Exhibit
10.12






EMPLOYMENT
AGREEMENT




This
EMPLOYMENT AGREEMENT (this “Agreement”) is
entered into as of this 31st day
of July, 2009 by and between Dynex Capital, Inc., a Virginia corporation (the
“Company”), and
Byron Boston (“Executive”).






W1TNESSETH:




WHEREAS,
Executive is currently employed by the Company;




WHEREAS,
the Company desires to continue to employ and secure the exclusive services of
Executive on the terms and conditions set forth in this Agreement;
and




WHEREAS,
Executive desires to accept such employment on such terms and
conditions.




NOW,
THEREFORE, in consideration of the mutual covenants and promises contained
herein and for other good and valuable consideration, the Company and Executive
hereby agree as follows:




1.  Agreement to Employ.
Upon the terms and subject to the conditions of this Agreement, the Company
hereby agrees to continue to employ Executive, and Executive hereby accepts such
continued employment with the Company.




2.  Term; Position and
Responsibilities; Location.




(a)  Term of Employment.
Unless Executive’s employment shall sooner terminate pursuant to Section 7, the
Company shall continue to employ Executive on the terms and subject to the
conditions of this Agreement from the date first written above through March 31,
2010.  This Agreement shall be renewed automatically for successive
additional terms of one (1) year each, unless either party should give the other
written notice of non-renewal at least ninety (90) days prior to the expiration
of the initial term or any additional term, as the case may be. Any such notice
of non-renewal from the Company shall be deemed to be a termination of
Executive’s employment without Cause pursuant to Section 7(b)(iv) below. The
period during which Executive is employed with the Company under this Agreement
shall be referred to as the “Employment Period.”




(b)  Position and
Responsibilities.  During the Employment Period, Executive
shall serve as Chief Investment Officer (“CIO”) and shall be
responsible for managing the Company’s investment portfolio and such other
related duties and responsibilities as are customarily assigned to individuals
serving in such position.  The Company and Executive agree that during
the Employment Period, Executive shall report directly to the Company’s Chairman
and Chief Executive Officer and shall devote as much of his skill, knowledge,
commercial efforts and business time as the Company’s Board of Directors
(“Board”) shall reasonably require for the conscientious and good faith
performance of his duties and responsibilities for the Company to the best of
his ability.




(c)  Location.  During
the Employment Period, Executive’s services shall be performed primarily in the
Jacksonville, Florida metropolitan area.




3.  Base Salary. During
the Employment Period, the Company shall pay Executive a base salary at an
annualized rate of $275,000, payable in installments on the Company’s regular
payroll dates but not less frequently than monthly.  The Board shall
review Executive’s base salary annually during the Employment Period and may
increase (but not decrease) such base salary from time-to-time, based on its
periodic review of Executive’s performance in accordance with the Company’s
regular policies and procedures. The base salary amount payable to Executive for
a full year under this Section 3 shall be referred to herein as the “Base
Salary.”




4.  Annual Incentive
Compensation. The Company has established an annual bonus program based
on the return on adjusted equity of the Company (the “ROAE
Bonus”).  The Company also has established a bonus pool for 2009
related to the capital raising activities of the Company (the “Capital Bonus
Pool”).  For the duration of this Agreement, the Executive will be
eligible for the ROAE Bonus and will participate in the Capital Bonus
Pool.  Amounts available to be paid to Executive under the ROAE Bonus
and the Capital Bonus Pool, and the time and form of payment of such bonuses,
will be determined by the respective bonus program documents, ratified and
approved by the Compensation Committee of the Board of Directors, outlining the
terms of the ROAE Bonus and Capital Bonus Pools.  The amount of the
Capital Bonus Pool allocated to the Executive will be determined by the
Compensation Committee of the Board of Directors on each Determination Date (as
that term is defined in the Capital Bonus Pool governing document), subject to
Section 7(d)(i)(D) below.




5.  Employee
Benefits.




(a)  General. During the
Employment Period, Executive will be eligible to participate in the employee and
executive benefit plans and programs maintained by the Company from time-to-time
in which executives of the Company are eligible to participate, including, to
the extent maintained by the Company, life, medical, dental, accidental and
disability insurance plans and retirement, deferred compensation and savings
plans, in accordance with the terms and conditions thereof as in effect from
time-to-time.  Upon execution of this Agreement, Executive shall be
immediately eligible to participate in the Company’s existing 401(k) plan and
the Company shall match Executive’s contributions in accordance with the terms
of that plan, provided that such matching does not violate any provisions of the
401(k) plan.




(b)  Vacation. During the
Employment Period, Executive shall be entitled to vacation on an annualized
basis of four (4) weeks per year, without carry-over accumulation. Executive
shall also be entitled to Company-designated holidays.




(c)           Cellular Phones and Personal
Data Assistants. During the Employment Period, the Company shall provide
Executive with a cellular phone and a personal data assistant (e.g., Blackberry,
IPhone, Treo, etc.) for his use, as well as pay for business-related usage
fees.  Executive shall submit a detailed bill in order to obtain
reimbursement.




6.  Expenses.




(a)  Travel, Housing While
Executive Maintains Permanent Residence in Jacksonville.  So
long as Executive maintains his permanent residence in Jacksonville, Florida,
the Company will pay reasonable travel costs and lodging costs of the Executive
while Executive is on business at the Company’s corporate offices in Richmond,
Virginia. Said reasonable costs shall include, but not be limited to,
coach-class airfare, rental car (including gas) or lease car, lodging, and a
food allowance of $30 per business day that Executive is traveling to Richmond
on Company business.




(b)  Business Travel,
Lodging. The Company will reimburse Executive for reasonable travel,
lodging, meal and other reasonable expenses incurred by him in connection with
the performance of his duties and responsibilities hereunder upon submission of
related receipts or other evidence of the incurrence and purpose of each such
expense consistent with the terms and conditions of the Company’s business
expense reimbursement policy.




(c)           Agreement Review. The
Company shall reimburse Executive for the attorneys’ fees he incurred relating
to the review and negotiation of this Agreement.









7.  Termination of
Employment The Board believes it is in the best interests of the Company
to diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks in the event the Executive terminates his
employment for Good Reason (as defined herein) or is terminated by the Company
without Cause (as defined herein) and to encourage the Executive’s full
attention and dedication to the Company currently, and to provide the Executive
with compensation and benefits arrangements upon such termination which ensure
that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other
corporations.  The Board has approved this Section 7 of the Agreement
and authorized its inclusion in this Agreement on the Company’s behalf to the
Executive.




(a)           Certain
Definitions.





(i)           “Change in Control”
shall mean any of the following:





(A)           The
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) (a
“Person”) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the “Outstanding Company Common
Stock”) or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting
Securities”); or





(B)           Individuals
who, as of the date hereof, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least two-thirds of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or con­sents by or on behalf of
a Person other than the Board; or





(C)           Consummation
of a reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such Business
Combination,





(1)           the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, at least 80% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including, without
limitation a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be; or





(2)           no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination; or





(3)           at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or





(D)           Approval
by the shareholders of the Company of a complete liquidation or dissolution of
the Company.





(ii)           “Date of Termination”
means (i) if the Executive’s employment is terminated by the Company for Cause,
or by the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be, (ii) if the
Executive’s employment is terminated by the Company other than for Cause or for
Good Reason, the date on which the Company or the Executive notifies the other
of such termination, as the case may be, and (iii) if the Executive’s employment
is terminated by reason of death or disability, the date of death of the
Executive or the effective date of the disability, as the case may
be.





(iii)           The
“Effective
Date” shall mean the date on which an event occurs that gives rise to
Good Reason for termination of the Executive’s employment with the
Company.





(b)           Termination of
Employment.





(i)           Good
Reason.  Executive may terminate his employment during the
Employment Period for Good Reason. In such event, the Company shall have the
Termination Obligations in Section 7(d)(i) below. For the purposes of this
Agreement, “Good Reason” shall mean any of the following:





(A)           the
assignment to the Executive of any duties inconsistent with the Executive’s
position (including status, office(s), title as CIO, and reporting
requirements), authority, duties, and responsibilities as CIO as provided in
Section 2(b) above, or any other action by the Company that results in a
diminution in such position (including status, office(s), title as CIO, and
reporting requirements), authority, duties and responsibilities as CIO as
provided in Section 2(b) above, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company within ten (10) days after receipt of notice thereof
given by the Executive;





(B)           any
failure by the Company to provide the Executive with compensation and benefits
that are not at least commensurate in all material respects with those provided
to Executive immediately preceding the Effective Date, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company within ten (10) days after receipt of notice thereof
given by the Executive;





(C)           the
occurrence of a Change in Control; or





(D)           any
material breach of this Agreement by the Company.





(ii)           Without Good
Reason.  Executive may terminate his employment during the
Employment Period without Good Reason. In such event, the Company shall have the
Termination Obligations in Section 7(d)(ii) below.





(iii)           Cause.  The
Company may terminate the Executive’s employment during the Employment Period
for Cause. In such event, the Company shall have the Termination Obligations in
Section 7(d)(ii) below. For purposes of this Agreement, “Cause” shall mean any
of the following:





(A)           the
willful and continued failure of the Executive to perform substantially the
Executive’s duties with the Company (other than any such failure resulting from
incapacity due to physical or mental illness), if, within 30 days of receiving a
written demand for substantial performance from the Board or the Chief Executive
Officer that specifically identifies the manner in which the Executive has not
substantially performed his duties, the Executive shall have failed to cure such
non-performance or to take measures to cure the non-performance, or





(B)           the
willful engaging by the Executive in gross misconduct that is materially and
demonstrably injurious to the Company.





(C)           the
arrest of Executive of a felony.





For purposes of this provision, no act
or failure to act, on the part of the Executive, shall be considered “willful”
unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or omission was in the
best interests of the Company.  Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or a
committee thereof, or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.  The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of conduct
described in subparagraph (A) or (B) above, and specifying the particulars
thereof in detail.





(iv)           Without
Cause.  The Company may terminate Executive without Cause. In
such event, the Company shall have the Termination Obligations in Section
7(d)(i) below.





(v)           Death or
Disability.  Executive’s employment shall automatically
terminate on Executive’s death and may be terminated by the Company due to his
Disability. For the purposes of this Agreement, “Disability” shall mean a
physical or mental disability that prevents Executive from performing his
essential job functions as CIO for a continuous period of at least six (6)
months. In such event, the Company shall have the Termination Obligations in
Section 7(d)(ii) below.





(c)           Notice of
Termination.  Any termination of Executive’s employment by the
Company for or without Cause, or by the Executive for or without Good Reason,
shall be communicated by a Notice of Termination to the other party. For
purposes of this Agreement, a “Notice of Termination” means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated and (iii) if the Date of Termination
is other than the date of receipt of such notice (which date shall be not more
than thirty days after the giving of such notice).  The failure by the
Company or the Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause or Good Reason shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive’s or the Company’s rights
hereunder.





(d)           Company’s Termination
Obligations.





(i)           Good Reason or Without
Cause.  If the Executive’s employment is terminated by
Executive for Good Reason, or by the Company without Cause, within 30 days after
the Date of Termination, the Company shall pay to Executive, a lump sum payment
in cash equal to the aggregate of the following amounts under (A) and (B) and
provide the other benefits provided below:





(A)           Executive’s
Base Salary through the Date of Termination, to the extent not previously paid,
reimbursement for any unreimbursed business expenses incurred by executive prior
to the Date of Termination that are subject to reimbursement under Section 6
above and payment of accrued, but unused vacation time as of the Date of
Termination (“Accrued
Obligations”).





(B)           an
amount equal to the Executive’s Base Salary on the day prior to the Date of
Termination multiplied by 2.99.





(C)           the
portion of the ROAE Bonus for the calendar year of the Company during which
Executive was employed that includes the Date of Termination, such portion to
equal the product (such product, the “Pro-Rata ROAE Bonus”)
of the ROAE Bonus that would have been payable to Executive for such calendar
year had Executive remained employed for the entire calendar year, determined
based on the extent to which the Company achieves the performance goals for such
year, multiplied by a fraction, the numerator of which is equal to the number of
days in such calendar year that precede the date of termination and the
denominator of which is equal to 365, payable in cash at the time otherwise
provided under the terms of the ROAE Bonus program.


.


(D)           to
the extent not already paid, the portion of the Capital Bonus Pool due the
Executive under the terms of the Capital Bonus Pool with respect to any
Determination Date (as that term is defined in the Capital Bonus Pool governing
document) that precedes the Date of Termination or relates to an offering that
commenced prior to the Date of Termination (the “Unpaid Capital
Bonus”) payable in cash on the Bonus Payment Date.





(E)           to
the extent any incentive stock awards, such as stock options, stock appreciation
rights, restricted stock, dividend equivalent rights, or any other form of
incentive stock compensation granted Executive shall have not vested, they shall
immediately become fully (100%) vested and exercisable and shall be paid in
accordance with their terms.





(F)           continued
coverage at the Company’s expense under the Company’s medical, dental, life
insurance and disability policies or arrangements with respect to Executive and
any of his dependents who were covered under such Company plans on the day prior
to the Date of Termination for a period of one year following the Date of
Termination; provided, however, that if Executive becomes reemployed with
another employer and is eligible to receive comparable medical or other welfare
benefits under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility provided that the costs of
obtaining such medical and other welfare benefits is less than the cost of such
benefits to Executive immediately prior to the Date of Termination.





(G)           to
the extent not theretofore paid or provided, the Company shall timely pay or
provide to Executive any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies.





(ii)           Without Good Reason, With
Cause, Death, or Disability.  If Executive’s employment should
terminate on his death, if the Company should terminate his employment for Cause
or due to his Disability, or if he should terminate his employment without Good
Reason during the Employment Period, the Company shall pay to Executive (or to
his estate in the event of his death) the Accrued Obligations within thirty (30)
days following the Date of Termination, provided that in the event of
Executive’s death, payment is subject to production to the Company of such
evidence or information in respect of Executive’s estate as the Company may
require. In addition, if Executive’s employment should terminate on his death or
because of his Disability during the Employment Period, the Company shall pay to
Executive (or to his estate in the event of his death) the Pro-Rata ROAE Bonus
and Unpaid Capital Bonus, if any, in one lump sum payment on the Bonus Payment
Date for the calendar year of the Company that includes the Date of
Termination.





(e)           Non-exclusivity of
Rights.  Nothing in this Agreement shall prevent or limit the
Executive’s continuing or future participation in any plan, program, policy or
practice provided by the Company and for which the Executive may qualify, nor,
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company.  Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Company at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement.





(f)           Full
Settlement.  The Company’s obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Executive or others.  In no event shall Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not Executive obtains other
employment.  The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses that the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, Executive, or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guaranty of performance thereof
(including as a result of any contest by Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the “Code”).





(g)           Limitation on
Benefits.  It is the intention of the parties that payments to
be made to the Executive pursuant to this Agreement and under any other plan,
agreement or arrangement maintained by the Company shall not constitute "excess
parachute payments" within the meaning of Section 280G of the Code and any
regulations thereunder.  If the independent accountants serving as
auditors for the Company on the Effective Date (or any other accounting firm
designated by the Company) determine that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise) would be nondeductible by the Company under Section 280G of the Code
(and any successor provision) as amended from time to time, then the amounts
payable or distributable under this Agreement will be reduced to the maximum
amount which may be paid or distributed without causing such payments or
distributions to be nondeductible.  The determination shall take into
account (a) whether the payments or distributions are "parachute payments" under
Section 280G, (b) the amount of payments and distributions under this Agreement
or any other plan, agreement or arrangement that constitute reasonable
compensation, and (c) the present value of such payments and distributions
determined in accordance with Treasury Regulations in effect from time to
time.  In the event any payments or benefits are to be reduced, the
Company shall reduce or eliminate the payments to the Executive by first
reducing or eliminating those payments or benefits which are payable in cash and
then by reducing or eliminating those payments which are not payable in cash, in
each case in reverse order beginning with payments or benefits which are to be
paid or provided the farthest in time from the date of
determination.  Any reduction pursuant to the preceding sentence shall
take precedence over the provisions of any other plan, arrangement or agreement
governing the Executive’s rights and entitlements to any benefits or
compensation.





(h)           Successors.





(i)           This
Section 7 of the Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution.  This
Section 7 of the Agreement shall inure to the benefit of and be enforceable by
the Executive’s legal representatives.





(ii)           This
Section 7 of the Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.





(iii)           The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.





8.  Code Section 409A
Compliance




(a)           The
intent of the parties is that payments and benefits under this Agreement comply
with Section 409A of the Internal Revenue Code and applicable guidance
thereunder (“Code Section 409A”) or comply with an exemption from the
application of Code Section 409A and, accordingly, all provisions of this
Agreement shall be construed in a manner consistent with the requirements for
avoiding taxes or penalties under Code Section 409A.




(b)           Neither
the Executive nor the Company shall take any action to accelerate or delay the
payment of any monies and/or provision of any benefits in any matter which would
not be in compliance with Code Section 409A.




(c)           A
termination of employment shall not be deemed to have occurred for purposes of
any provision of this Agreement providing for the form or timing of payment of
any amounts or benefits upon or following a termination of employment unless
such termination is also a “separation from service” (within the meaning of Code
Section 409A) and, for purposes of any such provision of this Agreement under
which (and to the extent) deferred compensation subject to Code Section 409A is
paid, references to a “termination” or “termination of employment” or like
references shall mean separation from service.  If the Executive is
deemed on the date of separation from service with the Company to be a
“specified employee”, within the meaning of that term under Code Section
409A(a)(2)(B) and using the identification methodology selected by the Company
from time to time, or if none, the default methodology, then with regard to any
payment or benefit that is required to be delayed in compliance with Code
Section 409A(a)(2)(B), such payment or benefit shall not be made or provided
prior to the earlier of (i) the expiration of the six- month period measured
from the date of the Executive’s separation from service or (ii) the date of the
Executive’s death.  In the case of benefits required to be delayed
under Code Section 409A, however, the Executive may pay the cost of benefit
coverage, and thereby obtain benefits, during such six month delay period and
then be reimbursed by the Company thereafter when delayed payments are made
pursuant to the next sentence.  On the first day of the seventh month
following the date of the Executive’s separation from service or, if earlier, on
the date of the Executive’s death, all payments delayed pursuant to this Section
8(c) (whether they would have otherwise been payable in a single sum or in
installments in the absence of such delay) shall be paid or reimbursed to the
Executive in a lump sum, and any remaining payments and benefits due under this
Agreement shall be paid or provided in accordance with the normal payment dates
specified for them herein.




(d)           With
regard to any provision herein that provides for reimbursement of expenses or
in-kind benefits subject to Code Section 409A, except as permitted by Code
Section 409A, (i) the right to reimbursement or in-kind benefits is not subject
to liquidation or exchange for another benefit, and (ii) the amount of expenses
eligible for reimbursement, or in-kind benefits, provided during any taxable
year shall not affect the expenses eligible for reimbursement, or in-kind
benefits to be provided, in any other taxable year, provided that the foregoing
clause (ii) shall not be violated with regard to expenses reimbursed under any
arrangement covered by Code Section 105(b) solely because such expenses are
subject to a limit related to the period the arrangement is in effect. All
reimbursements shall be reimbursed in accordance with the Company’s
reimbursement policies but in no event later than the calendar year following
the calendar year in which the related expense is incurred.




(e)           If
under this Agreement, an amount is to be paid in two or more installments, for
purposes of Code Section 409A, each installment shall be treated as a separate
payment.




(f)           When,
if ever, a payment under this Agreement specifies a payment period with
reference to a number of days (e.g., “payment shall be made within ten (10) days
following the date of termination”), the actual date of payment within the
specified period shall be within the sole discretion of the
Company.”




(g)           Notwithstanding
any of the provisions of this Agreement, the Company shall not be liable to the
Executive if any payment or benefit which is to be provided pursuant to this
Agreement and which is considered deferred compensation subject to Code Section
409A otherwise fails to comply with, or be exempt from, the requirements of Code
Section 409A.




9.  Restrictive
Covenants. The Company and Executive agree that Executive will have a
prominent role in the management of the business, and the development of the
goodwill of the Company, and will have access to and become familiar with or
exposed to Confidential Information (as such term is defined below), in
particular, trade secrets, proprietary information, and other valuable business
information of the Company pertaining to the Company’s specialty finance
business involving mortgage real estate investment trusts.  Executive
agrees that Executive could cause harm to the Company if he solicited the
Company’s employees, customers, or business counterparties upon the termination
of Executive’s employment away from the Company, or misappropriated or divulged
the Company’s Confidential Information; and that as such, the Company has
legitimate business interests in protecting its goodwill and Confidential
Information; and, as such, these legitimate business interests justify the
following restrictive covenants:




(a)  Confidentiality and
Non-Disclosure Covenant.




(i)  Executive
acknowledges and agrees that the terms of this Agreement, including all
addendums and attachments hereto, are confidential. Except as required by law or
the requirements of any stock exchange, Executive agrees not to disclose any
information contained in this Agreement to anyone, other than to Executive’s
lawyer, financial advisor or immediate family members. If Executive discloses
any Information contained in this Agreement to his lawyer, financial advisor or
immediate family members as permitted herein, Executive agrees to immediately
tell each such individual that he or she must abide by the confidentiality
restrictions contained herein and keep such information confidential as
well.




(ii)  Executive
agrees that during his employment with the Company and thereafter, Executive
will not, directly or indirectly (A) disclose any Confidential Information to
any Person (other than, only with respect to the period that Executive is
employed by the Company, to an employee or outside advisor of the Company who
requires such information to perform his or her duties for the Company), or (B)
use any Confidential Information for Executive’s own benefit or the benefit of
any third party. “Confidential
Information” includes the Company’s marketing plans, business plans,
financial information and records, operation methods, personnel information,
drawings, designs, information regarding product development, customer lists, or
other commercial or business information and any other information not available
to the public generally. The foregoing obligation shall not apply to any
Confidential Information that has been previously disclosed to the public, is in
the public domain (other than by reason of a breach of Executive’s obligations
to hold such Confidential Information confidential), or is otherwise known by
Executive prior to his employment under this Agreement. In particular,
Confidential Information will not include any knowledge of the Executive with
respect to the general business of the Company including its investment in fixed
income and similar securities and its organization as a real estate investment
trust.  If Executive is required or requested by a court or
governmental agency to disclose Confidential Information, Executive must notify
the Chief Operating Officer of the Company of such disclosure obligation or
request no later than three (3) business days after Executive learns of such
obligation or request, and permit the Company to take all lawful steps it deems
appropriate to prevent or limit the required disclosure.




(b)  Non-Competition
Covenant.  Executive agrees that during his employment with the
Company, Executive shall devote as much of his skill, knowledge, commercial
efforts and business time as the Board shall reasonably require to the
conscientious and good faith performance of his duties and responsibilities to
the Company to the best of his ability.  Accordingly, Executive shall
not, directly or indirectly, be employed by, render services for, engage in
business with or serve as an agent or consultant to any Person other than the
Company. Executive further agrees that during his employment with the Company
and for a period of ninety (90) days following any termination of his employment
with the Company, Executive shall not, directly or indirectly, provide
investment services that compete with the Company’s principal sources of revenue
at the time of the termination of the Company’s employment. Executive also shall
be permitted to hold a ten percent (10%) or less interest in the equity or debt
securities of any publicly traded company.




(c)  Non-Solicitation of
Employees. During the period of Executive’s employment with the Company
and for the six (6)-month period following the termination of his employment,
Executive shall not, directly or indirectly, by himself or through any third
party, whether on Executive’s own behalf or on behalf of any other Person or
entity, (i) solicit or induce or endeavor to solicit or induce, divert, employ
or retain, (ii) interfere with the relationship of the Company with, or (iii)
attempt to establish a business relationship of a nature that is competitive
with the business of the Company with, any person that is or was (during the
last thirty (30) days of Executive’s employment with the Company) an employee of
the Company or engaged to provide services to it.




10.  Work Product.
Executive agrees that all of Executive’s work product (created solely or jointly
with others, and including any intellectual property or moral rights in such
work product), given, disclosed, created, developed or prepared in connection
with Executive’s employment with the Company (“Work Product”) shall
exclusively vest in and be the sole and exclusive property of the Company and
shall constitute “work made for hire” (as that term is defined under Section 101
of the U.S. Copyright Act, 17 U.S.C. § 101) with the Company being the person
for whom the work was prepared. In the event that any such Work Product is
deemed not to be a “work made for hire” or does not vest by operation of law in
the Company, Executive hereby irrevocably assigns, transfers and conveys to the
Company, exclusively and perpetually, all right, title and interest which
Executive may have or acquire in and to such Work Product throughout the world,
including without limitation any copyrights and patents, and the right to secure
registrations, renewals, reissues, and extensions thereof. The Company or its
designees shall have the exclusive right to make full and complete use of, and
make changes to all Work Product without restrictions or liabilities of any
kind, and Executive shall not have the right to use any such materials, other
than within the legitimate scope and purpose of Executive’s employment with the
Company. Executive shall promptly disclose to the Company the creation or
existence of any Work Product and shall take whatever additional lawful action
may be necessary, and sign whatever documents the Company may require, in order
to secure and vest in the Company or its designee all right, title and interest
in and to all Work Product and any intellectual property rights therein
(including full cooperation in support of any Company applications for patents
and copyright or trademark registrations).




11.  Return of Company
Property. In the event of termination of Executive’s employment for any
reason, Executive shall return to the Company all of the property of the Company
and its Affiliates, including without limitation all Company materials or
documents containing Confidential Information, and including without limitation,
all computers (including laptops), cell phones, keys, PDAs, Blackberries, credit
cards, facsimile machines, televisions, card access to any Company building,
customer lists, computer disks, reports, files, e-mails, work papers, Work
Product, documents, memoranda, records and software, computer access codes or
disks and instructional manuals, internal policies, and other similar materials
or documents which Executive used, received or prepared, helped prepare or
supervised the preparation of in connection with Executive’s employment with the
Company. Executive agrees not to retain any copies, duplicates, reproductions or
excerpts of such material or documents.




12.  Compliance With Company
Policies. During Executive’s employment with the Company, Executive shall
be governed by and be subject to, and Executive hereby agrees to comply with,
all Company policies, procedures, codes, rules and regulations applicable to all
employees and to executive officers of the Company, as they may be amended from
time to time in the Company’s sole discretion (collectively, the “Policies”) provided
however that such policies will be reasonably consistent with such policies of
other comparable companies in terms of revenue, industry and/or market
capitalization.




13.  Injunctive Relief with
Respect to Covenants: Forum, Venue and Jurisdiction.  Executive
acknowledges and agrees that in the event of any material breach by Executive of
any of section of this Agreement that remedies at law may be inadequate to
protect the Company, and, without prejudice to any
other legal or equitable rights and remedies otherwise available to the
Company, Executive agrees to the granting of injunctive relief in the
Company’s favor in connection with any such breach or violation without proof of
irreparable harm.




14.  Assumption of
Agreement. The Company shall require any Successor thereto, by agreement
in form and substance reasonably satisfactory to Executive, to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a material breach of this
Agreement and shall entitle Executive to compensation from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
the Company had terminated Executive’s employment without Cause as described in
Section 7, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.




15.  Indemnification. The
Company agrees both during and after the Employment Period to indemnify
Executive to the fullest extent permitted by its Certificate of Incorporation
(including payment of expenses in advance of final disposition of a proceeding)
against actions or inactions of Executive during the Employment Period as an
officer, director or employee of the Company or any of its Subsidiaries or
Affiliates or as a fiduciary of any benefit plan of any of the foregoing. The
Company also agrees to provide Executive with Directors and Officers insurance
coverage both during and, with regard to matters occurring during the Employment
Period, after the Employment Period. Such coverage shall be at a level at least
equal to the level being maintained at such time for the then current officers
and directors or, if then being maintained at a higher level with regard to any
prior period activities for officers or directors during such prior period, such
higher amount with regard to Executive’s activities during such prior
period.




16.  Entire Agreement.
This Agreement constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof. All prior correspondence and proposals
(including but not limited to summaries of proposed terms) and all prior
promises, representations, understandings, arrangements and agreements relating
to such subject matter (including but not limited to those made to or with
Executive by any other person and those contained in any prior employment,
consulting  or similar agreement entered into by Executive and the
Company or any predecessor thereto or Affiliate thereof) are merged herein and
superseded hereby.




17.  Survival. The
following Sections shall survive the termination of Executive’s employment with
the Company and of this Agreement.




18.  Miscellaneous.




(a)  Binding Effect:
Assignment. This Agreement shall be binding on and inure to the benefit
of the Company and its Successors and permitted assigns. This Agreement shall
also be binding on and inure to the benefit of Executive and his heirs,
executors, administrators and legal representatives. This Agreement shall not be
assignable by any party hereto without the prior written consent of the other
parties hereto.




(b)  Choice of Forum and
Governing Law.  The parties agree that:  (i) any
litigation involving any noncompliance with or breach of the Agreement, or
regarding the interpretation, validity and/or enforceability of the
Agreement,  shall be interpreted in accordance with and governed by
the laws of the Commonwealth of Virginia, without regard for any conflict of law
principles.




(c)  Taxes. The Company
may withhold from any payments made under this Agreement all applicable taxes,
including but not limited to income, employment and social insurance taxes, as
shall be required by law.




(d)  Amendments. No
provision of this Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is approved in writing by the Board or a
Person authorized thereby and is agreed to in writing by Executive. No waiver by
any party hereto at any time of any breach by any other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No waiver of any
provision of this Agreement shall be implied from any course of dealing between
or among the parties hereto or from any failure by any party hereto to assert
its rights hereunder on any occasion or series of occasions.




(e)  Severability. In the
event that any one or more of the provisions of this Agreement shall be or
become invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby. In the event that one or more terms or provisions of this
Agreement are deemed invalid or unenforceable by the laws of Virginia or any
other state or jurisdiction in which it is to be enforced, by reason of being
vague or unreasonable as to duration or geographic scope of activities
restricted, or for any other reason, the provision in question shall be
immediately amended or reformed to the extent necessary to make it valid and
enforceable by the court of such jurisdiction charged with interpreting and/or
enforcing such provision. Executive agrees and acknowledges that the provision
in question, as so amended or reformed, shall be valid and enforceable as though
the invalid or unenforceable portion had never been included
herein.




(f)  Notices. Any notice
or other communication required or permitted to be delivered under this
Agreement shall be (i) in writing, (ii) delivered personally, by courier service
or by certified or registered mail, first-class postage prepaid and return
receipt requested, (iii) deemed to have been received on the date of delivery
or, if mailed, on the third business day after the mailing thereof, and (iv)
addressed as follows (or to such other address as the party entitled to notice
shall hereafter designate in accordance with the terms hereof):




(A)  If to the
Company, to it at:




Chief
Financial Officer


Dynex
Capital, Inc.


4991 Lake
Brook Drive, Suite 100


Glen
Allen, Virginia 23060




(B)  If to
Executive, to his residential address as currently on file with the
Company.




(g)  Voluntary Agreement: No
Conflicts. Executive represents that he is entering into this Agreement
voluntarily and that Executive’s employment hereunder and compliance with the
terms and conditions of this Agreement will not conflict with or result in the
breach by Executive of any agreement to which he is a party or by which he or
his properties or assets may be bound.




(h)  Counterparts/Facsimile.
This Agreement may be executed in counterparts (including by facsimile), each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.




(i)  Headings. The section
and other headings contained in this Agreement are for the convenience of the
parties only and are not intended to be a part hereof or to affect the meaning
or interpretation hereof.




(j)  Certain
other Definitions.




“Affiliate”: with
respect to any Person, means any other Person that, directly or indirectly
through one or more intermediaries, Controls, is Controlled by, or is under
common Control with the first Person, including but not limited to a Subsidiary
of any such Person.






“Control” (including,
with correlative meanings, the terms “Controlling”, “Controlled by” and “under
common Control with”): with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.




“Person”: any natural
person, firm, partnership, limited liability company, association, corporation,
company, trust, business trust, governmental authority or other
entity.




“Subsidiary”: with
respect to any Person, each corporation or other Person in which the first
Person owns or Controls, directly or indirectly, capital stock or other
ownershipinterests
representing fifty percent (50%) or more of the combined voting power of the
outstanding voting stock or other ownership interests of such corporation or
other Person.




“Successor”: of a
Person means a Person that succeeds to the first Person’s assets and liabilities
by merger, liquidation, dissolution or otherwise by operation of law, or a
Person to which all or substantially all the assets and/or business of the first
Person are transferred.









[SIGNATURE
PAGE FOLLOWS]












IN
WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized
representatives, and Executive has hereunto set his hand, in each case effective
as of the date first above written.




DYNEX
CAPITAL, INC.





By:          /s/ Thomas B. Akin





Its:           Chief Executive Officer








BYRON
BOSTON:





/s/ Byron Boston


SIGNATURE