EXHIBIT (A)(1)(A)
Published on May 7, 2001
Exhibit (a)(1)(A)
[DYNEX CAPITAL LOGO]
DYNEX CAPITAL, INC.
OFFER TO PURCHASE FOR CASH UP TO:
500,000 SHARES OF SERIES A PREFERRED STOCK AT $12.24 PER SHARE
730,250 SHARES OF SERIES B PREFERRED STOCK AT $12.50 PER SHARE
702,700 SHARES OF SERIES C PREFERRED STOCK AT $15.30 PER SHARE
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON FRIDAY, JUNE 8, 2001, UNLESS THE OFFER IS EXTENDED.
Dynex Capital, Inc., a Virginia corporation ("Dynex"), invites its
stockholders to tender shares of its Series A preferred stock (the "Series A
Preferred Stock"); shares of its Series B preferred stock (the "Series B
Preferred Stock"), and shares of its Series C preferred stock (the "Series C
Preferred Stock", and collectively, the "Preferred Stock") all upon the terms
and subject to the conditions set forth in this document and in the related
letters of transmittal. Each share of Preferred Stock has a par value $0.01.
Pursuant to this Offer, Dynex will purchase up to 500,000 shares of its Series A
Preferred Stock at a purchase price of $12.24 per share, up to 730,250 shares of
its Series B Preferred Stock at a purchase price of $12.50 per share, and up to
702,700 shares of its Series C Preferred Stock at a purchase price of $15.30 per
share (or, in each case, such lesser number of shares as are properly tendered
and not properly withdrawn), upon the terms and subject to the conditions of the
offer, including the proration provisions. The purchase price per share is net
to the seller in cash, without interest thereon.
Dynex reserves the right, in its sole discretion, to increase the total
number of shares that may be purchased pursuant to this offer to 510,000 shares
of Series A Preferred Stock, to 744,855 shares of Series B Preferred Stock, and
to 716,754 shares of Series C Preferred Stock. Shares not purchased because of
the proration provisions will be returned at Dynex expense. See Section 3.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF PREFERRED
STOCK BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER
CONDITIONS. SEE SECTION 6.
Tendering holders of Preferred Stock will not be obligated to pay
brokerage commissions, solicitation fees, or, upon the terms and subject to the
conditions of the offer, stock transfer taxes on the purchase of shares of
Preferred Stock by Dynex. However, any tendering stockholder or other payee
required to complete a letter of transmittal who fails to complete fully and
sign the box captioned "Substitute Form W-9" included in the letter of
transmittal or, in the case of a non-U.S. holder, who fails to certify its
non-U.S. status, may be subject to a required tax withholding of 31% of the
gross proceeds paid to the stockholder or other payee pursuant to the offer.
Dynex will pay all charges and expenses of First Union National Bank, the
depositary, and MacKenzie Partners, Inc., the information agent, incurred in
connection with the offer.
Tendering holders of Preferred Stock will not receive any dividends
with respect to such shares, including dividends accumulated to date which will
be cancelled. There can be no assurance that holders that do not tender their
shares will receive any dividends in the future.
Tenders pursuant to the offer may be withdrawn at any time prior to
5:00 p.m. on Friday, June 8, 2001, the expiration date of the offer, or such
later expiration date if the offer is extended by Dynex, and, if not yet
accepted for payment, after July 3, 2001.
Each series of Preferred Stock is listed for trading on the Nasdaq
National Market. The Series A Preferred Stock is listed under the symbol
"DXCPP"; the Series B Preferred Stock is listed under the symbol "DXCPO"; and
the Series C Preferred Stock is listed under the symbol "DXCPN." Dynex announced
its intention to make the Offer after the close of the Nasdaq National Market on
April 30, 2001. Immediately prior to such announcement, the closing per share
sales price, as reported on the Nasdaq National Market, was $11.25 for the
Series A Preferred Stock, $11.50 for the Series B Preferred Stock, and $13.60
for the Series C Preferred Stock. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE SHARES. SEE SECTION 7.
THE BOARD OF DIRECTORS OF DYNEX HAS UNANIMOUSLY APPROVED THE MAKING OF
THE OFFER. YOU MUST, HOWEVER, MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES
AND, IF SO, HOW MANY SHARES TO TENDER. NONE OF DYNEX OR ITS BOARD OF DIRECTORS
MAKES ANY RECOMMENDATION TO YOU WITH RESPECT TO THE OFFER, AND NO PERSON HAS
BEEN AUTHORIZED BY DYNEX OR ITS BOARD OF DIRECTORS TO MAKE ANY SUCH
RECOMMENDATION. THE DIRECTORS AND EXECUTIVE OFFICERS OF DYNEX HAVE AGREED NOT TO
PARTICIPATE IN THE OFFER.
YOU SHOULD EVALUATE CAREFULLY ALL OF THE INFORMATION CONTAINED OR
REFERRED TO IN THIS DOCUMENT AND MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES
PURSUANT TO THE OFFER. YOU ARE URGED TO CONSULT A TAX ADVISOR CONCERNING ANY
FEDERAL, STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES OF A SALE OF PREFERRED STOCK
PURSUANT TO THE OFFER.
THE DATE OF THIS OFFER TO PURCHASE IS May 7, 2001
IMPORTANT
Any stockholder of record desiring to tender all or any portion of his,
her or its shares should complete and sign the letter of transmittal or a
facsimile thereof in accordance with the instructions in the letter of
transmittal, mail or deliver it with any required signature guarantee and any
other required documents to the depositary and either mail or deliver the stock
certificates for such shares to the depositary with any other required documents
or comply with the book-entry transfer facility's automated tender offer program
procedures described in Section 3 to the extent it is available. A stockholder
having shares registered in the name of a broker or a dealer, commercial bank,
trust company or other nominee must contact those persons if such stockholder
desires to tender such shares. Stockholders who desire to tender shares and
whose certificates for such shares are not immediately available or whose other
required documentation cannot be delivered to the depositary by the expiration
of the offer should tender such shares by following the procedures for
guaranteed delivery described in Section 3.
Questions and requests for assistance may be directed to the
information agent at the address and telephone number set forth on the back
cover of this offer to purchase. Requests for additional copies of this offer to
purchase and all related documents may also be directed to the information
agent.
SUMMARY TERM SHEET
We are providing this summary term sheet for your convenience. It
highlights the most material information in this document, but you should
realize that it does not describe all of the details of the offer. We urge you
to read the entire document and the related letter of transmittal because they
contain the full details of the offer. We have included references to the
sections of this document where you will find a more complete discussion.
Who is offering to Dynex is offering to purchase your shares of Series A
purchase my shares? Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock. See Introduction.
How many shares will Dynex will purchase up to 500,000 shares (or such
Dynex purchase and lesser number as are properly tendered) of Series
at what price? A preferred stock at a purchase price of $12.24 per
share. As of April 30, 2001, such price represented
a premium of 8.8% to the market price.
Dynex will purchase up to 730,250 shares (or such
lesser number as are properly tendered) of Series B
preferred stock at a purchase price of $12.50 per
share. As of April 30, 2001, such price represented
a premium of 8.7% to the market price.
Dynex will purchase up to 702,700 shares (or such
lesser number as are properly tendered) of Series C
preferred stock at a purchase price of $15.30 per
share. As of April 30, 2001, such price represented
a premium of 12.5% to the market price.
The offer is not conditioned on any minimum number of
shares being tendered.
Will I be paid any You will not receive any dividends with respect to
dividends? the shares that are tendered, including dividends
accumulated to date, which will be cancelled.
How will Dynex pay Dynex expects to fund the purchase of the shares
for the shares? under the offer and the payment of related fees and
expenses from available cash.
What is the purpose The board of directors believes that, given Dynex
of the offer? financial condition and the current market
environment, the purchase of its shares at this time
is a prudent course of action in order to enhance
stockholder value. See Section 2.
How long do I have You may tender your shares until the offer expires.
to tender my shares? The offer will expire on Friday, June 8, 2001 at
5:00 p.m., New York City time, unless Dynex extends
it. See Section 1. Dynex may choose to extend the
offer for any reason.
How will I be Dynex will issue a press release by 9:00 a.m.,
notified if Dynex New York City time, on the business day after the
extends the offer? previous scheduled expiration date if Dynex decides
to extend the offer. See Section 14.
Are there any The offer is subject to certain conditions, including
conditions to the absence of court and government actions
the offer? prohibiting the offer, general market conditions and
the condition of Dynex business. See Section 6.
How do I tender To tender your shares:
my shares?
o you must deliver your share certificate(s) and
a properly completed and duly executed letter of
transmittal for such series to the depositary at
the address appearing on the back cover of this
offer to purchase prior to 5:00 p.m., New York
City time, on Friday, June 8, 2001;
o the depositary must receive a confirmation of
receipt of your shares by book-entry transfer
and a properly completed and duly executed
letter of transmittal for such series;
o you must comply with The Depository Trust
Company's Automated Tender Offer Program; or
o if your share certificates are not immediately
available for delivery to the depositary, you
must comply with the guaranteed delivery
procedure described in Section 3.
Contact the information agent for assistance. See
Section 3 for more information.
Has Dynex or its The board of directors of Dynex has unanimously
board of directors approved the offer. However, neither Dynex nor its
adopted a position on directors makes any recommendation as to whether you
the tender offer? should tender shares pursuant to this offer. You
must make the decision whether to tender shares and,
if so, how many shares to tender. Directors and
executive officers of Dynex have agreed not to
participate in the offer.
Will I have to pay If you are a registered stockholder and you tender
brokerage commissions your shares directly to the depositary, you will not
if I tender my shares? incur any brokerage commissions. If you hold shares
through a broker or bank, Dynex urges you to consult
your broker or bank to determine whether any
transaction costs are applicable.
What are the United Generally, you will be subject to United States
States federal income federal income taxation upon the receipt of cash from
tax consequences if I Dynex in exchange for your shares under the tender
tender my shares? offer. In addition, such receipt of cash for your
tendered shares will be generally treated either as
(1) a sale or exchange eligible for capital gains
treatment or (2) a dividend subject to ordinary
income tax rates. Special rules may apply to
non-U.S. stockholders. See Section 12.
Will I have to pay a If you instruct the depositary in the related letter
stock transfer tax if of transmittal to make the payment for the shares
I tender my shares? to the registered holder, you will not incur any
stock transfer tax.
When will Dynex pay Dynex will pay the purchase price net in cash,
for the shares I without interest, for the shares it purchases
tender? promptly after the expiration date of the offer.
Once I have tendered You may withdraw any shares you have tendered at any
my shares in the offer, time before 5:00 p.m., New York City time, on Friday,
can I withdraw my June 8, 2001, unless Dynex has extended the offer.
tender? Unless the shares you have tendered have been
previously purchased by Dynex, you may also withdraw
your shares after July 3, 2001.
Who can I talk to if The information agent can help you answer your
I have questions? questions. The information agent is MacKenzie
Partners, Inc. The contact information is set forth
on the back cover page of this offer to purchase.
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET............................................................i
INTRODUCTION..................................................................1
THE OFFER.....................................................................3
1. Number of Shares; Proration; Extension of the Offer......................3
2. Purpose and Certain Effects of the Offer.................................4
3. Procedures for Tendering Shares..........................................6
4. Withdrawal Rights........................................................9
5. Purchase of Shares and Payment of Purchase Price........................10
6. Certain Conditions of the Offer.........................................11
7. Price Range of Preferred Stock; Dividends...............................12
8. Effects of the Offer....................................................13
9. Source and Amount of Funds..............................................13
10. Certain Information about Dynex; General Information....................14
11. Interest of Directors and Executive Officers and Principal
Stockholders; Transactions and Arrangements Concerning the
Preferred Stock.........................................................17
12. Federal Income Tax Consequences.........................................18
13. Certain Legal Matters; Regulatory Approvals.............................20
14. Extension of Offer Period; Termination; Amendments......................21
15. Fees and Expenses.......................................................21
16. Miscellaneous...........................................................22
17. Additional Information..................................................28
This offer to purchase, including the Summary Term Sheet, the
Introduction and Sections 2, 5, 7, 8, 9, 10, and 12 and documents incorporated
by reference contain statements that are not historical facts and constitute
projections, forecasts or forward-looking statements. These statements may be
identified by the use of forward-looking words or phrases including, but not
limited to, "anticipate", "believe", "expect", "intend", "may", "planned",
"potential", "should", "will" and "would". Such forward-looking statements are
inherently subject to known and unknown risks and uncertainties. As discussed in
Dynex filings with the SEC, these risks and uncertainties may include, but are
not limited to, changes in general economic conditions, disruptions in the
capital markets, the availability of funds from Dynex lenders to finance its
investments, fluctuations in interest rates, increases in costs and other
general competitive factors. Dynex actual actions or results may differ
materially from those expected or anticipated relative to the forward-looking
statements.
To the Holders of Preferred Stock of
Dynex Capital, Inc.
INTRODUCTION
Dynex Capital, Inc., a Virginia corporation ("Dynex"), invites its
stockholders to tender shares of its preferred stock, par value $0.01 per share
("Preferred Stock"), to Dynex at the purchase prices set forth below (the
"Purchase Price"), net to the seller in cash, without interest. Tendering
holders of Preferred Stock will not receive any dividends with respect to such
shares, including dividends accumulated to date which will be cancelled. Shares
must be tendered on the terms and subject to the conditions set forth in this
Offer to Purchase (the "Offer to Purchase") and in the related Letter of
Transmittal included herewith (which, as amended or supplemented from time to
time, together constitute the "Offer").
Purchase Price
Series A Preferred Stock $12.24
Series B Preferred Stock $12.50
Series C Preferred Stock $15.30
The price being offered to the holders of the Preferred Stock is equal to
51% of the issue price of each such series of preferred stock. The number of
shares being tendered for in each tender is equal to approximately 38.2% of the
shares of such series currently outstanding.
The tender offers for the Preferred Stock provide preferred stockholders who
elect to tender a premium over the market prices for the preferred stocks as of
April 30, 2001, and provide greater liquidity for the preferred stocks at such
price levels. As of April 30, 2001, the Purchase Price for the Series A
Preferred Stock represented a premium of 8.8% to the market price, the Purchase
Price for the Series B Preferred Stock represented a premium of 8.7% to the
market price, and the Purchase Price for the Series C Preferred Stock
represented a premium of 12.5% to the market price.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 6.
Stockholders tendering Preferred Stock will not be obligated to pay
brokerage commissions, solicitation fees, or, upon the terms and subject to the
conditions of the Offer, stock transfer taxes on the purchase of shares of
Preferred Stock by Dynex. However, any tendering stockholder or other payee
required to complete a Letter of Transmittal who fails to complete fully and
sign the box captioned "Substitute Form W-9" included in the Letter of
Transmittal may be subject to a required federal backup withholding tax of 31%
of the gross proceeds paid to the stockholder or other payee pursuant to the
Offer. Dynex will pay all charges and expenses of First Union National Bank (the
"Depositary") and MacKenzie Partners, Inc. (the "Information Agent") incurred in
connection with the Offer.
Tendering holders of Preferred Stock will not receive any dividends
with respect to such shares, including dividends accumulated to date which will
be cancelled. There can be no assurance that holders that do not tender their
shares will receive any dividends in the future.
Tenders pursuant to the Offer may be withdrawn at any time prior to
Friday, June 8, 2001, at 5:00 p.m., New York City time, the expiration date of
the Offer (including any extensions, the "Expiration Date"), and, if not yet
accepted for payment, after July 3, 2001.
THE OFFER
1. NUMBER OF SHARES; PRORATION; EXTENSION OF THE OFFER
Number of Shares to be Purchased. Upon the terms and subject to the
conditions of the Offer, Dynex will purchase up to 500,000 shares of Series A
Preferred Stock at a Purchase Price of $12.24 per share, up to 730,250 shares of
its Series B Preferred Stock at a Purchase Price of $12.50 per share, and up to
702,700 shares of its Series C Preferred Stock at a Purchase Price of $15.30 per
share or, in each case, such lesser number of shares as are properly tendered
(and not properly withdrawn as provided in Section 4) prior to the Expiration
Date at the respective Purchase Price, net to the seller in cash, without
interest. No fees or commissions will be payable by Dynex to brokers, dealers or
other persons (other than fees to the Information Agent as described in Section
15) for soliciting tenders of shares pursuant to the Offer. A stockholder
holding shares through a Nominee is urged to consult such Nominee to determine
whether transaction costs are applicable if such stockholder tenders shares
through such Nominee and not directly to the Depositary.
Expiration Date. The term "Expiration Date" means 5:00 p.m., New York
City time, on Friday, June 8, 2001, unless and until Dynex, in its sole
discretion, shall have extended the period of time during which the Offer will
remain open, in which event the term "Expiration Date" shall refer to the latest
time and date at which the Offer, as so extended by Dynex, shall expire. See
Section 14 for a description of Dynex right to extend, delay, terminate or amend
the Offer. In the event of an over-subscription of the Offer as described below,
shares properly tendered (and not properly withdrawn) prior to the Expiration
Date will be subject to proration. If (i) Dynex (a) increases or decreases the
Purchase Price for a series of Preferred Stock, or (b) increases by more than 2%
of the issued and outstanding shares of a series of Preferred Stock or decreases
the number of shares being sought, and (ii) the Offer is scheduled to expire at
any time earlier than the expiration of a period ending on the tenth business
day from, and including, the date that notice of the change is first published,
sent or given to stockholders, the Offer will be extended until the expiration
of such period of ten business days. Any such change will be disseminated
promptly to the stockholders in a manner reasonably designed to inform
stockholders of such change. See Section 14.
Priority of Purchase; Proration. If the number of shares validly
tendered and not properly withdrawn prior to the Expiration Date is less than or
equal to 500,000 shares in the case of Series A Preferred Stock, less than or
equal to 730,250 shares of its Series B Preferred Stock, or less than or equal
to 702,700 shares of its Series C Preferred Stock (or such greater number of
shares as Dynex may elect to purchase in accordance with the Offer), Dynex will,
upon the terms and subject to the conditions of the Offer, purchase all shares
of such series so tendered. In the event of an over-subscription of the Offer
for a series, shares for such series that are validly tendered and not properly
withdrawn prior to the Expiration Date shall be purchased on a pro-rata basis,
disregarding fractions that arise as a result of such prorationing, according to
the number of shares tendered by each holder of such series of Preferred Stock
prior to the Expiration Date; provided, however, that:
(a) Dynex reserves the right, in its sole discretion, to elect to
purchase any and all of the excess shares tendered; and so long as the excess
number accepted by Dynex does not exceed two percent (2%) of the issued and
outstanding shares of such series of Preferred Stock, no extension of the Offer
period and no further notice to the stockholders will be required or given. If
Dynex elects to purchase excess tendered shares of a series, but less than all
of the tendered shares of a series, then the shares of such series tendered
shall be purchased on a pro-rata basis, as described above.
If proration of tendered shares of a series is required, Dynex will
determine the proration factor as soon as practicable following the Expiration
Date. Proration for each stockholder tendering shares of a series shall be based
on the ratio of the number of shares of such series properly tendered and not
properly withdrawn by such stockholder to the total number of shares of such
series properly tendered and not properly withdrawn by all stockholders of a
series. Because of the difficulty in quickly determining the number of shares of
a series properly tendered and not properly withdrawn, and because of the
procedures for guaranteed delivery, Dynex expects that it will not be able to
announce the final proration factor or commence payment for any shares of a
series purchased pursuant to the Offer until approximately five business days
after the Expiration Date.
THE BOARD OF DIRECTORS OF DYNEX HAS UNANIMOUSLY APPROVED THE MAKING OF
THE OFFER. YOU MUST, HOWEVER, MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES
AND, IF SO, HOW MANY SHARES TO TENDER. NONE OF DYNEX OR ITS BOARD OF DIRECTORS
MAKES ANY RECOMMENDATION TO YOU WITH RESPECT TO THE OFFER, AND NO PERSON HAS
BEEN AUTHORIZED BY DYNEX OR ITS BOARD OF DIRECTORS TO MAKE ANY SUCH
RECOMMENDATION. THE DIRECTORS AND EXECUTIVE OFFICERS OF DYNEX HAVE AGREED NOT TO
PARTICIPATE IN THE OFFER.
YOU SHOULD EVALUATE CAREFULLY ALL OF THE INFORMATION CONTAINED OR
REFERRED TO IN THIS DOCUMENT AND MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES
PURSUANT TO THE OFFER. YOU ARE URGED TO CONSULT A TAX ADVISOR CONCERNING ANY
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF A SALE OF PREFERRED STOCK
PURSUANT TO THE OFFER.
Any stockholder of record desiring to tender all or any portion of his
or her shares should complete and sign the applicable Letter of Transmittal or a
facsimile thereof in accordance with the instructions in the applicable Letter
of Transmittal, mail or deliver it with any required signature guarantee and any
other required documents to the Depositary and either mail or deliver the stock
certificates for such shares of Preferred Stock to the Depositary (with all such
other documents). A stockholder having shares registered in the name of a broker
or a dealer, commercial bank, trust company or other nominee (each, a "Nominee")
must contact that Nominee if such stockholder desires to tender such shares.
Nominees may also tender shares in accordance with the Automated Tender Offer
Program procedures of The Depository Trust Company. Stockholders who desire to
tender shares of Preferred Stock and whose certificates for such shares are not
immediately available or whose other required documentation cannot be delivered
to the Depositary by the Expiration Date should tender such shares by following
the procedures for guaranteed delivery set forth in Section 3.
The Series A Preferred Stock is listed for trading on the Nasdaq
National Market under the symbol "DXCPP". Dynex announced its intention to make
the Offer after the close of the Nasdaq National Market on April 30, 2001.
Immediately prior to such announcement, the closing per share sales price of the
Series A Preferred Stock, as reported on the Nasdaq National Market, was $11.25.
The Series B Preferred Stock is listed for trading on the Nasdaq National Market
under the symbol "DXCPO". Immediately prior to the announcement of the Offer,
the closing per share sales price of the Series B Preferred Stock, as reported
on the Nasdaq National Market, was $11.50. The Series C Preferred Stock is
listed for trading on the Nasdaq National Market under the symbol "DXCPN".
Immediately prior to the announcement of the Offer, the closing per share sales
price of the Series C Preferred Stock, as reported on the Nasdaq National
Market, was $13.60. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE SHARES. SEE SECTION 7.
Dynex Capital, Inc. was incorporated on December 18, 1987 in Virginia
and commenced operations in February 1988. Dynex is a financial services company
which invests in a portfolio of securities and investments backed principally by
single family mortgage loans, commercial mortgage loans and manufactured housing
installment loans. These loans were funded primarily by Dynex loan production
operations or purchased in bulk in the market. Due to market conditions, Dynex
has sold or phased out of its production operations. As of March 31, 2001, the
Company's business operations were essentially limited to the management of its
investment portfolio and the active collection of its portfolio of delinquent
property tax receivables. The Company currently has no loan origination
operations, and for the foreseeable future does not intend to purchase loans or
securities in the secondary market. Its business now consists primarily of
managing its investment portfolio and managing the collections on delinquent
property tax receivables. During 1999 and 2000, Dynex incurred losses before
provision of any dividends on its preferred stocks of $75.1 million and $91.9
million respectively. During the first quarter of 2001, Dynex had income of
$11.7 million before provision of any dividends on its preferred stocks. Such
results included non-recurring items of $9.4 million.
As described under "Federal Income Tax Consequences," the number of
shares of a series that Dynex will purchase from a stockholder pursuant to the
Offer may affect the United States federal income tax consequences to the
tendering stockholder and, therefore may be relevant to a stockholder's decision
whether or not to tender shares.
Information Regarding Series A Preferred Stock. The Series A Preferred
Stock is listed and traded on the Nasdaq National Market under the symbol
"DXCPP". Immediately prior to the announcement of the Offer, the closing per
share sales price of the Series A Preferred Stock, as reported on the Nasdaq
National Market, was $11.25. Stockholders are encouraged to obtain current
market quotations of the Series A Preferred Stock. See Section 7. As of the
close of business on April 30, 2001, there were 1,309,061 shares of Series A
Preferred Stock that were issued and outstanding. The 500,000 shares of Series A
Preferred Stock that Dynex is offering to purchase in this Offer represented
approximately 38.2% of the outstanding Series A Preferred Stock as of April 30,
2001, the most recent practicable date prior to the announcement of the Offer.
Information Regarding Series B Preferred Stock. The Series B Preferred
Stock is listed and traded on the Nasdaq National Market under the symbol
"DXCPO". Immediately prior to the announcement of the Offer, the closing per
share sales price of the Series B Preferred Stock, as reported on the Nasdaq
National Market, was $11.50. Stockholders are encouraged to obtain current
market quotations of the Series B Preferred Stock. See Section 7. As of the
close of business on April 30, 2001, there were 1,912,434 shares of Series B
Preferred Stock that were issued and outstanding. The 730,250 shares of Series B
Preferred Stock that Dynex is offering to purchase in this Offer represented
approximately 38.2% of the outstanding Series B Preferred Stock as of April 30,
2001, the most recent practicable date prior to the announcement of the Offer.
Information Regarding Series C Preferred Stock. The Series C Preferred
Stock is listed and traded on the Nasdaq National Market under the symbol
"DXCPN". Immediately prior to the announcement of the Offer, the closing per
share sales price of the Series C Preferred Stock, as reported on the Nasdaq
National Market, was $13.60. Stockholders are encouraged to obtain current
market quotations of the Series C Preferred Stock. See Section 7. As of the
close of business on April 30, 2001, there were 1,840,000 shares of Series C
Preferred Stock that were issued and outstanding. The 702,700 shares of Series C
Preferred Stock that Dynex is offering to purchase in this Offer represented
approximately 38.2% of the outstanding Series C Preferred Stock as of April 30,
2001, the most recent practicable date prior to the announcement of the Offer.
Mailing Offer. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of shares and will be furnished to
brokers, dealers, commercial banks and trust companies whose names, or the names
of whose nominees, appear on Dynex stockholder list or, if applicable, who are
listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of shares.
2. PURPOSE AND CERTAIN EFFECTS OF THE OFFER
The Board of Directors of Dynex (the "Board") believes the Offer gives
holders of each series of Preferred Stock desiring to sell their shares of
Preferred Stock the opportunity to liquidate a portion (or all if no proration
applies) of their holdings of the Preferred Stock at the respective Purchase
Prices that represents a premium to the current market price of each series of
Preferred Stock, as set forth in the table below based on the closing price of
each series of Preferred Stock on April 30, 2001, before the announcement of the
tender). In addition, the Offer should provide greater liquidity for the
Preferred Stock at the price levels represented by the respective Purchase
Prices.
While giving holders of the Preferred Stock desiring such liquidity the
opportunity to sell their Preferred Stock at a premium to the market price as
described above, the Offer also permits Dynex to purchase shares of Preferred
Stock tendered pursuant to the Offer at a substantial discount from the book
value of such stock (original issue price less offering costs) and from the
liquidation preference provided for in the articles of amendment governing the
terms of the Preferred Stock.
Assuming that the Offer is fully-subscribed, on a pro-forma basis, as
of March 31, 2001, total shareholders' equity will decline from $173.9 million
to $147.9 million; the aggregate liquidation preference of the Series A
Preferred Stock will decline from $36.8 million to $22.7 million; the aggregate
liquidation preference of the Series B Preferred Stock will decline from $54.7
million to $33.8 million; the aggregate liquidation preference of the Series C
Preferred Stock will decline from $64.6 million to $39.9 million; the aggregate
liquidation preference for all series of preferred stock will decline from
$155.1 million to $96.5 million; and the book value per common share inclusive
of accrued and unpaid preferred dividends will increase from $1.56 to $4.50 per
share.
In addition, the retirement of the tendered Preferred Stock at a
discount will improve the ratio of net assets available to satisfy the
liquidation preference of the shares of Preferred Stock that are not tendered in
the Offer.
The Offer provides to stockholders who are considering a sale of all or
a portion of their Preferred Stock the opportunity to sell those shares without
the usual transaction costs associated with open market sales, where those
shares are tendered by the stockholder of record directly to the Depositary. A
stockholder whose shares are held through a Nominee should contact such Nominee
to determine whether any transaction costs apply to any sales of Preferred Stock
pursuant to the Offer. In addition, the Offer gives stockholders the opportunity
to sell their Preferred Stock at prices greater than the market prices
prevailing prior to the announcement of the Offer. Stockholders are urged to
obtain current market quotations for their shares. See Section 7. The Offer also
allows stockholders to sell a portion of their shares while retaining a
continued equity interest in Dynex.
In determining whether to tender shares pursuant to the Offer,
stockholders should consider the possibility that they may be able to sell their
shares in the future on the Nasdaq National Market or otherwise, including in
connection with any subsequent tender offer or any subsequent sale, merger or
liquidation of Dynex (none of which is currently contemplated), at a net price
higher than the respective Purchase Price. See Section 7. Dynex can give no
assurance, however, as to the price at which a stockholder may be able to sell
non-tendered shares in the future.
THE BOARD HAS UNANIMOUSLY APPROVED THE OFFER AND BELIEVES THAT IT
PROVIDES HOLDERS OF PREFERRED STOCK DESIRING TO SELL SOME OR ALL OF THEIR SHARES
A REASONABLE OPPORTUNITY TO DO SO AT A PREMIUM TO THE CLOSING PRICE OF THE
RESPECTIVE SERIES OF PREFERRED STOCK ON APRIL 30, 2001. YOU MUST, HOWEVER, MAKE
YOUR OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO
TENDER. NONE OF DYNEX OR ITS BOARD MAKES ANY RECOMMENDATION TO YOU WITH RESPECT
TO THE OFFER, AND NO PERSON HAS BEEN AUTHORIZED BY DYNEX OR ITS BOARD TO MAKE
ANY SUCH RECOMMENDATIONS. THE DIRECTORS AND EXECUTIVE OFFICERS OF DYNEX HAVE
AGREED NOT TO PARTICIPATE IN THE OFFER. ALTHOUGH THE DIRECTORS AND EXECUTIVE
OFFICERS OF DYNEX HAVE AGREED NOT TO PURCHASE ANY SHARES IN THE OFFER, THEIR
OWNERSHIP INTEREST IN DYNEX WILL INCREASE ON A PERCENTAGE BASIS TO THE EXTENT
THE OFFER IS SUBSCRIBED.
Shares Dynex acquires under the Offer will be cancelled. At the present
time, Dynex has no plans for the issuance of additional shares of Preferred
Stock.
Except as otherwise disclosed in this document, Dynex has no plans,
proposals or negotiations that relate to or would result in:
o any extraordinary transaction, such as a merger, reorganization or
liquidation, involving Dynex or any of its subsidiaries;
o any purchase, sale or transfer of a material amount of assets of
Dynex or any of its subsidiaries;
o any change in the present policy to pay dividends only out of
taxable income, or, if applicable, as required to maintain its
status as a real estate investment trust;
o any class of equity securities of Dynex being delisted from a
national securities exchange;
o any class of equity securities of Dynex becoming eligible for
termination of registration under Section 12(g)(4) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
o any change in the present board of directors or management of
Dynex, including, but not limited to, any plans or proposals to
change the number or the term of directors or to fill any existing
vacancies on the board of directors or to change any material term
of the employment contract of any executive officer;
o any other material change in Dynex corporate structure or
business;
o the suspension of Dynex obligation to file reports under the
Exchange Act;
o the acquisition by any person of additional securities of Dynex
or the disposition of securities of Dynex; or
o any change in Dynex articles of incorporation and bylaws or other
governing instruments or other actions which could impede the
acquisition of control of Dynex.
Notwithstanding the foregoing, Dynex from time to time has received and
may continue to receive proposals from third-parties regarding the possible sale
of Dynex, and/or the infusion of capital into Dynex in the form of either a
subordinated debt instrument or a new series of preferred stock. To the extent
Dynex were to be sold to a third party, it could be at prices for the Preferred
Stock that exceed the amount offered hereunder. Further, Dynex could agree to an
investment from a third-party in the form of subordinated debt or preferred
stock, the proceeds of which could be used for future tenders on Dynex preferred
stock at prices that may be higher than offered hereby.
Dynex has also received a letter from the New York Stock Exchange
("NYSE") dated January 26, 2001 indicating that the NYSE may delist the common
stock of Dynex to the extent that the average common stock price was less than
$1 per share over a 30-day trading period and to the extent that the aggregate
market value of the common stock, assuming the conversion of each series of
Dynex preferred stock, was less than $30 million. As of the date hereof, Dynex
was in compliance with each test, but there can be no assurance that Dynex will
meet the requirements of the NYSE in the future for the listing of its common
stock.
3. PROCEDURES FOR TENDERING SHARES
A STOCKHOLDER WHOSE SHARES ARE REGISTERED IN THE NAME OF A NOMINEE MUST
CONTACT THAT NOMINEE FOR INFORMATION ON HOW TO TENDER SHARES. ALL OTHER
STOCKHOLDERS MUST COMPLY WITH THE PROCEDURES SET FORTH BELOW.
Tender Procedures for Stockholders of Record. A Letter of Transmittal
for the respective series is provided for use by stockholders of record
tendering shares. To properly tender shares pursuant to the Offer, a stockholder
of record must (i) complete and duly execute the Letter of Transmittal for the
respective series (or facsimile thereof), in accordance with the instructions
included within the Letter of Transmittal (together with a signature guarantee,
if required, as well as any other documents required by the Letter of
Transmittal) and deliver the same to the Depositary at its address set forth on
the back cover of this Offer to Purchase which material must be received by the
Depositary prior to 5:00 p.m., New York City time, on the Expiration Date, and
(ii) either (A) deliver the stock certificate or certificates evidencing the
tendered shares to the Depositary at its address set forth on the back cover of
this Offer to Purchase, which certificate(s) must also be received by the
Depositary prior to 5:00 p.m., New York City time, on the Expiration Date, or
(B) comply with the guaranteed delivery procedures described below.
Tender Procedures for Nominees. The Depositary will establish an
account with respect to the shares of each series subject to this Offer, for
purposes of the Offer, at The Depository Trust Company (the "Book-Entry Transfer
Facility") within two business days after the date of this Offer to Purchase.
Any Nominee that is a participant in the Book-Entry Transfer Facility's system
may tender shares in accordance with the Book-Entry Transfer Facility's
Automated Tender Offer Program ("ATOP") to the extent it is available to such
participants for the shares they wish to tender by making book-entry delivery of
the shares by causing the Book-Entry Transfer Facility to transfer shares into
the Depositary's account in accordance with the Book-Entry Transfer Facility's
procedures for transfer. A stockholder tendering through ATOP must expressly
acknowledge that the stockholder has received and agreed to be bound by the
Letter of Transmittal and that the Letter of Transmittal may be enforced against
such stockholder. In order to tender shares by means of ATOP, the procedures for
ATOP delivery must be duly and timely completed prior to 5:00 p.m., New York
City time, on the Expiration Date. Alternatively, Nominees may also complete the
Letter of Transmittal and deliver shares as provided under "Tender Procedures
for Stockholders of Record" above.
DELIVERY OF THE LETTER OF TRANSMITTAL FOR A SERIES AND ANY OTHER
REQUIRED DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Signature Guarantees and Method of Delivery. No signature guarantee on
the Letter of Transmittal is required: (i) if the Letter of Transmittal is
signed by the stockholder(s) of record of the shares (which term, for purposes
of this Section, shall include any participant in the Book-Entry Transfer
Facility) whose name appears on a security position listing as the owner of the
shares tendered therewith and such holder has not completed either the box
entitled "Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal; or (ii) if shares are tendered for
the account of a bank, broker, dealer, credit union, savings association or
other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program or a bank, broker, dealer, credit union, savings
association or other entity which is an "eligible guarantor institution," as
such term is defined in Rule 17Ad-15 under the Exchange Act (each of the
foregoing constituting an "Eligible Institution"). See Instruction 1 of the
Letter of Transmittal. If a certificate is registered in the name of a person
other than the person executing a Letter of Transmittal, or if payment is to be
made to a person other than the stockholder of record, then the certificate must
be endorsed or accompanied by an appropriate stock power, in either case, signed
exactly as the name of the stockholder of record appears on the certificate,
with the signature guaranteed by an Eligible Institution.
In all cases, payment for shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of certificates for such shares (or a timely confirmation of the book-entry
transfer of the shares into the Depositary's account at the Book-Entry Transfer
Facility), a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof) (unless such tender is made through ATOP) and
any other documents required by the Letter of Transmittal or ATOP.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR
SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE
ELECTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, THEN
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Guaranteed Delivery. If a stockholder desires to tender shares of
Preferred Stock pursuant to the Offer and the stockholder's share certificates
are not immediately available or cannot be delivered to the Depositary prior to
the Expiration Date (or the procedure for book-entry transfer cannot be
completed on a timely basis) or if time will not permit all required documents
to reach the Depositary prior to the Expiration Date, the shares may
nevertheless be tendered, provided that all of the following conditions are
satisfied:
(a) the tender is made by or through an Eligible Institution;
(b) the Depositary receives by hand, mail, overnight courier, telegram
or facsimile transmission, on or prior to the Expiration Date, a properly
completed and duly executed Notice of Guaranteed Delivery substantially in the
form Dynex has provided with this Offer to Purchase, including (where required)
a signature guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery; and
(c) the certificates for all tendered shares of Preferred Stock, in
proper form for transfer (or confirmation of book-entry transfer of such shares
into the Depositary's account at the Book-Entry Transfer Facility), together
with a properly completed and duly executed Letter of Transmittal for such
series (or a manually signed facsimile thereof) and any required signature
guarantees or other documents required by the Letter of Transmittal, are
received by the Depositary within three Nasdaq National Market trading days
after the date of receipt by the Depositary of the Notice of Guaranteed
Delivery.
United States Federal Income Tax Backup Withholding. Under the United
States federal income tax backup withholding rules, 31% of the gross proceeds
payable to a stockholder or other payee pursuant to the Offer must be withheld
and remitted to the Internal Revenue Service ("IRS"), unless the stockholder or
other payee provides its taxpayer identification number (employer identification
number or social security number) to the Depositary (as payor) and certifies
under penalties of perjury that such number is correct, or otherwise establishes
that it is eligible for exemption from backup withholding. Therefore, each
tendering stockholder of record should complete and sign the Substitute Form W-9
included as part of the Letter of Transmittal so as to provide the information
and certification necessary to prevent backup withholding, or otherwise
establish to the satisfaction of the Depositary that such stockholder is not
subject to backup withholding. If the Depositary is not provided with the
correct taxpayer identification number, a U.S. Holder (as defined below in
Section 12) also may be subject to penalties imposed by the IRS. If backup
withholding results in an overpayment of taxes, a refund may be obtained from
the IRS. Certain categories of stockholders (including, among others, all
corporations, and certain Non-U.S. Holders (as defined below)) are exempt from
backup withholding. In order for a holder who is not a U.S. Holder (a "Non-U.S.
Holder") to be eligible for exemption, that stockholder must submit an IRS Form
W-8BEN, IRS Form W-8ECI, IRS Form W-8EXP, IRS Form W-8IMY or an appropriate
substitute form, signed under penalties of perjury, attesting to that
stockholder's exempt status. Such forms may be obtained from the Depositary. See
Instruction 12 to the Letter of Transmittal.
Withholding for Holders Who Are Non-U.S. Holders. Even if a Non-U.S.
Holder provides the required certification so that backup withholding does not
apply, the Depositary will nonetheless withhold United States federal income
taxes equal to 30% of the gross proceeds payable to the Non-U.S. Holder or his
agent unless it is established to the satisfaction of the Depositary and Dynex
that: (a) a reduced rate of withholding is available pursuant to a tax treaty,
(b) an exemption from withholding is applicable because the gross proceeds are
effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Holder, or (c) the sale is properly treated as a sale or
exchange, and not as a distribution, for United States federal income tax
purposes, and that the sale or exchange is not subject to United States tax
pursuant to the Foreign Investment in Real Property Tax Act of 1980, as amended
("FIRPTA"). See "Federal Income Tax Consequences -- Taxation of Holders Who are
Non-U.S. Holders" below, for further details.
In order to obtain a reduced rate of withholding pursuant to a tax
treaty, a Non-U.S. Holder must deliver to the Depositary before payment a
properly completed and executed IRS Form W-8BEN. In order to obtain an exemption
from withholding on the grounds that the gross proceeds paid pursuant to the
Offer are effectively connected with the conduct of a trade or business within
the United States, a Non-U.S. Holder must deliver to the Depositary a properly
completed and executed IRS Form W-8ECI. The Depositary will determine a
stockholder's status as a Non-U.S. Holder and eligibility for a reduced rate of,
or exemption from, withholding by reference to any outstanding certificates or
statements concerning eligibility for a reduced rate of, or exemption from,
withholding (e.g., IRS Form W-8BEN or IRS Form W-8ECI) unless facts and
circumstances indicate that such reliance is not warranted. See Instruction 13
to the Letter of Transmittal. A Non-U.S. Holder may be eligible to obtain a
refund from the IRS of all or a portion of any tax withheld if such Non-U.S.
Holder is able to establish to the IRS that no tax, or a reduced amount of tax,
is due.
NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX WITHHOLDING, INCLUDING
ELIGIBILITY FOR A WITHHOLDING TAX REDUCTION OR EXEMPTION, AND THE REFUND
PROCEDURE.
Return of Tendered and Unpurchased Shares. If any tendered shares of
Preferred Stock are not purchased, or if less than all shares evidenced by a
stockholder's certificates are tendered, certificates for unpurchased shares
will be returned promptly after the expiration or termination of the Offer or,
in the case of shares tendered by book-entry transfer at the Book-Entry Transfer
Facility, the shares will be credited to the appropriate account maintained by
the tendering stockholder at the Book-Entry Transfer Facility, in each case
without expense to the stockholder.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the number of shares
of Preferred Stock to be accepted and the validity, form, eligibility (including
time of receipt) and acceptance for payment of any tender of shares will be
determined by Dynex, in its sole discretion, and its determination shall be
final and binding on all parties. Dynex reserves the absolute right to reject
any or all tenders of any shares that it determines are not in proper form or
the acceptance for payment of or payment for which may, in the opinion of Dynex
counsel, be unlawful. Dynex also reserves the absolute right to waive any of the
conditions of the Offer or any defect or irregularity in any tender with respect
to any particular shares or any particular stockholder and Dynex interpretation
of the terms of the Offer will be final and binding on all parties. No tender of
shares will be deemed to have been properly made until all defects or
irregularities have been cured by the tendering stockholder or waived by Dynex.
None of Dynex, the Depositary, the Information Agent or any other person will be
obligated to give notice of any defects or irregularities in tenders, nor will
any of them incur any liability for failure to give any notice.
Tendering Stockholder's Representation and Warranty; Dynex Acceptance
Constitutes an Agreement. A tender of shares pursuant to any of the procedures
described above will constitute the tendering stockholder's acceptance of the
terms and conditions of the Offer, as well as the tendering stockholder's
representation and warranty to Dynex that (a) the stockholder has a net long
position in the shares of the series of Preferred Stock tendered or equivalent
securities at least equal to the number of shares tendered, within the meaning
of Rule 14e-4 promulgated by the Securities and Exchange Commission (the
"Commission") under the Exchange Act and (b) such tender of shares complies with
Rule 14e-4. It is a violation of Rule 14e-4 for a person, directly or
indirectly, to tender shares for that person's own account unless, at the time
of tender and at the end of the proration period (including any extensions
thereof), the person so tendering (i) has a net long position equal to or
greater than the amount of (x) shares of the series of Preferred Stock tendered
or (y) other securities convertible into or exchangeable or exercisable for the
shares of the series tendered and will acquire the shares of the series of
Preferred Stock for tender by conversion, exchange or exercise and (ii) will
deliver or cause to be delivered the shares of the series tendered in accordance
with the terms of the Offer. Rule 14e-4 provides a similar restriction
applicable to the tender or guarantee of a tender on behalf of another person.
Dynex acceptance for payment of shares tendered pursuant to the Offer will
constitute a binding agreement between the tendering stockholder and Dynex upon
the terms and conditions of the Offer.
Lost or Destroyed Certificates. Stockholders whose certificates for
part or all of their shares have been lost, stolen, misplaced or destroyed may
contact the Depositary at (800) 829-8432, for instructions as to the documents
which will be required to be submitted together with the respective Letters of
Transmittal in order to receive certificate(s) representing the shares. A bond
may be required to be posted by the stockholder to secure against the risk that
the certificates may be subsequently recirculated. Stockholders are urged to
contact the Depositary immediately in order to permit timely processing of this
documentation and to determine if the posting of a bond is required.
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL FOR SUCH SERIES OF PREFERRED STOCK AND ANY OTHER DOCUMENTS REQUIRED
BY THE LETTER OF TRANSMITTAL, MUST BE DELIVERED TO THE DEPOSITARY AND NOT TO
DYNEX. ANY SUCH DOCUMENTS DELIVERED TO DYNEX WILL NOT BE FORWARDED TO THE
DEPOSITARY AND THEREFORE WILL NOT BE DEEMED TO BE PROPERLY TENDERED.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section, tenders made pursuant to
the Offer are irrevocable. Shares tendered pursuant to this Offer may be
withdrawn:
o at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; or
o if not yet accepted for payment, after July 3, 2001.
For a withdrawal to be effective, the Depositary must receive a notice
of withdrawal in written, telegraphic or facsimile form in a timely manner at
the appropriate address set forth on the back cover of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person having
tendered the shares to be withdrawn, the number of shares tendered, the number
of shares to be withdrawn, and, if certificates representing such shares have
been delivered to the Depositary, the name of the stockholder of record of such
shares, as set forth in such certificates. If the certificates have been
delivered to the Depositary, the tendering holder of Preferred Stock must also
submit the serial numbers of the particular certificates for the shares to be
withdrawn, and the signature on the stockholder's notice of withdrawal must be
guaranteed by an Eligible Institution, as described previously (except in the
case of shares tendered for the account of an Eligible Institution). If shares
have been tendered pursuant to the ATOP (book-entry transfer) procedures set
forth in Section 3, the notice of withdrawal also must specify the name and the
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn shares and must otherwise comply with such Book-Entry Transfer
Facility's procedures.
All questions as to the form and validity (including the time of
receipt) of notices of withdrawal will be determined by Dynex in its sole
discretion, and its determination shall be final and binding on all parties.
None of Dynex, the Information Agent or the Depositary or any other person is or
will be obligated to give notice of any defects or irregularities in any notice
of withdrawal, and none of them will incur any liability for failure to give any
such notice.
Withdrawals may not be rescinded, and shares properly withdrawn shall
not be deemed to be duly tendered for purposes of the Offer. Withdrawn shares,
however, may be re-tendered before the Expiration Date by again following the
procedures described in Section 4.
If Dynex extends the Offer, is delayed in its purchase of Preferred
Stock or is unable to purchase shares pursuant to the Offer for any reason,
then, without prejudice to Dynex rights under the Offer, the Depositary may,
subject to applicable law, retain tendered shares on behalf of Dynex, and such
shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described herein.
5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer, promptly
following the Expiration Date, Dynex will accept for payment and pay for (and
thereby purchase) shares properly tendered prior to the Expiration Date. Dynex
shall be deemed to have accepted for payment (and therefore purchased) shares of
Preferred Stock that are properly tendered and not properly withdrawn (subject
to the proration provisions and the other terms and conditions of the Offer)
only when, as and if it gives oral or written notice to the Depositary of its
acceptance of shares for payment pursuant to the Offer. That notice, subject to
the provisions of the Offer, may be given at any time after the Expiration Date.
Upon the terms and subject to the conditions of the Offer, promptly
following the Expiration Date, Dynex will accept for payment and pay for up to
500,000 shares of Series A Preferred Stock, up to 730,250 shares of its Series B
Preferred Stock, and up to 702,700 shares of its Series C Preferred Stock
(subject to increase or decrease as provided in Sections 1 and 14) properly
tendered or such lesser number of shares as are properly tendered and not
properly withdrawn.
Dynex will pay for shares purchased pursuant to the Offer by depositing
the aggregate Purchase Price with the Depositary, which will act as agent for
the tendering stockholders for the purpose of receiving payment from Dynex and
transmitting payment to the tendering stockholders. The Depositary will pay the
tendering stockholders (other than The Depository Trust Company, which will be
paid by wire transfer) for all purchased shares by check promptly after the
Expiration Date. However, in the event of proration, Dynex does not expect to be
able to determine the final proration factor and pay for tendered shares until
approximately five business days after the Expiration Date. UNDER NO
CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE BE PAID BY DYNEX BY REASON OF
ANY DELAY IN MAKING PAYMENT. Certificates for all tendered shares not purchased,
including shares not purchased due to proration, will be returned promptly after
the Expiration Date or termination of the Offer to the tendering stockholder
(or, in the case of shares tendered by book-entry transfer, will be credited to
the account maintained with the Book-Entry Transfer Facility by the participant
who so delivered the shares), without expense to the tendering stockholder. In
addition, if certain events occur, Dynex may not be obligated to purchase any
shares in the Offer. See Section 6.
Dynex will pay all stock transfer taxes, if any, payable on the
transfer to it of shares purchased pursuant to the Offer by stockholders of
record. However, if purchased shares are to be registered in the name of any
person other than the stockholder of record, or if tendered certificates are
registered in the name of any person other than the person signing the
respective Letters of Transmittal, the amount of any stock transfer taxes
(whether imposed on the stockholder of record or such other person) payable on
account of the transfer to such person will be deducted from the Purchase Price,
unless satisfactory evidence of the payment of such taxes or exemption therefrom
is submitted. See Instruction 5 of the Letter of Transmittal.
ANY TENDERING STOCKHOLDER OF RECORD (OR OTHER PAYEE) WHO FAILS TO
COMPLETE FULLY AND SIGN THE "SUBSTITUTE FORM W-9" INCLUDED AS PART OF THE
RESPECTIVE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACK-UP FEDERAL
INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH STOCKHOLDER OR
OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTIONS 3 AND 12.
6. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any term of the Offer, prior to the Expiration Date,
Dynex may, at its option, terminate or amend the Offer or may postpone the
acceptance for payment of, or the purchase of and the payment for, shares
tendered pursuant to the Offer, subject to Rule 13e-4(f) promulgated under the
Exchange Act, if at any time prior to the Expiration Date any of the following
events has occurred (or shall have been determined by Dynex to have occurred)
and, in Dynex judgement and in any such case and regardless of the circumstances
giving rise thereto (including any action or omission to act by Dynex) makes it
inadvisable to proceed with the Offer or with such acceptance for payment:
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or administrative
agency, authority or tribunal or any other person, domestic or foreign, before
any court, authority, agency or tribunal that directly or indirectly (i)
challenges the making of the Offer, the acquisition of some or all of the shares
pursuant to the Offer or otherwise relates in any manner to the Offer, or (ii)
in Dynex reasonable judgment, could (A) materially and adversely affect the
business, condition (financial or otherwise), assets, income, operations or
prospects of Dynex and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the business of
Dynex or any of its subsidiaries or materially impair the contemplated benefits
of the Offer to Dynex, (B) make the acceptance for payment of, or payment for,
some or all of the tendered shares illegal or otherwise restrict or prohibit
consummation of the Offer or (C) delay or restrict the ability of Dynex, or
render Dynex unable, to accept for payment or pay for some or all of the
tendered shares;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered, amended,
enforced or deemed to be applicable to the Offer or Dynex or any of its
subsidiaries, by any court or any authority, agency or tribunal that, in Dynex
reasonable judgment, would or might directly or indirectly result in any of the
consequences referred to in clauses (i) or (ii) of paragraph (a) above;
(c) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange or
in the over-the-counter market, (ii) the declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (iii) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (iv) any limitation
(whether or not mandatory) by any government or governmental, regulatory or
administrative agency, authority or tribunal on, or any event that, in Dynex
reasonable judgment, might affect, the extension of credit by banks or other
lending institutions in the United States, (v) any significant decrease in the
market price of the Preferred Stock or any change in the general political,
market, economic or financial conditions in the United States or abroad that
could, in the reasonable judgment of Dynex, have a material adverse effect on
Dynex business, condition (financial or otherwise), assets, income, operations
or prospects or the trading in the Preferred Stock, (vi) in the case of any of
the foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof, or (vii) any decline in either the Dow Jones
Industrial Average or the Standard and Poor's Index of 500 Industrial Companies
by an amount in excess of 10% measured from the close of business on April 30,
2001;
(d) a tender or exchange offer for any or all of the shares of any
class of capital stock of Dynex (other than the Offer), or any merger, business
combination or other similar transaction with or involving Dynex or any
subsidiary, shall have been proposed, announced or made by any person;
(e) (i) any person, entity or "group" (as that term is used in Section
13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire
beneficial ownership of more than 5% of the outstanding shares of any class of
any class of capital stock (other than any such person, entity or group who has
a Schedule 13G on file with the Commission as of April 30, 2001 relating to
share ownership in Dynex and does not acquire beneficial ownership of an
additional 2% or more of any class of capital stock or effect a change in filing
status to Schedule 13D or (ii) any person, entity or group shall have filed a
Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, or shall have made a public announcement reflecting an
intent to acquire Dynex or any of its subsidiaries or any of their respective
assets or securities otherwise than in connection with a transaction authorized
by the Board;
(f) any change or changes shall have occurred in the business,
condition (financial or otherwise), assets, income, operations, prospects or
stock ownership of Dynex or its subsidiaries that, in Dynex reasonable judgment,
is or may be material to Dynex or its subsidiaries; or
(g) Dynex determines that the consummation of the Offer and the
purchase of shares of a series of Preferred Stock may cause such series of
Preferred Stock to be delisted from the Nasdaq National Market or to be eligible
for deregistration under the Exchange Act or adversely affects Dynex ability to
qualify as a real estate investment trust.
Any determination by Dynex concerning any events described in this
section and any related judgment or decision by Dynex regarding the
inadvisability of proceeding with the purchase of or the payment for any shares
tendered shall be final and binding upon all parties. The foregoing conditions
are for the sole benefit of Dynex and may be asserted by Dynex in circumstances
giving rise to those conditions or may be waived by Dynex in whole or in part.
Dynex failure at any time to exercise any of the foregoing shall not be deemed a
waiver of any such right, and each such right shall be deemed an ongoing right
that may be asserted at any time and from time to time.
7. PRICE RANGE OF PREFERRED STOCK; DIVIDENDS
The shares of Preferred Stock are listed for trading on the Nasdaq
National Market under the symbol "DXCPP" for the Series A Preferred Stock,
"DXCPO" for the Series B Preferred Stock, and "DXCPN" for the Series C Preferred
Stock. The following table sets forth for the calendar quarters indicated the
range of the high and low sale prices for each series of Preferred Stock on the
Nasdaq National Market since the first quarter of 1999.
On April 30, 2001, immediately prior to the announcement of the Offer,
the closing per share sales price of the Series A Preferred Stock, as reported
on the Nasdaq National Market, was $11.25. As of April 30, 2001, the Purchase
Price of $12.24 per share for the Series A Preferred Stock represented a premium
of 8.8% to the market price. As of April 30, 2001, the closing per share sales
price of the Series B Preferred Stock was $11.50. As of April 30, 2001, the
Purchase Price of $12.50 per share for the Series B Preferred Stock represented
a premium of 8.7% to the market price. As of April 30, 2001, the closing per
share sales price of the Series C Preferred Stock was $13.60. As of April 30,
2001, the Purchase Price of $15.30 per share for the Series C Preferred Stock
represented a premium of 12.5% to the market price. YOU SHOULD OBTAIN CURRENT
QUOTATIONS OF THE MARKET PRICE OF THE SHARES AND CONSULT AN INDEPENDENT
FINANCIAL ADVISOR.
Dividends. During the first two quarters of 1999, Dynex declared
dividends in the aggregate amount of $1.17 per share on its shares of Series A
and Series B Preferred Stock, and $1.46 per share on its shares of Series C
Preferred Stock. Dynex has not declared a dividend on any shares of its
Preferred Stock since that time. As of March 31, 2001, the total amount of
dividends in arrears on the Series A Preferred Stock was $5,360,605 ($4.10 per
Series A share), on the Series B Preferred Stock $7,830,581 ($4.10 per Series B
share), and on the Series C Preferred Stock $9,399,180 ($5.11 per Series C
share). The provisions of the Dynex July 2002 Senior Notes limit the
distributions, including dividends, that Dynex may make to its stockholders.
Such limitation on distributions on its capital stock is in an amount not to
exceed the sum of (a) $26 million, (b) the cash proceeds of any "permitted
subordinated indebtedness", (c) the cash proceeds of the issuance of any
"qualified capital stock", and (d) any distributions required in order for Dynex
to maintain its REIT status. The aggregate amount of the tender offers for the
Preferred Stock is $25,999,435. There can be no assurances that there will be
any other distributions on the Preferred Stock while the July 2002 Senior Notes
are outstanding or thereafter. See Section 10 for further information on the
likelihood of dividends in the future.
8. EFFECTS OF THE OFFER
The Offer provides to stockholders who are considering a sale of all or
a portion of their Preferred Stock the opportunity to sell those shares at a
premium to the market prices as of April 30, 2001 and without the usual
transaction costs associated with open market sales, where those shares are
tendered by the stockholder of record directly to the Depositary. A stockholder
whose shares are held through a Nominee should contact such Nominee to determine
whether transaction costs apply to any sales of Preferred Stock pursuant to the
Offer. In addition, the Offer may give stockholders the opportunity to sell
their Preferred Stock at prices greater than market prices prevailing prior to
the announcement of the Offer. Stockholders are urged to obtain current market
quotations for their shares. See Section 7. The Offer also allows stockholders
to sell a portion of their shares while retaining a continuing equity interest
in Dynex.
For holders of a series of Preferred Stock who do not tender shares of
such series, there is no assurance that the price of such series of Preferred
Stock will not trade below the price currently being offered by Dynex pursuant
to the Offer. For holders of a series of Preferred Stock who do tender, there is
no assurance that the trading price of such series of Preferred Stock will not
increase as a result of the Offer and at some point exceed the respective
Purchase Price. Dynex believes that there will still be a sufficient number of
shares outstanding and publicly traded following the Offer to ensure a continued
trading market in the shares of each series. The shares of each series are
registered under the Exchange Act, which requires, among other things, that
Dynex furnish certain information to its holders of Preferred Stock and to the
Commission and comply with the Commission's proxy rules in connection with
meetings of holders of the Preferred Stock.
9. SOURCE AND AMOUNT OF FUNDS
Assuming that Dynex purchases 500,000 shares of the Series A Preferred
Stock at a price of $12.24 per share, purchases 730,250 shares of the Series B
Preferred Stock at a price of $12.50 per share, and purchases 702,700 shares of
the Series C Preferred Stock at a price of $15.30 per share, the total amount
required to purchase the shares would equal $25,999,435 plus all fees and
expenses applicable to this Offer. Dynex intends to pay for validly tendered
shares of Preferred Stock, as well as for the costs and expenses of this Offer,
from cash on hand, or funds generated in the ordinary course of business.
10. CERTAIN INFORMATION ABOUT DYNEX
Certain written statements in this Offer to Purchase made by Dynex,
that are not historical fact constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements may involve factors that could cause the actual results of Dynex to
differ materially from historical results or from any results expressed or
implied by such forward-looking statements. Dynex cautions the public not to
place undue reliance on forward-looking statements, which may be based on
assumptions and anticipated events that do not materialize. Dynex does not
undertake, and the Securities Litigation Reform Act specifically relieves Dynex
from, any obligation to update any forward-looking statements.
Dynex was incorporated in the Commonwealth of Virginia in 1987. Dynex
is a financial services company, which invests in a portfolio of securities and
investments backed principally by single family mortgage loans, commercial
mortgage loans and manufactured housing installment loans. These loans were
funded primarily by Dynex loan production operations or purchased in bulk in the
market. Historically, Dynex loan production operations have included single
family mortgage lending, commercial mortgage lending and manufactured housing
lending. Through its specialty finance business, Dynex also has provided for the
purchase and leaseback of single family model homes to builders and the purchase
and management of delinquent property tax receivables. Loans funded through
Dynex production operations have generally been pooled and pledged (i.e.
securitized) as collateral for non-recourse bonds ("collateralized bonds"),
which provides long-term financing for such loans while limiting credit,
interest rate and liquidity risk. Dynex sold its single family mortgage lending
business in 1996 due to changes in the business environment at that time.
Since early 1999, Dynex has focused its efforts on conserving its
capital base and repaying its outstanding recourse borrowings. Dynex ability to
execute its fundamental business plan and strategies has been negatively
impacted since the fourth quarter of 1998, when the fixed income markets were
significantly disrupted by the collapse of certain foreign economies.
Specifically, as a result of this disruption, investors in fixed income
securities generally demanded higher yields in order to purchase securities
issued by specialty finance companies and ratings agencies began imposing higher
credit enhancement levels and other requirements on securitizations sponsored by
specialty finance companies like Dynex. The net result of these changes in the
market reduced Dynex ability to compete against larger finance companies,
investment banks and depository institutions, which generally have not been
penalized by investors or ratings agencies when issuing fixed income securities.
In addition, access to interim lenders that provided short-term funding to
support the accumulation of loans for securitization was reduced and terms of
existing facilities were tightened. These lenders began to pressure Dynex to
sell or securitize assets to repay amounts outstanding under the various
facilities. As a result of the difficult market environment for specialty
finance companies, during 1999 Dynex sold both its manufactured housing
lending/servicing operations and model home purchase/leaseback business.
Additionally, Dynex began to phase-out its commercial lending operations; this
phase-out was completed by the end of 2000, including the sale of the commercial
loan servicing portfolio for loans that had been securitized.
During 1999 and 2000, Dynex incurred losses before provision of any
dividends on its preferred stocks of $75.1 million and $91.9 million
respectively. On a long-term basis, Dynex believes that competitive pressures,
including competing against larger companies which generally have significantly
lower costs of capital and access to both short-term and long-term financing
sources, will effectively keep specialty finance companies like Dynex from
earning an adequate risk-adjusted return on its invested capital. As of March
31, 2001, Dynex business operations were essentially limited to the management
of its investment portfolio and the active collection of its portfolio of
delinquent property tax receivables. Dynex currently has no loan origination
operations, and for the foreseeable future does not intend to purchase loans or
securities in the secondary market.
Dynex principal source of earnings historically has been its net
interest income from its investment portfolio. Dynex investment portfolio
consists primarily of collateral for collateralized bonds, asset-backed
securities and delinquent property tax receivables. Dynex funds its investment
portfolio with both borrowings and funds raised from the issuance of equity. For
the portion of the investment portfolio funded with borrowings, Dynex generates
net interest income to the extent that there is a positive spread between the
yield on the interest-earning assets and the cost of borrowed funds. The cost of
Dynex borrowings may be increased or decreased by interest rate swap, cap or
floor agreements. For the other portion of the investment portfolio funded with
equity, net interest income is primarily a function of the yield generated from
the interest-earning asset. Over the past two years, net interest margin has
declined materially due to the decline in average earning assets, higher
provisions for credit losses, and the increase in short-term interest rates in
2000. Net interest margin was a negative $3.1 million in 2000.
For the first quarter 2001, Dynex reported net income of $11.7 million
or, $8.5 million after provision for dividends on its Preferred Stock. Such
results were positively impacted by certain non-recurring gains including the
settlement for $7.1 million of a prior litigation matter, and the gain on
extinguishment of $2.3 million, net of related costs, on the repayment of $29.5
million of its July 2002 Senior Notes. In addition, such results were positively
impacted by the reduction in short-term interest rates which had the effect of
increasing the net interest margin during the quarter to $4.1 million. However,
as a significant percentage of Dynex assets are adjustable rate mortgage loans
or securities, Dynex expects that its net interest margin will decline after the
third quarter as such assets either payoff or reset down in rate.
The Board of Directors of Dynex over the past 18 months has evaluated
various courses of action to improve shareholder value given the depressed
prices of Dynex preferred and common stocks, and to provide greater liquidity
for such stocks. In November 2000, Dynex entered into a merger agreement with
the California Investment Fund, LLC ("CIF") whereby CIF would acquire all the
common and preferred stock of Dynex for a total consideration of $90 million.
Due to various breaches of such merger agreement by CIF, including CIF's
inability to deliver the financing commitment as required under the merger
agreement, Dynex terminated that agreement on January 26, 2001.
While giving holders of Preferred Stock desiring such liquidity the
opportunity to sell their Preferred Stock at a premium to the market prices as
described above, the Offer also permits Dynex to purchase shares of Preferred
Stock tendered pursuant to the Offer at a substantial discount from the book
value of such stock (original issue price less offering costs) and from the
liquidation preference provided for in the articles of amendment governing the
terms of the Preferred Stock. Assuming that the Offer is fully-subscribed, on a
pro-forma basis, as of March 31, 2001, total shareholders' equity will decline
from $173.9 million to $147.9 million; the aggregate liquidation preference of
the Series A Preferred Stock will decline from $36.8 million to $22.7 million;
the aggregate liquidation preference of the Series B Preferred Stock will
decline from $54.7 million to $33.8 million; the aggregate liquidation
preference of the Series C Preferred Stock will decline from $64.6 million to
$39.9 million; the aggregate liquidation preference for all series of preferred
stock will decline from $155.1 million to $96.5 million; and the book value per
common share inclusive of accrued and unpaid preferred dividends will increase
from $1.56 to $4.50 per share.
In addition, the retirement of the tendered Preferred Stock at a
discount will improve the ratio of net assets available to satisfy the
liquidation preference of the shares of Preferred Stock that are not tendered in
the Offer.
To the extent the tender offers for the Preferred Stock are well
subscribed, the effect may be to improve the market prices of the preferred
stocks initially as well as over time. Conversely, the market prices of the
preferred stocks may decline subsequent to the tender offer to the extent
dividends continue to be in arrears or the impact of lower liquidity as a result
of the tender offers. Specifically, the provisions of the July 2002 Senior Notes
limit the distributions, including dividends, that Dynex may make to its
stockholders. Such limitation on distributions on its capital stock is in an
amount not to exceed the sum of (a) $26 million, (b) the cash proceeds of any
"permitted subordinated indebtedness", (c) the cash proceeds of the issuance of
any "qualified capital stock", and (d) any distributions required in order for
Dynex to maintain its REIT status. As the aggregate amount of the tender offers
for the Preferred Stock is $25,999,435 million, Dynex may be unable to make any
additional tender offers (to the extent the tender offers are fully subscribed)
while the July 2002 Senior Notes are outstanding. The possible absence of tender
offers until the July 2002 Senior Notes are fully paid off may also have a
negative impact on the future stock price of the preferred stocks. There can be
no assurance that there will be future tender offers even after the July 2002
Senior Notes are fully paid.
Dynex has received and may continue to receive proposals from third
parties regarding the possible sale of Dynex, and/or the infusion of capital
into Dynex in the form of either a subordinated debt instrument or a new series
of preferred stock. To the extent Dynex were to be sold to a third party, it
could be at prices for the Preferred Stock that exceed the amounts offered
hereunder. Further, Dynex could agree to an investment from a third party in the
form of subordinated debt or preferred stock, the proceeds of which could be
used for future tenders on Dynex preferred stock at prices higher than offered
hereby.
Dynex has also received a letter from the NYSE dated January 26, 2001
indicating that the NYSE may delist the common stock of Dynex to the extent that
the average common stock price was less than $1 per share over a 30-day trading
period and to the extent that the aggregate market value of the common stock,
assuming the conversion of each series of Dynex preferred stock, was less than
$30 million. As of the date hereof, Dynex was in compliance with each test, but
there can be no assurance that Dynex will meet the requirements of the NYSE in
the future for the listing of its common stock.
For further information on Dynex, please refer to Dynex Annual Report
on Form 10-K for the year ended December 31, 2000 filed with the Securities and
Exchange Commission.
The Company has elected to be treated as a real estate investment trust
("REIT") for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"), and, as such, must distribute substantially all
of its taxable income to shareholders. Provided that Dynex meets all of the
proscribed Code requirements, Dynex will generally not be subject to federal
income tax. The Company uses the calendar year for both tax and financial
reporting purposes. However, there may be differences between taxable income and
income computed in accordance with GAAP. These differences primarily arise from
timing differences in the recognition of revenue and expense for tax and GAAP
purposes. The Company's estimated taxable loss for 2000, excluding capital loss
carryforwards generated during the year, was $109.6 million. During 2000,
through its ownership of certain residual interests in REMIC securities, Dynex
had excess inclusion income of an estimated $6 million. As a REIT, Dynex must
distribute to its shareholders the greater of taxable income or excess inclusion
income in order to maintain its REIT status. Given that Dynex did not declare
nor pay a dividend in 2000, in order to satisfy the 95% distribution
requirements, Dynex will need to either (a) distribute or have shareholders
consent to such an amount by the earlier of September 15, 2001 or the date on
which Dynex files its federal income tax return, or (b) lose its REIT status. If
Dynex loses its REIT status, it will not be able to elect REIT status for five
years. However, as Dynex currently estimates that it has a net operating loss
carryforward of approximately $120 million and capital loss carryforwards of
$70.9 million at December 31, 2000, it is unlikely that Dynex would have any tax
liability during such five year period. Other than amounts necessary to be
distributed for excess inclusion income for 2000 and future years to the extent
Dynex decides to maintain its REIT status, Dynex does not anticipate making
additional distributions until all loss carryforwards have been utilized.
11. INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS;
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE PREFERRED STOCK
Security Ownership of Directors and Executive Officers of Dynex. Listed in the
following table and the notes thereto is certain information with respect to the
beneficial ownership of Preferred Stock as of April 30, 2001, by each director
and executive officer of Dynex and by all directors and executive officers as a
group. Unless otherwise specified in the table, the business address for each of
the following persons is 4551 Cox Road, Suite 300, Glen Allen, Virginia 23060.
The following table describes transactions by the executive officers and
directors of Dynex in the Preferred Stock during the past 60 days. The Preferred
Stock dispositions described below were open market sales pursuant to
transactions executed by registered broker dealers.
Except as described in the above table and to the best knowledge of Dynex, no
executive officer or director has effected any transaction in the Preferred
Stock during the past 60 days.
12. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain anticipated United
States federal income tax consequences of the Offer. This discussion is for
general information only and does not address the federal income tax
consequences that may be relevant to particular holders of Preferred Stock in
light of their personal circumstances or to certain types of holders of
Preferred Stock such as dealers in securities, insurance companies, foreign
persons (except as specifically noted below under "-- Taxation of Holders Who
are Non-U.S. Holders"), financial institutions and tax-exempt entities who may
be subject to special treatment under the federal income tax laws. Further, this
summary assumes that shares of Preferred Stock are held as capital assets --
generally, property held for investment -- within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"). This discussion does not address
any tax consequences under state, local or foreign laws. For purposes of this
discussion, a "U.S. Holder" means a person who is (a) a citizen or resident of
the United States, (b) a corporation or partnership, including an entity treated
as a corporation or partnership for U.S. federal income tax purposes, created in
the United States or organized under the laws of the United States or any state
thereof or the District of Columbia (except, in the case of a partnership, as
otherwise provided by applicable Treasury regulations), (c) an estate, the
income of which is includable in gross income for United States federal income
tax purposes regardless of its source, or (d) a trust whose administration is
subject to the primary supervision of a United States court and which has one or
more United States persons who have the authority to control all substantial
decisions of the trust. The discussion is based upon the Code, the Treasury
regulations thereunder, judicial decisions and current administrative rulings
and practices in effect on the date hereof. Any of these authorities could be
repealed, overruled or modified at any time. Any such change could be
retroactive and, accordingly, could modify the tax consequences of this Offer.
No ruling from the IRS with respect to the matters discussed herein has been
requested, and there is no assurance that the IRS would agree with the
conclusions set forth in this discussion.
General Consequences. The tender of shares of Preferred Stock pursuant
to the Offer will be a taxable transaction for federal income tax purposes and
may be a taxable transaction under state, local or foreign tax laws as well.
Under the Code, a holder of Preferred Stock whose shares are purchased pursuant
to the Offer will generally recognize gain or loss in an amount equal to the
difference between the cash received and such stockholder's adjusted tax basis
for his shares redeemed, if:
(i) as a result of the sale, his stock interest in Dynex is completely
terminated;
(ii) the redemption is "substantially disproportionate" with respect to
the selling stockholder; or
(iii) the redemption is otherwise deemed to be not essentially equivalent
to a dividend.
These tests (the "Section 302 Tests") are discussed in greater detail
below. If any one of the Section 302 Tests is met, as discussed under "--
Treatment as a Sale or Exchange," such gain or loss generally will be treated as
a long-term capital gain or loss if the stockholder's holding period for such
shares is more than one year. If none of the Section 302 Tests is satisfied, the
cash received pursuant to the Offer will be treated in the manner discussed
under "--Treatment as a Dividend or Otherwise as a Distribution" as a dividend
taxable as ordinary income to the extent of the current and accumulated earnings
and profits of Dynex, if any. To determine whether the Section 302 Tests are
met, there must be taken into account both (a) any shares actually owned by such
holder of Preferred Stock and (b) any shares considered owned by such holder of
Preferred Stock by reason of certain constructive ownership rules set forth in
the Code. A holder of Preferred Stock generally will be treated as owning shares
which he has the right to acquire under options, or by the conversion or
exchange of a security, and shares owned (and, in some cases, constructively
owned) by members of the stockholder's family and by related entities such as
corporations, partnerships, trusts and estates in which such stockholder, a
member of his family or a related entity has an interest.
Complete Termination of Interest Test. A holder of Preferred Stock who
meets the requirements of the "complete termination of interest" test generally
will receive sale or exchange treatment. A complete termination of stock
interest of a tendering holder of Preferred Stock will have occurred if Dynex
purchases all of his Preferred Stock pursuant to the Offer, and the holder of
Preferred Stock does not own directly and is not deemed to own, under the
constructive ownership rules described above, any other stock of Dynex. If the
Offer is prorated, the shares that are not purchased by reason of such proration
must be taken into account in determining whether a holder of Preferred Stock
has achieved a complete termination of his interest in Dynex. If a holder of
Preferred Stock would otherwise satisfy the complete termination requirement,
but for his constructive ownership of shares held by family members, under
certain circumstances the holder of Preferred Stock may be entitled to disregard
such constructive ownership.
Substantially Disproportionate Test. Provided that a series of
Preferred Stock is considered voting stock for federal income tax purposes, a
sale of Preferred Stock of a series pursuant to the Offer will, in general, be
"substantially disproportionate" as to a holder if, among other things, the
percentage of the outstanding Preferred Stock of such series actually and
constructively owned by the holder immediately after the completion of the Offer
is less than 80% of the percentage of Preferred Stock of such series actually
and constructively owned by the holder immediately before the Offer. In
addition, for those holders of Preferred Stock that also own common stock, the
"substantially disproportionate" test will not be satisfied unless the holder's
ownership of the common stock immediately after the completion of the Offer is
less than 80% of the percentage of the common stock owned by the holder
immediately before the Offer, taking into account the constructive ownership
rules. If the Offer is prorated, the shares that are not purchased by reason of
such proration must be taken into account in determining whether a holder of
such series of Preferred Stock has satisfied the substantially disproportionate
test.
Not Essentially Equivalent to a Dividend Test. This test, as compared
to the other two tests previously discussed, provides a taxpayer with the least
amount of certainty in determining whether a redemption will be treated as a
sale or exchange.
A redemption of a series of Preferred Stock for cash that results in
some reduction in the proportionate interest in Dynex, taking into account any
constructive ownership, of a holder whose relative stock interest in Dynex is
minimal and who exercises no control over corporate affairs will generally be
regarded as a "meaningful reduction" in the holder's stock interest in Dynex.
Stockholders tendering shares pursuant to the Offer should note that the change
in their relative stock interest in Dynex may be affected by a proration of the
Offer. For example, a stockholder who tenders a smaller percentage of his shares
than the percentage of outstanding shares repurchased by Dynex in the
transaction would experience an increase in his proportionate interest in Dynex,
and would generally be required to treat the sales proceeds received as a
distribution rather than as a sale or exchange. See discussion below under
"--Treatment as a Dividend or Otherwise as a Distribution." Any stockholder
seeking to rely on the "not essentially equivalent to a dividend" test should
consult with his own tax advisor as to its application in his particular
situation.
Treatment as a Sale or Exchange. If any of the Section 302 Tests
described above are satisfied, the redemption will be treated as a sale or
exchange. The tendering holder of Preferred Stock will recognize capital gain or
loss in an amount equal to the difference between the amount of cash received
pursuant to the Offer (other than amounts which represent declared and unpaid
dividends) and his adjusted tax basis in the redeemed shares. Generally, the
basis of shares is equal to their cost. However, if the shares were inherited or
received by gift, special tax rules may apply. Amounts of cash received upon
redemption of the Preferred Stock which represent declared and unpaid dividends
will be subject to taxation in the manner discussed under "-- Treatment as a
Dividend or Otherwise as a Distribution" below.
Such gain or loss would be long-term capital gain or loss if the
holding period for the Preferred Stock exceeded one year. Capital gains of
individuals derived in respect of capital assets held for more than one year are
eligible for reduced rates of taxation. The maximum capital gains tax rate
applicable to individuals is generally 20% under current law. The deductibility
of capital losses is restricted and, in general, such losses may only be used to
reduce capital gains to the extent thereof. However, taxpayers who are
individuals generally may deduct annually $3,000 of capital losses in excess of
their capital gains.
Treatment as a Dividend or Otherwise as a Distribution. If none of the
Section 302 Tests described above is satisfied, then the holder of Preferred
Stock generally will be treated as having received a distribution in an amount
equal to the gross proceeds payable to the holder. Such a deemed distribution
will be taxable as a dividend (i.e., ordinary income) to the extent of the
current and accumulated earnings and profits of Dynex, if any, as calculated for
U.S. federal income tax purposes. In the case of a holder of the Preferred Stock
that is a corporation, distributions will not be eligible for the dividends
received deduction. The amount taxable will not be reduced by the holder's basis
in the Preferred Stock exchanged pursuant to the Offer, and the holder's
adjusted tax basis in the shares sold will be transferred to any remaining
shares of Dynex stock retained by the holder.
If none of the Section 302 Tests is satisfied and a sale pursuant to
the Offer is therefore treated as a distribution, any cash received for
Preferred Stock pursuant to the Offer in excess of Dynex current and accumulated
earnings and profits will be treated, first, as a non-taxable return of capital
to the extent of, and in reduction of, the holder's tax basis in his Preferred
Stock, and thereafter, as a capital gain to the extent that it exceeds the
holder's tax basis. Gain recognized by a holder on Preferred Stock held for 12
months or less will be taxable at ordinary income rates, while Preferred Stock
held more than 12 months will be taxable at the long-term capital gains rate.
Backup Withholding Requirements. Under Federal backup withholding
rules, except in the case of certain exempt taxpayers, the Depositary will
withhold 31% of the gross proceeds paid to a holder of Preferred Stock or other
payee pursuant to the Offer unless the holder of Preferred Stock provides his
taxpayer identification number (employer identification number or social
security number), certifies that such number is correct, and certifies that he
has not been notified that he is subject to backup withholding. See "Procedures
for Tendering Shares -- United States Federal Income Tax Backup Withholding"
above, for further details.
Taxation of Holders Who Are Non-U.S. Holders. To the extent that a sale
of Preferred Stock by a Non-U.S. Holder pursuant to the Offer does not satisfy
one of the Section 302 Tests, and is therefore treated for U.S. federal income
tax purposes as a distribution, the gross proceeds payable to the Non-U.S.
Holder will generally be subject to United States withholding tax at a rate of
30%. Special rules apply to the extent that an income tax treaty applies, or
where the shares of Preferred Stock are held by the Non-U.S. Holder in
connection with the conduct, by it, of a trade or business in the United States.
See "Procedures for Tendering Shares -- Withholding for Holders Who are Non-U.S.
Holders" above, for further details.
Where a sale of Preferred Stock by a Non-U.S. Holder pursuant to the
Offer satisfies one or more of the Section 302 Tests described above and is
therefore treated for U.S. federal income tax purposes as a sale or exchange
rather than a distribution, it will generally not be subject to United States
federal income tax, unless the Foreign Investment in Real Property Tax Act
("FIRPTA") were to apply. FIRPTA imposes tax on non-U.S. persons on certain
sales of U.S. real estate and stock of a United States Real Property Holding
Corporation (a "USRPHC"). Dynex believes that it is not, and is not likely to
become, a USRPHC. Moreover, even if Dynex were a USRPHC, in general FIRPTA would
not apply if the selling Non-U.S. Holder holds, and has held, directly and
constructively, in the five years prior to the tendering of Preferred Stock,
less than 5% of the outstanding Preferred Stock of the respective series of
Dynex.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY. EACH STOCKHOLDER IS URGED TO CONSULT HIS
OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE SALE
OF HIS PREFERRED STOCK PURSUANT TO THE OFFER, INCLUDING THE APPLICABILITY OF
CONSTRUCTIVE OWNERSHIP RULES, THE APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN
INCOME OR OTHER TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND ANY PENDING OR
PROPOSED LEGISLATION.
13. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
Dynex is not aware of any license or regulatory permit material to
Dynex business that is reasonably likely to be adversely affected by Dynex
acquisition of shares of Preferred Stock as contemplated herein or of any
approval or other action by any government or governmental, administrative or
regulatory authority, agency, or tribunal, domestic or foreign, that would be
required for the acquisition or ownership of shares by Dynex as contemplated
herein. Should any such approval or other action be required, Dynex presently
contemplates that such approval or other action will be sought or taken. Dynex
is unable to predict whether it will be required to delay the acceptance for
payment of or payment for shares tendered pursuant to the Offer pending the
outcome of any such matter. There can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that the failure to obtain any such approval or other
action might not result in adverse consequences to Dynex business. Dynex
obligations under the Offer to accept for payment and pay for shares are subject
to certain conditions. See Section 7.
14. EXTENSION OF THE OFFER PERIOD; TERMINATION; AMENDMENTS
Dynex expressly reserves the right, in its sole discretion, at any time
and from time to time, and regardless of whether or not any of the events set
forth in Section 7 shall have occurred or shall be deemed by Dynex to have
occurred, to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, and payment for, any shares by giving
oral or written notice of such extension to the Depositary and making a public
announcement thereof. Dynex also expressly reserves the right, in its sole
discretion, to terminate the Offer and not accept for payment or pay for any
shares not previously accepted for payment or paid for or, subject to applicable
law, to postpone payment for shares upon the occurrence of any of the conditions
specified in Section 7 by giving oral or written notice of such termination or
postponement to the Depositary and making a public announcement thereof. Dynex
reservation of the right to delay payment for shares which it has accepted for
payment is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which
requires that Dynex must pay the consideration offered or return the shares
tendered promptly after termination or withdrawal of an Offer.
Subject to compliance with applicable law, Dynex further reserves the
right, in its sole discretion, and regardless of whether any of the events set
forth in Section 7 shall have occurred or shall be deemed by Dynex to have
occurred, to amend the Offer in any respect (including, without limitation, by
decreasing or increasing the consideration offered in the Offer to holders of
shares or by decreasing or increasing the number of shares being sought in the
Offer). Amendments to the Offer may be made at any time and from time to time by
public announcement thereof. In the case of an extension, such announcement will
be issued no later than 9:00 a.m., New York City time, on the next business day
after the last previously scheduled or announced Expiration Date. Any material
change to the terms of the Offer will be disseminated promptly to stockholders
in a manner reasonably designed to inform stockholders of such change. Without
limiting the manner in which Dynex may choose to inform stockholders, except as
required by applicable law, Dynex shall have no obligation to publish, advertise
or otherwise communicate any such change other than by making a release to the
Dow Jones News Service. If Dynex materially changes the terms of the Offer or
the information concerning the Offer, or if it waives a material condition of
the Offer, Dynex will extend the Offer to the extent required by Rules
13e-4(d)(2) and 13e-4(e)(2) promulgated under the Exchange Act. Under these
rules, the minimum period during which an offer must remain open following
material changes in the terms of the Offer or information concerning the Offer
will depend on the facts and circumstances, including the relative materiality
of such terms or information. If (i) Dynex increases or decreases the price to
be paid for shares, increases or decreases the number of shares being sought in
the Offer or, in the event of an increase in the number of shares being sought,
such increase exceeds 2% of the number of outstanding shares of a series of
Preferred Stock, and (ii) the Offer is scheduled to expire at any time earlier
than the expiration of a period ending on the tenth business day from, and
including, the date that such notice of an increase or decrease is first
published, sent or given in the manner specified herein, the Offer will be
extended until the expiration of such period of ten business days. For the
purposes of the Offer, a "business day" means any day other than a Saturday,
Sunday or Federal holiday and consists of the time period from 12:01 a.m.
through 12:00 Midnight, New York City time.
15. FEES AND EXPENSES
Dynex has retained MacKenzie Partners, Inc. to act as Information Agent
and First Union National Bank to act as Depositary in connection with the Offer.
The Information Agent may contact holders of shares by mail, telephone,
facsimile, telex, telegraph and personal interviews and may request Nominees to
forward materials relating to the Offer to beneficial owners. The Information
Agent and the Depositary will each receive reasonable and customary compensation
for their respective services.
No fees or commissions will be payable by Dynex to brokers, dealers or
other persons (other than fees to the Information Agent as described above) for
soliciting tenders of shares pursuant to the Offer. A Stockholder holding shares
through a Nominee is urged to consult such Nominee to determine whether
transaction costs are applicable if such stockholder tenders shares through such
Nominee and not directly to the Depositary. Dynex will, however, upon request,
reimburse Nominees for customary mailing and handling expenses incurred by them
in forwarding the Offer and related materials to the beneficial owners of shares
held by them as a nominee or in a fiduciary capacity. No Nominee has been
authorized to act as the agent of Dynex, the Information Agent or the Depositary
for purposes of the Offer. Dynex will pay or cause to be paid all stock transfer
taxes, if any, on its purchase of shares except as otherwise provided under
Section 6 or Instruction 6 in the Letter of Transmittal.
16. MISCELLANEOUS
Dynex is not aware of any jurisdiction in which the making of the Offer
is not in compliance with applicable law. If Dynex becomes aware of any
jurisdiction where the making of the Offer or the acceptance or purchase of the
shares is not in compliance with any valid applicable law, Dynex will make a
good faith effort to comply with such law. If, after such good faith effort,
Dynex cannot comply with such law, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of shares residing in such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on Dynex behalf by one or more registered brokers or dealers
licensed under the laws of the jurisdiction.
Pursuant to Rule 13e-4 promulgated under the Exchange Act, Dynex has
filed with the Commission an Issuer Tender Offer Statement on Schedule TO which
contains additional information with respect to the Offer. The Schedule TO,
including the Exhibits and any amendments thereto, may be examined, and copies
may be obtained at the same places and in the same manner as is set forth in
Section 18 with respect to information concerning Dynex.
17. ADDITIONAL INFORMATION
Dynex files annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy any reports,
statements or other information filed by Dynex at the Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Commission's public reference rooms in New York, New York and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The filings of Dynex with the
Commission are also available to the public from commercial document retrieval
services and at the web site maintained by the Commission at http://www.sec.gov.
Such filings and other information concerning Dynex also can be inspected and
copied at the offices of the Nasdaq National Market, 33 Whitehall Street, New
York, New York 10004-2193.
The Commission allows Dynex to "incorporate by reference" information
to this Offer to Purchase. This means that Dynex can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is considered to be
part of this Offer to Purchase, except for any information that is superseded by
information that is included directly in this document. This Offer to Purchase
incorporates by reference the documents listed below that Dynex has previously
filed with the Commission. The documents contain important information about
Dynex and its financial condition.
Commission Filings Period or Date Filed
Annual Report on Form 10-K Year ended December 31, 2000
Current Report on Form 8-K April 6, 2001
Dynex incorporates by reference additional documents that it may file
with the Securities and Exchange Commission between the date of this Offer to
Purchase and the date the Offer proration period and withdrawal rights expired.
Those documents include periodic reports, such as Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and proxy statements.
THE BOARD HAS UNANIMOUSLY APPROVED THE MAKING OF THE OFFER. YOU MUST,
HOWEVER, MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER. NONE OF DYNEX OR THE BOARD MAKES ANY RECOMMENDATION TO YOU
WITH RESPECT TO THE OFFER, AND NO PERSON HAS BEEN AUTHORIZED BY DYNEX OR THE
BOARD TO MAKE ANY SUCH RECOMMENDATIONS. THE DELIVERY OF THIS DOCUMENT SHALL NOT
CREATE AN IMPLICATION THAT THERE HAS BEEN ANY CHANGE IN THE AFFAIRS OF DYNEX
SINCE THE DATE OF THIS DOCUMENT OR THAT THE INFORMATION IN THIS DOCUMENT IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS DOCUMENT.
This Offer to Purchase and the related Letter of Transmittal are being
mailed to stockholders, and will be furnished to Nominees whose names, or the
names of whose nominees, appear on our list of stockholders, or, if applicable,
who are listed as participants in a clearing agency's security position listing.
The Depositary for the Offer is:
FIRST UNION NATIONAL BANK
Telephone Number: (800) 829-8432
Facsimile Number: (704) 590-7628
Any questions, requests for assistance, or requests for additional
copies of this Offer to Purchase, the Letter of Transmittal or the Notice of
Guaranteed Delivery should be directed to the Information Agent at the following
address and telephone numbers:
The Information Agent for the Offer is:
[LOGO OF MACKENZIE PARTNERS, INC.]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email: proxy@mackenziepartners.com
You may also contact your broker, dealer, commercial bank or trust
company or any other nominee for assistance concerning this Offer.