the Company's tender offer for its preferred shares. During
2002, these services included professional services rendered in connection with
the amendment of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, and Quarterly Report on Form 10-Q for the period ended
March 31, 2002, for the restatement of certain of its securitized financed
receivables, which was effective in the quarter.
Tax Fees
--------
There were no fees billed by Deloitte & Touche LLP for professional
services for tax compliance, tax advice and tax planning for the fiscal years
ended December 31, 2003 and December 31, 2002.
All Other Fees
--------------
There were no fees billed by Deloitte & Touche LLP for any other services
rendered to the Company for the fiscal years ended December 31, 2003 and 2002.
Pre-Approved Services
- ---------------------
All services not related to the annual audit and quarterly review of the
Company's financial statements, as described above, were pre-approved by the
Audit Committee, which concluded that the provision of such services by Deloitte
& Touche LLP was compatible with the maintenance of that firm's independence in
the conduct of its auditing functions. The Audit Committee's Charter provides
for pre-approval of audit and permitted non-audit services. The Charter
authorizes the Audit Committee to delegate to one or more of its members
pre-approval authority with respect to permitted services. The decisions of any
Audit Committee member to whom pre-approval authority is delegated must be
presented to the full Audit Committee at its next scheduled meeting.
Audit Committee Report
- ----------------------
The following Audit Committee Report shall not be deemed to be soliciting
material or to be incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Exchange Act of 1933 or the Securities Exchange Act of 1934, as
amended, except to the extent the Company specifically incorporates this Report
therein, and shall not otherwise be deemed filed under such Acts.
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 four directors, each of whom is independent as defined by the New
York Stock Exchange listing standards.
The Audit Committee has reviewed and discussed with management and the
independent accountants the Company's audited financial statements for fiscal
year 2003. 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," as amended.
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. 1,
"Independence Discussions with Audit Committees." These disclosures have been
reviewed by the Committee, and the Committee has discussed with the independent
accountant the independent accountant'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 2003 for filing with the Securities and
Exchange Commission.
Audit Committee
Eric P. Von der Porten, Chairman
Leon A. Felman
Barry Igdaloff
Donald B. Vaden
SHAREHOLDER PROPOSALS
---------------------
Under the regulations of the Securities and Exchange Commission, any
shareholder desiring to make a proposal to be acted upon at the 2005 annual
meeting of shareholders must cause such proposal to be received, in proper form,
by the Secretary of the Company no later than February 19, 2005 in order for the
proposal to be considered for inclusion in the Company's Proxy Statement for
that meeting. Any proposals that are received after that date may be considered
by the Company outside of the proxy statement process. Proposals that are
received after May 5, 2005 may be voted on by the proxy holders designated for
that meeting in their discretion.
By the order of the Board of Directors
/s/ Stephen J. Benedetti
------------------------------------------
Stephen J. Benedetti
Executive Vice President and
Chief Financial Officer
June 19, 2004
Appendix A
DYNEX CAPITAL, INC.
Audit Committee Charter
-----------------------
Organization
- ------------
The Audit Committee shall be appointed by the Board of Directors and shall
consist of at least three directors all of whom shall meet the independence and
experience requirements for audit committee members set forth in Rule 10A-3
under the Securities Exchange Act of 1934, as amended, the rules and regulations
of the New York Stock Exchange, NASDAQ and applicable law. All Committee members
shall be financially literate, or shall become financially literate within a
reasonable period of time after appointment to the Committee, and at least one
member shall have accounting or related financial management expertise. No
member of the Committee may serve on the Audit Committee of more than two other
public companies. The Board of Directors shall designate a member of the
Committee as Chairperson of the Committee. No member of the Committee may accept
directly or indirectly any consulting, advisory or other compensatory fee from
the Company or any of its subsidiaries other than director and committee fees
and pension or other forms of deferred compensation (provided such compensation
is not contingent in any way on continued service). Directors' fees received by
members of the Committee may be greater than the fees received by other
directors.
Statement of Policy
- -------------------
The Audit Committee shall assist the Board of Directors in fulfilling the
Board's oversight responsibility to the shareholders relating to (a) the
integrity of the financial statements of the Company, (b) the Company's
compliance with legal and regulatory requirements, (c) the qualifications,
independence and performance of the Company's independent auditor and (d) the
performance of the internal audit function. In connection with fulfilling these
responsibilities, the Committee shall meet with management, the internal auditor
(or other personnel responsible for the internal audit function) and the
independent auditor, including separate meetings with the independent auditor
without management being present. In so doing, the Committee will benefit from
free and open communication between the Committee, the directors, the
independent auditor, the internal auditor and management of the Company. The
Committee may adopt such policies and procedures as it may deem necessary or
appropriate to carry out its responsibilities under this charter.
Processes
- ---------
The following shall be the recurring processes of the Committee in carrying out
its oversight function. The Committee may supplement these processes as
appropriate.
o Engagement of Auditor. The Audit Committee shall be directly responsible
for the appointment, compensation, retention and oversight of the work
of the independent auditor engaged (including resolution of disagreements
between management and the auditor regarding financial reporting) for
the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company, and the independent
auditor shall report directly to the Audit Committee. With respect to any
continuing engagement of an independent auditor, the Committee shall
review and evaluate the lead audit partner, taking into account the
opinions of management and the Company's internal auditor, assure
the regular rotation of the lead audit partner and other audit partners
as required by law and consider whether there should be regular rotation
of the audit firm itself. The Committee shall pre-approve all auditing
and non-auditing services to be performed by the independent auditor as
required by law. In no event shall such non-auditing services be pro-
hibited by Section 10A of the Securities Exchange Act of 1934, as
amended. The Committee may delegate to one or more designated members
of the Committee the authority to grant such pre-approvals.
o Auditor Independence. The Audit Committee shall discuss the independence
of the Company's independent auditor from management and from the Company
and shall discuss all relationships between the independent auditor
and its affiliates and the Company and its affiliates that may reasonably
be thought to bear on the auditor's independence. The independent auditor
shall confirm that, in its view, it is independent of the Company. In
this regard, the Committee shall obtain at least annually a formal
written report from the independent auditor describing all relationships
between the auditor and its affiliates and the Company and its
affiliates. In addressing the auditor's independence, the Committee
shall consider any non-audit services performed by the independent
auditor and its affiliates for the Company and its affiliates and the
impact such services may have on the auditor's independence. In addition,
the Committee shall receive periodic reports from the auditor re-
garding the auditor's independence as required by the Independence
Standards Board and discuss such reports with the auditor. The Committee
may adopt policies regarding auditor independence including, without
limitation, policies regarding the auditor's performance of non-audit
services.
o Audit Planning. The Audit Committee shall discuss with the internal
auditor and the independent auditor the overall scope and plans for
their respective audits, including the adequacy of staffing. With
respect to the internal auditor, the Committee shall review the
internal auditor's responsibilities, staffing, budget and scope of the
internal audit and changes thereto.
o Review of Internal Controls. The Audit Committee shall discuss with
management, the internal auditor and the independent auditor (a) the
adequacy and effectiveness of accounting and financial controls that
could significantly affect the Company's financial statements, including,
without limitation, all significant deficiencies, if any, in the design
or operation of the Company's internal controls which could adversely
affect the Company's ability to record, process, summarize and report
financial data, and whether the Company's principal executive officer
and principal financial officer have identified for the Company's in-
dependent auditor any material weakness in the Company's internal con-
trols; and (b) any fraud, whether or not material, that involves man-
agement or other employees who have a significant role in the Company's
internal controls. The Committee may elicit any recommendations for the
improvement of such internal controls or particular areas where new or
more detailed controls or procedures are desirable.
o Risk Assessment and Management. The Audit Committee shall discuss with
management, the independent auditor and the internal auditor the
Company's policies and procedures with respect to risk assessment and
risk management.
o Review of Financial Statements. The Audit Committee shall review and
discuss the annual audited financial statements of the Company with man-
agement and the independent auditor, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Conditions and
Results of Operations." In addition, the Audit Committee shall periodi
cally discuss the quarterly financial statements of the Company with
management and the independent auditor, with a general focus on the types
of information to be disclosed and the type of presentation to be made.
The Committee shall discuss with management and the independent auditor
significant accounting principles, financial reporting issues and judg-
ments made in connection with the preparation of the Company's financial
statements, including, without limitation, critical accounting policies
and assumptions. On at least an annual basis, and on a quarterly basis as
appropriate to comply with its responsibilities, the Committee shall re-
view with management and the independent auditor all material off-
balance sheet transactions, arrangements, obligations and other Company
relationships with unconsolidated entities or other persons, and deter
mine whether any would have a material current or future effect on finan-
cial condition, changes in financial condition, results of operations,
liquidity, capital expenditures, capital resources or significant com-
ponents of revenues or expenses. The independent auditor shall provide
its judgment to the Committee about the quality, not merely the
acceptability, of accounting principles, the reasonableness of any
significant judgments, and the clarity of disclosures in the financial
statements as part of such review.
o Evaluation of Audit and Audit Problems. The Audit Committee shall dis-
cuss with the independent auditor the results of the annual audit and any
other matters required under generally accepted auditing standards to be
communicated to the Committee by the independent auditor regarding the
conduct of the audit. The Committee shall regularly review with the
independent auditor any audit problems or difficulties the auditor may
have encountered in the course of the audit work, including any restric-
tions on the scope of the auditor's activities or on access to
requested information and any significant disagreements with manage-
ment. In addition, the Audit Committee may review the following with
the independent auditor: (a) any accounting adjustments that were noted
or proposed by the auditor but were "passed" (as immaterial or other-
wise), (b) any communications between the audit team and the audit firm's
national office respecting auditing or accounting issues presented by the
engagement, and (c) any "management" or "internal control" letter issued,
or proposed to be issued, by the auditor to the Company. The Audit Com-
mittee shall, as it deems appropriate, resolve all disagreements be-
tween management and the independent auditor. The Committee also shall
review significant changes to the Company's accounting principles and
practices as suggested by the independent auditor, internal auditor or
management.
o Reports from Auditor. The Audit Committee shall receive all reports from
the independent auditor and all reports required under Section 10A of the
Securities Exchange Act of 1934, including a report with respect to
(a) all critical accounting policies and practices to be used in the
preparation of the Company's financial statements, (b) all alternative
treatments of financial information within generally accepted accounting
principles ("GAAP") that have been discussed with management of the Com-
pany, ramifications of the use of such alternative disclosures and treat-
ments, and the treatment preferred by the independent auditor, and
(c) other material written communications between the independent aud-
itor and management, such as any management letter or schedule of un-
adjusted differences. In addition, the Committee shall obtain and re-
view at least annually a report by the independent auditor describing the
independent auditor's internal quality-control procedures, and any
material issues raised by the most recent internal quality-control re-
view or peer review of the independent auditor, or by any inquiry or in-
vestigation by governmental or professional authorities, within the pre-
ceding five years, respecting one or more independent audits carried out
by the independent auditor, and any steps taken to deal with any such
issues.
o Reports Relating to Legal Matters. The Committee shall review reports
from management, and the Company's legal counsel as necessary,
regarding any significant legal matters that may have a material effect
on the financial statements or any matters that indicate or suggest the
occurrence of a material violation of applicable legal requirements or
the Company's ethics and compliance policies and programs.
o Earnings Press Releases. The Audit Committee shall periodically discuss
with management and t he independent auditor, the earnings press
releases of the Company as well as financial information and earnings
guidance provided to analysts and rating agencies. While this
discussion does not need to occur in advance of each earnings press
release, the discussion shall include a general focus on the types of
information to be disclosed and the type of presentation to be made in
earnings press releases.
o Report to Board. The Committee shall report regularly to the Board of
Directors any issues that arise with respect to the quality or
integrity of the Company's financial statements, the Company's
compliance with legal or regulatory requirements, the performance and
independence of the Company's independent auditor or the performance of
the internal audit function. In addition, the Committee shall annually
report to the Board of Directors its conclusions with respect to the
performance and independence of the Company's independent auditor. The
Committee shall regularly report its activities following its meeting
to the Board and maintain adequate minutes and records thereof.
o Report to SEC. The Audit Committee shall prepare the report required by
the rules of the Securities and Exchange Commission to be included in
the Company's annual proxy statement. In addition, the Committee shall
review the disclosure in all proxy statements regarding the
independence of Audit Committee members.
o Complaint Procedures. The Audit Committee shall establish procedures
for receiving, retaining and handling complaints regarding the
Company's accounting, internal controls or auditing matters, and for
the confidential, anonymous submission by Company employees of concerns
regarding questionable accounting or auditing matters.
o Hiring Policies. The Audit Committee shall establish hiring policies
for employees or former employees of the independent auditor that
address conflicts of interests.
o Investigations; Funding; Advisors. In discharging its role, the Audit
Committee may conduct an investigation into any matter brought to its
attention and shall have full access to all books, records, facilities
and personnel of the Company in order to conduct such an investigation.
Among other duties, the Audit Committee shall be responsible specifically
for the enforcement of the Company's Code of Business Conduct and Ethics.
The Company shall provide appropriate funding, as determined by the
Audit Committee, for ordinary administrative expenses of the Audit
Committee that are necessary or appropriate in carrying out its duties.
The Audit Committee also may retain, and shall receive appropriate
funding for, special legal, accounting or other consultants to advise
and assist the Committee as it deems necessary to carry out its duties,
without obtaining approval of the Board of Directors.
o Committee Performance Evaluation. The Audit Committee shall perform
an annual performance evaluation of the Committee, including, without
limitation, an evaluation of the fulfillment of its responsibilities
to review (a) any major issues regarding accounting principles and fin-
ancial statement presentations, including any significant changes in the
Company's selection or application of accounting principles; (b) any
major issues as to the adequacy of the Company's internal controls and
any special audit steps adopted in light of material control defi-
ciencies; (c) analyses prepared by management and/or the internal auditor
setting forth significant financial reporting issues and judgments made
in the preparation of the financial statements, including analyses of the
effects of alternative GAAP methods on the financial statements; (d) the
effect of regulatory and accounting initiatives, as well as off-balance
sheet structures, on the Company's financial statements; and (e) the
type and presentation of information to be included in earnings press
releases (paying particular attention to any use of "pro forma," or
"adjusted" non-GAAP, information), as well as financial information and
earnings guidance provided to analysts and rating agencies.
o Charter. The Audit Committee shall review and reassess the Audit
Committee charter at least annually, and any amendments thereto shall
be approved by the Board of Directors. The Company shall include a copy
of the charter in its proxy statement at least triennially or the year
after any significant amendment to the charter.
This charter shall not be construed in a manner that imposes upon the Audit
Committee a higher standard of care than that imposed upon committees of boards
of directors generally, pursuant to applicable law. It is not the duty of the
Committee to plan or conduct audits or to determine that the Company's financial
statements are complete or accurate or are in accordance with GAAP. Management
is responsible for the preparation, presentation, and integrity of the Company's
financial statements and for the appropriateness of the accounting principles
and reporting policies that are used by the Company. The independent auditor is
responsible for auditing the Company's financial statements and for reviewing
the Company's unaudited interim financial statements.
Approved on June 8, 2003 by the Board of Directors of Dynex Capital, Inc.
Appendix B
DYNEX CAPITAL, INC.
2004 STOCK INCENTIVE PLAN
-------------------------
Article I
DEFINITIONS
-----------
1.01. Administrator
Administrator means the Committee and any delegate of the Committee
that is appointed in accordance with Article III. Notwithstanding the preceding
sentence, "Administrator" means the Board on any date on which there is not a
Committee.
1.02. Agreement
Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of an Award granted to such Participant.
1.03. Average Net Worth
Average Net Worth means for any period, the arithmetic average of the
Net Worth of the Company at the beginning of such period and at the end of such
period.
1.04. Award
Award means an award of Performance Shares, or a Stock Award, Stock
Unit, Option or SAR granted to such Participant.
1.05. Board
Board means the Board of Directors of the Company.
1.06. Change in Control
Change in Control means the occurrence of any of the events set forth
in any one of the following paragraphs:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended) (a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination,
(i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, at least 80% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination; or
(iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
1.07. Code
Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.08. Committee
Committee means the Compensation Committee of the Board.
1.09. Common Stock
Common Stock means the common stock of the Company.
1.10. Company
Company means Dynex Capital, Inc. or any successor thereto.
1.11. Control Change Date
Control Change Date means the date on which a Change in Control occurs.
If a Change in Control occurs on account of a series of transactions, the
Control Change Date is the date of the last of such transactions.
1.12. Corresponding SAR
Corresponding SAR means an SAR that is granted in relation to a
particular Option and that can be exercised only upon the surrender to the
Company, unexercised, of that portion of the Option to which the SAR relates.
1.13. DER Accrual Period
DER Accrual Period means any period that begins with the previous DER
Award Date, or any date determined by this Committee after the grant date of the
related Option or SAR if there is no previous DER Award Date, and that ends on
the next DER Award Date.
1.14. DER Award Date
DER Award Date means any date determined by the Committee on which
Dividend Equivalent Rights are awarded.
1.15. Dividend Equivalent Right
Dividend Equivalent Right means any right granted under Section 9.01 of
the Plan.
1.16. Exchange Act
Exchange Act means the Securities Exchange Act of 1934, as amended from
time to time.
1.17. Fair Market Value
Fair Market Value means, on any given date, the reported closing price
of a share of Common Stock as reported on the New York Stock Exchange composite
tape on such day, or if the Common Stock was not traded on the New York Stock
Exchange on such day, then on the next preceding day that the Common Stock was
so traded, all as reported by such service as the Administrator may select.
1.18. Initial Value
Initial Value means, with respect to a Corresponding SAR, the Option
price per share of the related Option and, with respect to an SAR granted
independently of an Option, the price per share of Common Stock as determined by
the Administrator on the date of the grant; provided, however, that the price
per share of Common Stock encompassed by the grant of an SAR shall not be less
than the Fair Market Value on the date of grant. Except for an adjustment
authorized under Article XII, the Initial Value may not be reduced (by amendment
or cancellation of the SAR or otherwise) after the date of grant.
1.19. Net Worth
Net Worth means the excess of the Company's assets over liabilities,
but excluding the value of any preferred equity in the Company, as determined in
accordance with generally accepted accounting principles.
1.20. Option
Option means a stock option that entitles the holder to purchase from
the Company a stated number of shares of Common Stock at the price set forth in
an Agreement.
1.21. Participant
Participant means an employee of the Company or a Related Entity, a
member of the Board or the board of directors of a Related Entity or a
consultant or advisor to the Company or a Related Entity who satisfies the
requirements of Article IV and is selected by the Administrator to receive an
Award.
1.22. Performance Criteria
Performance Criteria means one or more of (a) cash flow and/or free
cash flow (before or after dividends), (b) earnings per share (including
earnings before interest, taxes, depreciation and amortization) (diluted and
basic earnings per share), (c) the price of Common Stock, (d) return on equity,
(e) total shareholder return, (f) return on capital (including return on total
capital or return on invested capital), (g) return on assets or net assets, (h)
market capitalization, (i) income or net income (before or after taxes), (j)
operating income or net operating income, (k) operating profit or net operating
profit, (l) operating margin or profit margin, (m) return on operating revenue,
(n) market share, (o) revenue growth, (p) net interest margin, (q) sales, (r)
delinquency ratios, (s) credit loss levels, (t) expenses, (u) total shareholder
equity, (v) return the portfolio assets, (w) portfolio growth, (x) servicing
volume, (y) production volume and (z) dividends.
1.23. Performance Shares
Performance Shares means an Award, in the amount determined by the
Administrator and specified in an Agreement, stated with reference to a specific
number of shares of Common Stock, or Stock Units, that entitles holder to
receive a payment for each specified share equal to the Fair Market Value of
Common Stock on the date of payment.
1.24. Plan
Plan means the Dynex Capital, Inc. 2004 Stock Incentive Plan.
1.25. Related Entity
Related Entity means any entity in which the Company has a significant
entity interest, as determined by the Company.
1.26. SAR
SAR means a stock appreciation right that entitles the holder to
receive, with respect to each share of Common Stock encompassed by the exercise
of such SAR, the amount determined by the Administrator and specified in an
Agreement. In the absence of such a determination, the holder shall be entitled
to receive the excess, if any, of the Fair Market Value at the time of exercise
over the Initial Value. References to "SARs" include both Corresponding SARs and
SARs granted independently of Options, unless the context requires otherwise.
1.27. Stock Award
Stock Award means Common Stock awarded to a Participant under Article
VIII.
1.28. Stock Unit
Stock Unit means an Award, or the amount determined by the
Administrator and specified in an Agreement, stated with reference to a
specified number of shares of Common Stock, that entitles the holder to receive
a payment for each Stock Unit equal to the Fair Market Value of a share of
Common Stock on the date of payment.
Article II
PURPOSES
--------
The Plan is intended to assist the Company and Related Entities in
recruiting and retaining individuals with ability and initiative by enabling
such persons to participate in the future success of the Company and the Related
Entities and to associate their interests with those of the Company and its
shareholders. The Plan is intended to permit the grant of both Options
qualifying under Section 422 of the Code ("incentive stock options") and Options
not so qualifying, and the grant of SARs, Stock Awards, Stock Units, Performance
Shares and Dividend Equivalent Rights. No Option that is intended to be an
incentive stock option shall be invalid for failure to qualify as an incentive
stock option. The proceeds received by the Company from the sale of Common Stock
pursuant to this Plan shall be used for general corporate purposes.
Article III
ADMINISTRATION
--------------
The Plan shall be administered by the Administrator. The Administrator
shall have authority to grant Awards, upon such terms (not inconsistent with the
provisions of this Plan), as the Administrator may consider appropriate. Such
terms may include conditions (in addition to those contained in this Plan) on
the exercisability of all or any part of an Option, SAR or Dividend Equivalent
Rights or on the transferability or forfeitability of a Stock Award, Stock Unit
or award of Performance Shares including by way of example and not of
limitation, requirements that the Participant complete a specified period of
employment or service with the Company or a Related Entity, requirements that
the Company achieve a specified level of financial performance or that the
Company achieve a specified level of financial return. Notwithstanding any such
conditions, the Administrator may, in its discretion, accelerate the time at
which any Option, SAR or Dividend Equivalent Rights may be exercised, or the
time at which a Stock Award may become transferable or nonforfeitable or both,
or the time at which an award of Performance Shares may be settled. In addition,
the Administrator shall have complete authority to interpret all provisions of
this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind
rules and regulations pertaining to the administration of the Plan; and to make
all other determinations necessary or advisable for the administration of this
Plan. The express grant in the Plan of any specific power to the Administrator
shall not be construed as limiting any power or authority of the Administrator.
Any decision made, or action taken, by the Administrator in connection with the
administration of this Plan shall be final and conclusive. Neither the
Administrator nor any member of the Committee shall be liable for any act done
in good faith with respect to this Plan or any Agreement, or Award. All expenses
of administering this Plan shall be borne by the Company, a Related Entity or a
combination thereof.
The Committee, in its discretion, may delegate to one or more officers
of the Company all or part of the Committee's authority and duties with respect
to grants and awards to individuals who are not subject to the reporting and
other provisions of Section 16 of the Exchange Act. The Committee may revoke or
amend the terms of a delegation at any time but such action shall not invalidate
any prior actions of the Committee's delegate or delegates that were consistent
with the terms of the Plan.
Article IV
ELIGIBILITY
-----------
Any employee of the Company, any member of the Board, any employee or
director of a Related Entity (including a corporation that becomes a Related
Entity after the adoption of this Plan), or any consultant or advisor to the
Company or Related Entity is eligible to participate in this Plan if the
Administrator, in its sole discretion, determines that such person has
contributed or can be expected to contribute to the profits or growth of the
Company or a Related Entity.
Article V
STOCK SUBJECT TO PLAN
---------------------
5.01. Shares Issued
Upon the award of shares of Common Stock pursuant to a Stock Award or
in settlement of an Award of Performance Shares or Stock Units, the Company may
issue shares of Common Stock from its authorized but unissued Common Stock. Upon
the exercise of any Option, SAR or Dividend Equivalent Rights, the Company may
deliver to the Participant (or the Participant's broker if the Participant so
directs), shares of Common Stock from its authorized but unissued Common Stock.
5.02. Aggregate Limit
The maximum aggregate number of shares of Common Stock that may be
issued under this Plan, pursuant to the exercise of SARs, Options and Dividend
Equivalent Rights, the grant of Stock Awards and the settlement of Performance
Shares and Stock Units is 1,500,000 shares. The maximum aggregate number of
shares that may be issued under this Plan as Stock Awards is 500,000 shares. The
maximum aggregate number of shares that may be issued under this Plan in
settlement of Performance Shares is 500,000. The maximum aggregate number of
shares that may be issued under the Plan in settlement of Stock Units is
500,000. The maximum aggregate number of shares that may be issued under this
Plan and the maximum number of shares that may be issued as Stock Awards and in
settlement of Performance Shares and Stock Units shall be subject to adjustment
as provided in Article XII.
5.03. Reallocation of Shares
If an Option is terminated, in whole or in part, for any reason other
than its exercise or the exercise of a Corresponding SAR, the number of shares
of Common Stock allocated to the Option and any related Dividend Equivalent
Rights or portion thereof may be reallocated to other Awards to be granted under
this Plan. If an SAR is terminated, in whole or in part, for any reason other
than its exercise or the exercise of a related Option, the number of shares of
Common Stock allocated to the SAR and any related Dividend Equivalent Rights or
portion thereof may be reallocated to other Awards to be granted under this
Plan. If a Stock Award, Performance Share Award or Stock Unit is forfeited or
terminated, in whole or in part, for any reason, the number of shares of Common
Stock allocated to the Stock Award, Performance Share Award or Stock Unit or
portion thereof may be reallocated to other Awards to be granted under this
Plan. If shares of Common Stock are surrendered or withheld in satisfaction of
tax withholding requirements the number of shares surrendered or withheld may be
reallocated to other Awards to be granted under this Plan.
Article VI
OPTIONS
-------
6.01. Award
In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom an Option is to be granted and will specify
the number of shares of Common Stock covered by each such award; provided,
however that no Participant may be granted Options in any calendar year covering
more than 150,000 shares of Common Stock.
6.02. Option Price
The price per share for Common Stock purchased on the exercise of an
Option shall be determined by the Administrator on the date of grant, but shall
not be less than the Fair Market Value on the date the Option is granted. Except
for an adjustment authorized under Article XII, the Option price may not be
reduced (by amendment or cancellation of the Option or otherwise) after the date
of grant.
6.03. Maximum Option Period
The maximum period in which an Option may be exercised shall be ten
years from the date such Option was granted. The terms of any Option may provide
that it has a term that is less than such maximum period.
6.04. Nontransferability
Except as provided in Section 6.05, each Option granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. In the event of any transfer of an Option (by the Participant or
his transferee), the Option and any Corresponding SAR that relates to such
Option must be transferred to the same person or persons or entity or entities.
Except as provided in Section 6.05, during the lifetime of the Participant to
whom the Option is granted, the Option may be exercised only by the Participant.
No right or interest of a Participant in any Option shall be liable for, or
subject to, any lien, obligation, or liability of such Participant.
6.05. Transferable Options
Section 6.04 to the contrary notwithstanding, if the Agreement
provides, an Option that is not an incentive stock option may be transferred by
a Participant to the Participant's children, grandchildren, spouse, one or more
trusts for the benefit of such family members or a partnership in which such
family members are the only partners, on such terms and conditions as may be
permitted under Securities Exchange Commission Rule 16b-3 as in effect from time
to time. The holder of an Option transferred pursuant to this section shall be
bound by the same terms and conditions that governed the Option during the
period that it was held by the Participant; provided, however, that such
transferee may not transfer the Option except by will or the laws of descent and
distribution. In the event of any transfer of an Option (by the Participant or
his transferee), the Option and any Corresponding SAR that relates to such
Option must be transferred to the same person or persons or entity or entities.
6.06. Employee Status
For purposes of determining the applicability of Section 422 of the
Code (relating to incentive stock options), or in the event that the terms of
any Option provide that it may be exercised only during employment or continued
service or within a specified period of time after termination of employment or
service, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment or service.
6.07. Exercise
Subject to the provisions of this Plan and the applicable Agreement, an
Option may be exercised in whole at any time or in part from time to time at
such times and in compliance with such requirements as the Administrator shall
determine; provided, however, that incentive stock options (granted under the
Plan and all plans of the Company and its Related Entities) may not be first
exercisable in a calendar year for stock having a Fair Market Value (determined
as of the date an Option is granted) exceeding the limit prescribed by Section
422(d) of the Code. An Option granted under this Plan may be exercised with
respect to any number of whole shares less than the full number for which the
Option could be exercised. A partial exercise of an Option shall not affect the
right to exercise the Option from time to time in accordance with this Plan and
the applicable Agreement with respect to the remaining shares subject to the
Option. The exercise of an Option shall result in the termination of any
Corresponding SAR to the extent of the number of shares with respect to which
the Option is exercised.
6.08. Payment
Unless otherwise provided by the Agreement, payment of the Option price
shall be made in cash or a cash equivalent acceptable to the Administrator.
Subject to rules established by the Administrator, payment of all or part of the
Option price may be made with shares of Common Stock which have been owned by
the Participant for at least six months and which have not been used for another
Option exercise during the prior six months. If Common Stock is used to pay all
or part of the Option price, the sum of the cash and cash equivalent and the
Fair Market Value (determined as of the day preceding the date of exercise) of
the shares surrendered must not be less than the Option price of the shares for
which the Option is being exercised.
6.09. Change in Control
Section 6.07 to the contrary notwithstanding and subject to the terms
set forth in an Agreement, each outstanding Option may be fully exercisable (in
whole or in part at the discretion of the holder) upon a Change in Control. An
Option that becomes exercisable pursuant to this Section 6.09 shall remain
exercisable thereafter in accordance with the terms of the Agreement.
6.10. Shareholder Rights
No Participant shall have any rights as a shareholder with respect to
shares subject to his Option until the date of exercise of such Option.
6.11. Disposition of Stock
A Participant shall notify the Company of any sale or other disposition
of Common Stock acquired pursuant to an Option that was an incentive stock
option if such sale or disposition occurs (i) within two years of the grant of
an Option or (ii) within one year of the issuance of the Common Stock to the
Participant. Such notice shall be in writing and directed to the Secretary of
the Company.
Article VII
SARS
----
7.01. Award
In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom SARs are to be granted and will specify the
number of shares covered by each such award; provided, however, no Participant
may be granted SARS in any calendar year covering more than 150,000 shares of
Common Stock. For purposes of the foregoing limit, an Option and Corresponding
SAR shall be treated as a single award. In addition, no Participant may be
granted Corresponding SARs (under all incentive stock option plans of the
Company and its Affiliates) that are related to incentive stock options which
are first exercisable in any calendar year for stock having an aggregate Fair
Market Value (determined as of the date the related Option is granted) that
exceeds the limit prescribed by Section 422(d) of the Code.
7.02. Maximum SAR Period
The maximum period in which an SAR may be exercised shall be ten years
from the date such SAR was granted. The terms of any SAR may provide that it has
a term that is less than such maximum period.
7.03. Nontransferability
Except as provided in Section 7.04, each SAR granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. In the event of any such transfer, a Corresponding SAR and the
related Option must be transferred to the same person or persons or entity or
entities. Except as provided in Section 7.04, during the lifetime of the
Participant to whom the SAR is granted, the SAR may be exercised only by the
Participant. No right or interest of a Participant in any SAR shall be liable
for, or subject to, any lien, obligation, or liability of such Participant.
7.04. Transferable SARs
Section 7.03 to the contrary notwithstanding, if the Agreement
provides, an SAR, other than a Corresponding SAR that is related to an incentive
stock option, may be transferred by a Participant to the Participant's children,
grandchildren, spouse, one or more trusts for the benefit of such family members
or a partnership in which such family members are the only partners, on such
terms and conditions as may be permitted under Securities Exchange Commission
Rule 16b-3 as in effect from time to time. The holder of an SAR transferred
pursuant to this Section shall be bound by the same terms and conditions that
governed the SAR during the period that it was held by the Participant;
provided, however, that such transferee may not transfer the SAR except by will
or the laws of descent and distribution. In the event of any transfer of a
Corresponding SAR (by the Participant or his transferee), the Corresponding SAR
and the related Option must be transferred to the same person or person or
entity or entities.
7.05. Exercise
Subject to the provisions of this Plan and the applicable Agreement, an
SAR may be exercised in whole at any time or in part from time to time at such
times and in compliance with such requirements as the Administrator shall
determine; provided, however, that a Corresponding SAR that is related to an
incentive stock option may be exercised only to the extent that the related
Option is exercisable and only when the Fair Market Value exceeds the option
price of the related Option. An SAR granted under this Plan may be exercised
with respect to any number of whole shares less than the full number for which
the SAR could be exercised. A partial exercise of an SAR shall not affect the
right to exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR.
The exercise of a Corresponding SAR shall result in the termination of the
related Option to the extent of the number of shares with respect to which the
SAR is exercised.
7.06. Change in Control
Section 7.05 to the contrary notwithstanding and subject to the terms
of the Agreement, each outstanding SAR may be fully exercisable (in whole or in
part at the discretion of the holder) upon a Change in Control. An SAR that
becomes exercisable pursuant to this Section 7.06 shall remain exercisable
thereafter in accordance with the terms of the Agreement.
7.07. Employee Status
If the terms of any SAR provide that it may be exercised only during
employment or continued service or within a specified period of time after
termination of employment or service, the Administrator may decide to what
extent leaves of absence for governmental or military service, illness,
temporary disability or other reasons shall not be deemed interruptions of
continuous employment or service.
7.08. Settlement
At the Administrator's discretion, the amount payable as a result of
the exercise of an SAR may be settled in cash, Common Stock, or a combination of
cash and Common Stock. No fractional share will be deliverable upon the exercise
of an SAR but a cash payment will be made in lieu thereof.
7.09. Shareholder Rights
No Participant shall, as a result of receiving an SAR, have any rights
as a shareholder of the Company until the date that the SAR is exercised and
then only to the extent that the SAR is settled by the issuance of Common Stock.
Article VIII
STOCK AWARDS
------------
8.01. Award
In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom a Stock Award is to be made and will specify
the number of shares of Common Stock covered by each such award; provided,
however, that no Participant may receive Stock Awards in any calendar year for
more than 150,000 shares of Common Stock.
8.02. Vesting
The Administrator, on the date of the award, may prescribe that a
Participant's rights in a Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement. The restrictions set forth in the Agreement must include
a period of restriction for at least three years; provided, however, that such
restrictions shall not apply in the case of a Stock Award granted in connection
with the settlement of Performance shares. By way of example and not of
limitation, the restrictions may postpone transferability of the shares or may
provide that the shares will be forfeited if the Participant separates from the
service of the Company and its Related Entities before the expiration of a
stated period or if the Company, a Related Entity, the Company and its Related
Entities or the Participant fails to achieve stated performance objectives,
including performance objectives stated with reference to Performance Criteria.
The Administrator, in its discretion, may waive the requirements for vesting or
transferability for all or part of the shares subject to a Stock Award in
connection with a Participant's termination of employment or service.
8.03. Employee Status
In the event that the terms of any Stock Award provide that shares may
become transferable and nonforfeitable thereunder only after completion of a
specified period of employment or service, the Administrator may decide in each
case to what extent leaves of absence for governmental or military service,
illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment or service.
8.04. Change in Control
Sections 8.02 and 8.03 to the contrary notwithstanding and subject to
the terms of the Agreement, each outstanding Stock Award may be transferable and
nonforfeitable upon a Change in Control.
8.05. Shareholder Rights
Prior to their forfeiture (in accordance with the applicable Agreement
and while the shares of Common Stock granted pursuant to the Stock Award may be
forfeited or are nontransferable), a Participant will have all the rights of a
shareholder with respect to a Stock Award, including the right to receive
dividends and vote the shares; provided, however, that during such period (i) a
Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of shares of Common Stock granted pursuant to a Stock Award, (ii) the
Company shall retain custody of the certificates evidencing shares of Common
Stock granted pursuant to a Stock Award, and (iii) the Participant will deliver
to the Company a stock power, endorsed in blank, with respect to each Stock
Award. The limitations set forth in the preceding sentence shall not apply after
the shares of Common Stock granted under the Stock Award are transferable and
are no longer forfeitable.
Article IX
DIVIDEND EQUIVALENT RIGHTS
9.01. Award
If provided in an Agreement, any Option or SAR granted hereunder will
accrue Dividend Equivalent Rights on each DER Award Date following the grant of
such Option or SAR in an amount determined by the following formula: the number
of shares of Common Stock subject to the Option or SAR (including for this
purpose the number of shares of Common Stock subject to Dividend Equivalent
Rights previously accrued on such Option or SAR) will be multiplied by the
Dividend Excess (as hereinafter defined) per outstanding share of Common Stock,
and the resulting product will be divided by the Fair Market Value on the DER
Award Date. The "Dividend Excess," if any, for any DER Award Date shall equal
the excess of dividends actually paid on shares of Common Stock during the DER
Accrual Period ending with the DER Award Date, which excess shall not exceed the
Company's net income for such period, over the Benchmark Earnings (as
hereinafter defined). The Benchmark Earnings for any DER Award Date shall equal
the product of (i) the Designated Yield (as hereinafter defined) for the DER
Accrual Period ending with the DER Award Date, (ii) the Company's Average Net
Worth during such DER Accrual Period and (iii) a fraction, the numerator of
which is the number of days in the DER Accrual Period ending with the DER Award
Date and the denominator of which is 365. The Designated Yield shall be set by
the Committee or each DER Award Date, but will not be less than 2%. The
Committee will determine if the DERs are to be paid in additional Options (if
Options were granted), in additional SARs (if SARs were granted), in Common
Stock or in cash.
9.02. Time and Method of Exercise
Upon exercise of the Option or the SAR, a number of accrued Dividend
Equivalent Rights shall be deemed to have been exercised equal to the total
number of such accrued Dividend Equivalent Rights as of the end of the month
preceding the month of exercise multiplied by a fraction, the numerator of which
is the number of shares of Common Stock for which the Option or SAR is being
exercised on such date, and the denominator of which is the maximum number of
shares of Common Stock for which the Option or the SAR could have been exercised
immediately prior to such exercise; provided, however, that any fractional
Dividend Equivalent Rights resulting from this calculation shall not be deemed
to have been exercised. As provided in an Agreement, each Dividend Equivalent
Right shall entitle the Option or the SAR holder to receive either (i)
additional Options or SARs, as the case may be; (ii) Common Stock or (iii) cash
upon the deemed exercise of such Right. Fractional Dividend Equivalent Rights
shall continue to accrue with respect to any Option or SAR that has not been
totally exercised. Upon the total exercise of any Option or SAR, any remaining
fractional Dividend Equivalent Rights accrued with respect thereto shall be
canceled if paid in stock. Upon the exercise of the Dividend Equivalent Rights
on an Option, the proportionate number of Dividend Equivalent Rights on any
Corresponding SAR will be canceled and vice versa.
Article X
PERFORMANCE SHARE AWARDS
------------------------
10.01. Award
In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom an Award of Performance Shares is to be made
and will specify the number of shares of Common Stock covered by each such
Award; provided, however, that no Participant may receive an Award of
Performance Shares in any calendar year for more than 150,000 shares of Common
Stock.
10.02. Earning the Award
The Administrator, on the date of the grant of an Award, shall
prescribe that the Performance Shares, or a portion thereof, will be earned, and
the Participant will be entitled to receive payment pursuant to the Award of
Performance Shares, only upon the satisfaction of performance objectives or such
other criteria as may be prescribed by the Administrator and set forth in the
Agreement. The restrictions set forth in the Agreement must include the
attainment of performance objectives, including performance objectives stated
with reference to Performance Criteria; provided, however, that such
restrictions shall not apply in the case of a Stock Award granted in connection
with the settlement of Performance Shares or Stock Awards or in the case of a
substitute Award pursuant to Article XII. By way of example and not of
limitation, the performance objectives or other criteria may provide that the
Performance Shares will be earned only if the Participant remains in the employ
or service of the Company or a Related Entity for a stated period and that the
Company, a Related Entity, the Company and its Related Entities or the
Participant achieve stated objectives. Notwithstanding the preceding sentences
of this Section 10.02, the Administrator, in its discretion, may reduce the
duration of the performance period and may adjust the performance objectives for
outstanding Performance Shares in connection with a Participant's termination of
employment or service.
10.03. Payment
In the discretion of the Administrator, the amount payable when an
Award of Performance Shares is earned may be settled in cash, by the issuance of
Common Stock, grant of Stock Units or a combination of cash, Common Stock and/or
Stock Units. A fractional share shall not be deliverable when an Award of
Performance Shares is earned, but a cash payment will be made in lieu thereof.
10.04. Shareholder Rights
No Participant shall, as a result of receiving an Award of Performance
Shares, have any rights as a shareholder until and to the extent that the Award
of Performance Shares is earned and settled by the issuance of Common Stock.
After an Award of Performance Shares is earned, if settled completely or
partially in Common Stock, a Participant will have all the rights of a
shareholder with respect to such Common Stock.
10.05. Nontransferability
Except as provided in Section 10.06, Performance Shares granted under
this Plan shall be nontransferable except by will or by the laws of descent and
distribution. No right or interest of a Participant in any Performance Shares
shall be liable for, or subject to, any lien, obligation, or liability of such
Participant.
10.06. Transferable Performance Shares
Section 10.05 to the contrary notwithstanding, if the Agreement
provides, an Award of Performance Shares may be transferred by a Participant to
the Participant's children, grandchildren, spouse, one or more trusts for the
benefit of such family members or a partnership in which such family members are
the only partners, on such terms and conditions as may be permitted under
Securities Exchange Commission Rule 16b-3 as in effect from time to time. The
holder of Performance Shares transferred pursuant to this Section shall be bound
by the same terms and conditions that governed the Performance Shares during the
period that they were held by the Participant; provided, however that such
transferee may not transfer Performance Shares except by will or the laws of
descent and distribution.
10.07. Employee Status
In the event that the terms of any Performance Share Award provide that
no payment will be made unless the Participant completes a stated period of
employment or service, the Administrator may decide to what extent leaves of
absence for government or military service, illness, temporary disability, or
other reasons shall not be deemed interruptions of continuous employment or
service.
10.08. Change in Control
Section 10.02 to the contrary notwithstanding and subject to the terms
of the Agreement, each outstanding Performance Award may be fully earned upon a
Change in Control.
Article XI
STOCK UNITS
-----------
11.01. Award
In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom an Award of Stock Units is to be made and will
specify the number of Stock Units covered by such Awards; provided, however,
that no Participant may be awarded Stock Units for more than 150,000 shares of
Common Stock in any calendar year.
11.02. Earning the Award
The Administrator, on the date of grant of the Award, may prescribe
that the Stock Units or a portion thereof, will be earned only upon, and the
Participant will be entitled to receive a payment pursuant to the Award of Stock
Units, only upon the satisfaction of performance objectives or such other
criteria as may be prescribed by the Administrator and set forth in the
Agreement. The restrictions set forth in the Agreement must include a period of
restriction of at least three years or the attainment of performance objectives,
including performance objectives stated with reference to Performance Criteria;
provided, however, that such restrictions shall not apply in the case of a Stock
Unit granted in connection with the Settlement of Performance Shares or Stock
Awards or in the case of a substitute award pursuant to Article XII. By way of
example and not of limitation, the Performance Criteria or other criteria may
provide that the Stock Units will be earned only if the Participant remains in
the employ or service of the Company or a Related Entity for a stated period or
that the Company, a Related Entity, the Company and its Related Entities or the
Participant achieve stated objectives including performance objectives stated
with reference to Performance Criteria. Notwithstanding the preceding sentences
of this Section 11.02, the Administrator, in its discretion, may reduce the
duration of the performance period and may adjust the performance objectives for
outstanding Stock Units in connection with a Participant's termination of
employment or service.
11.03. Payment
In accordance with the Agreement, the amount payable when an award of
Stock Units is earned may be settled in cash, Common Stock or a combination of
cash and Common Stock. A fractional share shall not be deliverable when an Award
of Stock Units is earned, but a cash payment will be made in lieu thereof.
11.04. Nontransferability
A Participant may not sell, transfer, pledge, exchange, hypothecate, or
otherwise dispose of a Stock Unit Award other than by will or the laws of
descent and distribution. The limitations set forth in the preceding sentence
shall not apply to Common Stock issued as payment pursuant to a award of Stock
Units.
11.05. Shareholder Rights
No Participant shall, as a result of receiving an award of Stock Units,
have any rights as a shareholder of the Company or Subsidiary until and to the
extent that the Stock Units are earned and settled in shares of Common Stock.
After Stock Units are earned and settled in shares of Common Stock, a
Participant will have all the rights of a shareholder with respect to such
shares.
11.06. Change in Control
Section 11.02 to the contrary notwithstanding and subject to the terms
of the Agreement, each outstanding award of Stock Units may be transferable and
non-forfeitable upon a Change in Control.
Article XII
ADJUSTMENT UPON CHANGE IN COMMON STOCK
--------------------------------------
The maximum number of shares as to which Awards may be granted under
this Plan; the terms of outstanding Awards; and the per individual limitations
on the number of shares of Common Stock for which Stock Awards may be granted
shall be adjusted as the Committee shall determine to be equitably required in
the event that (a) the Company (i) effects one or more stock dividends, stock
split-ups, subdivisions or consolidations of shares or (ii) engages in a
transaction to which Section 424 of the Code applies, (b) there occurs any other
event which, in the judgment of the Committee necessitates such action or (c)
there is a Change in Control. Any determination made under this Article XII by
the Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefore, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
maximum number of shares as to which Awards may be granted, the per individual
limitations on the number of shares of Common Stock for which Awards may be
granted or the terms of outstanding Awards.
The Committee may grant Awards in substitution for performance shares,
phantom shares, stock awards, stock options, stock appreciation rights, or
similar awards held by an individual who becomes an employee of the Company or a
Related Entity in connection with a transaction or event described in the first
paragraph of this Article XII. Notwithstanding any provision of the Plan (other
than the limitation of Section 5.02), the terms of such substituted Awards,
shall be as the Committee, in its discretion, determines is appropriate.
Article XIII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
-----------------------------------------------------
No Option or SAR shall be exercisable, no Common Stock shall be issued,
no certificates for shares of Common Stock shall be delivered, and no payment
shall be made under this Plan except in compliance with all applicable federal
and state laws and regulations (including, without limitation, withholding tax
requirements), any listing agreement to which the Company is a party, and the
rules of all domestic stock exchanges on which the Company's shares may be
listed. The Company shall have the right to rely on an opinion of its counsel as
to such compliance. Any share certificate issued to evidence Common Stock when a
Stock Award is granted, a Performance Share or Stock Unit is settled or for
which an Option or SAR is exercised may bear such legends and statements as the
Administrator may deem advisable to assure compliance with federal and state
laws and regulations. No Option or SAR shall be exercisable, no Stock Award,
Performance Share or Stock Unit shall be granted, no Common Stock shall be
issued, no certificate for shares shall be delivered, and no payment shall be
made under this Plan until the Company has obtained such consent or approval as
the Administrator may deem advisable from regulatory bodies having jurisdiction
over such matters.
Article XIV
GENERAL PROVISIONS
------------------
14.01. Effect on Employment and Service
Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof), shall confer upon
any individual any right to continue in the employ or service of the Company or
a Related Entity or in any way affect any right or power of the Company or a
Related Entity to terminate the employment or service of any individual at any
time with or without assigning a reason therefore.
14.02. Unfunded Plan
The Plan, insofar as it provides for grants, shall be unfunded, and the
Company shall not be required to segregate any assets that may at any time be
represented by grants under this Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based solely upon any
contractual obligations that may be created pursuant to this Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
14.03. Rules of Construction
Headings are given to the articles and sections of this Plan solely as
a convenience to facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any amendment to or
successor of such provision of law.
14.04. Tax Withholding
Each Participant shall be responsible for satisfying any income and
employment tax withholding obligation attributable to participation in this
Plan. In accordance with procedures established by the Administrator, a
Participant may surrender shares of Common Stock, or receive fewer shares of
Common Stock than otherwise would be issuable, in satisfaction of all or part of
that obligation.
Article XV
AMENDMENT
---------
The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if (i) the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan (other than an adjustment pursuant to
Article XII) or (ii) the amendment changes the class of individuals eligible to
become Participants. No amendment shall, without a Participant's consent,
adversely affect any rights of such Participant under any Award outstanding at
the time such amendment is made.
Article XVI
DURATION OF PLAN
----------------
No Award may be granted under this Plan more than ten years after the
earlier of the date the Plan is adopted by the Board or the date that the Plan
is approved in accordance with Article XVII. Awards granted before that date
shall remain valid in accordance with their terms.
Article XVII
EFFECTIVE DATE OF PLAN
----------------------
Options, SARs, Stock Units, Performance Shares and Dividend Equivalent
Rights may be granted under this Plan upon its adoption by the Board, provided
that no Option, SAR, Stock Unit, Performance or Dividend Equivalent Rights shall
be effective or exercisable unless this Plan is approved by a majority of the
votes cast by the Company's shareholders, voting either in person or by proxy,
at a duly held shareholders' meeting at which a quorum is present or by
unanimous consent. Stock Awards may be granted under this Plan, upon the later
of its adoption by the Board or its approval by shareholders in accordance with
the preceding sentence.
PROXY - COMMON STOCK
DYNEX CAPITAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas B. Akin 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.
that the undersigned is entitled to vote at the Annual Meeting of Shareholders
to be held at the "Traders" Conference Room of the New York Marriott Financial
Center located at 85 West Street, New York, New York on Tuesday, July 20, 2004,
at 9:00 a.m. Eastern Time, or any adjournment or postponement thereof, upon the
matters set forth in the Notice of Annual Meeting of Shareholders, 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 each of the nominees listed in
Proposals 1 and FOR Proposals 2 and 3.
1. Election of directors.
Thomas B. Akin |_| FOR |_| WITHHOLD
J. Sidney Davenport |_| FOR |_| WITHHOLD
Donald B. Vaden |_| FOR |_| WITHHOLD
Eric P. Von der Porten |_| FOR |_| WITHHOLD
2. Approval of the Dynex Capital, Inc. 2004 Stock Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Approval of an adjournment of the Annual Meeting, if necessary.
|_| FOR |_| AGAINST |_| ABSTAIN
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR each of the nominees listed in Proposals 1 and FOR Proposals 2 and 3.
In their discretion, the proxies are authorized to vote upon other business as
may properly come before the meeting.
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 partner-
ship name by authorized person.
Date: ________________________, 2004
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Signature
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Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
PROXY - SERIES D PREFERRED STOCK
DYNEX CAPITAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas B. Akin 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 Series D preferred stock of Dynex
Capital, Inc. that the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held at the "Traders" Conference Room of the New York
Marriott Financial Center located at 85 West Street, New York, New York on
Tuesday, July 20, 2004, at 9:00 a.m. Eastern Time, or any adjournment or
postponement thereof, upon the matters set forth in the Notice of Annual Meeting
of Shareholders, 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.
Election of Directors
Leon A. Felman |_| FOR |_| WITHHOLD
Barry Igdaloff |_| FOR |_| WITHHOLD
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is given or if this proxy card
is not completed in accordance with its instructions, the proxies will abstain
from voting the 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 partner-
ship name by authorized person.
Date: ________________________, 2004
------------------------------------
Signature
------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.