Form 8-K
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of
Report (Date of earliest event reported): September
8, 2006
___________
DYNEX
CAPITAL, INC.
(Exact
name of registrant as specified in its charter)
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Virginia
(State
or other jurisdiction
of
incorporation)
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1-9819
(Commission
File Number)
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52-1549373
(IRS
Employer
Identification
No.)
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4551
Cox Road, Suite 300
Glen
Allen, Virginia
(Address
of principal executive offices)
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23060
(Zip
Code)
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Registrant’s
telephone number, including area code: (804)
217-5800
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR
240.13e-4(c))
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Item
1.01 Entry into a Material Definitive Agreement.
On
September 8, 2006, Issued Holdings Capital Corporation (IHCC), a subsidiary
of
Dynex Capital, Inc. ( “Dynex”), entered into a Limited Liability Agreement of
Copperhead Ventures, LLC (the “Agreement”) with DBAH Capital, LLC (DBAH), an
affiliate of Deutsche Bank AG, in order to establish a joint venture. The joint
venture will focus primarily on mortgage-related investments and special
situations.
IHCC
and
DBAH each own 49.875% of Copperhead Ventures, LLC (the “LLC”), and an
unaffiliated third party, Dartmouth Investments, LLP, owns 0.25%. IHCC and
DBAH
are voting members, each with the right to elect one member of the Board of
Directors of the LLC. The business of the LLC will be managed by the two-member
Board, and all material decisions of the LLC, including decisions regarding
the
investment of capital of the LLC, require unanimous Board approval. Dynex was
appointed as the initial Manager of the LLC, with limited
authority.
Under
the
terms of the Agreement, income, losses, gains and distributions are allocated
among the members in proportion to their respective interests. The Agreement
contains customary provisions with respect to various governance, tax,
accounting and regulatory matters. The LLC may be dissolved if authorized by
the
Board, and it may also be dissolved under a variety of other circumstances,
including automatic dissolution sixty days after the redemption of certain
assets contributed to the LLC, which redemption is expected to occur on February
15, 2009. Each of IHCC and DBAH may withdraw from the LLC under certain
circumstances without penalty. These circumstances include upon a change of
control event with respect to Dynex, the operations of the LLC causing Dynex
to
fail to qualify as a REIT, the operations of the LLC causing Dynex to be
considered a registered investment company, or the operations of the LLC causing
a materially adverse impact on DBAH from a regulatory, compliance, tax, or
accounting standpoint. Otherwise, either IHCC or DBAH may withdraw from the
LLC
at a 10% discount to fair value through September 15, 2007, and a 4% discount
to
fair value through September 15, 2008.
IHCC
will
contribute certain ownership interests in a commercial mortgage-backed security,
and will enter into a derivative payment agreement with the LLC which is based
on the performance of a second commercial mortgage-backed security owned by
Dynex. These contributions are valued at $36.5 million. Certain other interests
in these securities were retained by IHCC. DBAH will contribute $36.5 million
in
cash. The contributions will be made on or before September 15, 2006. There
are
provisions within the Agreement to distribute cash capital to the LLC’s members
if cash and equivalents exceed 30% of the net assets of the LLC, after an
initial period of nine months, for any period of six consecutive calendar months
in order to make such percentage 10% or less. The Agreement permits its members
to compete with the LLC for investment opportunities.
The
foregoing description of the terms of the Agreement is qualified in its entirety
by reference to the full text of the Agreement, which will be attached as an
exhibit to the Company’s quarterly report on Form 10-Q for the period ended
September 30, 2006.
As
a
result of the contribution of its interests to the joint venture, Dynex expects
to remove approximately $278 million in securitized finance receivables,
including delinquent loans of approximately $25 million, and approximately
$253
million in securitization financing from its consolidated balance sheet, and
record a non-cash loss of approximately $0.7 million. The Company will account
for its investment in the joint-venture under the equity method of
accounting.
Note:
This document contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,”
“forecast,” “anticipate,” “estimate,” “project,” “plan, “ and similar
expressions identify forward-looking statements that are inherently subject
to
risks and uncertainties, some of which cannot be predicted or quantified. The
Company’s actual results and timing of certain events could differ materially
from those projected in or contemplated by the forward-looking statements as
a
result of unforeseen external factors. These factors may include, but are not
limited to, changes in general economic and market condition, variability in
investment portfolio cash flows, availability of suitable reinvestment
opportunities, defaults by borrowers, fluctuations in interest rates,
fluctuations in property capitalization rates and values of commercial real
estate, defaults by third-party servicers, prepayments of investment portfolio
assets, other general competitive factors, the impact of regulatory changes,
and
the impact of Section 404 of the Sarbanes-Oxley Act of 2002. For additional
information, see the Company’s Quarterly Report on Form 10-Q for the period
ended June 30, 2006, and the Company’s Annual Report on Form 10-K for the period
ended December 31, 2005, and other reports filed with and furnished to the
Securities and Exchange Commission.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Date:
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September
14, 2006
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By:
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/s/
Stephen J. Benedetti
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Stephen
J. Benedetti
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Principal
Executive Officer
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