EMPLOYMENT AGREEMENT
This
EMPLOYMENT AGREEMENT (this “Agreement”) is
entered into as of this 31st day of March, 2008 by and between Dynex Capital,
Inc., a Virginia corporation (the “Company”), and Xxxxxx
X. Xxxx (“Executive”).
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.
(c) Location. During
the Employment Period, Executive’s services shall be performed primarily in the
San Francisco, California metropolitan area. However, Executive may be required
to travel in and outside of such area as the needs of the Company’s business
dictate. Executive will also work from time-to-time out of the
Company’s office in Richmond, Virginia.
hereunder
upon submission of evidence satisfactory to the Company of the incurrence and
purpose of each such expense, provided that such
expenses are permitted under the terms and conditions of the Company’s business
expense reimbursement policy. Such expenses shall be reimbursed in
accordance with the Company’s business expense reimbursement policy but in no
event later than December 31 of the year following the year in which the
Executive incurs the related expense.
(i) In
the event of a termination of Executive’s employment, the Company shall pay to
Executive, within thirty (30) days of the Date of Termination, his 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 pursuant to Section
7(a) and payment for vacation time accrued as of the Date of Termination but
unused (the “Accrued
Obligations”). In addition, in the event of any such termination of
Executive’s employment unless such termination was for Cause (as defined in
Section 7(e) below), if Executive executes and delivers to the Company a
Separation Agreement and General Release substantially in the form approved by
the Company, Executive shall be entitled to the following payments and
benefits:
(A) the
portion of the ROAE Bonus for the fiscal 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 fiscal year
had Executive remained employed for the entire fiscal year, determined based on
the extent to which the Company actually achieves the performance goals for such
year, multiplied by a fraction, the numerator of which is equal to the number of
days in such fiscal year that precede the Date of Termination and the
denominator of which is equal to 365, such amount to be payable to Executive on
the date such bonus would otherwise have been paid if the Executive was still
employed (the “Bonus
Payment Date”);
(B) to
the extent not already paid, the portion of the Capital Bonus Pool due the
Executive pursuant to Section 4 above for a Determination Date that precedes the
Date of Termination (the “Unpaid Capital
Bonus”) payable in cash on the Bonus Payment Date;
(C) to
the extent any incentive stock awards such as stock options, stock appreciation
rights, restricted stock, or similar which were awarded to Executive during the
Employment Period and which have not vested as of the Date of Termination, such
incentive stock awards will immediately become 100% vested and
exercisable; and
Executive
shall not have a duty to mitigate the costs to the Company under this Section
7(c)(i), nor shall any payments from the Company to Executive under items (A),
(B) or (C) of this Section 7(c)(i) be reduced, offset or canceled by any
compensation or fees earned by (whether or not paid currently) or offered to
Executive during the Severance Period by a subsequent employer or other Person
(as defined in below) for which Executive performs services, including but not
limited to consulting services. The foregoing notwithstanding, should Executive
receive or be offered health or medical benefits coverage during the Severance
Period by a subsequent employer or Person for whom Executive performs services,
Executive shall notify the Company of this within seven (7) business days of
such receipt or offer, as applicable, and all similar health and medical
benefits coverage provided by the Company to Executive shall terminate as of the
effective date of such new coverage.
(ii) Except
as specifically set forth in this Section 7(c), no termination benefits shall be
payable to or in respect of Executive’s employment with the
Company.
(d) The
payments under Section 7 are intended to be exempt from or comply with Internal
Revenue Code Section 409A and applicable guidance issued thereunder
(collectively, “Code
Section 409A”). If it should be determined that any payment or
benefit under this Agreement constitutes a “deferral of compensation” subject to
Code Section 409A, then, notwithstanding anything in this Agreement to the
contrary, if the Executive is a “specified employee” (within the meaning of Code
Section 409A and as determined by the Company in accordance with Code Section
409A) at the time of the Executive’s separation from service (as
defined
in Code Section 409A), the distribution of any payment or benefit under this
Agreement on account of the Executive’s termination of employment shall be made
no earlier than the date which is six months after the date of Executive’s
separation from service (or, if earlier than the end of such six month period,
the date of the Executive’s death). To the extent any payment or
benefit hereunder is subject to the six month delay, such payment or benefit
shall be paid immediately after the end of such six month period (or the date of
death, if earlier). The provisions of this Agreement governing any
payment or benefit constituting a “deferral of compensation” shall be
interpreted and operated consistently with the requirements of Code Section
409A.
(e) For
purposes of this Agreement, “Cause” means (i) a material breach by Executive of
any provision of this Agreement; (ii) a material and willful violation by
Executive of any of the Company Policies; (iii) the failure by Executive to
reasonably and substantially perform the duties of his position (other than as a
result of physical or mental illness or injury); (iv) Executive’s willful
misconduct or gross negligence that has caused or is reasonably expected to
result in material injury to the business, reputation or prospects of the
Company; (v) Executive’s fraud or misappropriation of funds; or (vi) the
commission by Executive of a felony or other serious crime involving moral
turpitude; provided that in the case of any breach of clauses (i), (ii) or (iii)
that is curable, no termination there under shall be effective unless the
Company shall have given Executive notice of the event or events constituting
Cause and Executive shall have failed to cure such event or events within thirty
(30) business days after receipt of such notice.
(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” means confidential, proprietary or commercially sensitive
information relating to (i) the Company or members of its management or boards
or (ii) any third parties who do business with the Company. Confidential
Information includes, without limitation, 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 or is
in the public domain (other than by reason of a breach of Executive’s
obligations to hold such Confidential Information confidential). 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.
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 twelve (12) months of Executive’s employment
with the Company) an employee of the Company or engaged to provide services to
it.
(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 filed and conducted in the state or federal courts in Richmond,
Virginia; and (ii) 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.
(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.
(A) If
to the Company, to it at:
Chief
Operating Officer
Dynex
Capital, Inc.
0000 Xxx
Xxxx, Xxxxx 000
Xxxx
Xxxxx, XX 00000
(B) If
to Executive, to his residential address as currently on file with the
Company.
(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
ownership interests
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.
DYNEX
CAPITAL, INC.
By: /s/
Xxxxxxx X. Xxxxxxxxx
Its:
Executive Vice President and Chief Operating Officer
Xxxxxx X.
Xxxx:
/s/ Xxxxxx X.
Xxxx
SIGNATURE
EXHIBIT
A
PERFORMANCE
BONUS FOR RETURN ON ADJUSTED EQUITY
Certain
members of senior management (the “Participants”) will be eligible for a bonus
based on the annual return on adjusted equity of the Company (the “ROAE
Bonus”).
The bonus
amount shall be determined individually, and shall equal the product of the
Participant’s respective actual base salary paid for 2008 times the sum of (x)
the product of 50% times the Reference Rate as calculated below and (y) the
product of 50% times the percentage determined by the Compensation Committee of
the Board of Directors earned by the respective Participant relative to certain
objectives set for the Participant by the Compensation Committee.
Amounts
due to the Participants for the ROAE Bonus will be paid in cash concurrently
with the filing of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008, or March 15, 2009, whichever is earlier.
The
Reference Rate will be determined based on the Return on Average Equity (ROAE).
ROAE will be determined as the Company’s net income for the period April 1, 2008
to December 31, 2008 determined in accordance with generally accepted accounting
principles, adjusted for any non-recurring extraordinary items as determined by
the Compensation Committee, divided by average common shareholder equity
excluding unrealized gains and losses and adjusted for any equity capital that
is raised until such time the capital is deployed. The ROAE
will then be annualized for purposes of determining the Reference Rate
below.
|
Reference
Rate
|
||||
|
ROAE
less than 6%
|
-
%
|
|||
|
ROAE
6% or greater and less than 8%
|
25%
|
|||
|
ROAE
8% or greater and less than 10%
|
50%
|
|||
|
ROAE
10% or greater and less than 12%
|
75%
|
|||
|
ROAE
12% or greater
|
100%
|
EXHIBIT
B
PERFORMANCE
BONUS POOL FOR CAPITAL RAISING ACTIVITIES
A
performance bonus pool for capital raising activities for calendar 2008 (the
“Capital Bonus Pool”) will be created to compensate eligible participants (the
“Participants”) for equity capital raising activities.
The
amount available in the Capital Bonus Pool will be equal to 1% of the gross
amount of equity capital raised by the Company in 2008 provided that the
aggregate amount for 2008 equals or exceeds $100 million. The equity
capital raised will exclude any amounts raised, if any, via a dividend
reinvestment program, continuous offering program, or
similar. The amount available for the Capital Bonus Pool will
be made on the closing date of each respective offering (the “Determination
Date’). The initial Determination Date will be on the closing date of
the first equity offering in 2008 that cumulatively exceeds $100
million.
The
Capital Bonus Pool will be allocated by the Compensation Committee of the Board
of Directors to the individual Participants based on recommendations made by the
Chief Executive Officer of the Company and the assessment by the Compensation
Committee of the Board of Directors of each Participant's performance with
respect to the equity capital raising activities of the Company. Such
allocations will be made as eligible equity capital is raised but no less than
quarterly.
Payment
of amounts due to the Participants will be made in the form of restricted common
stock of the Company during 2008, which shall vest 100% on the second
anniversary of the Determination Date. The vesting provision will be
the only restriction with respect to the common stock issued to the
Participant. The stock price used to calculate the number of shares
granted to each Participant shall be equal to the weighted average price per
share of that capital raised.