UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  ------------


                                    FORM 8-K

                                 CURRENT REPORT

        Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

                          Date of Report: April 6, 2001


                               DYNEX CAPITAL, INC.
                   (Exact Name of Registrant as Specified in Charter)


Virginia                               1-9819                         2-1549373
(State or Other                (Commission File                    (IRS Employer
 Jurisdiction of                                             Identification No.)
 Incorporation)

                  4551 Cox Road, Suite 300, Glen Allen, Virginia           23060
                      (Address of Principal Executive Offices)        (Zip Code)


                                 (804) 217-5800
                (Registrant's telephone number, including area code)
<PAGE>
Item 5.       OTHER EVENTS.

         On March 30, 2001, the Company entered into a Purchase Agreement by and
among the Company and the  holders of a majority  of the  outstanding  principal
amount of its 7.875% Senior Notes due July 15, 2002 ("Purchase Agreement").  The
Purchase Agreement, required, among other things, the purchase by the Company of
a net $29.5  million  of its  senior  notes from such  holders,  and  additional
purchases out of available cash (as defined in the Purchase Agreement) of all or
a portion of such  holders'  remaining  notes,  as more fully  described  in the
Purchase Agreement.

         Additionally,  the holders of a majority of the  outstanding  principal
amount of the senior notes  approved an  amendment  to the related  indenture of
senior  notes  ("Supplement").  The  Supplement  permits  the  Company  to  make
distributions  with respect to its capital  stock 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 the Company to maintain
its REIT status.  Distributions  on capital  stock as defined in the  Supplement
include dividends,  redemptions,  repurchases,  retirement,  defeasance or other
acquisition.  Under the terms of the  Supplement  and as evidenced by the Pledge
Agreements,  the Company,  including a  wholly-owned  subsidiary of the Company,
have both  pledged  substantially  all of its assets  (subject  to any  existing
security interests) to the trustee for the senior notes.

              The  foregoing  is  qualified  in its entirety by reference to the
complete text of the Purchase  Agreement,  Supplemental Trust Indenture,  Pledge
and  Security  Agreement,  and  Indemnity  Pledge  Agreement  which are filed as
Exhibits hereto.


Item 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

(c)      Exhibits

99.1     Dynex Capital, Inc. Press Release, dated April 2, 2001.

     99.2  Purchase  Agreement,  dated as of March 30, 2001,  by and among Dynex
Capital,  Inc. and the Holders of a majority of the outstanding principal amount
of 7.875% Senior Notes due July 15, 2002.

     99.3  Supplemental  Trust  Indenture,  dated as of March 30,  2001,  by and
between Dynex Capital, Inc. and HSBC Bank USA, as Trustee.

     99.4 Pledge and  Security  Agreement,  dated as of March 30,  2001,  by and
between Dynex Capital, Inc. and HSBC Bank USA, as Trustee.

     99.5 Indemnity Pledge Agreement, dated as of March 30, 2001, by and between
Issuer Holding Corp. and HSBC Bank USA, as Trustee.
<PAGE>
                                SIGNATURES

         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.


Date:    April 6, 2001                DYNEX CAPITAL, INC.


                                      By: /s/Thomas H. Potts
                                         ------------------------------------
                                         Thomas H. Potts
                                         President
<PAGE>
                                  EXHIBIT INDEX

Number     Description                                          Method of Filing

99.1       Dynex Capital, Inc. Press Release,                     Filed herewith
           dated April 2, 2001.

99.2       Purchase Agreement, dated as of March 30, 2001,        Filed herewith
           by and among Dynex Capital, Inc. and the Holders
           of a majority of the outstanding principal amount of
           7.875% Senior Notes due July 15, 2002.

99.3       Supplemental Trust Indenture, dated as of March 30,    Filed herewith
           2001, by and between Dynex Capital, Inc. and HSBC
           Bank USA, as Trustee.

99.4       Pledge and Security Agreement, dated as of March 30,   Filed herewith
           2001, by and between Dynex Capital, Inc. and HSBC
           Bank USA, as Trustee.

99.5       Indemnity Pledge Agreement, dated as of March 30,      Filed herewith
           2001, by and between Issuer Holding Corp. and
           HSBC Bank USA, as Trustee.
<PAGE>
[ Company Logo ]

                                  PRESS RELEASE


FOR IMMEDIATE RELEASE                                      CONTACT:   Kathy Fern
April 2, 2001                                                       804-217-5800


                  DYNEX CAPITAL, INC. REPORTS 2000 RESULTS AND
                           REPURCHASE OF SENIOR NOTES

     Dynex Capital,  Inc. (NYSE: DX) reported today a net loss for 2000 of $91.9
million or $9.15 per common  share,  versus a net loss of $75.1 million or $7.67
per common share for 1999.

     In  commenting  on the 2000  results,  Thomas H. Potts,  President,  stated
"While the loss for 2000 was significant, it contained a number of non-recurring
items.  As stated in prior releases,  our primary focus  throughout 2000 was the
sale or resolution of assets to pay down associated  debt,  letters of credit or
similar  obligations.  During 2000,  Dynex  reduced  on-balance  sheet  recourse
borrowings by $403 million and was released from  approximately  $180 million of
letters of credit  obligations.  The Company  incurred  non-recurring  losses of
$67.5  million  related  to the sale or  resolution  of assets  to  reduce  such
obligations.   Other  significant   non-recurring  items  during  2000  included
additional  charges of $11.0 million  relating to the divesting of the Company's
remaining  investment  in auto  loans."  Mr.  Potts  continued,  "While the 2000
results were impacted by several  non-recurring  charges, net interest margin on
the Company's  investment  portfolio was  negatively  impacted by the almost 20%
decline in our base of interest earning assets, increases in short-term interest
rates, as well as a higher provision for credit losses. The higher credit losses
were primarily due to the  deteriorating  market  conditions in the manufactured
housing market during the fourth quarter, which negatively impacted the recovery
rate on the sale of  repossessed  manufactured  housing  units  relating  to the
Company's portfolio of manufactured housing loans."

     During  the first  quarter  of 2001,  the  Company  paid off all  remaining
amounts due under its  syndicated  bank credit  facility and  repurchased  a net
$29.5  million of its senior notes due July 15, 2002,  leaving  $67.8 million of
such notes  outstanding.  As of the end of the first  quarter of 2001,  the only
other  remaining  recourse  debt  outstanding  was $29.2 million under a reverse
repurchase  facility.  Since the third quarter of 1998,  the Company has reduced
its recourse debt outstanding in excess of $1.5 billion.  Mr. Potts stated,  "As
the Company is now in compliance with its outstanding credit  facilities,  this,
among other things, has enabled our auditors to issue an unqualified  opinion on
our year 2000  financial  statements.  In addition,  as of March 30,  2001,  the
Company had unrestricted cash of approximately $21 million."

     The Company  reported  that the  holders of a majority  of the  outstanding
principal  amount of such notes  approved an amendment to the related  indenture
that specifically provided for the Company to make distributions with respect to
its capital stock 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 the Company to  maintain  its REIT  status.
Distributions  on  capital  stock as defined in the  amended  indenture  include
dividends,   redemptions,   repurchases,   retirement,   defeasance   or   other
acquisition.  In exchange,  the Company pledged  substantially all of its assets
(subject to any existing  security  interests)  to the trustee for the July 2002
senior notes. The Company  indicated that it will file the amended indenture and
related  security  agreements  with the Securities and Exchange  Commission in a
Current Report on Form 8-K within five business days.

     Mr.  Potts  commented,  "With  the  bank  credit  facility  repaid  and the
amendment to the senior notes  completed,  the Board can better evaluate various
courses of action to improve  shareholder  value and to provide liquidity to the
Company's  stock.  The Board continues to consider three  alternatives:  (i) the
outright sale of the Company to a third party; (ii) the sale to a third party of
either "permitted  subordinated  indebtedness" or "qualified  capital stock", or
(iii) one or more  distributions  with respect to its capital stock as permitted
by the amendment to the indenture to the July 2002 senior notes. The Company may
use proceeds raised from the sale of "permitted  subordinated  indebtedness"  or
"qualified capital stock" to increase distributions to shareholders. The Company
anticipates  that it will  inform  shareholders  of its  contemplated  course of
action by May 31, 2001."

     Mr. Potts further commented, "The Company expects its first quarter results
to be favorably  impacted by the recent  declines in short-term  interest rates,
the  discount  realized by the Company on the purchase of the $29 million of the
July 2002 Notes,  and the resolution of a matter related to the Company's  prior
relationship with AutoBond Acceptance  Corporation.  While the overall impact on
earnings of these items is expected to be approximately $10 million, the Company
at this time does not know whether this may be offset by  additional  provisions
for  credit  losses or other  items.  During  the  first  quarter,  the  Company
completed the sale of  substantially  all of the remaining assets it was holding
for sale, and did not incur any material losses from such sales."

     The Company has scheduled a conference  call for Wednesday,  April 4, 2001,
at 9:00 AM EDT.  Investors may  participate in a listen only mode by calling the
following number 888-489-9491.

     Dynex  Capital,  Inc. is a  financial  services  company  that elects to be
treated  as a real  estate  investment  trust  (REIT)  for  federal  income  tax
purposes.

Note: This document contains "forward-looking  statements"(within the meaning of
the Private Securities Litigation Act of 1995) that inherently involve risks and
uncertainties.  The Company's actual results could differ  materially from those
anticipated  in  these  forward-looking  statements  as a result  of  unforeseen
external  factors.  As discussed in the  Company's  filings with the SEC,  these
factors  may  include,  but are not  limited  to,  changes in  general  economic
conditions,  disruptions in the capital markets,  the availability of funds from
the Company's  lenders to finance future loans,  fluctuations in interest rates,
increases in costs and other general competitive factors.
<PAGE>
                               PURCHASE AGREEMENT


     This PURCHASE AGREEMENT  (together with the schedules and exhibits attached
hereto,  collectively,  this  "Agreement")  is dated as of March 30, 2001 by and
among DYNEX  CAPITAL,  INC., a Virginia  corporation  (the  "Company"),  and the
holders listed on Schedule I hereto (the "Holders").

                              Preliminary Statement

     A. The  Company has issued and sold  $100,000,000  in  aggregate  principal
amount  of  its  7.875%   Senior  Debt   Securities   due  July  15,  2002  (the
"Securities"),  pursuant to the terms and  conditions of that certain  Indenture
dated July 14, 1997,  as amended  from time to time,  by and between the Company
and HSBC Bank USA, a banking  corporation and trust company  organized under the
laws of the  State of New  York  (the  "Trustee")  and  that  certain  Officers'
Certificate  (the  "Officers'  Certificate")  of the Company dated July 14, 1997
(collectively, the "Indenture").

     B. The Holders own  Securities in the principal  amount set forth  opposite
the name of each Holder on Schedule I hereto (the  "Individual  Holder Amount"),
with an  aggregate  principal  amount  of  $49,568,000  (the  "Aggregate  Holder
Amount").

     C. The Holders  desire to sell to the Company,  and the Company  desires to
purchase,  on the Initial  Closing Date (as defined  herein),  Securities of the
Holders (the "Initial Purchase  Securities") with an aggregate  principal amount
of $31,129,000 (the "Initial  Purchase Amount") in accordance with the terms and
conditions set forth herein.

     D.  Subsequent to the Initial  Closing Date,  the Holders desire to sell to
the Company,  and the Company desires to purchase,  Securities of the Holders up
to the aggregate  remaining  principal amount of such Securities (the "Remaining
Amount") in  accordance  with the terms and  conditions  set forth  herein.  The
Remaining Amount held by each Holder is set forth on Schedule 2.3 hereof.

     In  consideration  of the mutual covenants and agreements set forth herein,
and other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

     1.  Definitions.
         -----------

     The following terms, when used herein, shall have the following meanings:

     "Affiliate"  of any  specified  Person means any other  Person  directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"control"  when used with  respect to any  specified  Person  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling"  and "controlled"  have meaning  correlative to the
foregoing.

     "Aggregate  Holder  Amount"  shall have the meaning given in Paragraph B of
the Preliminary Statement hereto.

     "Agreement" shall have the meaning given in the preamble hereto.

     "Auditor" shall have the meaning given in Section 3.2.1 hereof.

     "Available  Amount" means on any Mandatory  Purchase  Notice Date, the cash
and cash  equivalents  of the Company  and its  Subsidiaries  on a  consolidated
basis,  less (i) amounts necessary to service accrued and unpaid interest on the
Securities,  (ii) amounts in existence as of such Mandatory Purchase Notice Date
and  designated by the Company for or relating to Permitted  Payments,  (iii) an
amount not to exceed $3,000,000, and (iv) Restricted Cash/Cash Equivalents.

     "Bankruptcy Code" shall have the meaning given in Section 8.4 hereof.

     "Change of Control" means any event or series of events described under the
definition of "Change of Control" in Section 10 of the Officers' Certificate.

     "Company" shall have the meaning given in the preamble hereto.

     "Custodian"  shall  mean a  Person  designated  by a  Holder  to hold  such
Holder's  Securities  in trust or in escrow;  provided  that no Person  shall be
deemed to be a Custodian for purposes of this Agreement  unless the  designating
Holder  provides  the  Company  with  prior  written  notice  of  such  Person's
appointment as Custodian and the address and other contact  information for such
Person.

     "Damages"  shall  mean any and all  direct  or  indirect  demands,  claims,
payments,  obligations,  recoveries,  deficiencies,  fines, penalties, interest,
assessments,  actions,  causes of action, suits, losses,  damages,  liabilities,
costs, expenses (including,  without limitation,  (i) interest,  penalties,  and
reasonable  attorneys' fees and expenses,  (ii)  reasonable  attorneys' fees and
expenses  necessary to enforce rights to  indemnification  hereunder,  and (iii)
reasonable  consultant's fees and other costs of defense or investigation),  and
interest on any amount  payable to a third  party as a result of the  foregoing,
whether accrued, absolute, contingent, known or unknown.

     "Default Notice" shall have the meaning given in Section 3.3 hereof.

     "Dispute Notice" shall have the meaning given in Section 3.2.1 hereof.

     "Disputed  Available  Amount" shall have the meaning given in Section 3.2.1
hereof.

     "Dissenting Holders" shall have the meaning given in Section 3.2.1 hereof.

     "Dissenting Holder  Representative" shall have the meaning given in Section
3.2.1 hereof.

     "Eligible  Investments"  means (i) marketable direct obligations issued by,
or unconditionally  guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,  in
each case maturing within two years from the date of acquisition  thereof;  (ii)
marketable  direct  obligations  issued by any state of the United States or any
political  subdivision of any such state or any public  instrumentality  thereof
maturing within two years form the date of acquisition  thereof and, at the time
of  acquisition,  having one of the two highest  ratings  obtainable from either
Standard & Poor's Ratings  Services,  a division of The  McGraw-Hill  Companies,
Inc. ("S&P"), or Moody's Investors Service, Inc.  ("Moody's");  (iii) commercial
paper maturing no more than two years from the date of creation  thereof and, at
the time of  acquisition,  having a rating  of at least A-1 from S&P or at least
P-1 from Moody's;  (iv) certificates of deposit or bankers' acceptances maturing
within two years from the date of  acquisition  thereof issued by any commercial
bank  organized  under the laws of the United States or any state thereof or the
District of Columbia or any U.S.  branch of a foreign bank having at the date of
acquisition  thereof combined capital and surplus of not less than $500,000,000;
(v) repurchase  obligations  with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications  specified in clause (iv) above; and (vi) investments
in money market funds which invest  substantially all their assets in securities
of the types described in clauses (i) through (v) above.

     "Excess Revised  Available  Amount" shall have the meaning given in Section
3.2.2 hereof.

     "Financial   Statements"  means  the  consolidated   financial  statements,
including any related notes thereto, contained in the Company's Quarterly Report
on Form 10-Q for the quarter ended  September 30, 2000 and Annual Report on Form
10-K for the year  ended  December  31,  1999,  in each  case as filed  with the
Securities and Exchange  Commission  pursuant to the Securities  Exchange Act of
1934, as amended, and the regulations promulgated thereunder.

     "Holder/Holders" shall have the meaning given in the preamble hereto.

     "Indemnitee"  shall have the  meaning  given in Section 9.1 and Section 9.2
hereof.

     "Indemnitor" shall have the meaning given in Section 9.3 hereof.

     "Indenture"  shall have the meaning given in Paragraph A of the Preliminary
Statement hereto.

     "Indenture  Supplement" means that certain  Supplemental Trust Indenture of
even date  herewith by and between the Company and the Trustee,  as the same may
be amended,  amended and restated,  supplemented or otherwise modified from time
to time in accordance with its terms.

     "Individual  Holder  Amount" shall have the meaning given in Paragraph B of
the Preliminary Statement hereto.

     "Initial Closing" shall have the meaning given in Section 4.1 hereof.

     "Initial Closing Date" shall have the meaning given in Section 4.1 hereof.

     "Initial  Purchase  Amount"  shall have the meaning given in Paragraph C of
the Preliminary Statement hereto.

     "Initial Purchase Amount Price" shall have the meaning given in Section 2.2
hereof.

     "Initial  Purchase  Securities" shall have the meaning given in Paragraph C
of the Preliminary Statement hereto.

     "Lien"  means  (i) any lien,  mortgage,  deed of  trust,  pledge,  security
interest, charge or encumbrance of any kind including,  without limitation,  any
conditional  sale or other title  retention  agreement,  any lease in the nature
thereof,  any option or other  agreement  to sell,  any  setoff,  recoupment  or
repurchase  arrangement  and any  filing  of or  agreement  to file a  financing
statement as debtor under the Uniform Commercial Code or any similar statute and
(ii) any agreement to enter into any of the foregoing.

     "Mandatory Purchase" shall have the meaning given in Section 3.1 hereof.

     "Mandatory  Purchase  Date"  shall have the  meaning  given in Section  3.1
hereof.

     "Mandatory  Purchase  Notice"  shall have the meaning  given in Section 3.1
hereof.

     "Mandatory  Purchase  Notice Date" shall have the meaning  given in Section
3.1 hereof.

     "New Remaining Amount" shall have the meaning given in Section 3.4 hereof.

     "New Remaining Amount  Securities"  shall have the meaning given in Section
3.4 hereof.

     "Officers'  Certificate" shall have the meaning given in Paragraph A of the
Preliminary Statement hereto.

     "Partial  Mandatory  Purchase"  shall have the meaning given in Section 3.4
hereof.

     "Permitted  Payments"  means any  payments or  distributions  permitted  in
accordance with subparagraph (iii)(3) of Section 10 of the Officers' Certificate
as amended by Section 2.6 of the Indenture Supplement.

     "Permitted Transferee" shall have the meaning given in Section 8.3 hereof.

     "Person" means any individual, corporation,  partnership, limited liability
company, joint venture, association,  joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

     "Pledge  Agreement"  means the Pledge  Agreement of even date herewith,  by
Issuer Holding Corp., a wholly-owned  subsidiary of the Company, in favor of the
Trustee,  as the same may be amended,  amended  and  restated,  supplemented  or
otherwise modified from time to time in accordance with its terms.

     "Purchase  Calculation" shall mean the amount of Securities to be purchased
from each Holder on each Mandatory  Purchase Date and calculated for each Holder
by dividing A by B, where A is the product of the Available Amount multiplied by
the Individual Holder Amount, and B is the product of the Purchase Price for the
applicable  Mandatory  Purchase Date multiplied by the Aggregate  Holder Amount.
Such  amount of  Securities  is then  rounded up for each  Holder to the nearest
$1,000 increment.

     "Purchase Price" shall mean, with respect to each Mandatory  Purchase,  the
price (expressed as a percentage of the principal amount of the Securities being
purchased)  as set forth in Section  3.1, or in the case of the Initial  Closing
Date, ninety percent (90%).

     "Registered  Securities"  means any senior debt  securities  evidencing the
Company's  secured  indebtedness  that are authenticated and delivered under the
Indenture and registered in the Security Register.

     "Remaining  Amount"  shall have the  meaning  given in  Paragraph  D of the
Preliminary Statement hereto.

     "Remaining  Amount  Purchase  Price"  shall have the  meaning  given in the
Section 3.1 hereof.

     "Remaining  Amount  Securities" shall have the meaning given in Section 2.3
hereof.

     "Restricted  Cash/Cash  Equivalents" means cash and cash equivalents of the
Company  and  its  Subsidiaries  required  to be  held  (a)  by  trustees  under
indentures or trust agreements related to securitizations issued by a Subsidiary
or an Affiliate of the Company,  or (b) under escrow  agreements as set forth on
Schedule 1.1 hereto;  provided,  that any such cash or cash equivalents shall no
longer be deemed Restricted Cash/Cash Equivalents at such time as it is released
from the applicable indenture, trust agreement or escrow agreement.

     "Revised  Available  Amount"  shall have the meaning  given  Section  3.2.1
hereof.

     "Revised  Available  Amount Notice" shall have the meaning given in Section
3.2.2 hereof.

     "Securities" shall have the meaning given in Paragraph A of the Preliminary
Statement hereto.

     "Security  Agreement" means the Pledge and Security  Agreement of even date
herewith,  by the Company in favor of the  Trustee,  as the same may be amended,
amended and restated,  supplemented  or otherwise  modified from time to time in
accordance with its terms.

     "Security Interests" shall have the meaning given in Section 8.4 hereof.

     "Security  Register"  means the register for the Securities  required under
Section 305 of the Indenture.

     "Subsequent Closing" shall have the meaning given in Section 4.2 hereof.

     "Subsequent  Closing  Date"  shall have the  meaning  given in Section  4.2
hereof.

     "Subsidiary" means a corporation,  partnership or limited liability company
a majority  of the  outstanding  voting  stock or voting  interests  of which is
owned,  directly  or  indirectly,  by  the  Company  or by  one  or  more  other
Subsidiaries  of the Company.  For purposes of this  definition,  "voting stock"
means, with respect to a corporation, stock having voting power for the election
of  directors,  whether at all times or only so long as no senior class of stock
has such  voting  power by  reason  of any  contingency.  For  purposes  of this
definition,  "voting  interests" means, with respect to a partnership or limited
liability  company,  partnership or membership  interests having power to direct
the management of the partnership or limited liability company.

     "Transaction Documents" shall have the meaning given in Section 5.2 hereof.

     "Transfer" shall have the meaning given in Section 8.3 hereof.

     "Trustee"  shall have the meaning  given in Paragraph A of the  Preliminary
Statement hereto.

2. Purchase and Sale of Initial Purchase Amount.
   --------------------------------------------

     2.1 Purchase and Sale.  Subject to the terms and conditions  hereof, at the
Initial  Closing,  the Company shall  purchase,  and the Holders shall sell, the
Initial Purchase Securities.

     2.2 Purchase  Price.  Subject to the terms and  conditions  hereof,  at the
Initial  Closing,  the Company shall pay to the Holders the aggregate  amount of
Twenty Eight Million Sixteen  Thousand One Hundred Dollars  ($28,016,100),  plus
accrued and unpaid interest on the Initial Purchase Securities as of the Initial
Closing  Date (the  "Initial  Purchase  Amount  Price") to acquire  the  Initial
Purchase Securities. The portion of the Initial Purchase Amount Price to be paid
to each Holder is set forth  opposite  the name of each  Holder on Schedule  2.2
hereto.

     2.3  Delivery of Initial  Purchase  Securities  and  Issuance of  Remaining
Amount  Securities.  Subject to the terms and conditions  hereof, at the Initial
Closing,  the  Holders  shall cause to be  delivered  to the Company the Initial
Purchase  Securities  for  transfer and shall upon  consummation  of the Initial
Closing hold Registered  Securities in the aggregate principal amounts set forth
opposite the name of each Holder on Schedule 2.3 hereto (the  "Remaining  Amount
Securities"),  which Remaining  Amount  Securities  contain  identical terms and
provisions,  except for principal  amount and except for the legend described in
Section 8.3 hereof,  as the Initial  Purchase  Securities.  Notwithstanding  the
foregoing,  if the principal amount of the Remaining  Amount  Securities held by
any Holder as set forth on Schedule 2.3 hereto is equal to or less than $10,000,
then upon the request of the Company  made prior to the Initial  Closing,  which
request may be given at the Company's sole discretion, such Holder shall deliver
such  Remaining  Amount  Securities  to the Company at the  Initial  Closing for
transfer  and the Company  shall pay to such  Holder the amount  equal to ninety
percent (90%) of the principal amount of such Remaining Amount Securities,  plus
any accrued and unpaid interest on such Remaining Amount Securities, by delivery
of a wire transfer of immediately  available funds to the account  designated by
such  Holder on  Schedule  I  hereto.  Upon  delivery  of the  Initial  Purchase
Securities and the Remaining Amount  Securities  pursuant to this Section 2.3 to
the Company,  each Holder shall be deemed to have assigned and  transferred  all
such Initial Purchase  Securities and Remaining Amount Securities to the Company
and such Initial Purchase  Securities and Remaining  Amount  Securities shall be
cancelled by the Trustee.

3.  Purchase of Remaining Amount Securities.
    ---------------------------------------

     3.1 Purchase Right; Mandatory Purchases.  For so long as any portion of the
Remaining  Amount is outstanding,  the Company shall have the right and shall be
required to purchase (a "Mandatory  Purchase") on April 15, 2001;  June 1, 2001;
July 15, 2001;  September 1, 2001;  October 15, 2001;  December 1, 2001; January
15, 2002;  March 1, 2002;  and April 15, 2002,  or the next business day if such
date is not a business day (each a "Mandatory Purchase Date") that amount of the
Remaining Amount Securities from each Holder determined pursuant to the Purchase
Calculation,  using the  applicable  Purchase  Price set  forth  below,  and the
Available  Amount as  determined  in good faith by the President or Treasurer of
the Company not less than two (2) business days prior to such Mandatory Purchase
Date.  The  aggregate  purchase  price  paid to the  Holders  on each  Mandatory
Purchase Date (the "Remaining Amount Purchase Price") shall equal such Available
Amount,  plus accrued and unpaid interest on such Remaining Amount Securities as
of such  Mandatory  Purchase  Date,  and each Holder shall  receive its pro-rata
share  (taking  account of the  rounding  up used in  determining  the  Purchase
Calculation) of such Remaining  Amount Purchase Price,  pursuant to the Purchase
Calculation.  The  Company  shall not  utilize  any of the  Available  Amount to
purchase,  redeem  or  otherwise  acquire  or  retire  Securities  until  it has
purchased all of the Remaining Amount Securities. Further, until the Company has
purchased  all of the  Securities,  the Company  shall utilize any cash and cash
equivalents (other than Restricted Cash/Cash Equivalents) solely to purchase the
Remaining  Amount  Securities  or to invest in Eligible  Investments,  provided,
however,  that the foregoing  shall not prohibit the Company from using cash and
cash  equivalents for the purposes  otherwise  permitted under the Indenture and
the Indenture Supplement.

          Mandatory
          Purchase Date                                    Purchase Price

          April 15, 2001                                       90.00%
          June 1, 2001                                         92.00%
          July 15, 2001                                        92.00%
          September 1, 2001                                    94.00%
          October 15, 2001                                     94.00%
          December 1, 2001                                     96.00%
          January 15, 2002                                     96.00%
          March 1, 2002                                        98.00%
          April 15, 2002                                      100.00%

     For so long as any  portion of the  Remaining  Amount is  outstanding,  the
Company shall deliver to each Holder by facsimile transmission no later than two
business days prior to each  Mandatory  Purchase Date (the  "Mandatory  Purchase
Notice Date") a certificate  signed by the President or Treasurer of the Company
(a "Mandatory  Purchase  Notice")  setting forth the Available Amount as of such
date, a reasonably  detailed  calculation  of the  components  of the  Available
Amount as of such date, the Purchase  Calculation  relating to such Holder,  and
such  Holder's  pro-rata  share  (taking  account  of the  rounding  up  used in
determining the Purchase  Calculation)  of the Remaining  Amount Purchase Price.
Notwithstanding  the above,  if the Available  Amount is less than the lesser of
the  outstanding  Remaining  Amount or One Million  Dollars  ($1,000,000) on the
Mandatory  Purchase  Notice Date,  then the Company shall be permitted to invest
such  Available  Amount in  Eligible  Investments  in lieu of making a Mandatory
Purchase on such Mandatory  Purchase Date. Upon delivery of the Remaining Amount
Securities  pursuant to this  Section 3 to the  Company,  each  Holder  shall be
deemed to have assigned and transferred such Remaining Amount  Securities to the
Company and such Remaining Amount Securities shall be cancelled by the Trustee.

     3.2    Disputes Regarding Available Amount.
            -----------------------------------

     3.2.1 Disputed  Available Amount. The Company shall promptly deliver to the
Holders such additional  information  regarding the calculation of the Available
Amount as of a Mandatory  Purchase Notice Date that any Holder shall  reasonably
request.  If the  Holders of at least a  majority  of the then  outstanding  New
Remaining  Amount (the  "Dissenting  Holders")  deliver to the Company a written
notice (a "Dispute  Notice")  disputing  the  Available  Amount set forth in the
Mandatory  Purchase  Notice  delivered on a Mandatory  Purchase Notice Date (the
"Disputed  Available  Amount"),  then the Company and each of the Holders  shall
effect the  Mandatory  Purchase to be  consummated  pursuant  to such  Mandatory
Purchase  Notice  in  accordance  with the  terms of this  Agreement  using  the
Disputed Available Amount and the Dissenting  Holders' claim with respect to the
Disputed Available Amount shall be resolved in accordance with the terms of this
Section 3.2; provided,  however, that the Dissenting Holders deliver the Dispute
Notice to the  Company  within  ninety  (90) days after the  Mandatory  Purchase
Notice Date relating to such Disputed  Available  Amount. In the event a Dispute
Notice is timely delivered to the Company, the Company and one of the Dissenting
Holders  that  is  appointed  by a  majority  of  the  Dissenting  Holders  (the
"Dissenting Holder  Representative")  shall negotiate in good faith to determine
the  Available  Amount in lieu of such Disputed  Available  Amount (the "Revised
Available Amount") that is mutually acceptable to the Company and the Dissenting
Holder  Representative.  If the Company and the Dissenting Holder Representative
reach  agreement  on the  Revised  Available  Amount,  then the  Company and the
Dissenting Holder Representative shall deliver a Revised Available Amount Notice
(as defined in Section 3.2.2 below) in accordance with Section 3.2.2 hereof.  If
the  Company  and the  Dissenting  Holder  Representative  are not able to reach
agreement on the Revised  Available  Amount  within ten (10) business days after
the date the Dispute  Notice is delivered  to the Company,  then within ten (10)
business days after the date the Dispute Notice is delivered to the Company, the
Company  shall  retain  Deloitte  & Touche  LLP (or if the  Company is unable to
retain Deloitte & Touche LLP, such other  nationally-recognized  accounting firm
or other firm providing  similar  services that is  satisfactory  to each of the
Company and the  Dissenting  Holder  Representative)  (the  "Auditor"),  and the
Auditor shall deliver to the Company and the Dissenting Holder Representative as
promptly as  practicable  a written  determination  as to the Revised  Available
Amount as of the applicable  Mandatory Purchase Notice Date. In either case, the
agreement  of the  Company  and  the  Dissenting  Holder  Representative  or the
determination  by the  Auditor  as to the  Revised  Available  Amount  shall  be
conclusive and binding on the Company and each of the Holders; provided, that if
the  Auditor  determines  that the  Revised  Available  Amount  is less than the
Disputed Available Amount, then the Disputed Available Amount shall be deemed to
have been the proper  Available  Amount  for the  Mandatory  Purchase  at issue.
Notwithstanding  the foregoing,  if the Company determines at any time after the
delivery of a Mandatory  Purchase Notice that the Available  Amount set forth in
such Mandatory  Purchase Notice was less than the actual  Available Amount as of
the Mandatory Purchase Notice Date for such Mandatory Purchase Notice,  then the
Company shall,  regardless of whether it has received a Dispute Notice,  add the
difference  between the  Available  Amount that was set forth in such  Mandatory
Purchase Notice and the actual  Available  Amount as of such Mandatory  Purchase
Notice Date to the Available  Amount set forth in the first  Mandatory  Purchase
Notice delivered by the Company  subsequent to the date it becomes aware of such
error and shall disclose such error in the same Mandatory Purchase Notice.

     3.2.2 Notice of Revised  Available  Amount.  Within two (2)  business  days
after either (i) the date the Company and the Dissenting  Holder  Representative
mutually  agree on the Revised  Available  Amount,  or (ii) the date the Auditor
delivers its written  determination  setting forth the Revised Available Amount,
then the  Company  and the  Dissenting  Holder  Representative  shall  deliver a
written certificate (the "Revised Available Amount Notice") to each of the other
Holders setting forth the Revised Available Amount, the Excess Revised Available
Amount, if any, the Purchase  Calculation  relating to such Holder based on such
Revised  Available  Amount,  and such Holder's pro-rata share (taking account of
the rounding up used in determining  the Purchase  Calculation) of the Remaining
Amount Purchase Price based on such Revised  Available Amount. To the extent the
Revised Available Amount exceeds the Disputed Available Amount, then the Company
shall add an amount equal to the difference between the Revised Available Amount
and the Disputed Available Amount (the "Excess Revised Available Amount") to the
Available  Amount set forth in the first Mandatory  Purchase Notice delivered by
the  Company  subsequent  to the date the  Revised  Available  Amount  Notice is
delivered. To illustrate the foregoing, if the Company and the Dissenting Holder
Representative deliver a Revised Available Amount Notice on August 15, 2001 that
sets forth an Excess  Revised  Available  Amount of $1,000,000 and the Available
Amount  determined  as of the Mandatory  Purchase  Notice Date for the Mandatory
Purchase on September 1, 2001 is $2,000,000, then the Available Amount to be set
forth in the Mandatory  Purchase Notice for the Mandatory  Purchase on September
1, 2001 shall be $3,000,000.

     3.2.3 Fees and  Expenses of Auditor.  If the  Auditor  determines  that the
Revised Available Amount exceeds the Disputed Available Amount, then the Company
shall pay all of the fees and  expenses  incurred by the  Auditor in  connection
with rendering such  determination.  If the Auditor  determines that the Revised
Available Amount is equal to or less than the Disputed  Available  Amount,  then
the  Dissenting  Holders shall pay all of the fees and expenses  incurred by the
Auditor in connection with rendering such determination.

     3.3  Intentional  Breach.  If the  Company  (a) does not  effect all or any
portion of a Mandatory  Purchase  that (i) is required  under  Section 3.1 based
upon the  Available  Amount set forth in a Mandatory  Purchase  Notice,  or (ii)
would have been required under Section 3.1 had the Available Amount set forth in
any Mandatory Purchase Notice been correct and the Company had knowledge of such
error at the time such Mandatory  Purchase Notice was delivered,  or (b) so long
as any  portion of the  Remaining  Amount is  outstanding,  breaches  any of its
covenants,  representations and warranties or other obligations arising under or
in connection  with the  Indenture,  then the Holders,  in addition to all other
remedies  available under this  Agreement,  shall no longer be obligated to sell
any Remaining Amount Securities to the Company hereunder,  and upon receipt of a
written  notice  signed  by the  Holders  of at  least a  majority  of the  then
outstanding  Remaining  Amount  (a  "Default  Notice"),  the  Company  shall  be
obligated to purchase,  at a Subsequent Closing to be held no later than fifteen
(15) business days after the date such Default  Notice is delivered,  all of the
Remaining  Amount  Securities  outstanding as of the date such Default Notice is
delivered at an aggregate  purchase price equal to 100% of the principal  amount
of such Remaining  Amount  Securities  plus accrued and unpaid  interest on such
Remaining Amount Securities as of the date such Default Notice is delivered. For
purposes of this Section 3.3, the Company  shall be deemed to have had knowledge
that the  Available  Amount  set  forth in any  Mandatory  Purchase  Notice  was
incorrect  if any of its  executive  officers  had  actual  knowledge  that such
Available  Amount was incorrect at the time such Mandatory  Purchase  Notice was
delivered or would have had such knowledge at such time but for his or her gross
negligence.

     3.4 Delivery of Remaining Amount  Securities;  Purchase in Part. Subject to
the terms and conditions hereof, at the Subsequent Closing(s), the Holders shall
deliver the  Remaining  Amount  Securities  being  purchased  to the Company for
transfer.  If the  Company  purchases  less  than  all of the  Remaining  Amount
Securities pursuant to a Mandatory Purchase (such purchase, a "Partial Mandatory
Purchase"),  then each Holder shall sell, and the Company shall  purchase,  such
portion of such Holder's  Remaining Amount Securities as determined  pursuant to
the  Purchase  Calculation.  Upon a Subsequent  Closing for a Partial  Mandatory
Purchase,  the Remaining  Amount shall be reduced by the amount of the Remaining
Amount  Securities  purchased  in the  Partial  Mandatory  Purchase  (the amount
resulting  from such  reduction,  the "New  Remaining  Amount")  and the Company
shall,  subject  to and in  accordance  with the  applicable  provisions  of the
Indenture,  execute, and shall instruct the Trustee to authenticate and deliver,
new  Registered  Securities  (the "New  Remaining  Amount  Securities")  to each
Holder,  or to the  Custodian  on behalf of a Holder  if so  instructed  by such
Holder,  in the  principal  amount  equal to such  Holder's  portion  of the New
Remaining Amount.  Notwithstanding the foregoing, if the principal amount of the
New Remaining  Amount  Securities  to be issued to any Holder  subsequent to any
Partial Mandatory Purchase pursuant to this Section 3.4 is equal to or less than
$10,000,  then the Company, in its sole discretion,  may, in lieu of instructing
the Trustee to authenticate and deliver such New Remaining Amount  Securities to
such  Holder,  pay to such  Holder  the amount  equal to the  product of (i) the
Purchase  Price  utilized  for  such  Partial  Mandatory  Purchase  and (ii) the
principal  amount of such  Remaining  Amount  Securities,  plus any  accrued and
unpaid  interest  on such  Remaining  Amount  Securities,  by delivery of a wire
transfer of immediately available funds to the account designated by such Holder
on  Schedule  I  hereto.  If  there is a  Partial  Mandatory  Purchase,  the New
Remaining Amount shall be deemed to be the Remaining Amount for purposes of this
Agreement. The New Remaining Amount Securities shall contain identical terms and
provisions,  except for principal  amount,  as the Remaining  Amount  Securities
(including  the  legend as set forth in Section  8.3  hereof)  and shall  remain
subject to the  Mandatory  Purchase and the other terms and  conditions  of this
Agreement and be deemed to be Remaining Amount Securities under this Agreement.

4.     Closings.
       --------

     4.1 Initial  Closing.  The closing of the sale and  purchase of the Initial
Purchase  Securities (the "Initial  Closing") shall take place at the offices of
Venable,  Baetjer and Howard,  LLP, 2010  Corporate  Ridge,  Suite 400,  McLean,
Virginia on the date hereof, or such other date (such date, the "Initial Closing
Date") and in such other  manner as may be mutually  agreed to by the parties in
writing.  At the Initial  Closing,  subject to the terms and  conditions  herein
contained:

     (i) Each  Holder  shall  deliver to the Company  the  certificates  for the
Initial Purchase Securities in accordance with Section 2.3 hereof.

     (ii) The Company shall  deliver to each Holder such  Holder's  share of the
Initial  Purchase  Amount  Price in  accordance  with Section 2.2 hereof by wire
transfers of immediately  available funds to the respective  accounts designated
by each of the Holders.

     (iii) The Company shall execute and deliver the Indenture  Supplement,  the
Pledge Agreement, the Security Agreement and all other documents and instruments
contemplated herein and in the Indenture Supplement,  the Security Agreement and
the Pledge Agreement to be executed and delivered by the Company at such time.

     4.2  Subsequent  Closings.  The  closing(s) of the sale and purchase of the
Remaining  Amount Securities  upon a  Mandatory  Purchase
pursuant to Section 3 hereof (each, a "Subsequent Closing" and collectively, the
"Subsequent  Closings") shall take place at the offices of Venable,  Baetjer and
Howard, LLP, 2010 Corporate Ridge, Suite 400, McLean, Virginia on the applicable
Mandatory  Purchase  Date or such other date  (each  such  date,  a  "Subsequent
Closing  Date") and in such  other  manner as may be  mutually  agreed to by the
parties  in  writing.  At the  Subsequent  Closing(s),  subject to the terms and
conditions herein contained:

     (i) Each Holder shall deliver,  or shall instruct the Custodian to deliver,
to the Company such Holder's  Remaining  Amount  Securities  in accordance  with
Section  3.4  hereof.  If a  Holder  fails to  surrender  its  Remaining  Amount
Securities  to be sold to the  Company  hereto,  all rights of such  Holder with
respect to such  Remaining  Amount  Securities,  except its right to receive its
share of the Remaining  Amount  Purchase  Price in accordance  with Sections 3.1
and, if applicable, 10.5 hereof, nonetheless shall cease and terminate.

     (ii) The Company shall  deliver to each Holder such  Holder's  share of the
Remaining  Amount  Purchase Price in accordance  with Section 3.1 hereof by wire
transfers of immediately  available funds to the respective  accounts designated
by each of the Holders.

     5.  Representations  and  Warranties  of Holders.  To induce the Company to
enter  into this  Agreement  and to  consummate  the  transactions  contemplated
hereby,  each of the  Holders,  severally  but not  jointly,  hereby  makes  the
following  representations  and  warranties  to the  Company  as of the  Initial
Closing Date or the Subsequent Closing Date(s), as applicable.

     5.1 Ownership of  Securities.  Such Holder is the sole owner,  beneficially
and of  record,  of the  Initial  Purchase  Securities,  and is the sole  owner,
beneficially, of the Remaining Amount Securities, as applicable, being conveyed,
transferred  or assigned and delivered to the Company  pursuant to the terms and
conditions of this Agreement,  free and clear of any liens,  security interests,
pledges,  options,  claims  or other  encumbrances  of any  kind.  Such  Initial
Purchase  Securities or Remaining  Amount  Securities,  as  applicable,  are not
subject to any restrictions on the transfer thereof,  except for restrictions on
transfer imposed by applicable federal and state securities laws.

     5.2 Authorization;  Execution and Delivery; Enforceability.  Holder has the
corporate power, authority and legal right to execute,  deliver and perform this
Agreement,  and any other document  executed in connection  herewith,  including
without  limitation,   such  Holder's  consent  referred  to  in  Section  7.1.2
(collectively the "Transaction Documents").  The Transaction Documents have been
duly  authorized,  validly  executed  and  delivered  by  the  Holder  or  by an
authorized  officer  of Holder  and  constitute  the  legal,  valid and  binding
obligations  of such Holder,  enforceable  against it in  accordance  with their
respective terms.

     5.3  Consents.  Except as set forth on Schedule  5.3  attached  hereto,  no
consent,  approval  or other  authorization  of or filing  with any  individual,
corporation, partnership, trust or unincorporated organization or any government
or any agency or political subdivision thereof, or any other person or entity is
required for the valid execution,  delivery and performance of this Agreement by
such Holder and the consummation by such Holder of the transactions contemplated
hereby.

     5.4  Litigation  and  Claims.  There  are no  suits,  actions,  claims,  or
judicial,   administrative,   or  governmental  proceedings,  or  investigations
existing, pending, or, to such Holder's best knowledge threatened,  against such
Holder that, if adversely  determined against such Holder, would have a material
adverse  effect on the ability of such  Holder to  consummate  the  transactions
contemplated hereby.

     6.  Representations  and  Warranties  of Company.  To induce the Holders to
enter  into this  Agreement  and to  consummate  the  transactions  contemplated
hereby, the Company hereby makes the following representations and warranties to
the Holders as of the Initial Closing Date or the Subsequent Closing Date(s), as
applicable.

     6.1  Organization  and  Authorization;  Enforceability.  The  Company  is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia.  The Company has the corporate power, authority
and legal right to execute,  deliver and perform the Transaction Documents.  The
Transaction Documents have been duly authorized,  validly executed and delivered
by an  authorized  officer of the Company and  constitute  the legal,  valid and
binding  obligations of the Company,  enforceable  against it in accordance with
their respective terms.

     6.2  Consents.  Except as set forth on Schedule  6.2  attached  hereto,  no
consent,  approval  or other  authorization  of or filing  with any  individual,
corporation, partnership, trust or unincorporated organization or any government
or any agency or political subdivision thereof, or any other person or entity is
required for the valid execution,  delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby.

     6.3  Litigation  and Claims.  Except as  described  in Schedule 6.3 hereof,
there  are  no  suits,  actions,   claims,  or  judicial,   administrative,   or
governmental  proceedings,  or  investigations  existing,  pending,  or,  to the
Company's  best  knowledge  threatened,  against the Company  that, if adversely
determined  against the  Company,  would have a material  adverse  effect on the
ability of the Company to consummate the transactions contemplated hereby.

     6.4 No Conflict.  Neither the execution  and delivery of this  Agreement by
the  Company,   nor  the   consummation  by  the  Company  of  the  transactions
contemplated  hereby,  nor  compliance by the Company with any of the provisions
hereof,  will (i)  conflict  with or result in a breach of any  provision of the
Company's  Articles of Incorporation,  as amended,  or Bylaws, as amended,  (ii)
constitute or result in a default under, or require any consent  pursuant to, or
result in the  creation  of any Lien on any asset of the  Company  or any of its
Subsidiaries under any contract,  indenture or agreement to which the Company or
any of its  Subsidiaries  is a party or by which their assets are bound or (iii)
violate  any  law  or  regulation  applicable  to  the  Company  or  any  of its
Subsidiaries or any of their respective assets.

5.40  6.5  Subsidiaries.  The  Company  has set  forth on  Schedule  6.5 of this
Agreement  all of its direct and  indirect  Subsidiaries  as of the date of this
Agreement.  The  Company or one of its  Subsidiaries  owns all of the issued and
outstanding shares of capital stock of each Subsidiary.

5.50 6.6 Financial Statements. The Financial Statements (as of the dates thereof
and for the periods  covered  thereby) (i) are in accordance  with the books and
records of the Company and its Subsidiaries,  which books and records accurately
and fairly  represent the business of the Company and its  Subsidiaries  and its
results of operations and have been  maintained in accordance with good business
practices,  and (ii) fairly  present in all material  respects the  consolidated
financial position of the Company as of the dates indicated and the consolidated
results of operations,  changes in stockholders'  equity,  and cash flows of the
Company and its  Subsidiaries  for the periods  indicated,  in  accordance  with
generally accepted accounting principles, except as disclosed therein; provided,
however, that the unaudited Financial Statements are subject to normal recurring
year-end  adjustments and do not contain all footnotes  required under generally
accepted accounting principles.

     5.60  6.7  Absence  of  Undisclosed  Liabilities.  As of the  date  of this
Agreement,  neither the Company nor any of its  Subsidiaries has any liabilities
that are reasonably likely to have, individually or in the aggregate, a material
adverse effect on the Company and its Subsidiaries taken as a whole,  except for
liabilities  that are fully  accrued or  reserved  against  in the  consolidated
balance  sheet of the Company as of September 30, 2000 included in the Financial
Statements  or  reflected  in the notes  thereto and  liabilities  disclosed  in
Schedule 6.7 hereto.

     6.8 Absence of Certain  Changes or Events.  Except as disclosed on Schedule
6.8 hereto,  since September 30, 2000,  there have been no events,  changes,  or
occurrences which have had, or are reasonably likely to have, individually or in
the aggregate,  a material  adverse  effect on the Company and its  Subsidiaries
taken as a whole.

6.9 5.80 Tax Matters.
         -----------

     6.9.1 Adequate provision for any taxes due or to become due for the Company
and its Subsidiaries for the period or periods through and including the date of
the  respective  Financial  Statements  has been  made and is  reflected  on the
Financial Statements.

     6.9.2  There are no Liens  with  respect to taxes upon any of the assets of
the Company or its Subsidiaries.

7.  Conditions Precedent to Initial Closing and Subsequent Closing(s).

     7.1 Conditions to Obligations  of Holders and Company.  The  obligations of
all of the parties hereto to consummate the transactions contemplated hereby are
subject to satisfaction  of the following  conditions at or prior to the Initial
Closing or the Subsequent Closing(s), as applicable:

     7.1.1 No  Restrictions.  No action or proceeding shall have been instituted
or threatened before any court or governmental  agency to restrain,  prohibit or
invalidate the transactions contemplated by this Agreement.

     7.1.2 Consents to Supplemental  Indenture.  The Company shall have received
written consents from holders of at least a majority of the aggregate  principal
amount  of  the   Securities   outstanding   consenting  to  and  approving  the
Supplemental Indenture.

     7.2 Conditions to Obligations of Company. The obligations of the Company to
purchase the Initial Purchase Securities from the Holders at the Initial Closing
and to pay the Initial Purchase Amount Price therefor, to purchase the Remaining
Amount  Securities from the Holders at the Subsequent  Closing(s) and to pay the
Remaining  Amount  Purchase  Price  therefor,  and otherwise to  consummate  the
transactions  contemplated hereby are subject to the satisfaction by the Holders
(jointly with respect to the Initial  Closing and severally with respect to each
Subsequent  Closing)  and/or the waiver by the Company of each of the  following
conditions at or prior to the Initial Closing or the Subsequent  Closing(s),  as
applicable:

     7.2.1 Compliance with this Agreement.  Each Holder shall have performed and
complied in all material respects with all of the terms, obligations,  covenants
and  conditions  of this  Agreement  which are  applicable  to the Holders;  the
representations and warranties of the Holders contained herein shall be true and
correct  in all  material  respects  as of the  Initial  Closing  Date  and  the
Subsequent  Closing  Date,  as  applicable,   as  if  such  representations  and
warranties  were made as of the Initial  Closing Date or the Subsequent  Closing
Date, as applicable.

     7.2.2 Delivery of Securities.  Each Holder shall have taken or caused to be
taken all  actions  required  under  Section  4 hereof  to  effect  the sale and
transfer of the Initial Purchase  Securities or Remaining Amount Securities,  as
applicable,  to the  Company,  including  the  delivery of the Initial  Purchase
Securities or Remaining  Amount  Securities,  as applicable,  to the Company for
transfer.

     7.3 Conditions to Obligations of Holders. The obligations of the Holders to
sell the Initial Purchase  Securities and the Remaining Amount Securities to the
Company and otherwise to consummate  the  transactions  contemplated  hereby are
subject to the  satisfaction  by the Company and/or the waiver by the Holders of
each of the  following  conditions  at or prior to the  Initial  Closing and the
Subsequent Closing(s), as applicable:

     7.3.1 Compliance with this Agreement.  The Company shall have performed and
complied in all material respects with all of the terms, obligations,  covenants
and  conditions of this  Agreement;  the  representations  and warranties of the
Company  contained herein shall be true and correct in all material  respects as
of the Initial Closing Date and the Subsequent  Closing Date, as applicable,  as
if such  representations and warranties were made as of the Initial Closing Date
or Subsequent Closing Date, as applicable.

     7.3.2 Payment of Purchase Price.  With respect to the Initial Closing,  the
Company shall have paid to each Holder its share of the Initial  Purchase Amount
Price set forth on Schedule 2.2 hereto,  in accordance  with Section 4.1 hereof,
and with respect to each Subsequent Closing, the Company shall have paid to each
Holder its pro-rata share (taking account of the rounding up used in determining
the Purchase  Calculation) of the Remaining Amount Purchase Price, in accordance
with Section 4.2 hereof.

     7.3.3 Legal Opinion. With respect to the Initial Closing, the Holders shall
have received an opinion from Venable,  Baetjer and Howard, LLP addressed to the
Holders,  dated  as of the  Initial  Closing  Date  and in  form  and  substance
acceptable  to the  Holders,  and an  opinion  from  Simpson  Thacher & Bartlett
addressed to the Holders,  dated as of the Initial  Closing Date and in form and
substance acceptable to the Holders.

     7.3.4  Execution and Delivery of Other  Agreements.  The Company shall have
executed and delivered  the  Indenture  Supplement,  the Pledge  Agreement,  the
Security Agreement and all other documents and instruments  contemplated  herein
and in the Indenture Supplement, the Security Agreement and the Pledge Agreement
to be executed and  delivered by the Company on or prior to the Initial  Closing
Date.

8.       Agreements.
         ----------

     8.1  Consents  and  Approvals.  Each Holder  hereby  agrees to use its best
efforts to cause all of  conditions  set forth in Sections 7.1 and 7.2 hereof to
be satisfied on or prior to the Initial  Closing and the Subsequent  Closing(s),
as applicable. The Company hereby agrees to use its best efforts to cause all of
the  conditions  set forth in Sections  7.1 and 7.3 hereof to be satisfied on or
prior to the Initial Closing and the Subsequent Closing(s), as applicable.

     8.2 Further  Assurances.  Each Holder hereby  agrees,  at any time and from
time to time after the Initial Closing Date, upon the reasonable  request by the
Company and  without  further  consideration,  to take such  further  actions or
execute such further  documents or agreements as may be reasonably  necessary in
the Company's discretion  effectively to convey,  transfer or assign and deliver
to the  Company  the  Initial  Purchase  Securities  and  any  Remaining  Amount
Securities purchased hereunder.

     8.3 Transfer;  Legend.  Each Holder hereby agrees that,  for so long as any
portion of the Remaining Amount remains outstanding,  it shall not sell, assign,
transfer,  pledge,  hypothecate or otherwise  dispose of, by operation of law or
otherwise (collectively,  a "Transfer") any Remaining Amount Securities,  or any
interest  therein,  except  that a Holder  may  Transfer  its  Remaining  Amount
Securities,  or any interest therein, if the transferee,  as a condition to such
Transfer,  delivers to the  Company a written  instrument  confirming  that such
transferee  shall be bound by all of the terms and  conditions of this Agreement
(a "Permitted  Transferee").  The Remaining  Amount  Securities now or hereafter
issued  to a  Holder  or a  Permitted  Transferee  shall  be  endorsed  with the
following legend:

                  "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
                  REPRESENTED  BY THIS  CERTIFICATE  IS SUBJECT TO THE TERMS AND
                  CONDITIONS OF A PURCHASE AGREEMENT (THE "PURCHASE  AGREEMENT")
                  BY AND BETWEEN DYNEX CAPITAL, INC. (THE "COMPANY") AND CERTAIN
                  HOLDERS OF THE  COMPANY'S  7.875% SENIOR DEBT  SECURITIES  DUE
                  JULY 15, 2002, WHICH PURCHASE AGREEMENT PROVIDES,  AMONG OTHER
                  THINGS, THAT THE COMPANY SHALL PURCHASE, AND THE HOLDER HEREOF
                  SHALL SELL, ALL OR A PORTION OF THE SECURITIES  REPRESENTED BY
                  THIS  CERTIFICATE  AT A DISCOUNTED  PURCHASE  PRICE ON CERTAIN
                  DATES  SET  FORTH  IN THE  PURCHASE  AGREEMENT.  A COPY OF THE
                  PURCHASE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
                  SECRETARY OF THE COMPANY."

     8.4 Claim of Holders in Event of Bankruptcy.  Notwithstanding any provision
contained  herein to the contrary,  the amount by which a Holder's  share of the
Initial  Purchase  Securities  exceeds the Holder's share (taking account of the
rounding  up  used in  determining  the  Purchase  Calculation)  of the  Initial
Purchase Amount Price therefor,  and the amount by which a Holder's share of the
Remaining Amount  Securities sold hereunder  exceeds the Holder's pro-rata share
(taking account of the rounding up used in determining the Purchase Calculation)
of the Remaining  Amount Purchase Price therefor,  shall remain an obligation of
the Company, and shall be secured by the Liens of the Security Agreement and the
Pledge  Agreement  (the  "Security  Interests");  provided  that such  remaining
obligations of the Company shall automatically be released, without the need for
further  action  by any  party,  on the 91st  day  after  the date on which  the
Security  Interests  have been  perfected if on that date the Company  shall not
have  filed  any  voluntary  proceeding  seeking  an order  for  relief or other
protection under the United States  Bankruptcy Code, as amended (the "Bankruptcy
Code"),  and no such involuntary  proceeding shall have been instituted  against
the Company and in which an order for relief is thereafter entered.

     8.5 Waiver of Certain  Rights.  Each Holder hereby agrees and  acknowledges
that the Company's obligation to repurchase  Securities held by such Holder upon
the  occurrence of any of the  transactions  or events  constituting a Change of
Control  pursuant to the terms and conditions of the Indenture and the Indenture
Supplement  shall  not be  applicable,  and shall be  deemed  waived,  if either
Blackrock  Management,  Trust Company of the West,  Fortress  Investment  Group,
Mariner  Investment Group,  Hanover Capital Mortgage  Holdings,  or any of their
respective Affiliates, is the Person that is entering into such transaction,  or
is a party to such event,  with the Company.  In no event shall this Section 8.5
in any way limit or restrict the  Company's  obligation  to purchase the Initial
Purchase  Securities and the Remaining Amount  Securities  pursuant to the terms
and conditions of this Agreement.

9.       Indemnification.
          ---------------

     9.1 Indemnification by Holder. Each Holder hereby agrees, severally but not
jointly, to indemnify and hold harmless the Company,  its Subsidiaries and their
respective officers, directors, employees, agents, professionals, successors and
assigns (each, an "Indemnitee") from and against any and all Damages incurred by
such Indemnitees  resulting or arising from any breach or  nonfulfillment of the
covenants or  agreements  of such Holder  contained  herein,  including  without
limitation Section 8.3 hereof.

     9.2 Indemnification by Company.  The Company hereby agrees to indemnify and
hold harmless the Holders and their respective officers,  directors,  employees,
agents,  professionals,  successors and assigns (each, an "Indemnitee") from and
against any and all Damages  incurred by such  Indemnitees  resulting or arising
(i) from any breach or  nonfulfillment  of the  covenants or  agreements  of the
Company contained herein, (ii) from any breach of any representation or warranty
of the Company  contained  herein, or (iii) in connection with or related to the
Indenture and this Agreement or duties arising  thereunder or hereunder from the
execution and delivery of this Agreement, the Indenture Supplement, the Security
Agreement and the Pledge Agreement by each of the parties hereto and thereto and
the  performance  of their  respective  obligations  hereunder and thereunder in
accordance with each of the terms and conditions  hereto and thereto;  provided,
however,  that the Company shall have no liability under this Section 9.2 to the
extent any such Damages  result or arise from any breach of any  representation,
warranty or covenant of any of the Holders  contained  herein or from any breach
of any  representation,  warranty or covenant of the Company under the Indenture
Supplement,  the  Security  Agreement  or the Pledge  Agreement;  and  provided,
further,  that the Company shall have no liability under this Section 9.2 to the
extent any such  Damages  result or arise  solely  from an  agreement  between a
Holder and any party other than the Company.

     9.3  Claims  and  Litigation.  If any  person or entity not a party to this
Agreement shall make any demand or claim, or file or threaten to file a lawsuit,
which demand, claim or lawsuit may result in any liability, damage or loss to an
Indemnitee for which such Indemnitee may be entitled to seek relief from a party
hereto (such party, an "Indemnitor")  pursuant to Section 9.1 or 9.2 hereof, the
Indemnitee  shall promptly  provide  written  notice to such  Indemnitor of such
demand,  claim or lawsuit,  and the Indemnitor shall then have the option at the
cost and  expense of the  Indemnitor,  to assume and  control the defense of any
such demand, claim, or lawsuit. Thereafter, the Indemnitee shall be permitted to
participate in such defense at its own expense.  If the Indemnitor shall fail to
respond  within thirty (30) days after  receipt of such notice,  or shall notify
the Indemnitee  that it does not intend to defend against such demand,  claim or
lawsuit,  the  Indemnitee  may conduct a defense  against such demand,  claim or
lawsuit as it in its  discretion may deem proper.  If the  Indemnitor  elects to
assume and control the defense of a third party claim, the Indemnitee  agrees to
cooperate in all reasonable respects with the Indemnitor in connection with such
defense,  including  retaining  and  delivering  to the  Indemnitor  records and
information which are reasonably relevant to such third party claim.  Whether or
not the  Indemnitor  shall have  assumed and  controlled  the defense of a third
party  claim,  no party shall admit any  liability  with  respect to, or settle,
compromise  or discharge  any such third party claim,  without the prior written
consent of the other party,  which consent shall not be  unreasonably  withheld,
conditioned or delayed if the proposed settlement is, in fact,  reasonable under
the  prevailing  facts and  circumstances.  Nothing  in this  Section  9.3 shall
prevent an Indemnitee  from taking such action as may be necessary  prior to the
end of the thirty-day  period  provided for above to prevent a default  judgment
from being entered.

     9.4 Making of Claims. A claim for indemnity  pursuant to this Section 9 may
be made by an Indemnitee by written notice to the Indemnitor, which notice shall
be given  within  thirty  (30) days after the  Indemnitee  becomes  aware of the
claim.  Such written notice shall set forth in reasonable  detail the basis upon
which such claim for indemnity is made.

     9.5  Attorneys'  Fees,  Costs and Expenses.  The rights of an Indemnitee to
seek  indemnification  hereunder  shall  include the right to recover  interest,
penalties,  cost and expenses,  including reasonable attorneys' fees (subject to
Section  9.3  hereof),  incident  to  any  claim  for  indemnification  made  in
accordance with the provisions of this Section 9.

10.      Miscellaneous.
         -------------

     10.1 Governing Law;  Jurisdiction.  This Agreement shall be governed by and
construed in accordance with the laws of the  Commonwealth of Virginia,  without
regard to principles  of conflict of laws.  Each party agrees that any action or
proceeding  with  respect to this  Agreement  shall be brought in any federal or
state court  situated in the  Commonwealth  of Virginia,  and by  execution  and
delivery of this  Agreement,  such party  irrevocably  consents to the exclusive
jurisdiction of, and venue in, each such court.

     10.2 Notices.  Unless otherwise expressly provided for herein, all notices,
requests,  demands,  and other  communications  between the  parties  under this
Agreement  shall be deemed to have been duly given (i) when  delivered  by hand,
(ii) one (1) business day after  deposited with a courier  service that provides
evidence of delivery,  (iii) two (2) business  days after mailed by certified or
registered mail, with postage pre-paid, or (iv) when sent by confirmed facsimile
if sent before 5:00 p.m.  Eastern  Time, or if not then on the next business day
to:

                           If to the Company:

                           Dynex Capital, Inc.
                           4551 Cox Road, Suite 300
                           Glen Allen, Virginia 23060
                           Facsimile: (804) 217-5860
                           Attn:    Thomas H. Potts

                           With a copy to:

                           Venable, Baetjer and Howard, LLP
                           2010 Corporate Ridge, Suite 400
                           McLean, Virginia  22102
                           Attn:  Joseph C. Schmelter, Esq.

                           If to a Holder,  at the address (and/or to the
                           facsimile  number) listed below the name of such
                           Holder on Schedule I hereto

                           With a copy to:

                           Arnold & Porter
                           555 Twelfth Street, N.W.
                           Washington, D.C., 20004
                           Attn:  Daniel M. Lewis, Esq.

                           or to such other address and/or  facsimile number as
                           any party provides to the other parties from time to
                           time.

     10.3 Entire Agreement;  Amendment; Waiver. This Agreement, the exhibits and
schedules  hereto,  and all  documents  delivered  pursuant  to this  Agreement,
constitute the entire  Agreement  between the parties  pertaining to the subject
matter hereof, and supersede any and all prior and  contemporaneous  agreements,
understandings,  negotiations,  and discussions of the parties,  whether oral or
written.  No amendment,  modification,  waiver or  termination of this Agreement
shall be binding  unless  executed in writing by the parties  hereto,  or in the
case of a waiver, by the party for whom such benefit was intended.  No waiver of
any of the  provisions of this Agreement  shall be deemed or shall  constitute a
waiver of any other  provision of this  Agreement,  whether or not similar,  nor
shall such waiver constitute a continuing  waiver unless otherwise  expressly so
provided in writing.

     10.4  Remedies;  Specific  Performance.  The parties  hereto agree that the
Initial Purchase Securities and the Remaining Amount Securities are unique, that
failure to perform the  obligations  provided by this Agreement  shall result in
irreparable  damage,  that remedies at law for any breach of this Agreement will
be inadequate and that specific performance of these obligations may be obtained
by suit in equity.

     10.5 Remedy for Failure to Deliver Remaining Amount Securities. If a Holder
shall  be  required  to  deliver  all or any  portion  of its  Remaining  Amount
Securities for transfer pursuant to any provision of this Agreement, and if such
Holder is unable  to, or for any  reason  does not,  deliver,  or  instruct  the
Custodian  to  deliver,  the  certificate   representing  the  Remaining  Amount
Securities to the Company in accordance  with the applicable  provisions of this
Agreement  and a Custodian has been  appointed by such Holder,  then the Company
may deposit such Holder's share of the Remaining  Amount Purchase Price for such
Remaining Amount Securities with the Custodian as trustee for such Holder, to be
held by the  Custodian  until  withdrawn  by such  Holder.  Upon  deposit by the
Company of such Holder's share of the Remaining  Amount  Purchase Price with the
Custodian,  such Holder's Remaining Amount Securities, or portion thereof, to be
sold pursuant to the applicable  provisions of this Agreement shall at such time
be deemed to have been sold, assigned,  transferred, and conveyed to the Company
and such Holder shall have no further right in such Remaining Amount Securities.

     10.6 Expenses.  Subject to Section 9 hereof,  each party shall pay the fees
of its legal counsel,  accountants,  advisors and any other expenses incurred by
it in connection  with the negotiation and preparation of this Agreement and the
consummation  of the  transactions  contemplated  by this  Agreement;  provided,
however,  that in  connection  with  the  negotiation  and  preparation  of this
Agreement,  the  Indenture  Supplement,   the  Security  Agreement,  the  Pledge
Agreement and all other instruments and documents  relating thereto,  as well as
all  discussions  and  negotiations  between  the Company and one or more of the
Holders occurring prior to the execution hereof, the Company shall pay, upon the
Initial Closing, the reasonable fees and expenses incurred by the Holders to the
parties listed in Schedule 10.6 hereto, such amounts not to exceed $550,000.

     10.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the  benefit of the  parties  hereto  and their  respective  heirs,  personal
representatives, successors and assigns.

     10.8  Severability.  If any  provision  or  clause  of  this  Agreement  is
determined by a court of competent  jurisdiction to be invalid or unenforceable,
the validity of the rest of the  Agreement  shall not be affected and the rights
and  obligations  of the  parties  shall be  construed  and  enforced as if this
Agreement  did  not  contain  the   particular   part  held  to  be  invalid  or
unenforceable.

     10.9  Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of  which  shall be  deemed  an  original,  and all of which
together shall constitute one and the same Agreement.  Execution and delivery of
this Agreement by facsimile  signature  shall be sufficient for all purposes and
shall be binding upon any party who executes this Agreement in such manner.

     10.10 No Third Party  Beneficiaries.  Nothing  contained in this  Agreement
shall be deemed to confer any rights or benefits upon any third parties.

     10.11 Survival. The obligations of the Company and the Holders to indemnify
any  Indemnitee  pursuant  to  Section 9 of this  Agreement  shall  survive  the
repurchase by the Company of all of the Securities owned by the Holders.
<PAGE>
                                                                   Exhibit  99.3

                          SUPPLEMENTAL TRUST INDENTURE


         THIS  SUPPLEMENTAL  TRUST INDENTURE (this  "Supplement") is dated as of
March 30, 2001,  and is made by and between DYNEX  CAPITAL,  INC., a corporation
organized  under the laws of  Virginia  (the  "Company"),  having its  principal
office at 4551 Cox Road,  Suite 300, Glen Allen,  Virginia 23060,  and HSBC BANK
USA, a banking  corporation  and trust company  organized and existing under the
laws of the State of New York (the  "Trustee"),  having its principal  office at
140 Broadway, New York, New York 10005.

                                    RECITALS

         A. The Company  issued and sold  $100,000,000  in  aggregate  principal
amount of its unsecured  7.875%  Senior Notes Due July 15, 2002 (the  "Unsecured
Securities")  under  an  Indenture,  dated as of July 14,  1997  (the  "Original
Indenture")  by and  between  the  Company  and  Texas  Commerce  Bank  National
Association ("Texas Commerce Bank").

         B. The Original Indenture was supplemented and amended by the Officers'
Certificate  dated July 14,  1997 (the  "Original  Officers'  Certificate,"  and
together with the Original Indenture, the "Indenture").

         C. Pursuant to that certain Instrument of Resignation,  Appointment and
Acceptance,  dated as of June 12, 2000, by and among the Company,  Chase Bank of
Texas,  National  Association  ("Chase  Bank")  and HSBC Bank USA,  Chase  Bank,
successor to Texas Commerce Bank, was replaced as Trustee under the Indenture by
HSBC Bank USA.

         D. The  Unsecured  Securities  were  issued in  global  form and all of
the outstanding  Unsecured  Securities  are  represented  by  one  permanent
global security identified as Dynex Capital, Inc. 7.875% Senior Note due
July 15, 2002, No. 1, CUSIP No.  26817Q AA 8,  registered in the name of CEDE &
CO., as nominee of The Depository Trust Company ("DTC") (the "Global Security").

         E.  Pursuant to Section 305 of the  Indenture,  and  Paragraph 8 on the
reverse of the Global  Security,  a global  Security shall be  exchangeable  for
definitive Securities if the Company, in its sole discretion,  notifies DTC that
all Outstanding  Securities  issued in the form of such global Security shall no
longer be represented by such global Security.

         F. The Company  notified  DTC that the  Unsecured  Securities  shall no
longer  be  represented  by a Global  Security  as of March  28,  2001,  and has
instructed the Trustee to issue certificated  securities registered in the names
of  the  persons  directed  by  DTC.  Such  certificated   securities  represent
securities of the same series, having the same terms as the Global Security, and
in the aggregate having the same principal amount of the Global Security.

         G. Pursuant to Section 902 of the Original Indenture,  with the consent
of Holders of not less than a majority in  principal  amount of all  Outstanding
Securities affected by a supplemental indenture, the Company and the Trustee may
enter into such supplemental  indenture for the purpose of adding any provisions
to or  changing  in any  manner  or  eliminating  any of the  provisions  of the
Indenture or of modifying in any manner the rights of the Holders of Securities,
subject to the limitation and restrictions described therein.

         H. The Company  desires to make certain changes to the Indenture and to
the Unsecured  Securities for the purposes of, among other things,  securing the
Unsecured Securities and eliminating, changing, and adding to certain provisions
of the Indenture.

         I. Pursuant to a Written  Consent to  Supplemental  Trust  Indenture of
even date herewith,  Holders of not less than a majority in principal  amount of
all Outstanding  Unsecured  Securities have consented to this Supplement and the
modifications to the Indenture described herein.

         J. All things  necessary to make this  Supplement a valid,  binding and
legal  instrument  have been performed by the Company.


                                   AGREEMENTS

         NOW,  THEREFORE,  for  consideration,  the adequacy and  sufficiency of
which are hereby  acknowledged by the parties hereto,  each party agrees for the
benefit of the other  party and for the equal and  proportionate  benefit of all
Holders of the Unsecured Securities, as follows:


                                    ARTICLE I

                            AUTHORITY AND DEFINITIONS

         SECTION 1.1.  Authority  and Effect.  This  Supplement  is entered into
pursuant to Section 902 of the  Original  Indenture  and this  Supplement  shall
become  effective  at the close of business  on the date first set forth  above,
upon its execution and delivery by all parties hereto.  This Supplement modifies
certain  provisions of both the Original  Indenture  and the Original  Officers'
Certificate, and except as expressly modified in this Supplement, the provisions
of the Original Indenture and the Original Officers'  Certificate shall continue
in full force and effect.

         SECTION 1.2. Terms From the Original Indenture.  Capitalized terms used
in this Supplement which are defined in the Original Indenture have the meanings
given to them in the Original  Indenture,  unless the context clearly  indicates
otherwise.

     SECTION  1.3.  Certain  Defined  Terms.  As used in  this  Supplement,  the
following defined terms shall have the respective meanings specified below:

     "Chase  Bank" has the meaning  specified  in Recital C of this  Supplement.
"DTC" has the meaning specified in Recital D of this Supplement.

     "Global   Security"  has  the  meaning  specified  in  Recital  D  of  this
Supplement.

     "Original  Indenture"  has  the  meaning  specified  in  Recital  A of this
Supplement.

     "Original Officers'  Certificate" has the meaning specified in Recital B of
this Supplement.

     "Texas  Commerce  Bank"  has the  meaning  specified  in  Recital A of this
Supplement.

     "Unsecured  Securities"  has the  meaning  specified  in  Recital A of this
Supplement.


                                   ARTICLE II

                                THE SENIOR NOTES

        SECTION 2.1. Exchange.  Promptly upon the execution and delivery of this
Supplement,  the  Company  shall  issue,  and shall  deliver  to the  Trustee in
accordance with the Indenture, new Senior Notes to reflect this Supplement.

        SECTION  2.2.  Form of  Senior  Notes.  The  Senior  Notes  shall  be in
substantially  the  form  set  forth  in  Exhibit  A, in  each  case  with  such
appropriate  insertions,  omissions,  substitutions  and other variations as are
required or permitted by the Indenture and this  Supplement (but which shall not
affect the rights,  duties or  obligations  of the  Trustee),  and may have such
letters,  numbers  or other  marks of  identification  or  designation  and such
legends or endorsements  placed thereon as the Company may deem  appropriate and
as are not inconsistent with the provisions of the Indenture or this Supplement,
or as may be required to comply with any law or with any rule or regulation made
pursuant  thereto or with any rule or regulation of any stock  exchange on which
the  Senior  Notes may be listed,  or to  conform to usage (but which  shall not
affect the rights, duties or obligations of the Trustee).

                                   ARTICLE III

                AMENDMENTS TO THE ORIGINAL OFFICERS' CERTIFICATE

         SECTION 3.1. Section 7 of the Original Officers' Certificate. Section 7
of the Original Officers'  Certificate is hereby deleted in its entirety and the
following is hereby inserted as Section 7 of the Original Officers' Certificate:

         "Except as provided in Section 14 hereof and except as may be agreed by
the Company and any particular Holder(s) of the Senior Notes, the Securities are
not  redeemable  at the  option of the  Holder  thereof  and the  Company is not
obligated to redeem,  repay or purchase the  Securities  pursuant to any sinking
fund or analogous provision."

         SECTION 3.2. Section 8 of the Original  Officers'  Certificate.  Clause
(i) of Section 8 of the Original Officers'  Certificate is hereby deleted in its
entirety and the following is hereby  inserted as clause (i) of Section 8 of the
Original Officers' Certificate:

         "(i) failure by the Company for 30 days after notice to comply with any
of its other  agreements in the  Indenture,  the Senior  Notes,  or the Security
Documents (as defined below);"

         SECTION 3.3. Section 10 of the Original Officers' Certificate.  Each of
Section 10 (i) -  Limitations  on  Incurrence  of  Indebtedness  and Issuance of
Disqualified Stock, Section 10(ii) - Limitation on Restricted Payments,  Section
10(iii) -  Limitation  on  Transactions  with  Affiliates  and Section  10(iv) -
Provision of Financial  Information  of the Original  Officers'  Certificate  is
hereby  deleted in its entirety and the following is hereby  inserted in Section
10 of the Original  Officers'  Certificate as new Sections 10(i),  (ii),  (iii),
(iv), (v), (vi), (vii) and (viii), respectively:

         "(i)     Reports.

     (A)  Regardless  of  whether  the  Company  is  subject  to  the  reporting
requirements  of Section 13 or 15(d) of the  Exchange  Act,  the  Company  shall
deliver to the Trustee within 15 days after it is or would have been required to
file such with the  Commission,  annual  and  quarterly  consolidated  financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the Commission if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with respect
to  annual  information  only,  a  report  thereon  by the  Company's  certified
independent  public accountants as such would be required in such reports to the
Commission  and,  in each case,  together  with a  management's  discussion  and
analysis of  financial  condition  and results of  operations  which would be so
required.

     (B) Delivery of such reports,  information  and documents to the Trustee is
for  informational  purposes  only and the  Trustee's  receipt of such shall not
constitute   constructive  notice  of  any  information   contained  therein  or
determinable  from  information  contained  therein,   including  the  Company's
compliance  with any of its  covenants  hereunder  (as to which the  Trustee  is
entitled to rely exclusively on Officers' Certificates).

     (ii) Limitation on Transactions with Affiliates.

     The  Company  will not,  and will not  permit  any of its  Subsidiaries  or
Affiliates  to,  directly  or  indirectly,  enter  into or  suffer  to exist any
transaction or series of related  transactions  (including,  without limitation,
the sale, purchase,  exchange or lease of assets, property or services) with any
Related  Person  (other  than a  Subsidiary  or an  Affiliate)  unless  (a) such
transaction or series of  transactions is on terms that are no less favorable to
the Company or such  Subsidiary or Affiliate,  as the case may be, than would be
available in a comparable  transaction  with an unrelated third party and (b)(1)
where  such   transaction   or  series  of   transactions   involves   aggregate
consideration   in  excess  of  $5  million,   such  transaction  or  series  of
transactions is approved by a majority of the Board of Directors of the Company,
including  the  approval  of  a  majority  of  the  independent,   disinterested
directors,  as  evidenced  by a  resolution  relating  thereto  of the  Board of
Directors  filed with the  Trustee and (2) where such  transaction  or series of
transactions  involves  aggregate  consideration  in excess of $15 million,  the
Company also  delivers to the Trustee an opinion  from a  nationally  recognized
investment  banking  firm as to the  fairness of such  transaction  or series of
transactions  to the Company or such  Subsidiary from a financial point of view.
Notwithstanding the foregoing, this provision will not apply to (A) compensation
or employee  benefit  arrangements  with any officer or director of the Company;
and (B) any  transaction  entered into in the ordinary course of business by the
Company, Subsidiary or Affiliate with a Subsidiary or an Affiliate.

         (iii) Limitation on Restricted  Payments.  Unless  expressly  permitted
below,  the Company will not and will not permit its  Subsidiaries or Affiliates
to (a)  declare  or pay any  dividend  or make  any  other  distribution  on the
Company's or any Subsidiary's or Affiliate's Capital Stock (other than dividends
or distributions  payable in Qualified  Capital Stock of the Company,  and other
than dividends or distributions  from any Subsidiary or Affiliate to the Company
); (b) purchase,  redeem,  defease or otherwise acquire or retire for value, any
Capital Stock of the Company or any  warrants,  rights or options to purchase or
acquire  shares  of any  class of such  Capital  Stock;  (c) make any  principal
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any  Indebtedness  that is unsecured or  subordinated to the
Senior Notes;  (d) pay any judgments (in cash or other  property,  including the
issuance  of any  promissory  note in  satisfaction  of such  judgment);  or (e)
purchase  any assets  (each of the  foregoing  actions set forth in clauses (a),
(b),  (c),  (d) and (e) and not  excluded  in the next  paragraph  below,  being
referred to as a "Restricted Payment").

     The foregoing provisions shall not prohibit any of the following:

     (1) [Intentionally Omitted];

     (2) The purchase or redemption of the Senior Notes;

     (3)  Cash  distributions,  which  may be in the form of  either  dividends,
redemptions,  repurchases,  retirement,  defeasance or other acquisition,  on or
account of the Company's Capital Stock,  provided that such distributions do not
exceed the sum of the following:

     (a)  distributions  required in order to maintain the status of the Company
and its Subsidiaries as a Real Estate Investment Trust under the Code;

     (b) cash proceeds from the sale of Permitted Subordinated Indebtedness;

     (c) cash proceeds from the sale of Qualified Capital Stock; and

     (d) $26 million;

     (4) The purchase of permitted  assets in  accordance  with Section  10(vii)
below;

     (5) Payments made in respect of Ordinary Course Trade Debt; and

     (6) (a)  Payments of  settlements  or  judgments  up to $3 million,  or (b)
payments  resulting  from  settlement of any claims  (provided  such  settlement
payments are structured as Permitted Subordinated Indebtedness).

     The  Company  will not,  and will not  permit  any of its  Subsidiaries  or
Affiliates,  to directly or indirectly,  make any Restricted  Payments unless at
the time of such  Restricted  Payments  after  giving  pro forma  effect to such
Restricted  Payments,  no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof under any Indebtedness of the
Company.

         (iv)  Limitation  on Incurrence  of  Additional  Indebtedness.  (1) The
Company will not, and will not permit any  Subsidiary or Affiliate  to,  create,
incur, assume, guarantee, become liable, contingently or otherwise, with respect
to, or otherwise become  responsible for the payment of any Indebtedness,  other
than the  Indebtedness  described  in clauses (a)  through  (j) below,  provided
however,  immediately after giving effect to the incurrence of such Indebtedness
(and other than Indebtedness  described in clauses (a), (b), (f) and (g) below),
the Company's  Adjusted  Consolidated  Indebtedness  must not exceed 150% of the
Company's Adjusted Consolidated Tangible Net Worth.

     (a)  Indebtedness  existing on March 30. 2001, as set forth in an Officers'
Certificate delivered to the Trustee on March 30, 2001;

     (b) Indebtedness represented by the Senior Notes;

     (c) [Intentionally Omitted];

     (d) Ordinary Course Trade Debt;

     (e) Up to $5 million  of  Indebtedness  secured  by Tax Liens  owned by the
Company or for which the Company has
a commitment to purchase as of the Exchange Date;

     (f)  Indebtedness  issued in exchange for, or the net proceeds of which are
used to,  refinance  any  Indebtedness  that has a  maturity  date  prior to the
Maturity  Date;  provided  however,  that (1) the  principal  amount  of the new
Indebtedness  does not exceed the principal amount of the Indebtedness  being so
redeemed,  repurchased,  retired or acquired,  (2) such new  Indebtedness is not
more  senior  to  the  Indebtedness  to be  redeemed,  repurchased,  retired  or
acquired, (3) such new Indebtedness has a final scheduled maturity date equal to
or later than the Indebtedness being redeemed, repurchased, acquired or retired,
and (4) such  Indebtedness  has a Weighted  Average  Life to  Maturity  equal or
greater than the remaining Weighted Average Life to Maturity of the Indebtedness
being redeemed, repurchased, acquired or retired;

     (g) Permitted Subordinated Indebtedness;

     (h) Collateralized bond obligations that are non-recourse to the Company or
any Subsidiary;

     (i)  Indebtedness  incurred in connection with the redemption or repurchase
of collateralized  securities previously issued by the Company, its Subsidiaries
or its Affiliates under a plan to re-securitize or sell the collateral or assets
underlying such  securities  within 120 days from the date of such redemption or
repurchase;  provided  however,  that the incurrence of such  indebtedness  must
occur  substantially  simultaneously  with  such  redemption  or  repurchase  of
collateralized  securities only to the extent the Company believes in good faith
that immediately  following the  re-securitization  or sale of the collateral or
assets  underlying  such  securities  that  the  Company  will be in a net  cash
positive position relative to no such redemption or repurchase of collateralized
securities having taken place; and

     (j) Indebtedness incurred in connection with the payment of judgments up to
an aggregate amount of $3 million.

     (2) The  Company  may not and will not  permit any of its  Subsidiaries  or
Affiliates  to  incur  any   Unsecured   Indebtedness   (other  than   Permitted
Subordinated  Indebtedness)  if the  ratio  of  Income  Available  for  Interest
Payments  to Interest  Expense for the four  consecutive  fiscal  quarters  most
recently ended prior to the date such additional  Indebtedness is to be incurred
shall  have  been less than 2 to 1 on a pro forma  basis,  after  giving  effect
thereto and the application of proceeds therefrom.

     (v) Limitation on Disqualified Capital Stock. The Company will not issue or
cause any Subsidiary to issue any Disqualified Stock.

         (vi) Limitation on Liens. The Company will not, and will not permit any
Subsidiary or Affiliate to,  create,  incur,  assume or suffer to exist any Lien
(as defined  below) on any of its assets or  properties  of any character or any
share  of  Capital  Stock  or  Indebtedness  of any  Subsidiary.  The  foregoing
limitation does not apply to:

     (a)  Liens  existing  on  March  30,  2001  as set  forth  in an  Officers'
Certificate delivered to the Trustee on March 30, 2001;

     (b) Liens securing the Senior Notes;

     (c) Liens  with  respect  to the  assets of a  Subsidiary  granted  by such
Subsidiary  to the Company or a Subsidiary to secure  Indebtedness  owing to the
Company or such other  Subsidiary,  provided that such Liens are  subordinate to
the Liens securing the Senior Notes;

     (d) Liens  securing  Indebtedness  which is incurred to  refinance  secured
Indebtedness  which is permitted to be incurred under Section  10(iv)(f)  above;
provided  however,  that such  Liens do not extend to or cover any  property  or
assets of the  Company  or any  Subsidiary  other  than the  property  or assets
securing the Indebtedness being refinanced;

     (e) (i) Liens  incurred in connection  with the redemption or repurchase of
collateralized  securities previously issued by the Company, its Subsidiaries or
its Affiliates  under a plan to  re-securitize  or sell the collateral or assets
underlying such  securities  within 120 days from the date of such redemption or
repurchase pursuant to Section 10(iv)(i),  provided however,  that such Liens do
not extend to or cover any  property or assets of the Company or any  Subsidiary
other than the property or assets securing the Indebtedness being refinanced;

     (f) Liens on Tax Liens in  connection  with the borrowing by the Company of
up to $5 million as permitted by Section 10(iv) above; and

     (g) Permitted Liens.

     (vii)  Limitations on Asset  Purchases.  The Company will not, and will not
permit  its  Subsidiaries  or  Affiliates  to,  purchase  assets in excess of $1
million in any calendar  quarter other than (i) in connection with Permitted Tax
Lien  Purchases,  and (ii) in  connection  with the  redemption or repurchase of
collateralized  securities  previously issued by the Company or its Subsidiaries
or  Affiliates  as  part  of a plan  to  resecuritize  or  sell  the  underlying
collateral,  provided  however,  that the  Company  believes  in good faith that
immediately  following the re-securitization or sale of the collateral or assets
underlying  such  securities  that the  Company  will be in a net cash  positive
position  relative  to  no  such  redemption  or  repurchase  of  collateralized
securities having taken place.

     (viii)  Eligible  Investments.  The  Company  covenants  and agrees for the
benefit of the  Holders  of the Senior  Notes that until such time as the Senior
Notes are no longer  outstanding,  all cash and cash  equivalents of the Company
and its  Subsidiaries  (other than Restricted  Cash/Cash  Equivalents)  shall be
invested only in Eligible  Investments,  provided,  however,  that the foregoing
shall not  prohibit  the Company  from using cash and cash  equivalents  for the
purposes otherwise permitted under the Indenture.

     SECTION 3.4.  Certain  Definitions in the Original  Officers'  Certificate.
Section 10 of the Original Officers' Certificate is hereby amended by adding the
following definitions:

         "Available  Amount" means,  on April 15, 2001,  June 1, 2001,  July 15,
2001,  September 1, 2001, October 15, 2001,  December 1, 2001, January 15, 2002,
March 1, 2002, April 15, 2002 and June 1, 2001, the cash and cash equivalents of
the Company and its  Subsidiaries,  on a  consolidated  basis,  less (i) amounts
necessary  to service  accrued  and unpaid  interest on the Senior  Notes,  (ii)
amounts  in  existence  as of April  15,  2001,  June 1,  2001,  July 15,  2001,
September 1, 2001,  October 15, 2001,  December 1, 2001, January 15, 2002, March
1, 2002,  April 15, 2002 and June 1, 2001 and  designated  by the Company for or
relating to payments and/or distributions permitted by Section 10(iii)(3) above,
(iii)  an  amount  not to  exceed  $3,000,000,  and  (iv)  Restricted  Cash/Cash
Equivalents.

         "Capitalized   Lease   Obligations"   means,  as  to  any  Person,  the
obligations  of such  Person  under a lease of any  property  by such  Person as
lessee  which,  in  conformity  with GAAP,  is required to be accounted for as a
capital  lease  on the  balance  sheet  of such  Person.  For  purposes  of this
Indenture,  the amount of such  obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.

         "Eligible  Investments"  means (i) marketable direct obligations issued
by, or unconditionally  guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case  maturing  within two years from the date of  acquisition  thereof;
(ii) marketable direct  obligations  issued by any state of the United States or
any  political  subdivision  of any  such  state or any  public  instrumentality
thereof  maturing within two years form the date of acquisition  thereof and, at
the time of acquisition,  having one of the two highest ratings  obtainable from
either  Standard  & Poor's  Ratings  Services,  a  division  of The  McGraw-Hill
Companies,  Inc. ("S&P"), or Moody's Investors Service, Inc. ("Moody's");  (iii)
commercial  paper  maturing  no more  than two years  from the date of  creation
thereof  and, at the time of  acquisition,  having a rating of at least A-1 from
S&P or at least P-1 from  Moody's;  (iv)  certificates  of deposit  or  bankers'
acceptances  maturing  within  two years  from the date of  acquisition  thereof
issued  by any  commercial  bank,  having  at the  date of  acquisition  thereof
combined capital and surplus of not less than $500,000,000,  organized under the
laws of the United  States or any state  thereof or the  District of Columbia or
any U.S. branch of a foreign bank; (v) repurchase obligations with a term of not
more than 30 days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications  specified in clause
(iv)  above;   and  (vi)   investments   in  money  market  funds  which  invest
substantially  all their assets in securities of the types  described in clauses
(i) through (v) above.


     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Maturity Date" means July 15, 2002.

     "Ordinary  Course  Trade  Debt"  means  accounts  payables  incurred in the
ordinary course of business,  including the deferred  purchase price of property
or services, provided however, that such amount shall not exceed $3 million.

     "Permitted  Liens"  means (i) Liens for taxes not yet subject to  penalties
for  non-payment  or which are being  contested in good faith and by appropriate
proceedings,  if adequate  reserve,  as may be required by GAAP, shall have been
made therefor, (ii) survey exceptions,  encumbrances,  easements or reservations
of, or rights of others for, rights of way,  sewers,  electric lines,  telegraph
and telephone lines and other similar purposes,  or zoning or other restrictions
on the use of real property, and (iii) Liens arising from judgments,  decrees or
attachments   expressly   permitted   under  the  terms  of  the   Indenture  in
circumstances not constituting an Event of Default.

     "Permitted  Subordinated  Indebtedness" means subordinated  Indebtedness of
the Company that:  (i) is unsecured and  subordinate  to the Senior Notes;  (ii)
prohibits  any payments  thereon  until the Senior  Notes are paid in full;  and
(iii) provides for a complete  "stand-still" of all acceleration rights or other
remedies while any Senior Notes are outstanding.

     "Permitted Tax Lien  Purchases"  means the purchase of Tax Liens secured by
real property in Allegheny County,  Pennsylvania or Cuyahoga County,  Ohio in an
amount not to exceed $10 million after the date hereof.

     "Qualified  Capital Stock" means,  with respect to any Person,  any Capital
Stock of such  Person  that is not  Disqualified  Stock or  convertible  into or
exchangeable or exercisable for Disqualified Stock.

     "Restricted  Cash/Cash  Equivalents" means cash and cash equivalents of the
Company  and  its  Subsidiaries  required  to be  held  (a)  by  trustees  under
indentures  or trust  agreements  related to the  securitizations  issued by the
Company's  Subsidiaries  or  Affiliates,  or (b) under escrow  agreements as set
forth on Schedule  1.1  attached  hereto;  provided,  that any such cash or cash
equivalents shall no longer be deemed Restricted  Cash/Cash  Equivalents at such
time as it is released from the applicable indenture,  trust agreement or escrow
agreement.

     "Tax Liens" means liens on real property securing unpaid real estate taxes,
accrued interest thereon, and related penalties, costs, fees and charges for the
failure of the  property  owner to pay such  taxes on time.  Tax Liens will also
include  any  property  owned as a  result  of the  realization  of the Tax Lien
through foreclosure.

     SECTION 3.5.  Certain  Definitions in the Original  Officers'  Certificate.
Section 10 of the Original  Officers'  Certificate is hereby amended by deleting
the  definitions  of  "Acquired  Indebtedness,"  "Cash  Equivalents,"  "Coverage
Ratio," "Default," "Equity  Interests,"  "Hedging  Obligations,"  "Investments,"
"Permitted   Investments,"   "Restricted   Investment,"  "Restricted  Payments,"
"Subordinated Indebtedness" and "Wholly Owned Subsidiary."

     SECTION 3.6.  Certain  Definitions in the Original  Officers'  Certificate.
Section 10 of the Original  Officers'  Certificate is hereby amended by deleting
the definitions of "Adjusted Consolidated  Indebtedness,"  "Disqualified Stock,"
and "Indebtedness" substituting the following definitions in lieu thereof:

     "Adjusted  Consolidated  Indebtedness"  of the Company means the sum of the
aggregate principal amount of all Indebtedness of the Company, on a consolidated
basis, minus the aggregate principal amount of the following  Indebtedness:  (i)
Indebtedness  under any loan  repurchase  agreements  or  repurchase  facilities
entered into in the ordinary course of business with an original maturity not to
exceed 180 days, (ii) Indebtedness under any warehouse line of credit, letter of
credit  or  similar  facility  secured  primarily  by  loans  held  for  sale or
securitization or tax-exempt bonds, (iii)  collateralized  bond obligations that
are  non-recourse  to the Company or its  Subsidiaries  or Affiliates,  and (iv)
Permitted Subordinated Indebtedness.

     "Disqualified  Stock" means, with respect to any Person,  any capital stock
or partnership  interest of such Person which by the terms of such capital stock
or  partnership  interest  (or by the  terms of any  security  into  which it is
convertible or for which it is exchangeable or exercisable), upon the occurrence
of any event or otherwise: (i) matures or is mandatory redeemable, pursuant to a
sinking fund obligation or otherwise;  (ii) is convertible  into or exchangeable
or exercisable for Indebtedness (other than Permitted Subordinated Indebtedness)
or Disqualified  Stock described by clause (i) or (iii) of this  definition;  or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the maturity of the Senior Notes.

     "Indebtedness" means with respect to any Person,  without duplication,  (i)
all obligations of such Person for borrowed money,  (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease  Obligations of such Person,  (iv) all obligations of such
Person issued or assumed as the deferred purchase price of property or services,
(v) all  conditional  sale  obligations  and all  obligations  under  any  title
retention agreement (but excluding trade accounts payable,  accrued expenses and
deferred taxes arising in the ordinary course of business), (vi) all obligations
of any other Person of the type referred to in clauses (i) through (v) which are
secured by any Lien on any property or asset of such first Person and the amount
of such obligation shall be the lesser of the value of such property or asset or
the amount of the obligation so secured, (vii) all guarantees of Indebtedness by
such Person, (viii) Disqualified Stock valued at the greater of its voluntary or
involuntary  maximum fixed repurchase  price plus accrued and unpaid  dividends,
and (ix) any amendment, supplement,  modification,  deferral, renewal, extension
or  refunding of any  liability of the types  referred to in clauses (i) through
(viii) above. For purposes hereof,  the "maximum fixed repurchase  price" of any
Disqualified  Stock which, by its terms,  does not have a fixed repurchase price
shall be calculated in accordance with the terms of such  Disqualified  Stock as
if such  Disqualified  Stock were  purchased  on any date on which  Indebtedness
shall be required to be determined pursuant to the Indenture.

     SECTION 3.7. Section 11 of the Original Officers'  Certificate.  Section 11
of the Original Officers'  Certificate is hereby deleted in its entirety and the
following is hereby inserted as Section 11 of the Officers' Certificate:

     "The Senior Notes shall be exchangeable  only as provided in Section 305 of
the Indenture. The form of the Senior Notes is attached hereto."

     SECTION  3.8.  Section  15  of  the  Original  Officers'  Certificate.  The
following shall be added as Section 15 of the Original Officers' Certificate:

     "15.  The  Senior  Notes  shall  be  subject  to the  following  additional
covenants and other terms:

     "(i)  Pledge Of  Collateral.  To secure  the  Secured  Obligations,  and in
consideration  of the promises and of the  covenants  herein  contained  and for
other good and valuable  consideration,  the receipt and sufficiency  whereof is
hereby acknowledged,  upon receipt by the Trustee of the Collateral, the Trustee
does  hereby  declare  that it holds as  security  trustee  in trust  under  the
Indenture  all of the right,  title and interest of the Trustee to and under the
Collateral, to hold the Collateral as security for, and as additional sources of
payment of, the Secured  Obligations,  and for the uses and purposes and subject
to the terms and provisions set forth in the Indenture.  The Collateral shall be
held in trust under and subject to the terms and conditions herein set forth for
the sole benefit of the Holders of the Senior Notes and for the  enforcement  of
the prompt and complete payment when due of the Secured Obligations held by them
and for the  performance  by the Company of its  obligations  under the Security
Documents.  Any  opinions  required by TIA Sections  314(b)(1)  and (2) shall be
delivered to the Trustee,  if, and at such time(s),  as required by TIA Sections
314(b)(1) and (2).

         As among the  Holders of the Senior  Notes,  the  Collateral  as now or
hereafter  constituted  shall be held for the equal and  ratable  benefit of the
Holders of the Senior Notes without  preference,  priority or distinction of any
thereof  over any other by reason of  difference  in time of  issuance,  sale or
otherwise, as security for the Senior Notes.

         (ii)  Satisfaction  And Discharge;  Defeasance.  The Company and Issuer
Holding  Corp.  shall  be  entitled  to  obtain  a  full  release  of all of the
Collateral  from the Lien in respect of the Security  Documents upon  compliance
with all of the  conditions  precedent  for  satisfaction  and  discharge of the
Indenture set forth in Section 401 of the Indenture or for  defeasance  pursuant
to  Section  1402 of the  Indenture,  with  respect to the  Senior  Notes.  Upon
delivery  by the Company to the Trustee of Board  Resolutions  authorizing  such
actions and an  Officers'  Certificate  and an Opinion of  Counsel,  each to the
effect that all of the  conditions  precedent have been complied with (which may
be the same  Officers'  Certificate  and Opinion of Counsel  required by Article
Fourteen of the Indenture),  the Trustee shall take all necessary action, at the
written  request and  expense of the  Company,  to release  and  reconvey to the
Company and Issuer Holding Corp. (as the case may be) all of the Collateral, and
shall  deliver  such  Collateral  in its  possession  to the  Company and Issuer
Holding Corp. (as the case may be).

         (iii) Trust Indenture Act  Requirements.  The release of any Collateral
from the Lien in respect of the Security  Documents will not be deemed to impair
such Lien in  contravention  of the  provisions  hereof if and to the extent the
Collateral is released pursuant to the Pledge Agreement, the Security Agreement,
and  pursuant  to  the  terms  hereof.  Each  of the  Holders  of  Senior  Notes
acknowledge  that a release of Collateral  strictly in accordance with the terms
of the Pledge Agreement,  the Security Agreement,  and the terms hereof will not
be deemed  for any  purpose  to be an  impairment  of the Lien in respect of the
Security  Documents  in  contravention  of the terms of the  Indenture.  Without
limitation,  the Company and each other  obligor on the Senior Notes shall cause
TIA Section  314(d)  relating to the release of property or securities  from the
Lien in respect of the Security  Documents to be complied with. Any  certificate
or  opinion  required  by TIA  Section  314(d)  may be made by an officer of the
Company, except in cases which TIA Section 314(d) requires that such certificate
or opinion be made by an independent Person.

         (iv) Purchaser Protected. In no event shall any purchaser in good faith
of any Collateral  purported to be released  hereunder be bound to ascertain the
authority  of the  Trustee  to  execute  the  release  or to  inquire  as to the
satisfaction  of any  conditions  required  by the  provisions  hereof  for  the
exercise of such  authority or to see to the  application  of any  consideration
given by such  purchaser or other  transferee;  nor shall any purchaser or other
transferee of any  Collateral  permitted by this Section  Fifteen to be released
under  obligation  to ascertain or inquire into the  authority of the Company to
make any such or other transfer.

         (v) Determinations Relating To Collateral. In the event (A) the Trustee
shall receive any written  request from the Company  and/or Issuer Holding Corp.
under any of the Security  Documents for consent or approval with respect to any
matter or thing  relating to any  Collateral or the Company's or Issuer  Holding
Corp.'s  obligations with respect thereto (including,  without  limitation,  the
determination as to whether any portion of the Collateral  constitutes  released
Collateral)  or (B)  there  shall  be due  to or  from  the  Trustee  under  the
provisions of any of the Security  Documents any  performance or the delivery of
any  instrument  or  (C)  the  Trustee  shall  be  notified  in  writing  of any
nonperformance by the Company and/or Issuer Holding Corp. of any covenant or any
breach of any  representation  or warranty of the Company  and/or Issuer Holding
Corp. set forth in any of the Security Documents,  then, in each such event, the
Trustee may consult  with any expert,  consultant,  agent or attorney for advice
with respect thereto.  The Trustee shall be fully protected in the taking of any
action recommended or approved by any such expert, consultant, agent or attorney
or agreed to by a majority of Holders of Senior Notes pursuant to Section 602 of
the Indenture.

         (vi) Form and  Sufficiency  of  Release.  In the event that the Company
and/or Issuer Holding Corp.  has sold,  exchanged,  or otherwise  disposed of or
proposes to sell, exchange or otherwise dispose of any portion of the Collateral
which under the provisions of the Security  Documents may be sold,  exchanged or
otherwise  disposed of by the  Company  and/or  Issuer  Holding  Corp.,  and the
Company,  upon delivery of an Officers'  Certificate,  Board  Resolutions and an
Opinion  of  Counsel,  requests  in  writing  the  Trustee  to furnish a written
disclaimer, release or quitclaim of any interest in such Collateral under any of
the Security  Documents,  the Trustee,  subject to Section  15(ii) above,  shall
promptly  execute  such  an  instrument   promptly  after  satisfaction  of  the
conditions   set  forth  in  Section   15(ii)  for  delivery  of  such  release.
Notwithstanding  the  preceding  sentence,  all  purchasers  and grantees of any
Collateral  purported to be released herefrom shall be entitled to rely upon any
release executed by the Trustee  hereunder as sufficient for the purposes of the
Indenture and as  constituting a good and valid release of the property  therein
described from the Lien in respect of the Security Documents.

         (vii) Release Upon  Termination  of the Company's  Obligations.  In the
event that the  Company  delivers  an  Officers'  Certificate  and an Opinion of
Counsel  certifying  that the provisions of Section 401 or 1402 of the Indenture
with respect to the Senior Notes have been complied  with, the Trustee shall (a)
execute and deliver such releases,  termination statements and other instruments
as the Company may reasonably  request in writing  evidencing the termination of
the Lien in respect of the Security Documents and (b) not be deemed to hold such
Liens for the benefit of the Holders.

     (viii) Acceleration of Maturity; Remedies; Rescission and Annulment.

     (1)  Notwithstanding  any other provision in the Indenture,  if an Event of
Default with respect to Senior Notes occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the  Outstanding  Senior  Notes may declare the  principal  of all the
Senior  Notes to be due and payable  immediately,  by a notice in writing to the
Company  (and to the  Trustee  if  given  by the  Holders),  and  upon  any such
declaration  such  principal  and the  accrued  interest  thereon,  if  any,  or
specified portion thereof shall become immediately due and payable.

     (A) At any time after such a declaration  of  acceleration  with respect to
the Senior  Notes has been made and before a judgment  or decree for  payment of
the money due has been  obtained by the Trustee as  hereinafter  in this Section
provided,  the  Holders  of a  majority  in  aggregate  principal  amount of the
Outstanding Senior Notes, by written notice to the Company and the Trustee,  may
rescind and annul such declaration and its consequences if:

     (i) the Company has paid or deposited  with the Trustee a sum sufficient to
pay in the currency or currency  unit or composite  currency in which the Senior
Notes are payable:

     (a) the principal of (and premium, if any, on) any Outstanding Senior Notes
which have become due otherwise  than by such  declaration of  acceleration  and
interest  thereon at the rate or rates borne by or  provided  for in such Senior
Notes,

     (b) to the extent that payment of such  interest is lawful,  interest  upon
overdue installments of interest at the Overdue Rate, and

     (c) all sums paid or advanced by the Trustee under the  Indenture,  and the
reasonable  compensation,  expenses,  disbursements and advances of the Trustee,
its agents and counsel,  and any other  amounts due to the Trustee under Section
606 of the Indenture; and

     (ii) All Events of Default with respect to the Senior Notes, other than the
nonpayment  of the  principal of (or premium,  if any) or interest on the Senior
Notes which have become due solely by such  declaration  of  acceleration,  have
been cured or waived as provided in Section 513 of the Indenture.

     (B) No such  rescission  shall affect any subsequent  default or impair any
right consequent thereon.

     (2)  Notwithstanding  any other provision in the Indenture,  if an Event of
Default with respect to the Senior Notes occurs and is  continuing,  then and in
every such case the Trustee,  subject to the rights and  immunities set forth in
Article Six of the Indenture, may:

     (A) exercise  all of the rights and  remedies in respect of the  Collateral
under  applicable  law and  all of the  rights  and  remedies  conferred  in the
Indenture and in the other Security Documents, and

     (B) exercise  all of the rights and  remedies of a secured  party under the
Uniform Commercial Code of any applicable  jurisdiction,  and may (but shall not
be  obligated  to) proceed to protect and enforce the  Indenture  and any of the
other Security  Documents by suit or suits or proceedings at law, in equity,  in
bankruptcy  or  otherwise,  and  whether  for the  specific  performance  of any
covenant or agreement herein or therein  contained or in execution or aid of any
power therein or therein granted, or for foreclosure hereunder or thereunder, or
for the  appointment  of a receiver or receivers for the  Collateral or any part
thereof or for the enforcement of any legal, equitable or other remedy available
under applicable law, and

     (C)  protect  and  enforce  the  Indenture  or any one or more of the other
Security  Documents  by suit or suits  or  proceedings  at law,  in  equity,  in
bankruptcy  or  otherwise,  and  whether  for the  specific  performance  of any
covenant or agreement herein or therein  contained or in the execution or aid of
any power  herein or  therein  granted,  or for the  enforcement  of any  legal,
equitable or other remedy available under applicable law.


     (3) Notwithstanding  any other provision in the Indenture,  the Trustee may
(but shall not be obligated to) act, if any Event of Default exists with respect
to the Senior Notes,  where action is reasonably  required  before any necessary
instructions may be received in accordance with the Indenture,  to the extent it
deems necessary and without instruction from the Holders of the Senior Notes, in
order to

     (A) protect the Collateral,

     (B) instruct or give any notice to the Company, or

     (C) otherwise promote and protect the interests of the Holders.

     (ix) Application of Money Collected. Notwithstanding any other provision in
the Indenture,  the proceeds of any exercise of rights pursuant to this Section,
including,  but not  limited  to, the  proceeds  of any  exercise of rights with
respect to the Collateral,  or any part thereof, shall be paid to and applied as
follows:

     (1)  First  -- to the  payment  of all  amounts  due  the  Trustee  and any
predecessor Trustee under Section 606 of the Indenture;

     (2) Second -- to the payment of

     (A) costs and expenses of foreclosure or suit, if any, and of any permitted
sale, and of all proper expenses,  liabilities and advances,  including, without
limitation, fees and expenses of attorneys, agents and experts, incurred or made
hereunder or under the other  Security  Documents by the Trustee with respect to
the Collateral, and

     (B) all taxes,  assessments or Liens superior to the Lien in respect of the
Security  Documents,  except  any taxes,  assessments  or other  superior  Liens
subject to which such sale may have been made;

     (3) Third -- to the  payment of the  amounts  then due and unpaid  upon the
Senior  Notes and coupons  for  principal  (and  premium,  if any) and  interest
payable,  in  respect  of which or for the  benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
aggregate amounts due and payable on such Senior Notes and coupons for principal
(and premium, if any), and interest, respectively; and

     (4) Fourth -- to the payment of the remainder, if any, to the Company.

        (x) Unconditional  Right of Holders to Receive  Principal,  Premium,  if
any, Interest and Additional Amounts. Notwithstanding any other provision in the
Indenture,  the Holder of any Senior Note or coupon shall have the right,  which
is absolute  and  unconditional,  to receive  payment of the  principal  of (and
premium, if any) and (subject to Sections 305 and 307 of the Indenture) interest
     on, such Security or payment of such coupon on the respective due dates
expressed in such Senior Note or coupon (or, in the case of  redemption,  on the
Redemption  Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder, except
to the extent that the  institution  or prosecution of such suit or the entry of
judgment  therein  would,   under  applicable  law,  result  in  the  surrender,
impairment, waiver or loss of the Lien in respect of the Security Documents upon
the Collateral.

     (xi)  Maintenance  of Liens.  So long as the Indenture  shall not have been
satisfied and discharged as set forth in Section 401 of the Indenture in respect
to the Senior  Notes,  or until the  defeasance  of the  Indenture  pursuant  to
Section 1402 of the Indenture in respect to the Senior Notes,  the Trustee will,
solely for the benefit of the Holders of the Senior Notes,

     (A) execute  continuation  statements under the Uniform  Commercial Code of
the specified  jurisdictions  with respect to those UCC-1  financing  statements
listed in the Opinion of Counsel from the Company, and deliver such continuation
statements  to the Company for  filing,  provided,  that at least six (6) months
prior to the  expiration  of such UCC-1  financing  statements,  the Company has
delivered to the Trustee an Opinion of Counsel and written  notice setting forth
the requirement to file such continuation statements; and

     (B) upon receipt of written instruction by the Holders of not less than 25%
in  aggregate  principal  amount of the  Outstanding  Senior  Notes,  and at the
expense of the Company,  execute, procure,  acknowledge,  deliver and record, or
cause to be executed,  procured,  acknowledged,  delivered or recorded, all such
further  instruments,   deeds,  conveyances,   mortgages,  transfers,  financing
statements,   continuation   statements  and  assurances  as  reasonably  deemed
necessary  by such  Holders  subject  to the  Lien in  respect  of the  Security
Documents,  and to  preserve,  continue  and  protect the Lien in respect of the
Security Documents on, all or any portion of the Collateral.

Definitions.  As used herein,

     "Collateral" means,  collectively,  all of the property and assets that are
from time to time subject to the Pledge Agreement and the Security Agreement and
all other  property  and  assets  that are from time to time  made  subject,  or
required to be made subject,  to Liens for the benefit of the Trustee and of the
Holders  pursuant  to  the  Pledge  Agreement,  the  Security  Agreement  or the
Indenture.

     "Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's length free market  transaction,  for cash,  between a
willing seller and a willing  buyer,  neither of whom is under undue pressure or
compulsion to complete the transaction.  Unless otherwise specified herein, Fair
Market  Value  of any  asset  of the  Company  and  its  Subsidiaries  shall  be
determined  by the Board of  Directors  of the Company  acting in good faith and
shall be evidenced by a Board Resolution thereof delivered to the Trustee.

     "Lien"  means  (x) any lien,  mortgage,  deed of  trust,  pledge,  security
interest, charge or encumbrance of any kind including,  without limitation,  any
conditional  sale or other title  retention  agreement,  any lease in the nature
thereof,  any option or other  agreement  to sell,  any  setoff,  recoupment  or
repurchase  arrangement  and any  filing  of or  agreement  to file a  financing
statement as debtor under the Uniform Commercial Code or any similar statute and
(y) any agreement to enter into any of the foregoing.

     "Pledge  Agreement"  means the  Indemnity  Pledge  Agreement,  of even date
herewith, by Issuer Holding Corp., a wholly-owned  subsidiary of the Company, in
favor  of the  Trustee,  as the  same  may be  amended,  amended  and  restated,
supplemented  or otherwise  modified  from time to time in  accordance  with its
terms.

     "Security Agreement" means the Pledge and Security Agreement,  of even date
herewith,  by the Company in favor of the  Trustee,  as the same may be amended,
amended and restated,  supplemented  or otherwise  modified from time to time in
accordance with its terms.

     "Security  Documents"  means  the  Indenture,  the  Pledge  Agreement,  the
Security  Agreement,  the  Senior  Notes  and  each  other  security  agreement,
financing  statement  or other  instrument  pursuant to which any of the Secured
Obligations shall be secured from time to time.

     "Secured  Obligations" means, at any time, all obligations and undertakings
of the Company in respect of the principal of, and interest, on the Senior Notes
at such  time and the  payment  of all  other  amounts  payable,  and all  other
indebtedness owing, by the Company thereunder and under the Indenture, including
without  limitation  all  amounts due to the  Trustee  under  Section 606 of the
Indenture."

     SECTION  3.9.  Section  16  of  the  Original  Officers'  Certificate.  The
following shall be added as Section 16 of the Original Officers' Certificate:

         "16. Any legal action or  proceeding  arising out of or relating to the
Senior Notes,  other than in connection  with suits for the  enforcement  of any
payment on the Senior Notes on or after the Stated  Maturity  thereof,  shall be
brought in the state or federal courts of Virginia, and the Holder of any Senior
Note hereby expressly submits to the exclusive  personal  jurisdiction and venue
of such  courts  for the  purposes  thereof  and  expressly  waives any claim of
improper venue and any claim that such courts are an inconvenient forum."

                                   ARTICLE IV

                                  MISCELLANEOUS

     SECTION 4.1. Execution of Counterparts.  This Supplement may be executed in
several counterparts,  each of which shall be an original and all of which shall
constitute but one and the same instrument.

     SECTION  4.2.  Governing  Law.  This  Supplement  shall be  governed by and
construed  in  accordance  with the laws of the  jurisdiction  which  govern the
Indenture and its construction.

     SECTION 4.3. Binding Effect.  This Supplement shall inure to the benefit of
and shall be binding upon the Trustee and its  successors  and assigns,  and the
Company and its successors and assigns.

     SECTION 4.4. Trustee. The recitals contained herein and in the Senior Notes
shall  be  taken  as  statements  of the  Company  and the  Trustee  assumes  no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Supplement, the Senior Notes or the security
afforded hereby or thereby.
<PAGE>
                                                                   Exhibit  99.4

                         PLEDGE AND SECURITY AGREEMENT


     THIS PLEDGE AND SECURITY  AGREEMENT  (this  "Agreement") is dated as of the
30th day of  March,  2001,  by and  between  DYNEX  CAPITAL,  INC.,  a  Virginia
corporation  ("Dynex"),  and HSBC Bank  USA,  a  banking  corporation  and trust
company duly organized and existing under the laws of the State of New York (the
"Trustee"),  as  Trustee on behalf of the  holders  (the  "Holders")  of Dynex's
7.875%  Senior  Notes Due July 15, 2002 (the  "Securities")  under an  Indenture
dated July 14,  1997,  as amended  by,  among  things,  that  certain  Officers'
Certificate dated July 14, 1997 (the "Original  Officers'  Certificate") and the
"Supplemental  Indenture"  described  below (such  Indenture,  as  amended,  the
"Indenture") between Dynex and the Trustee.

                               W I T N E S S E T H:
                               - - - - - - - - - -

     WHEREAS, in order to induce a sufficient number of Holders to consent to an
amendment to the Indenture  effected by a Supplemental  Trust  Indenture of even
date herewith  (the  "Supplemental  Indenture"),  Dynex has agreed to enter into
this Agreement and in so doing to grant a security  interest to the Trustee,  on
behalf of all  Holders,  in certain  assets of Dynex to secure  repayment of all
obligations of Dynex relating to the Securities,  all as more  particularly  set
forth below; and

     WHEREAS, unless otherwise defined herein or the context otherwise requires,
the capitalized  terms used herein shall have the same meanings assigned to them
in the Indenture.

     NOW,  THEREFORE,  in  consideration of the foregoing and in order to induce
certain of the Holders to consent to an amendment to the  Indenture  effected by
the Supplemental Indenture, Dynex hereby agrees with the Trustee as follows:

     1. Pledge.  In order to secure the payment in full of (i) all  principal of
and interest on the Securities as and when the same become due and payable under
the Indenture  (whether by lapse of time,  acceleration or otherwise),  (ii) all
other fees and charges  payable by Dynex and/or Issuer Holding Corp., a Virginia
corporation and a wholly-owned  subsidiary of Dynex ("IHC"),  under the terms of
this Agreement,  an Indemnity Pledge Agreement of even date herewith between IHC
and the Trustee,  the  Securities and the Indenture  (collectively,  the "Senior
Note Documents"),  (iii) all other indebtedness,  obligations and liabilities of
Dynex  and/or IHC arising  under,  and the  observance  and  performance  of all
covenants  and  agreements  contained in, the Senior Note  Documents,  including
without limitation all amounts due to the Trustee pursuant to Section 606 of the
Indenture,  and (iv) all  expenses and charges,  legal or  otherwise,  including
reasonable attorneys' fees, suffered or incurred by the Trustee in collecting or
enforcing  payment of any of the Securities or in realizing upon,  protecting or
preserving  any  collateral  security  for any  such  indebtedness  (all of such
indebtedness,  obligations  and  liabilities  referred  to  in  the  immediately
foregoing clauses (i) through (iv) being hereinafter collectively referred to as
the  "Obligations"),  Dynex hereby  grants to the Trustee,  its  successors  and
permitted  assigns,  a  continuing  security  interest  in,  and  pledges to the
Trustee,  the following  property,  whether now owned or hereafter  acquired and
wherever held (collectively, the "Collateral"):

     (a) all shares of the  outstanding  equity  securities held by Dynex in the
subsidiaries listed on Schedule 1(a) attached hereto and made a part hereof (the
"Subsidiaries");

     (b) any and all  additional  shares of any  class of stock or other  equity
securities of any of the Subsidiaries, or any other subsidiaries of Dynex, which
Dynex may from time to time acquire,  directly or  indirectly,  between the date
hereof and the date of the  satisfaction  and  discharge of the  Indenture  with
respect to the  Securities in accordance  with Section 401 thereof or defeasance
pursuant to Section 1402 thereof;

     (c) the assets  described on Schedule 1(c) attached  hereto and made a part
hereof;

     (d) the  "Collateral  Account"  described in Section 9(a) hereof,  together
with (i) all cash, credit balances,  securities,  financial assets, instruments,
investment property,  accounts,  contract rights,  general intangibles and other
property of whatever kind or description  now or hereafter in or credited to the
Collateral Account, (ii) all proceeds thereof or income therefrom, and (iii) all
security entitlements in respect thereof;

     (e) the  "Collection  Account"  described in Section 9(b) hereof,  together
with (i) all amounts deposited therein and all certificates and instruments,  if
any, from time to time  representing  or evidencing  such  Collateral,  (ii) all
interest, cash and monies,  instruments and other property or proceeds from time
to time  received,  receivable  or  otherwise  distributed  in  respect of or in
exchange for any or all of the  foregoing  Collateral,  and (iii) all rights and
privileges of Dynex with respect to the foregoing Collateral;

     (f) all  supporting  evidence  and  documents  relating to any of the above
described property,  including without limitation the books and records relating
thereto;

     (g) all accessions and additions to and  substitutions  and replacements of
any and all of the  foregoing,  whether  now  existing or  hereafter  arising or
attaching; and

     (h) all cash and non-cash proceeds of the foregoing (subject
to Section 3 hereof),  including  (without  limitation)  all dividends and other
distributions.

     In order to  continuously  perfect the security  interest in the Collateral
granted under Section 1(a) above, Dynex has,  simultaneously  with the execution
hereof,  physically delivered to the Trustee the stock certificates representing
said shares of stock in the  subsidiary  corporations  listed on  Schedule  1(a)
(which stock  certificates  are accompanied by appropriate  undated stock powers
duly executed by Dynex in blank).

     2. Conditional  Pledge.  In order to further secure the Obligations,  Dynex
hereby grants to the Trustee, its successors and permitted assigns, a continuing
security  interest  in, and pledges to the Trustee,  the  property  described on
Schedule 2 attached hereto and made a part hereof; provided,  however, that such
grant shall not become  effective until the repurchase of such property by Dynex
pursuant to that certain Master  Repurchase  Agreement dated as of April 7, 2000
between Dynex and Lehman Brothers,  Inc. and Lehman Commercial  Paper,  Inc., as
amended and supplemented by those certain Addendum  Agreements dated as of April
7, 2000 and April 18, 2000 (such agreement, as so amended and supplemented,  the
"Lehman Repurchase Agreement"),  in a transaction in which Dynex does not, on or
about the date of such transaction, enter into any similar repurchase or similar
arrangement  that  effectively  refinances  its  obligations  under  the  Lehman
Repurchase  Agreement.  Upon  the  effectiveness  of the  foregoing  grant  such
property  shall be deemed  "Collateral"  hereunder for all  purposes,  and Dynex
shall promptly (i) notify the Trustee in writing of such  effectiveness and (ii)
execute and deliver all further instruments and documents,  and take all further
action, that may be necessary or desirable,  in order to perfect and protect the
security interest granted pursuant to this Section 2.

     3. Sale of Certain  Collateral.  Notwithstanding any provision hereof or of
the  Indenture  to the  contrary,  unless  and until an "Event of  Default"  (as
hereinafter defined) has occurred and is continuing,  Dynex may, without further
consent or approval of the Trustee, sell, assign,  transfer,  lease or otherwise
dispose  of  (each,  a  "Permitted  Disposition")  all  or  any  portion  of the
Collateral,  including without limitation the Collateral described on Schedule 3
attached hereto and made a part hereof;  provided,  however, that Dynex shall be
permitted  to use the  proceeds of any such  Permitted  Disposition  (net of any
expenses  incurred in connection with any such Permitted  Disposition) only in a
manner  permitted  by the  Original  Officers'  Certificate,  as  amended by the
Supplemental Indenture; and provided, further, that until any such permitted use
of net proceeds,  such net proceeds shall be deposited in the Collection Account
and shall  remain  cash  Collateral  subject to the  security  interest  created
hereunder.  Promptly  upon  written  notice  from  Dynex of any  such  Permitted
Disposition,  the Trustee  shall  execute  and  deliver to Dynex such  releases,
termination  statements and estoppel certificates as Dynex may reasonably direct
in writing;  provided that all such  documents  shall be prepared,  reviewed and
filed or recorded at Dynex's sole cost and expense.

         4. Event of  Default;  Remedies.  Each and every  "Event of Default" as
defined in the Indenture,  including without limitation any failure by Dynex for
30 days after notice to comply with any of its agreements herein, and any breach
by Dynex of its obligations under Section 9(a) or Section 9(b) hereof within the
time periods  therein  specified  (without regard to any grace or cure periods),
shall constitute an "Event of Default" hereunder. Upon the occurrence and during
the  continuation  of any such Event of Default,  the Trustee  shall be entitled
(but  shall  not be  obligated)  to  exercise  any one or more of the  following
remedies:

     (a) The  Trustee  may from time to time take  whatever  action at law or in
equity  is  necessary  or  desirable  in order to  collect  the  moneys  payable
hereunder or secured  hereby or to enforce  performance  and  observance  of any
obligation, agreement or covenant hereunder.

     (b)  The  Trustee  may  foreclose  its  security  interest  in  any  of the
Collateral  in any  way  permitted  by  applicable  law;  and  the  Trustee  may
thereupon,  or at any time  thereafter,  without  notice or demand  (except such
notice as may be  specifically  required by applicable  law) and with or without
having the Collateral at the time or place of sale, sell, assign, give option or
options to purchase or otherwise  dispose of and deliver the  Collateral  or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
any public or private  sale or sales,  in the  over-the-counter  market,  at any
exchange,  broker's  board or office of the Trustee or elsewhere upon such terms
and conditions as it may determine and at such prices as it may  determine,  for
cash or on credit or for future delivery without  assumption of any credit risk.
In the exercise of such remedy,  the Trustee may sell all of the Collateral as a
unit  even  though  the sales  price  thereof  may be in  excess of the  amounts
remaining unpaid on the Obligations. At any such public sale the Trustee may bid
for and become the purchaser of all or any part of the Collateral, and such sale
or sales may be held without demand of performance, notice of intention to sell,
the time or place of sale or any other matter,  except for such notice as may be
specifically  required  by law;  and the  purchaser  at any  such  sale or other
disposition  shall  thereafter hold the Collateral sold absolutely free from any
claim or right of Dynex of whatsoever kind, including any right of redemption of
Dynex,  all such rights being hereby  expressly  waived and released by Dynex to
the extent permitted by law.

     (c) The Trustee may apply for a receiver  for the  Collateral  and may sell
the  Collateral  pursuant to a judicial  sale,  and Dynex hereby  assents to the
passage of a decree for the sale of any of the  Collateral  by any court  having
jurisdiction.  Dynex  hereby  authorizes  and  empowers  the Trustee to sell its
interest  in  the  Collateral  in  accordance  with  any  applicable  law.  Such
Collateral  or any  interest  therein may be sold upon such terms and in as many
lots as the Person  conducting the sale may, in its sole  discretion,  elect. No
readvertisements  of any sale  shall be  required  if the sale is  adjourned  by
announcement,  at the time or place set therefor,  of the date, time or place to
which the same is to be adjourned.

     (d) The Trustee may exercise any and all rights of conversion,  exchange or
subscription  and any other rights,  privileges or options  pertaining to any of
the  Collateral,  as if the Trustee were the absolute owner  thereof,  including
(without  limitation)  the right to exchange any and all of the Collateral  upon
the   merger,   consolidation,   reorganization,   recapitalization   or   other
readjustment  of any  Subsidiary  or upon the  exercise  by or on  behalf of any
Subsidiary or the Trustee of any right, privilege or option pertaining to any of
the Collateral.

     (e) The  Trustee  may take any or all of the  following  actions:  (i) take
possession of the Collateral  pursuant  hereto without legal process and without
incurring  liability to Dynex  therefor for the purpose of exercising its rights
hereunder;  (ii) deliver a "Notice of Exclusive  Control" in accordance with the
account control agreement  referred to in Section 9(a) hereof; and (iii) deliver
a "Notice of Effectiveness"  in accordance with the "Blocked Account  Agreement"
(as hereinafter defined).

     (f) The Trustee may  exercise any other right or remedy with respect to any
of the  Collateral  given  to  secured  parties  under  the  applicable  Uniform
Commercial  Code in  effect  in the  State of New York  from  time to time  and,
without  limitation  of the  generality  of the  foregoing,  as the  same may be
amended  by  Revised  Article  9 (the  "UCC").  "Revised  Article  9" means  the
provisions of New York S7484,  introduced  April 17, 2000,  containing  proposed
revisions to Article 9 of the UCC which would become  effective July 1, 2001, as
such provisions may be modified from time to time.

     (g) Any notification required by Section 9-504 (or any successor provision)
of the UCC shall be deemed  reasonably  and  properly  given if deposited in the
mail, certified or registered mail, postage prepaid, to Dynex, at least ten (10)
days before any sale or disposition of any of the Collateral which is subject to
the UCC.

     (h) Any proceeds received from the exercise of any remedy hereunder,  after
deducting  therefrom  any  and all  costs  and  expenses  incurred  in  securing
possession  of any  Collateral,  in  shipping  and storing  the  Collateral,  in
preparing the Collateral for sale or otherwise  dealing with Collateral prior to
any sale or other  disposition  thereof and in connection with the sale or other
disposition thereof (including,  without limitation,  reasonable  attorneys' and
accountants'  fees and  expenses  and  brokers'  commissions),  shall be applied
toward  the  payment  of any and all  amounts  due under or with  respect to the
Obligations,  including  interest  thereon,  and all other  costs  and  expenses
incurred by the Trustee in connection with this Agreement or the Indenture which
are then due and payable, in such order and amounts as the Trustee may elect. If
such net proceeds should be insufficient to pay the same and a deficiency  shall
result, Dynex shall nevertheless remain liable for such deficiency;  and if such
proceeds  should be more  than  sufficient  to pay the  same,  then in case of a
surplus,  such surplus  shall be accounted for and, if any amounts due under the
Obligations remain outstanding, retained by the Trustee, who shall hold the same
as security for the payment of the Obligations; otherwise, such surplus shall be
paid over to Dynex or to  whomsoever  a court of  competent  jurisdiction  shall
determine to be entitled thereto.

                  (i) Dynex  recognizes that the Trustee may be unable to effect
a public sale of any or all of the Collateral, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities  Act"), and
applicable state securities laws or otherwise, and may be compelled to resort to
one or more private sales thereof to a restricted group of purchasers which will
be obliged to agree,  among other things,  to acquire such  securities for their
own account for  investment  and not with a view to the  distribution  or resale
thereof.  Dynex acknowledges and agrees that any such private sale may result in
prices and other terms less  favorable  to the Trustee  than if such sale were a
public  sale and agrees  that no such  private  sale shall be deemed not to have
been  made  in a  commercially  reasonable  manner  solely  by  virtue  of  such
circumstances.  The Trustee  shall be under no obligation to delay a sale of any
of the  Collateral for the period of time necessary to permit the issuers of the
securities   constituting  any  portion  of  the  Collateral  to  register  such
Collateral  for public sale under the  Securities Act (and Dynex and the issuers
shall have no obligation to do so), or under  applicable  state securities laws,
even if the issuers would agree to do so.

     5.  Representations,  Warranties  and Covenants.  Dynex hereby  represents,
warrants and covenants to the Trustee as follows:

     (a) Dynex is a corporation  duly  organized,  validly  existing and in good
standing under the laws of the Commonwealth of Virginia. Dynex has the corporate
power, authority and legal right to execute, deliver and perform this Agreement.
This Agreement has been duly authorized and validly executed and delivered by an
authorized  officer  of Dynex and  constitutes  the  legal,  valid  and  binding
obligations of Dynex, enforceable against it in accordance with this Agreement's
terms.

     (b) Set forth on Schedule 5(b) hereto is a description of all of the assets
and property  used  exclusively  in the business of Dynex as presently  operated
that are not included as Collateral  hereunder or otherwise subject to Section 2
hereof (the  "Excluded  Assets").  The  Collateral,  the  property  described on
Schedule 2 hereto and the Excluded  Assets  constitute,  directly or indirectly,
all of the assets or property used in the business of Dynex and its subsidiaries
as presently operated.

     (c)  Dynex  is and  will  remain  the  true  and  lawful  owner  of all the
Collateral and, except for the security  interest  created  hereunder and except
for "Permitted Liens" (defined below), it has and will continue to have good and
marketable title thereto,  free and clear of all liens, charges and encumbrances
whatsoever.

     (d)  Except  for  liens  or  security  interests  permitted  under  Section
10(vi)(a) through (g) of the Original Officers'  Certificate,  as amended by the
Supplemental Indenture ("Permitted Liens"), and except as expressly permitted by
Section 3 hereof,  Dynex will not,  without the Trustee's  prior written consent
(upon written instructions from the Holders of a majority in aggregate principal
amount outstanding of the Securities) sell, assign,  factor,  mortgage,  pledge,
encumber,  transfer,  lease or otherwise dispose of or otherwise grant or suffer
to exist any Lien with respect to, the Collateral or any part thereof.

     (e) This Agreement creates a valid security interest in the Collateral and,
as of the date hereof,  the security  interest of the Trustee in the  Collateral
has  been  duly  perfected  under  the  UCC or  other  applicable  law in  every
appropriate  jurisdiction  and, except for Permitted Liens,  constitutes a first
priority lien upon the  Collateral and every part thereof;  and Dynex  covenants
that the Trustee's security interest shall, except for Permitted Liens, remain a
first priority lien upon the Collateral so long as any of the Obligations  shall
remain outstanding.

     (f)  Dynex has and will  continue  to have  full  legal  power and right to
pledge and grant the security  interest  conveyed  hereby in the  Collateral and
every part thereof;  the making of such pledge and the granting of such security
interest  do not and will not  violate the  provisions  of any law,  regulation,
contract,  agreement,  restrictive covenant or legend, order of court, corporate
charter or bylaw,  stockholders agreement or other instrument binding upon it or
any part of the Collateral;  and no consent or approval of any governmental body
or regulatory authority,  or any securities exchange, was or is necessary to the
validity or effectiveness thereof.

     (g)  Dynex is and  shall  at all  times  remain  the  sole  registered  and
beneficial owner of all shares of capital stock or other equity interests now or
hereafter  issued  by any  Subsidiary;  it will not  sell,  transfer,  assign or
encumber any such shares of capital  stock or other  equity  interests to or for
the benefit of any person or entity  other than the Trustee;  and neither  Dynex
nor any  Subsidiary has made or shall make any  commitments  for the issuance or
transfer of any such capital stock or other equity  interests under any options,
warrants or other similar rights.

     (h)  Dynex's  chief  executive  office and  principal  place of business is
located at 4551 Cox Road,  Suite 300, Glen Allen,  Virginia 23060, and Dynex has
no other offices or places of business in Virginia.

     6. Dividends/Distributions. Upon the occurrence and during the continuation
of any Event of Default,  Dynex shall  deliver to the  Trustee,  and the Trustee
shall be entitled to receive,  all dividends or similar  distributions paid upon
or in respect of the  Collateral  and the  Trustee  shall,  in the case of cash,
apply such dividends and  distributions  to the payment of the  Obligations  (in
whatever  order and  priority it may elect) and shall,  in the case of all other
property,  hold such property pursuant hereto as part of the Collateral  pledged
under and subject to the terms of this Agreement. So long as no Event of Default
or shall have occurred and be continuing,  Dynex shall have the right to receive
and retain all dividends or similar distributions paid upon or in respect of the
Collateral.

     7. Voting Rights.  Upon the occurrence and during the  continuation  of any
Event of Default,  the Trustee may (but shall not be obligated  to) exercise all
voting  rights  and all other  rights  conferred  on the owner of any  shares of
capital stock or other equity interests  included among the Collateral.  So long
as no Event of Default or shall have  occurred  and be  continuing,  Dynex shall
have the right to vote its shares of capital stock or other equity  interests in
the  Subsidiaries  on all corporate  matters  arising in the ordinary  course of
business;  provided,  however,  that Dynex  will not  exercise  or refrain  from
exercising any such right if such action would have a material adverse effect on
the value of the Collateral or any part thereof.  Under any circumstances and as
to any matters not governed by the foregoing provisions of this Section 7, Dynex
may only  exercise  its voting  rights with respect to the  Collateral  with the
prior written consent of the Trustee (upon written instructions from the Holders
of a majority in aggregate principal amount outstanding of the Securities).

     8.  Further  Assurances.  (a) Dynex  will  from  time to time,  at its sole
expense, promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or desirable, in order to perfect
and protect any  security  interest  granted or purported to be granted by Dynex
hereunder  or to enable  the  Trustee to  exercise  and  enforce  its rights and
remedies  hereunder  with  respect  to  any  Collateral.  Without  limiting  the
generality of the foregoing,  Dynex will: (i) execute and file such financing or
continuation  statements,  or amendments thereto,  and such other instruments or
notices, as may be necessary or desirable,  in order to perfect and preserve the
security interest granted or purported to be granted hereby, (ii) deliver to and
pledge  to  the  Trustee  for  its  benefit  and  the  benefit  of  the  Holders
certificates  representing  securities included in the Collateral accompanied by
undated stock powers executed in blank.

     (b) A photocopy or other  reproduction  of this  Agreement or any financing
statement  covering the  Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.

     (c) Dynex will  furnish to the Trustee  and the Holders  from time to time,
and upon any  additions  to or deletions  from the  Collateral,  statements  and
schedules  further  identifying  and  describing  the  Collateral and such other
reports in connection with the Collateral as any Holder may reasonably  request,
all in reasonable detail.

     9.  Covenants.  Dynex  covenants and agrees with the Trustee that, from and
after the date of this Agreement:

     (a)  Establishment  of Collateral  Account.  Within three (3) Business Days
after the date of this Agreement, Dynex shall establish with HSBC Bank USA, as a
"securities  intermediary" within the meaning of Section 8-102(a)(14) the UCC, a
securities account (the "Collateral  Account") to hold all Collateral hereunder,
with the  intent of the  parties  that the  Collateral  Account  be treated as a
"securities  account" within the meaning of Section 8-501(a) of the UCC and that
all Collateral in the Collateral  Account be treated as "securities"  within the
meaning of Section 8-102(a)(15) of the UCC or "security entitlements" within the
meaning of Section 8-501(b) of the UCC (as the case may be), and in all cases as
"financial assets" within the meaning of Section  8-102(a)(9) of the UCC. Within
thirty (30) days after the date of this Agreement,  Dynex shall cause Chase Bank
of Texas,  National  Association  to transfer  substantially  all Collateral not
already in possession  of HSBC Bank USA on the date hereof into such  Collateral
Account. Within three (3) Business Days after the date of this Agreement,  Dynex
and HSBC Bank USA, in its capacity as Trustee hereunder and also in its capacity
as a "securities  intermediary"  within the meaning of Section  8-102(a)(14) the
UCC, shall also enter in an "account  control  agreement"  substantially  in the
form of Annex A  attached  hereto,  such  that the  Trustee,  on  behalf  of the
Holders,  shall  obtain  "control"  over the  Collateral  within the  meaning of
Section 8-106 of the UCC.

     (b)  Establishment  of Collection  Account.  Within three (3) Business Days
after the date of this  Agreement,  Dynex shall establish and maintain with HSBC
Bank USA a deposit account (the "Collection Account"). Within three (3) Business
Days after the date of this Agreement,  Dynex and HSBC Bank USA, in its capacity
as Trustee  hereunder  and also in its capacity as a depositary  with respect to
the  Collection  Account,  shall also enter into a "blocked  account  agreement"
substantially  in the form of Annex B  attached  hereto  (the  "Blocked  Account
Agreement")  such  that the  Trustee,  on behalf of the  Holders,  shall  obtain
exclusive dominion and control over the funds in the Collection Account upon the
occurrence and during the  continuation of an Event of Default.  Dynex shall not
be permitted to transfer the Collection  Account to another  depository  without
the prior written  consent of the Trustee (upon  written  instructions  from the
Holders  of  a  majority  in  aggregate  principal  amount  outstanding  of  the
Securities). .

     (c) Place of Perfection;  Records.  Dynex will keep (i) its jurisdiction of
incorporation,  and (ii) its  chief  executive  office  and  principal  place of
business and the office where it keeps its records  concerning the Collateral at
its current  address in the  Commonwealth  of  Virginia  or, upon 30 days' prior
written notice to the Trustee,  at such other locations in a jurisdiction  where
all actions required to perfect the security  interest granted hereby shall have
been taken with respect to the Collateral.

     (d) Payments  Collection.  Subject to Section 3 hereof,  (i) Dynex will (A)
continue to collect and will direct its respective  subsidiaries and affiliates,
as  appropriate,  to  collect,  at its or their  own  expense,  and (B) take all
corporate and other action necessary to direct such  subsidiaries and affiliates
to dividend to Dynex,  all payments on account of or arising from the Collateral
(the  "Collateral  Payments"),  including  without  limitation  all  payments of
interest, penalties, distributions, fees, compensation, reimbursements, net cash
flow,  return of principal,  proceeds of sale or other disposition and all other
amounts due or to become due to Dynex, either directly or indirectly through one
or  more  of its  subsidiaries  or  affiliates,  or to any  such  subsidiary  or
affiliate,  which  have been  assigned  and  pledged  and as to which a security
interest  has been granted  hereunder,  and (ii) Dynex will remit and will cause
its respective subsidiaries and affiliates to remit, directly and forthwith, all
such  Collateral  Payments  directly  to the  Collection  Account to be held and
applied in accordance  with the Blocked  Account  Agreement.  In connection with
such  collections,  Dynex will take such action as may be necessary or advisable
to enforce  collection  in order to perfect and preserve  the security  interest
granted or purported to be granted hereby.

     (e) Dynex shall not take any action in connection  with the Collateral that
would  impair the value of the  interest  or rights of Dynex  thereunder  or the
interest or rights of the Trustee.

     10. Trustee Appointed Attorney-in-Fact;  Performance. (a) Dynex irrevocably
appoints the Trustee its attorney-in-fact,  with full authority in the place and
stead of Dynex and in the name of Dynex or otherwise, from time to time but only
upon the occurrence and during the continuation of an Event of Default,  to take
any action and to execute any instrument  which may be necessary or advisable to
accomplish the purposes of this Agreement, including without limitation:

     (i) to ask for, demand, collect, sue for, recover, compromise,  receive and
give  acquittance  and  receipts  for  moneys  due and to become due under or in
connection with the Collateral;

     (ii) to receive,  endorse,  and  collect  any drafts or other  instruments,
documents and chattel paper, in connection therewith; and

     (iii) to file any claims or take any action or  institute  any  proceedings
that may be necessary or desirable for the  collection of any of the  Collateral
or  otherwise  to enforce the rights of the Trustee  with  respect to any of the
Collateral.

     (b) If Dynex fails to perform any agreement  contained herein,  the Trustee
may (but shall not be obligated to) cause performance of such agreement, and the
expenses of the Trustee  incurred in  connection  therewith  shall be payable by
Dynex.

     11. Limitation on Duties Regarding Collateral.  The powers conferred on the
Trustee  hereunder  are solely to protect  its  interest  in the  Collateral  as
Trustee  and shall not  impose  any duty upon it to  exercise  any such  powers.
Except for the custody of any  Collateral in its  possession  and the accounting
for moneys actually received by it hereunder,  the Trustee shall have no duty as
to any  Collateral or as to the taking of any action to preserve  rights against
prior  parties or any other rights  pertaining  to any  Collateral.  The Trustee
shall  be  deemed  to  have  exercised   reasonable  care  in  the  custody  and
preservation  of any Collateral in its possession if such Collateral is accorded
treatment  substantially  equal  to  that  which  the  Trustee  accords  its own
property.

     12. Term. This Agreement  shall  terminate on the date of the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or defeasance pursuant to Section 1402 thereof.

     13.  Perfection.  Dynex  will  execute  and  deliver  to the  Trustee  such
financing   statements,   amendments  to  financing   statements,   continuation
statements and other documents, certificates,  instruments and agreements as may
be  necessary  or  advisable  to  accomplish  or  facilitate  the   transactions
contemplated  hereby and will pay all filing,  recordation and registration fees
and taxes incurred in connection therewith.

         14.  Exercise of Rights.  Any delay on the part of any party  hereto in
exercising any power, option,  privilege or right hereunder shall not operate as
a waiver  thereof,  and no single or  partial  exercise  of any  power,  option,
privilege or right hereunder shall preclude other or future exercise thereof, or
the exercise of any other power,  option,  privilege or right. The waiver by the
Trustee of any Event of Default (upon written instructions from the Holders of a
majority in aggregate  principal amount outstanding of the Securities) shall not
constitute a waiver of any  subsequent  default,  but shall be restricted to the
default so waived.  If any part of this Agreement should be contrary to any law,
or be otherwise  defective,  the other provisions of this Agreement shall not be
affected  thereby,  but shall  continue  in full force and  effect.  All rights,
remedies and powers of the Trustee hereunder are irrevocable and cumulative, and
not  alternative  or  exclusive,  and shall be in addition to all other  rights,
remedies and powers given hereunder or in or by any other  instrument or any law
now existing or hereafter made or enacted. Dynex shall reimburse the Trustee for
all  expenses  incurred by it in  connection  with the  exercise of any remedies
granted hereunder,  which sums shall be secured by the security interest granted
hereunder.

     15. Binding  Nature.  This  Agreement,  and all of the terms and conditions
hereof,  shall be binding  upon and shall  inure to the  benefit of the  parties
hereto and their  successors and permitted  assigns,  but shall not inure to the
benefit of any other person.

     16.  Construction.  When used  herein,  the  singular may also refer to the
plural,  and vice versa;  and the use of any gender shall be  applicable  to all
genders. All representations,  warranties, covenants, undertakings, obligations,
waivers and other  agreements of Dynex herein shall  survive the effective  date
hereof and shall continue in effect throughout the term of this Agreement.

     17.  Governing Law. This  Agreement  shall be governed by, and construed in
accordance with, the laws of the State of New York.

     18.  Subject to Indenture.  Any and all rights granted to the Trustee under
this  Agreement  are to be held and  exercised by the Trustee as trustee for the
benefit of the Holders,  pursuant to the  provisions  of the  Indenture.  To the
extent set forth in the Senior Note  Documents,  each of the Holders  shall be a
beneficiary of the terms of this Agreement. Any and all obligations hereunder of
the parties to this Agreement,  and the rights granted to the Trustee hereunder,
are created and granted subject to the terms of the Indenture.

     19. Release.  Subject to Section 3 hereof,  promptly upon the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or  defeasance  pursuant to Section  1402  thereof  (and the
delivery by Dynex to the Trustee of an Officers'  Certificate  and an Opinion of
Counsel  certifying  that such  provisions of the Indenture  with respect to the
Securities  have been complied  with),  the Trustee shall execute and deliver to
Dynex such releases,  termination  statements and estoppel certificates as Dynex
may  reasonably  direct in writing;  provided that all such  documents  shall be
prepared, reviewed and filed or recorded at Dynex's sole cost and expense.

     20. Recitals. The recitals contained herein shall be taken as statements of
Dynex and the  Trustee  assumes no  responsibility  for their  correctness.  The
Trustee  makes  no  representations  as the  validity  or  sufficiency  of  this
Agreement or the security afforded hereby.
<PAGE>
                                                                   Exhibit  99.5

                           INDEMNITY PLEDGE AGREEMENT


                  THIS INDEMNITY PLEDGE AGREEMENT (this "Agreement") is dated as
of the 30th day of March,  2001, by and between ISSUER HOLDING CORP.  ("IHC"), a
Virginia  corporation  and a  wholly-owned  subsidiary  of Dynex  Capital,  Inc.
("Dynex"),  and HSBC Bank USA,  a banking  corporation  and trust  company  duly
organized and existing under the laws of the State of New York (the  "Trustee"),
as Trustee on behalf of the holders (the  "Holders")  of the 7.875% Senior Notes
Due July 15, 2002 (the  "Securities") of Dynex under an Indenture dated July 14,
1997, as amended by, among things, that certain Officers' Certificate dated July
14, 1997 (the "Original Officers' Certificate") and the "Supplemental Indenture"
described below (such Indenture,  as amended, the "Indenture") between Dynex and
the Trustee.

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS,  simultaneously  with the execution hereof,  Dynex and the Trustee
have entered into a  Supplemental  Trust  Indenture of even date  herewith  (the
"Supplemental Indenture"), and in so doing Dynex has agreed, among other things,
to grant a  security  interest  to the  Trustee,  on behalf of all  Holders,  in
certain assets of Dynex to secure repayment of all obligations of Dynex relating
to the  Securities,  all as more  particularly  set forth in the Indenture and a
Pledge  and  Security  Agreement  of even date  herewith  between  Dynex and the
Trustee (the "Dynex Security Agreement"); and

     WHEREAS, in order to induce a sufficient number of Holders to consent to an
amendment  to the  Indenture  effected by the  Supplemental  Indenture,  IHC has
agreed to enter into this Agreement; and

                  WHEREAS,  unless  otherwise  defined  herein  or  the  context
     otherwise requires, the capitalized terms used herein shall have the same
meanings assigned to them in the Indenture.

     NOW,  THEREFORE,  in  consideration of the foregoing and in order to induce
certain of the Holders to consent to an amendment to the  Indenture  effected by
the Supplemental Indenture, IHC hereby agrees with the Trustee as follows:

         1. Pledge.  In order to secure the payment in full of (i) all principal
of and  interest on the  Securities  as and when the same become due and payable
     under the Indenture (whether by lapse of time,  acceleration or otherwise),
(ii)
all other fees and charges  payable by IHC and/or  Dynex under the terms of this
Agreement,  the Dynex  Security  Agreement,  the  Securities  and the  Indenture
(collectively,  the  "Senior  Note  Documents"),  (iii) all other  indebtedness,
obligations  and  liabilities  of  IHC  and/or  Dynex  arising  under,  and  the
observance and  performance  of all covenants and  agreements  contained in, the
Senior  Note  Documents,  including  without  limitation  all amounts due to the
Trustee  pursuant to Section 606 of the  Indenture,  and (iv) all  expenses  and
charges,  legal or otherwise,  including reasonable attorneys' fees, suffered or
incurred  by the  Trustee  in  collecting  or  enforcing  payment  of any of the
Securities  or in  realizing  upon,  protecting  or  preserving  any  collateral
security for any such  indebtedness (all of such  indebtedness,  obligations and
liabilities  referred to in the immediately  foregoing  clauses (i) through (iv)
being hereinafter  collectively  referred to as the  "Obligations"),  IHC hereby
grants to the  Trustee,  its  successors  and  permitted  assigns,  a continuing
security  interest  in, and  pledges to the  Trustee,  the  following  property,
whether now owned or hereafter  acquired and wherever  held  (collectively,  the
"Collateral"):

     (a) all  shares of the  outstanding  equity  securities  held by IHC in the
wholly-owned  subsidiaries  listed on Schedule 1(a)  attached  hereto and made a
part hereof (the "Subsidiaries");

     (b) any and all  additional  shares of any  class of stock or other  equity
securities of any of the  Subsidiaries  which IHC may from time to time acquire,
directly or indirectly, between the date hereof and the date of the satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or defeasance pursuant to Section 1402 thereof;

     (c) all  supporting  evidence  and  documents  relating to any of the above
described property,  including without limitation the books and records relating
thereto;

     (d) all accessions and additions to and  substitutions  and replacements of
any and all of the  foregoing,  whether  now  existing or  hereafter  arising or
attaching; and

     (e) all cash and non-cash  proceeds of the  foregoing,  including  (without
limitation) all dividends and other distributions.

     In order to  continuously  perfect the security  interest in the Collateral
granted hereby, IHC has,  simultaneously  with the execution hereof,  physically
delivered  to the Trustee  the stock  certificates  representing  said shares of
stock  in  the  Subsidiaries   (which  stock  certificates  are  accompanied  by
appropriate undated stock powers duly executed by IHC in blank).

     2. Sale of Certain  Collateral.  Notwithstanding any provision hereof or of
the  Indenture  to the  contrary,  unless  and until an "Event of  Default"  (as
hereinafter  defined) has occurred and is continuing,  IHC may,  without further
consent or approval of the Trustee, sell, assign,  transfer,  lease or otherwise
dispose  of  (each,  a  "Permitted  Disposition")  all  or  any  portion  of the
Collateral;  provided,  however, that IHC shall be permitted to use the proceeds
of any such Permitted  Disposition  (net of any expenses  incurred in connection
with any such Permitted  Disposition) only in a manner permitted by the Original
Officers' Certificate,  as amended by the Supplemental Indenture;  and provided,
further,  that until any such  permitted use of net proceeds,  such net proceeds
shall remain cash Collateral subject to the security interest created hereunder.
Promptly upon written  notice from IHC of any such  Permitted  Disposition,  the
Trustee shall execute and deliver to IHC such releases,  termination  statements
and estoppel certificates as IHC may reasonably direct in writing; provided that
all such  documents  shall be prepared,  reviewed and filed or recorded at IHC's
sole cost and expense.

     3.  Event of  Default;  Remedies.  Each and every  "Event of  Default"  (as
defined in the Indenture) shall constitute an "Event of Default" hereunder. Upon
the occurrence  and during the  continuation  of any such Event of Default,  the
Trustee  shall be entitled  (but shall not be  obligated) to exercise any one or
more of the following remedies:

     (a) The  Trustee  may from time to time take  whatever  action at law or in
equity  is  necessary  or  desirable  in order to  collect  the  moneys  payable
hereunder or secured  hereby or to enforce  performance  and  observance  of any
obligation, agreement or covenant hereunder.

     (b)  The  Trustee  may  foreclose  its  security  interest  in  any  of the
Collateral  in any  way  permitted  by  applicable  law;  and  the  Trustee  may
thereupon,  or at any time  thereafter,  without  notice or demand  (except such
notice as may be  specifically  required by applicable  law) and with or without
having the Collateral at the time or place of sale, sell, assign, give option or
options to purchase or otherwise  dispose of and deliver the  Collateral  or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
any public or private  sale or sales,  in the  over-the-counter  market,  at any
exchange,  broker's  board or office of the Trustee or elsewhere upon such terms
and conditions as it may determine and at such prices as it may  determine,  for
cash or on credit or for future delivery without  assumption of any credit risk.
In the exercise of such remedy,  the Trustee may sell all of the Collateral as a
unit  even  though  the sales  price  thereof  may be in  excess of the  amounts
remaining unpaid on the Obligations. At any such public sale the Trustee may bid
for and become the purchaser of all or any part of the Collateral, and such sale
or sales may be held without demand of performance, notice of intention to sell,
the time or place of sale or any other matter,  except for such notice as may be
specifically  required  by law;  and the  purchaser  at any  such  sale or other
disposition  shall  thereafter hold the Collateral sold absolutely free from any
claim or right of IHC of whatsoever  kind,  including any right of redemption of
IHC, all such rights being  hereby  expressly  waived and released by IHC to the
extent permitted by law.

     (c) The Trustee may apply for a receiver  for the  Collateral  and may sell
the  Collateral  pursuant  to a judicial  sale,  and IHC  hereby  assents to the
passage of a decree for the sale of any of the  Collateral  by any court  having
jurisdiction.  IHC  hereby  authorizes  and  empowers  the  Trustee  to sell its
interest  in  the  Collateral  in  accordance  with  any  applicable  law.  Such
Collateral  or any  interest  therein may be sold upon such terms and in as many
lots as the Person  conducting the sale may, in its sole  discretion,  elect. No
readvertisements  of any sale  shall be  required  if the sale is  adjourned  by
announcement,  at the time or place set therefor,  of the date, time or place to
which the same is to be adjourned.

     (d) The Trustee may exercise any and all rights of conversion,  exchange or
subscription  and any other rights,  privileges or options  pertaining to any of
the  Collateral,  as if the Trustee were the absolute owner  thereof,  including
(without  limitation)  the right to exchange any and all of the Collateral  upon
the   merger,   consolidation,   reorganization,   recapitalization   or   other
readjustment  of any  Subsidiary  or upon the  exercise  by or on  behalf of any
Subsidiary or the Trustee of any right, privilege or option pertaining to any of
the Collateral.

     (e) The Trustee  may take  possession  of the  Collateral  pursuant  hereto
without  legal process and without  incurring  liability to IHC therefor for the
purpose of exercising its rights hereunder.

     (f) The Trustee may  exercise any other right or remedy with respect to any
of the  Collateral  given  to  secured  parties  under  the  applicable  Uniform
Commercial  Code in  effect  in the  State of New York  from  time to time  and,
without  limitation  of the  generality  of the  foregoing,  as the  same may be
amended  by  Revised  Article  9 (the  "UCC").  "Revised  Article  9" means  the
provisions of New York S7484,  introduced  April 17, 2000,  containing  proposed
revisions to Article 9 of the UCC which would become  effective July 1, 2001, as
such provisions may be modified from time to time.

     (g) Any notification required by Section 9-504 (or any successor provision)
of the UCC shall be deemed  reasonably  and  properly  given if deposited in the
mail,  certified or registered mail, postage prepaid,  to IHC, at least ten (10)
days before any sale or disposition of any of the Collateral which is subject to
the UCC.

     (h) Any proceeds received from the exercise of any remedy hereunder,  after
deducting  therefrom  any  and all  costs  and  expenses  incurred  in  securing
possession  of any  Collateral,  in  shipping  and storing  the  Collateral,  in
preparing the Collateral for sale or otherwise  dealing with Collateral prior to
any sale or other  disposition  thereof and in connection with the sale or other
disposition thereof (including,  without limitation,  reasonable  attorneys' and
accountants'  fees and  expenses  and  brokers'  commissions),  shall be applied
toward  the  payment  of any and all  amounts  due under or with  respect to the
Obligations,  including  interest  thereon,  and all other  costs  and  expenses
incurred by the Trustee in connection with this Agreement or the Indenture which
are then due and payable, in such order and amounts as the Trustee may elect. If
such net proceeds should be insufficient to pay the same and a deficiency  shall
result,  IHC shall nevertheless  remain liable for such deficiency;  and if such
proceeds  should be more  than  sufficient  to pay the  same,  then in case of a
surplus,  such surplus  shall be accounted for and, if any amounts due under the
Obligations remain outstanding, retained by the Trustee, who shall hold the same
as security for the payment of the Obligations; otherwise, such surplus shall be
paid  over to IHC or to  whomsoever  a court  of  competent  jurisdiction  shall
determine to be entitled thereto.

     (i) IHC  recognizes  that the Trustee may be unable to effect a public sale
of any or all of the Collateral,  by reason of certain prohibitions contained in
the Securities Act of 1933, as amended (the  "Securities  Act"),  and applicable
state  securities  laws or  otherwise,  and may be compelled to resort to one or
more private  sales thereof to a restricted  group of  purchasers  which will be
obliged to agree,  among other things,  to acquire such securities for their own
account  for  investment  and not  with a view  to the  distribution  or  resale
thereof.  IHC  acknowledges  and agrees that any such private sale may result in
prices and other terms less  favorable  to the Trustee  than if such sale were a
public  sale and agrees  that no such  private  sale shall be deemed not to have
been  made  in a  commercially  reasonable  manner  solely  by  virtue  of  such
circumstances.  The Trustee  shall be under no obligation to delay a sale of any
of the  Collateral for the period of time necessary to permit the issuers of the
securities   constituting  any  portion  of  the  Collateral  to  register  such
Collateral  for public  sale under the  Securities  Act (and IHC and the issuers
shall have no obligation to do so), or under  applicable  state securities laws,
even if the issuers would agree to do so.

     (j)  Notwithstanding  any provision of this Agreement to the contrary,  the
parties agree in no event shall the Collateral be sold or otherwise transferred,
upon the occurrence and during the  continuation  of any Event of Default,  to a
party or parties that do not qualify as a "real estate  investment trust" within
the meaning of the Internal Revenue Code of 1986, as amended.

     4.  Representations,  Warranties  and  Covenants.  IHC  hereby  represents,
warrants and covenants to the Trustee as follows:

     (a) IHC is a  corporation  duly  organized,  validly  existing  and in good
standing under the laws of the  Commonwealth of Virginia.  IHC has the corporate
power, authority and legal right to execute, deliver and perform this Agreement.
This Agreement has been duly authorized and validly executed and delivered by an
authorized  officer  of  IHC  and  constitutes  the  legal,  valid  and  binding
obligations of IHC,  enforceable  against it in accordance with this Agreement's
terms.  (b) IHC is a wholly-owned  subsidiary of Dynex and the assumption of the
obligations and liabilities  hereunder will result in direct financial  benefits
to IHC.

     (d) IHC is and will remain the true and lawful owner of all the  Collateral
and, except for "Permitted  Liens" (defined below),  it has and will continue to
have good and marketable title thereto, free and clear of all liens, charges and
encumbrances whatsoever.

     (e)  Except  for  liens  or  security  interests  permitted  under  Section
10(vi)(a) through (g) of the Original Officers'  Certificate,  as amended by the
Supplemental  Indenture ("Permitted Liens"), IHC will not, without the Trustee's
prior written consent (upon written  instructions from the Holders of a majority
in aggregate  principal  amount  outstanding of the Securities),  sell,  assign,
factor, mortgage,  pledge, encumber,  transfer, lease or otherwise dispose of or
otherwise  grant or suffer to exist any Lien with respect to, the  Collateral or
any part thereof.

     (f) This Agreement creates a valid security interest in the Collateral and,
as of the date hereof,  the security  interest of the Trustee in the  Collateral
has  been  duly  perfected  under  the  UCC or  other  applicable  law in  every
appropriate  jurisdiction  and, except for Permitted Liens,  constitutes a first
priority lien upon the Collateral and every part thereof; and IHC covenants that
the Trustee's  security  interest shall,  except for Permitted  Liens,  remain a
first priority lien upon the Collateral so long as any of the Obligations  shall
remain outstanding.

     (g) IHC has and will  continue to have full legal power and right to pledge
and grant the security interest conveyed hereby in the Collateral and every part
thereof; the making of such pledge and the granting of such security interest do
not and will not  violate  the  provisions  of any  law,  regulation,  contract,
agreement,  restrictive covenant or legend, order of court, corporate charter or
bylaw, stockholders agreement or other instrument binding upon it or any part of
the  Collateral;  and no  consent  or  approval  of  any  governmental  body  or
regulatory  authority,  or any securities  exchange,  was or is necessary to the
validity or effectiveness thereof.

     (h) IHC is and shall at all times remain the sole registered and beneficial
owner of all shares of capital stock now or hereafter  issued by any Subsidiary;
it will not sell, transfer,  assign or encumber any such shares of capital stock
to or for the  benefit  of any  person or entity  other  than the  Trustee;  and
neither IHC nor any such  Subsidiary has made or shall make any  commitments for
the issuance or transfer of any such capital  stock under any options,  warrants
or other similar rights.

     (i) IHC's chief executive office and principal place of business is located
at 4551 Cox Road,  Suite 300, Glen Allen,  Virginia 23060,  and IHC has no other
offices or places of business in Virginia.

     5. Dividends/Distributions. Upon the occurrence and during the continuation
of any Event of Default, IHC shall deliver to the Trustee, and the Trustee shall
be entitled to receive,  all dividends or similar  distributions paid upon or in
respect of the Collateral and the Trustee shall, in the case of cash, apply such
dividends and distributions to the payment of the Obligations (in whatever order
and priority it may elect) and shall,  in the case of all other  property,  hold
such  property  pursuant  hereto  as part of the  Collateral  pledged  under and
subject to the terms of this Agreement.  So long as no Event of Default or shall
have occurred and be continuing,  IHC shall have the right to receive and retain
all  dividends  or  similar  distributions  paid  upon  or  in  respect  of  the
Collateral.

     6. Voting Rights.  Upon the occurrence and during the  continuation  of any
Event of Default,  the Trustee may (but shall not be obligated  to) exercise all
voting  rights  and all other  rights  conferred  on the owner of any  shares of
capital stock or other equity interests  included among the Collateral.  So long
as no Event of Default or shall have occurred and be continuing,  IHC shall have
the  right to vote its  shares  of  capital  stock  in the  Subsidiaries  on all
corporate matters arising in the ordinary course of business; provided, however,
that IHC will not  exercise or refrain  from  exercising  any such right if such
action would have a material  adverse  effect on the value of the  Collateral or
any part thereof.  Under any circumstances and as to any matters not governed by
the  foregoing  provisions  of this Section 6, IHC may only  exercise its voting
rights with  respect to the  Collateral  with the prior  written  consent of the
Trustee (upon written  instructions  from the Holders of a majority in aggregate
principal amount outstanding of the Securities).

     7. Further Assurances. (a) IHC will from time to time, at its sole expense,
promptly execute and deliver all further instruments and documents, and take all
further  action,  that may be  necessary or  desirable,  in order to perfect and
protect  any  security  interest  granted  or  purported  to be  granted  by IHC
hereunder  or to enable  the  Trustee to  exercise  and  enforce  its rights and
remedies  hereunder  with  respect  to  any  Collateral.  Without  limiting  the
generality of the  foregoing,  IHC will:  (i) execute and file such financing or
continuation  statements,  or amendments thereto,  and such other instruments or
notices,  as may be  necessary or desirable in order to perfect and preserve the
security interest granted or purported to be granted hereby, (ii) deliver to and
pledge  to  the  Trustee  for  its  benefit  and  the  benefit  of  the  Holders
certificates  representing  securities included in the Collateral accompanied by
undated stock powers executed in blank.

     (b) A photocopy or other  reproduction  of this  Agreement or any financing
statement  covering the  Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.

     (c) IHC will furnish to the Trustee and the Holders from time to time,  and
upon any additions to or deletions from the Collateral, statements and schedules
further  identifying  and  describing  the  Collateral and such other reports in
connection  with the  Collateral as any Holder may  reasonably  request,  all in
reasonable detail.

     8. Trustee  Appointed  Attorney-in-Fact;  Performance.  (a) IHC irrevocably
appoints the Trustee its attorney-in-fact,  with full authority in the place and
stead of IHC and in the  name of IHC or  otherwise,  from  time to time but only
upon the occurrence and during the continuation of an Event of Default,  to take
any action and to execute any instrument  which may be necessary or advisable to
accomplish the purposes of this Agreement, including without limitation:

     (i) to ask for, demand, collect, sue for, recover, compromise,  receive and
give  acquittance  and  receipts  for  moneys  due and to become due under or in
connection with the Collateral;

     (ii) to receive,  endorse,  and  collect  any drafts or other  instruments,
documents and chattel paper, in connection therewith; and

     (iii) to file any claims or take any action or  institute  any  proceedings
that may be necessary or desirable for the  collection of any of the  Collateral
or  otherwise  to enforce the rights of the Trustee  with  respect to any of the
Collateral.

     (b) If IHC fails to perform any agreement contained herein, the Trustee may
(but shall not be obligated to) cause  performance  of such  agreement,  and the
expenses of the Trustee  incurred in  connection  therewith  shall be payable by
IHC.

     9. Limitation on Duties Regarding  Collateral.  The powers conferred on the
Trustee  hereunder  are solely to protect  its  interest  in the  Collateral  as
Trustee  and shall not  impose  any duty upon it to  exercise  any such  powers.
Except for the custody of any  Collateral in its  possession  and the accounting
for moneys actually received by it hereunder,  the Trustee shall have no duty as
to any  Collateral or as to the taking of any action to preserve  rights against
prior  parties or any other rights  pertaining  to any  Collateral.  The Trustee
shall  be  deemed  to  have  exercised   reasonable  care  in  the  custody  and
preservation  of any Collateral in its possession if such Collateral is accorded
treatment  substantially  equal  to  that  which  the  Trustee  accords  its own
property.

     10. Term. This Agreement  shall  terminate on the date of the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or defeasance pursuant to Section 1402 thereof.

     11. Perfection.  IHC will execute and deliver to the Trustee such financing
statements,  amendments to financing  statements,  continuation  statements  and
other documents, certificates, instruments and agreements as may be necessary or
advisable to accomplish or facilitate the transactions  contemplated  hereby and
will pay all filing,  recordation  and  registration  fees and taxes incurred in
connection therewith.

         12.  Exercise of Rights.  Any delay on the part of any party  hereto in
exercising any power, option,  privilege or right hereunder shall not operate as
a waiver  thereof,  and no single or  partial  exercise  of any  power,  option,
privilege or right hereunder shall preclude other or future exercise thereof, or
the exercise of any other power,  option,  privilege or right. The waiver by the
Trustee of any Event of Default (upon written instructions from the Holders of a
majority in aggregate  principal amount outstanding of the Securities) shall not
constitute a waiver of any  subsequent  default,  but shall be restricted to the
default so waived.  If any part of this Agreement should be contrary to any law,
or be otherwise  defective,  the other provisions of this Agreement shall not be
affected  thereby,  but shall  continue  in full force and  effect.  All rights,
remedies and powers of the Trustee hereunder are irrevocable and cumulative, and
not  alternative  or  exclusive,  and shall be in addition to all other  rights,
remedies and powers given hereunder or in or by any other  instrument or any law
now existing or hereafter made or enacted.  IHC shall  reimburse the Trustee for
all expenses  reasonably  incurred by it in connection  with the exercise of any
remedies granted hereunder, which sums shall be secured by the security interest
granted hereunder.

     13. Binding  Nature.  This  Agreement,  and all of the terms and conditions
hereof,  shall be binding  upon and shall  inure to the  benefit of the  parties
hereto and their  successors and permitted  assigns,  but shall not inure to the
benefit of any other person.

     14.  Construction.  When used  herein,  the  singular may also refer to the
plural,  and vice versa;  and the use of any gender shall be  applicable  to all
genders. All representations,  warranties, covenants, undertakings, obligations,
waivers and other  agreements  of IHC herein shall  survive the  effective  date
hereof and shall continue in effect throughout the term of this Agreement.

     15.  Governing Law. This  Agreement  shall be governed by, and construed in
accordance with, the laws of the State of New York.

     16.  Subject to Indenture.  Any and all rights granted to the Trustee under
this  Agreement  are to be held and  exercised by the Trustee as trustee for the
benefit of the Holders,  pursuant to the  provisions  of the  Indenture.  To the
extent set forth in the Senior Note  Documents,  each of the Holders  shall be a
beneficiary of the terms of this Agreement. Any and all obligations hereunder of
the parties to this Agreement,  and the rights granted to the Trustee hereunder,
are created and granted subject to the terms of the Indenture.

     17. Release.  Subject to Section 2 hereof,  promptly upon the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or  defeasance  pursuant to Section  1402  thereof  (and the
delivery by Dynex to the Trustee of an Officers'  Certificate  and an Opinion of
Counsel  certifying  that such  provisions of the Indenture  with respect to the
Securities  have been complied  with),  the Trustee shall execute and deliver to
IHC such releases,  termination  statements and estoppel certificates as IHC may
reasonably  direct  in  writing;  provided  that  all  such  documents  shall be
prepared, reviewed and filed or recorded at IHC's sole cost and expense.

     18. Recitals. The recitals contained herein shall be taken as statements of
IHC and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as the validity or sufficiency of this Agreement or the
security afforded hereby.
[{"type": "8-K", "sequence": "1", "filename": "0001.txt", "description": "PRESS RELEASE", "secsgml_size_bytes": 198127}]
{"company-data": {"conformed-name": "DYNEX CAPITAL INC", "cik": "0000826675", "assigned-sic": "6798", "irs-number": "521549373", "state-of-incorporation": "VA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-09819", "film-number": "1596670"}, "business-address": {"street1": "4551 COX RD", "street2": "STE 300", "city": "GLEN ALLEN", "state": "VA", "zip": "23060", "phone": "8049675800"}, "mail-address": {"street1": "4551 COX RD", "street2": "STE 300", "city": "GLEN ALLEN", "state": "VA", "zip": "23060"}, "former-company": [{"former-conformed-name": "RESOURCE MORTGAGE CAPITAL INC/VA", "date-changed": "19930722"}, {"former-conformed-name": "RESOURCE MORTGAGE INVESTMENT CORP", "date-changed": "19930505"}, {"former-conformed-name": "RAC MORTGAGE INVESTMENT CORP /VA/", "date-changed": "19930505"}]}
UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  ------------

                                    FORM 8-K

                                 CURRENT REPORT

        Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

                          Date of Report: April 6, 2001

                               DYNEX CAPITAL, INC.
                   (Exact Name of Registrant as Specified in Charter)

Virginia                               1-9819                         2-1549373
(State or Other                (Commission File                    (IRS Employer
 Jurisdiction of                                             Identification No.)
 Incorporation)

                  4551 Cox Road, Suite 300, Glen Allen, Virginia           23060
                      (Address of Principal Executive Offices)        (Zip Code)

                                 (804) 217-5800
                (Registrant's telephone number, including area code)
Item 5.       OTHER EVENTS.

         On March 30, 2001, the Company entered into a Purchase Agreement by and
among the Company and the  holders of a majority  of the  outstanding  principal
amount of its 7.875% Senior Notes due July 15, 2002 ("Purchase Agreement").  The
Purchase Agreement, required, among other things, the purchase by the Company of
a net $29.5  million  of its  senior  notes from such  holders,  and  additional
purchases out of available cash (as defined in the Purchase Agreement) of all or
a portion of such  holders'  remaining  notes,  as more fully  described  in the
Purchase Agreement.

         Additionally,  the holders of a majority of the  outstanding  principal
amount of the senior notes  approved an  amendment  to the related  indenture of
senior  notes  ("Supplement").  The  Supplement  permits  the  Company  to  make
distributions  with respect to its capital  stock 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 the Company to maintain
its REIT status.  Distributions  on capital  stock as defined in the  Supplement
include dividends,  redemptions,  repurchases,  retirement,  defeasance or other
acquisition.  Under the terms of the  Supplement  and as evidenced by the Pledge
Agreements,  the Company,  including a  wholly-owned  subsidiary of the Company,
have both  pledged  substantially  all of its assets  (subject  to any  existing
security interests) to the trustee for the senior notes.

              The  foregoing  is  qualified  in its entirety by reference to the
complete text of the Purchase  Agreement,  Supplemental Trust Indenture,  Pledge
and  Security  Agreement,  and  Indemnity  Pledge  Agreement  which are filed as
Exhibits hereto.

Item 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

(c)      Exhibits

99.1     Dynex Capital, Inc. Press Release, dated April 2, 2001.

     99.2  Purchase  Agreement,  dated as of March 30, 2001,  by and among Dynex
Capital,  Inc. and the Holders of a majority of the outstanding principal amount
of 7.875% Senior Notes due July 15, 2002.

     99.3  Supplemental  Trust  Indenture,  dated as of March 30,  2001,  by and
between Dynex Capital, Inc. and HSBC Bank USA, as Trustee.

     99.4 Pledge and  Security  Agreement,  dated as of March 30,  2001,  by and
between Dynex Capital, Inc. and HSBC Bank USA, as Trustee.

     99.5 Indemnity Pledge Agreement, dated as of March 30, 2001, by and between
Issuer Holding Corp. and HSBC Bank USA, as Trustee.
SIGNATURES

         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.

Date:    April 6, 2001                DYNEX CAPITAL, INC.

                                      By: /s/Thomas H. Potts
                                         ------------------------------------
                                         Thomas H. Potts
                                         President
EXHIBIT INDEX

Number     Description                                          Method of Filing

99.1       Dynex Capital, Inc. Press Release,                     Filed herewith
           dated April 2, 2001.

99.2       Purchase Agreement, dated as of March 30, 2001,        Filed herewith
           by and among Dynex Capital, Inc. and the Holders
           of a majority of the outstanding principal amount of
           7.875% Senior Notes due July 15, 2002.

99.3       Supplemental Trust Indenture, dated as of March 30,    Filed herewith
           2001, by and between Dynex Capital, Inc. and HSBC
           Bank USA, as Trustee.

99.4       Pledge and Security Agreement, dated as of March 30,   Filed herewith
           2001, by and between Dynex Capital, Inc. and HSBC
           Bank USA, as Trustee.

99.5       Indemnity Pledge Agreement, dated as of March 30,      Filed herewith
           2001, by and between Issuer Holding Corp. and
           HSBC Bank USA, as Trustee.
[ Company Logo ]

                                  PRESS RELEASE

FOR IMMEDIATE RELEASE                                      CONTACT:   Kathy Fern
April 2, 2001                                                       804-217-5800

                  DYNEX CAPITAL, INC. REPORTS 2000 RESULTS AND
                           REPURCHASE OF SENIOR NOTES

     Dynex Capital,  Inc. (NYSE: DX) reported today a net loss for 2000 of $91.9
million or $9.15 per common  share,  versus a net loss of $75.1 million or $7.67
per common share for 1999.

     In  commenting  on the 2000  results,  Thomas H. Potts,  President,  stated
"While the loss for 2000 was significant, it contained a number of non-recurring
items.  As stated in prior releases,  our primary focus  throughout 2000 was the
sale or resolution of assets to pay down associated  debt,  letters of credit or
similar  obligations.  During 2000,  Dynex  reduced  on-balance  sheet  recourse
borrowings by $403 million and was released from  approximately  $180 million of
letters of credit  obligations.  The Company  incurred  non-recurring  losses of
$67.5  million  related  to the sale or  resolution  of assets  to  reduce  such
obligations.   Other  significant   non-recurring  items  during  2000  included
additional  charges of $11.0 million  relating to the divesting of the Company's
remaining  investment  in auto  loans."  Mr.  Potts  continued,  "While the 2000
results were impacted by several  non-recurring  charges, net interest margin on
the Company's  investment  portfolio was  negatively  impacted by the almost 20%
decline in our base of interest earning assets, increases in short-term interest
rates, as well as a higher provision for credit losses. The higher credit losses
were primarily due to the  deteriorating  market  conditions in the manufactured
housing market during the fourth quarter, which negatively impacted the recovery
rate on the sale of  repossessed  manufactured  housing  units  relating  to the
Company's portfolio of manufactured housing loans."

     During  the first  quarter  of 2001,  the  Company  paid off all  remaining
amounts due under its  syndicated  bank credit  facility and  repurchased  a net
$29.5  million of its senior notes due July 15, 2002,  leaving  $67.8 million of
such notes  outstanding.  As of the end of the first  quarter of 2001,  the only
other  remaining  recourse  debt  outstanding  was $29.2 million under a reverse
repurchase  facility.  Since the third quarter of 1998,  the Company has reduced
its recourse debt outstanding in excess of $1.5 billion.  Mr. Potts stated,  "As
the Company is now in compliance with its outstanding credit  facilities,  this,
among other things, has enabled our auditors to issue an unqualified  opinion on
our year 2000  financial  statements.  In addition,  as of March 30,  2001,  the
Company had unrestricted cash of approximately $21 million."

     The Company  reported  that the  holders of a majority  of the  outstanding
principal  amount of such notes  approved an amendment to the related  indenture
that specifically provided for the Company to make distributions with respect to
its capital stock 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 the Company to  maintain  its REIT  status.
Distributions  on  capital  stock as defined in the  amended  indenture  include
dividends,   redemptions,   repurchases,   retirement,   defeasance   or   other
acquisition.  In exchange,  the Company pledged  substantially all of its assets
(subject to any existing  security  interests)  to the trustee for the July 2002
senior notes. The Company  indicated that it will file the amended indenture and
related  security  agreements  with the Securities and Exchange  Commission in a
Current Report on Form 8-K within five business days.

     Mr.  Potts  commented,  "With  the  bank  credit  facility  repaid  and the
amendment to the senior notes  completed,  the Board can better evaluate various
courses of action to improve  shareholder  value and to provide liquidity to the
Company's  stock.  The Board continues to consider three  alternatives:  (i) the
outright sale of the Company to a third party; (ii) the sale to a third party of
either "permitted  subordinated  indebtedness" or "qualified  capital stock", or
(iii) one or more  distributions  with respect to its capital stock as permitted
by the amendment to the indenture to the July 2002 senior notes. The Company may
use proceeds raised from the sale of "permitted  subordinated  indebtedness"  or
"qualified capital stock" to increase distributions to shareholders. The Company
anticipates  that it will  inform  shareholders  of its  contemplated  course of
action by May 31, 2001."

     Mr. Potts further commented, "The Company expects its first quarter results
to be favorably  impacted by the recent  declines in short-term  interest rates,
the  discount  realized by the Company on the purchase of the $29 million of the
July 2002 Notes,  and the resolution of a matter related to the Company's  prior
relationship with AutoBond Acceptance  Corporation.  While the overall impact on
earnings of these items is expected to be approximately $10 million, the Company
at this time does not know whether this may be offset by  additional  provisions
for  credit  losses or other  items.  During  the  first  quarter,  the  Company
completed the sale of  substantially  all of the remaining assets it was holding
for sale, and did not incur any material losses from such sales."

     The Company has scheduled a conference  call for Wednesday,  April 4, 2001,
at 9:00 AM EDT.  Investors may  participate in a listen only mode by calling the
following number 888-489-9491.

     Dynex  Capital,  Inc. is a  financial  services  company  that elects to be
treated  as a real  estate  investment  trust  (REIT)  for  federal  income  tax
purposes.

Note: This document contains "forward-looking  statements"(within the meaning of
the Private Securities Litigation Act of 1995) that inherently involve risks and
uncertainties.  The Company's actual results could differ  materially from those
anticipated  in  these  forward-looking  statements  as a result  of  unforeseen
external  factors.  As discussed in the  Company's  filings with the SEC,  these
factors  may  include,  but are not  limited  to,  changes in  general  economic
conditions,  disruptions in the capital markets,  the availability of funds from
the Company's  lenders to finance future loans,  fluctuations in interest rates,
increases in costs and other general competitive factors.
PURCHASE AGREEMENT

     This PURCHASE AGREEMENT  (together with the schedules and exhibits attached
hereto,  collectively,  this  "Agreement")  is dated as of March 30, 2001 by and
among DYNEX  CAPITAL,  INC., a Virginia  corporation  (the  "Company"),  and the
holders listed on Schedule I hereto (the "Holders").

                              Preliminary Statement

     A. The  Company has issued and sold  $100,000,000  in  aggregate  principal
amount  of  its  7.875%   Senior  Debt   Securities   due  July  15,  2002  (the
"Securities"),  pursuant to the terms and  conditions of that certain  Indenture
dated July 14, 1997,  as amended  from time to time,  by and between the Company
and HSBC Bank USA, a banking  corporation and trust company  organized under the
laws of the  State of New  York  (the  "Trustee")  and  that  certain  Officers'
Certificate  (the  "Officers'  Certificate")  of the Company dated July 14, 1997
(collectively, the "Indenture").

     B. The Holders own  Securities in the principal  amount set forth  opposite
the name of each Holder on Schedule I hereto (the  "Individual  Holder Amount"),
with an  aggregate  principal  amount  of  $49,568,000  (the  "Aggregate  Holder
Amount").

     C. The Holders  desire to sell to the Company,  and the Company  desires to
purchase,  on the Initial  Closing Date (as defined  herein),  Securities of the
Holders (the "Initial Purchase  Securities") with an aggregate  principal amount
of $31,129,000 (the "Initial  Purchase Amount") in accordance with the terms and
conditions set forth herein.

     D.  Subsequent to the Initial  Closing Date,  the Holders desire to sell to
the Company,  and the Company desires to purchase,  Securities of the Holders up
to the aggregate  remaining  principal amount of such Securities (the "Remaining
Amount") in  accordance  with the terms and  conditions  set forth  herein.  The
Remaining Amount held by each Holder is set forth on Schedule 2.3 hereof.

     In  consideration  of the mutual covenants and agreements set forth herein,
and other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

     1.  Definitions.
         -----------

     The following terms, when used herein, shall have the following meanings:

     "Affiliate"  of any  specified  Person means any other  Person  directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"control"  when used with  respect to any  specified  Person  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling"  and "controlled"  have meaning  correlative to the
foregoing.

     "Aggregate  Holder  Amount"  shall have the meaning given in Paragraph B of
the Preliminary Statement hereto.

     "Agreement" shall have the meaning given in the preamble hereto.

     "Auditor" shall have the meaning given in Section 3.2.1 hereof.

     "Available  Amount" means on any Mandatory  Purchase  Notice Date, the cash
and cash  equivalents  of the Company  and its  Subsidiaries  on a  consolidated
basis,  less (i) amounts necessary to service accrued and unpaid interest on the
Securities,  (ii) amounts in existence as of such Mandatory Purchase Notice Date
and  designated by the Company for or relating to Permitted  Payments,  (iii) an
amount not to exceed $3,000,000, and (iv) Restricted Cash/Cash Equivalents.

     "Bankruptcy Code" shall have the meaning given in Section 8.4 hereof.

     "Change of Control" means any event or series of events described under the
definition of "Change of Control" in Section 10 of the Officers' Certificate.

     "Company" shall have the meaning given in the preamble hereto.

     "Custodian"  shall  mean a  Person  designated  by a  Holder  to hold  such
Holder's  Securities  in trust or in escrow;  provided  that no Person  shall be
deemed to be a Custodian for purposes of this Agreement  unless the  designating
Holder  provides  the  Company  with  prior  written  notice  of  such  Person's
appointment as Custodian and the address and other contact  information for such
Person.

     "Damages"  shall  mean any and all  direct  or  indirect  demands,  claims,
payments,  obligations,  recoveries,  deficiencies,  fines, penalties, interest,
assessments,  actions,  causes of action, suits, losses,  damages,  liabilities,
costs, expenses (including,  without limitation,  (i) interest,  penalties,  and
reasonable  attorneys' fees and expenses,  (ii)  reasonable  attorneys' fees and
expenses  necessary to enforce rights to  indemnification  hereunder,  and (iii)
reasonable  consultant's fees and other costs of defense or investigation),  and
interest on any amount  payable to a third  party as a result of the  foregoing,
whether accrued, absolute, contingent, known or unknown.

     "Default Notice" shall have the meaning given in Section 3.3 hereof.

     "Dispute Notice" shall have the meaning given in Section 3.2.1 hereof.

     "Disputed  Available  Amount" shall have the meaning given in Section 3.2.1
hereof.

     "Dissenting Holders" shall have the meaning given in Section 3.2.1 hereof.

     "Dissenting Holder  Representative" shall have the meaning given in Section
3.2.1 hereof.

     "Eligible  Investments"  means (i) marketable direct obligations issued by,
or unconditionally  guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,  in
each case maturing within two years from the date of acquisition  thereof;  (ii)
marketable  direct  obligations  issued by any state of the United States or any
political  subdivision of any such state or any public  instrumentality  thereof
maturing within two years form the date of acquisition  thereof and, at the time
of  acquisition,  having one of the two highest  ratings  obtainable from either
Standard & Poor's Ratings  Services,  a division of The  McGraw-Hill  Companies,
Inc. ("S&P"), or Moody's Investors Service, Inc.  ("Moody's");  (iii) commercial
paper maturing no more than two years from the date of creation  thereof and, at
the time of  acquisition,  having a rating  of at least A-1 from S&P or at least
P-1 from Moody's;  (iv) certificates of deposit or bankers' acceptances maturing
within two years from the date of  acquisition  thereof issued by any commercial
bank  organized  under the laws of the United States or any state thereof or the
District of Columbia or any U.S.  branch of a foreign bank having at the date of
acquisition  thereof combined capital and surplus of not less than $500,000,000;
(v) repurchase  obligations  with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications  specified in clause (iv) above; and (vi) investments
in money market funds which invest  substantially all their assets in securities
of the types described in clauses (i) through (v) above.

     "Excess Revised  Available  Amount" shall have the meaning given in Section
3.2.2 hereof.

     "Financial   Statements"  means  the  consolidated   financial  statements,
including any related notes thereto, contained in the Company's Quarterly Report
on Form 10-Q for the quarter ended  September 30, 2000 and Annual Report on Form
10-K for the year  ended  December  31,  1999,  in each  case as filed  with the
Securities and Exchange  Commission  pursuant to the Securities  Exchange Act of
1934, as amended, and the regulations promulgated thereunder.

     "Holder/Holders" shall have the meaning given in the preamble hereto.

     "Indemnitee"  shall have the  meaning  given in Section 9.1 and Section 9.2
hereof.

     "Indemnitor" shall have the meaning given in Section 9.3 hereof.

     "Indenture"  shall have the meaning given in Paragraph A of the Preliminary
Statement hereto.

     "Indenture  Supplement" means that certain  Supplemental Trust Indenture of
even date  herewith by and between the Company and the Trustee,  as the same may
be amended,  amended and restated,  supplemented or otherwise modified from time
to time in accordance with its terms.

     "Individual  Holder  Amount" shall have the meaning given in Paragraph B of
the Preliminary Statement hereto.

     "Initial Closing" shall have the meaning given in Section 4.1 hereof.

     "Initial Closing Date" shall have the meaning given in Section 4.1 hereof.

     "Initial  Purchase  Amount"  shall have the meaning given in Paragraph C of
the Preliminary Statement hereto.

     "Initial Purchase Amount Price" shall have the meaning given in Section 2.2
hereof.

     "Initial  Purchase  Securities" shall have the meaning given in Paragraph C
of the Preliminary Statement hereto.

     "Lien"  means  (i) any lien,  mortgage,  deed of  trust,  pledge,  security
interest, charge or encumbrance of any kind including,  without limitation,  any
conditional  sale or other title  retention  agreement,  any lease in the nature
thereof,  any option or other  agreement  to sell,  any  setoff,  recoupment  or
repurchase  arrangement  and any  filing  of or  agreement  to file a  financing
statement as debtor under the Uniform Commercial Code or any similar statute and
(ii) any agreement to enter into any of the foregoing.

     "Mandatory Purchase" shall have the meaning given in Section 3.1 hereof.

     "Mandatory  Purchase  Date"  shall have the  meaning  given in Section  3.1
hereof.

     "Mandatory  Purchase  Notice"  shall have the meaning  given in Section 3.1
hereof.

     "Mandatory  Purchase  Notice Date" shall have the meaning  given in Section
3.1 hereof.

     "New Remaining Amount" shall have the meaning given in Section 3.4 hereof.

     "New Remaining Amount  Securities"  shall have the meaning given in Section
3.4 hereof.

     "Officers'  Certificate" shall have the meaning given in Paragraph A of the
Preliminary Statement hereto.

     "Partial  Mandatory  Purchase"  shall have the meaning given in Section 3.4
hereof.

     "Permitted  Payments"  means any  payments or  distributions  permitted  in
accordance with subparagraph (iii)(3) of Section 10 of the Officers' Certificate
as amended by Section 2.6 of the Indenture Supplement.

     "Permitted Transferee" shall have the meaning given in Section 8.3 hereof.

     "Person" means any individual, corporation,  partnership, limited liability
company, joint venture, association,  joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

     "Pledge  Agreement"  means the Pledge  Agreement of even date herewith,  by
Issuer Holding Corp., a wholly-owned  subsidiary of the Company, in favor of the
Trustee,  as the same may be amended,  amended  and  restated,  supplemented  or
otherwise modified from time to time in accordance with its terms.

     "Purchase  Calculation" shall mean the amount of Securities to be purchased
from each Holder on each Mandatory  Purchase Date and calculated for each Holder
by dividing A by B, where A is the product of the Available Amount multiplied by
the Individual Holder Amount, and B is the product of the Purchase Price for the
applicable  Mandatory  Purchase Date multiplied by the Aggregate  Holder Amount.
Such  amount of  Securities  is then  rounded up for each  Holder to the nearest
$1,000 increment.

     "Purchase Price" shall mean, with respect to each Mandatory  Purchase,  the
price (expressed as a percentage of the principal amount of the Securities being
purchased)  as set forth in Section  3.1, or in the case of the Initial  Closing
Date, ninety percent (90%).

     "Registered  Securities"  means any senior debt  securities  evidencing the
Company's  secured  indebtedness  that are authenticated and delivered under the
Indenture and registered in the Security Register.

     "Remaining  Amount"  shall have the  meaning  given in  Paragraph  D of the
Preliminary Statement hereto.

     "Remaining  Amount  Purchase  Price"  shall have the  meaning  given in the
Section 3.1 hereof.

     "Remaining  Amount  Securities" shall have the meaning given in Section 2.3
hereof.

     "Restricted  Cash/Cash  Equivalents" means cash and cash equivalents of the
Company  and  its  Subsidiaries  required  to be  held  (a)  by  trustees  under
indentures or trust agreements related to securitizations issued by a Subsidiary
or an Affiliate of the Company,  or (b) under escrow  agreements as set forth on
Schedule 1.1 hereto;  provided,  that any such cash or cash equivalents shall no
longer be deemed Restricted Cash/Cash Equivalents at such time as it is released
from the applicable indenture, trust agreement or escrow agreement.

     "Revised  Available  Amount"  shall have the meaning  given  Section  3.2.1
hereof.

     "Revised  Available  Amount Notice" shall have the meaning given in Section
3.2.2 hereof.

     "Securities" shall have the meaning given in Paragraph A of the Preliminary
Statement hereto.

     "Security  Agreement" means the Pledge and Security  Agreement of even date
herewith,  by the Company in favor of the  Trustee,  as the same may be amended,
amended and restated,  supplemented  or otherwise  modified from time to time in
accordance with its terms.

     "Security Interests" shall have the meaning given in Section 8.4 hereof.

     "Security  Register"  means the register for the Securities  required under
Section 305 of the Indenture.

     "Subsequent Closing" shall have the meaning given in Section 4.2 hereof.

     "Subsequent  Closing  Date"  shall have the  meaning  given in Section  4.2
hereof.

     "Subsidiary" means a corporation,  partnership or limited liability company
a majority  of the  outstanding  voting  stock or voting  interests  of which is
owned,  directly  or  indirectly,  by  the  Company  or by  one  or  more  other
Subsidiaries  of the Company.  For purposes of this  definition,  "voting stock"
means, with respect to a corporation, stock having voting power for the election
of  directors,  whether at all times or only so long as no senior class of stock
has such  voting  power by  reason  of any  contingency.  For  purposes  of this
definition,  "voting  interests" means, with respect to a partnership or limited
liability  company,  partnership or membership  interests having power to direct
the management of the partnership or limited liability company.

     "Transaction Documents" shall have the meaning given in Section 5.2 hereof.

     "Transfer" shall have the meaning given in Section 8.3 hereof.

     "Trustee"  shall have the meaning  given in Paragraph A of the  Preliminary
Statement hereto.

2. Purchase and Sale of Initial Purchase Amount.
   --------------------------------------------

     2.1 Purchase and Sale.  Subject to the terms and conditions  hereof, at the
Initial  Closing,  the Company shall  purchase,  and the Holders shall sell, the
Initial Purchase Securities.

     2.2 Purchase  Price.  Subject to the terms and  conditions  hereof,  at the
Initial  Closing,  the Company shall pay to the Holders the aggregate  amount of
Twenty Eight Million Sixteen  Thousand One Hundred Dollars  ($28,016,100),  plus
accrued and unpaid interest on the Initial Purchase Securities as of the Initial
Closing  Date (the  "Initial  Purchase  Amount  Price") to acquire  the  Initial
Purchase Securities. The portion of the Initial Purchase Amount Price to be paid
to each Holder is set forth  opposite  the name of each  Holder on Schedule  2.2
hereto.

     2.3  Delivery of Initial  Purchase  Securities  and  Issuance of  Remaining
Amount  Securities.  Subject to the terms and conditions  hereof, at the Initial
Closing,  the  Holders  shall cause to be  delivered  to the Company the Initial
Purchase  Securities  for  transfer and shall upon  consummation  of the Initial
Closing hold Registered  Securities in the aggregate principal amounts set forth
opposite the name of each Holder on Schedule 2.3 hereto (the  "Remaining  Amount
Securities"),  which Remaining  Amount  Securities  contain  identical terms and
provisions,  except for principal  amount and except for the legend described in
Section 8.3 hereof,  as the Initial  Purchase  Securities.  Notwithstanding  the
foregoing,  if the principal amount of the Remaining  Amount  Securities held by
any Holder as set forth on Schedule 2.3 hereto is equal to or less than $10,000,
then upon the request of the Company  made prior to the Initial  Closing,  which
request may be given at the Company's sole discretion, such Holder shall deliver
such  Remaining  Amount  Securities  to the Company at the  Initial  Closing for
transfer  and the Company  shall pay to such  Holder the amount  equal to ninety
percent (90%) of the principal amount of such Remaining Amount Securities,  plus
any accrued and unpaid interest on such Remaining Amount Securities, by delivery
of a wire transfer of immediately  available funds to the account  designated by
such  Holder on  Schedule  I  hereto.  Upon  delivery  of the  Initial  Purchase
Securities and the Remaining Amount  Securities  pursuant to this Section 2.3 to
the Company,  each Holder shall be deemed to have assigned and  transferred  all
such Initial Purchase  Securities and Remaining Amount Securities to the Company
and such Initial Purchase  Securities and Remaining  Amount  Securities shall be
cancelled by the Trustee.

3.  Purchase of Remaining Amount Securities.
    ---------------------------------------

     3.1 Purchase Right; Mandatory Purchases.  For so long as any portion of the
Remaining  Amount is outstanding,  the Company shall have the right and shall be
required to purchase (a "Mandatory  Purchase") on April 15, 2001;  June 1, 2001;
July 15, 2001;  September 1, 2001;  October 15, 2001;  December 1, 2001; January
15, 2002;  March 1, 2002;  and April 15, 2002,  or the next business day if such
date is not a business day (each a "Mandatory Purchase Date") that amount of the
Remaining Amount Securities from each Holder determined pursuant to the Purchase
Calculation,  using the  applicable  Purchase  Price set  forth  below,  and the
Available  Amount as  determined  in good faith by the President or Treasurer of
the Company not less than two (2) business days prior to such Mandatory Purchase
Date.  The  aggregate  purchase  price  paid to the  Holders  on each  Mandatory
Purchase Date (the "Remaining Amount Purchase Price") shall equal such Available
Amount,  plus accrued and unpaid interest on such Remaining Amount Securities as
of such  Mandatory  Purchase  Date,  and each Holder shall  receive its pro-rata
share  (taking  account of the  rounding  up used in  determining  the  Purchase
Calculation) of such Remaining  Amount Purchase Price,  pursuant to the Purchase
Calculation.  The  Company  shall not  utilize  any of the  Available  Amount to
purchase,  redeem  or  otherwise  acquire  or  retire  Securities  until  it has
purchased all of the Remaining Amount Securities. Further, until the Company has
purchased  all of the  Securities,  the Company  shall utilize any cash and cash
equivalents (other than Restricted Cash/Cash Equivalents) solely to purchase the
Remaining  Amount  Securities  or to invest in Eligible  Investments,  provided,
however,  that the foregoing  shall not prohibit the Company from using cash and
cash  equivalents for the purposes  otherwise  permitted under the Indenture and
the Indenture Supplement.

          Mandatory
          Purchase Date                                    Purchase Price

          April 15, 2001                                       90.00%
          June 1, 2001                                         92.00%
          July 15, 2001                                        92.00%
          September 1, 2001                                    94.00%
          October 15, 2001                                     94.00%
          December 1, 2001                                     96.00%
          January 15, 2002                                     96.00%
          March 1, 2002                                        98.00%
          April 15, 2002                                      100.00%

     For so long as any  portion of the  Remaining  Amount is  outstanding,  the
Company shall deliver to each Holder by facsimile transmission no later than two
business days prior to each  Mandatory  Purchase Date (the  "Mandatory  Purchase
Notice Date") a certificate  signed by the President or Treasurer of the Company
(a "Mandatory  Purchase  Notice")  setting forth the Available Amount as of such
date, a reasonably  detailed  calculation  of the  components  of the  Available
Amount as of such date, the Purchase  Calculation  relating to such Holder,  and
such  Holder's  pro-rata  share  (taking  account  of the  rounding  up  used in
determining the Purchase  Calculation)  of the Remaining  Amount Purchase Price.
Notwithstanding  the above,  if the Available  Amount is less than the lesser of
the  outstanding  Remaining  Amount or One Million  Dollars  ($1,000,000) on the
Mandatory  Purchase  Notice Date,  then the Company shall be permitted to invest
such  Available  Amount in  Eligible  Investments  in lieu of making a Mandatory
Purchase on such Mandatory  Purchase Date. Upon delivery of the Remaining Amount
Securities  pursuant to this  Section 3 to the  Company,  each  Holder  shall be
deemed to have assigned and transferred such Remaining Amount  Securities to the
Company and such Remaining Amount Securities shall be cancelled by the Trustee.

     3.2    Disputes Regarding Available Amount.
            -----------------------------------

     3.2.1 Disputed  Available Amount. The Company shall promptly deliver to the
Holders such additional  information  regarding the calculation of the Available
Amount as of a Mandatory  Purchase Notice Date that any Holder shall  reasonably
request.  If the  Holders of at least a  majority  of the then  outstanding  New
Remaining  Amount (the  "Dissenting  Holders")  deliver to the Company a written
notice (a "Dispute  Notice")  disputing  the  Available  Amount set forth in the
Mandatory  Purchase  Notice  delivered on a Mandatory  Purchase Notice Date (the
"Disputed  Available  Amount"),  then the Company and each of the Holders  shall
effect the  Mandatory  Purchase to be  consummated  pursuant  to such  Mandatory
Purchase  Notice  in  accordance  with the  terms of this  Agreement  using  the
Disputed Available Amount and the Dissenting  Holders' claim with respect to the
Disputed Available Amount shall be resolved in accordance with the terms of this
Section 3.2; provided,  however, that the Dissenting Holders deliver the Dispute
Notice to the  Company  within  ninety  (90) days after the  Mandatory  Purchase
Notice Date relating to such Disputed  Available  Amount. In the event a Dispute
Notice is timely delivered to the Company, the Company and one of the Dissenting
Holders  that  is  appointed  by a  majority  of  the  Dissenting  Holders  (the
"Dissenting Holder  Representative")  shall negotiate in good faith to determine
the  Available  Amount in lieu of such Disputed  Available  Amount (the "Revised
Available Amount") that is mutually acceptable to the Company and the Dissenting
Holder  Representative.  If the Company and the Dissenting Holder Representative
reach  agreement  on the  Revised  Available  Amount,  then the  Company and the
Dissenting Holder Representative shall deliver a Revised Available Amount Notice
(as defined in Section 3.2.2 below) in accordance with Section 3.2.2 hereof.  If
the  Company  and the  Dissenting  Holder  Representative  are not able to reach
agreement on the Revised  Available  Amount  within ten (10) business days after
the date the Dispute  Notice is delivered  to the Company,  then within ten (10)
business days after the date the Dispute Notice is delivered to the Company, the
Company  shall  retain  Deloitte  & Touche  LLP (or if the  Company is unable to
retain Deloitte & Touche LLP, such other  nationally-recognized  accounting firm
or other firm providing  similar  services that is  satisfactory  to each of the
Company and the  Dissenting  Holder  Representative)  (the  "Auditor"),  and the
Auditor shall deliver to the Company and the Dissenting Holder Representative as
promptly as  practicable  a written  determination  as to the Revised  Available
Amount as of the applicable  Mandatory Purchase Notice Date. In either case, the
agreement  of the  Company  and  the  Dissenting  Holder  Representative  or the
determination  by the  Auditor  as to the  Revised  Available  Amount  shall  be
conclusive and binding on the Company and each of the Holders; provided, that if
the  Auditor  determines  that the  Revised  Available  Amount  is less than the
Disputed Available Amount, then the Disputed Available Amount shall be deemed to
have been the proper  Available  Amount  for the  Mandatory  Purchase  at issue.
Notwithstanding  the foregoing,  if the Company determines at any time after the
delivery of a Mandatory  Purchase Notice that the Available  Amount set forth in
such Mandatory  Purchase Notice was less than the actual  Available Amount as of
the Mandatory Purchase Notice Date for such Mandatory Purchase Notice,  then the
Company shall,  regardless of whether it has received a Dispute Notice,  add the
difference  between the  Available  Amount that was set forth in such  Mandatory
Purchase Notice and the actual  Available  Amount as of such Mandatory  Purchase
Notice Date to the Available  Amount set forth in the first  Mandatory  Purchase
Notice delivered by the Company  subsequent to the date it becomes aware of such
error and shall disclose such error in the same Mandatory Purchase Notice.

     3.2.2 Notice of Revised  Available  Amount.  Within two (2)  business  days
after either (i) the date the Company and the Dissenting  Holder  Representative
mutually  agree on the Revised  Available  Amount,  or (ii) the date the Auditor
delivers its written  determination  setting forth the Revised Available Amount,
then the  Company  and the  Dissenting  Holder  Representative  shall  deliver a
written certificate (the "Revised Available Amount Notice") to each of the other
Holders setting forth the Revised Available Amount, the Excess Revised Available
Amount, if any, the Purchase  Calculation  relating to such Holder based on such
Revised  Available  Amount,  and such Holder's pro-rata share (taking account of
the rounding up used in determining  the Purchase  Calculation) of the Remaining
Amount Purchase Price based on such Revised  Available Amount. To the extent the
Revised Available Amount exceeds the Disputed Available Amount, then the Company
shall add an amount equal to the difference between the Revised Available Amount
and the Disputed Available Amount (the "Excess Revised Available Amount") to the
Available  Amount set forth in the first Mandatory  Purchase Notice delivered by
the  Company  subsequent  to the date the  Revised  Available  Amount  Notice is
delivered. To illustrate the foregoing, if the Company and the Dissenting Holder
Representative deliver a Revised Available Amount Notice on August 15, 2001 that
sets forth an Excess  Revised  Available  Amount of $1,000,000 and the Available
Amount  determined  as of the Mandatory  Purchase  Notice Date for the Mandatory
Purchase on September 1, 2001 is $2,000,000, then the Available Amount to be set
forth in the Mandatory  Purchase Notice for the Mandatory  Purchase on September
1, 2001 shall be $3,000,000.

     3.2.3 Fees and  Expenses of Auditor.  If the  Auditor  determines  that the
Revised Available Amount exceeds the Disputed Available Amount, then the Company
shall pay all of the fees and  expenses  incurred by the  Auditor in  connection
with rendering such  determination.  If the Auditor  determines that the Revised
Available Amount is equal to or less than the Disputed  Available  Amount,  then
the  Dissenting  Holders shall pay all of the fees and expenses  incurred by the
Auditor in connection with rendering such determination.

     3.3  Intentional  Breach.  If the  Company  (a) does not  effect all or any
portion of a Mandatory  Purchase  that (i) is required  under  Section 3.1 based
upon the  Available  Amount set forth in a Mandatory  Purchase  Notice,  or (ii)
would have been required under Section 3.1 had the Available Amount set forth in
any Mandatory Purchase Notice been correct and the Company had knowledge of such
error at the time such Mandatory  Purchase Notice was delivered,  or (b) so long
as any  portion of the  Remaining  Amount is  outstanding,  breaches  any of its
covenants,  representations and warranties or other obligations arising under or
in connection  with the  Indenture,  then the Holders,  in addition to all other
remedies  available under this  Agreement,  shall no longer be obligated to sell
any Remaining Amount Securities to the Company hereunder,  and upon receipt of a
written  notice  signed  by the  Holders  of at  least a  majority  of the  then
outstanding  Remaining  Amount  (a  "Default  Notice"),  the  Company  shall  be
obligated to purchase,  at a Subsequent Closing to be held no later than fifteen
(15) business days after the date such Default  Notice is delivered,  all of the
Remaining  Amount  Securities  outstanding as of the date such Default Notice is
delivered at an aggregate  purchase price equal to 100% of the principal  amount
of such Remaining  Amount  Securities  plus accrued and unpaid  interest on such
Remaining Amount Securities as of the date such Default Notice is delivered. For
purposes of this Section 3.3, the Company  shall be deemed to have had knowledge
that the  Available  Amount  set  forth in any  Mandatory  Purchase  Notice  was
incorrect  if any of its  executive  officers  had  actual  knowledge  that such
Available  Amount was incorrect at the time such Mandatory  Purchase  Notice was
delivered or would have had such knowledge at such time but for his or her gross
negligence.

     3.4 Delivery of Remaining Amount  Securities;  Purchase in Part. Subject to
the terms and conditions hereof, at the Subsequent Closing(s), the Holders shall
deliver the  Remaining  Amount  Securities  being  purchased  to the Company for
transfer.  If the  Company  purchases  less  than  all of the  Remaining  Amount
Securities pursuant to a Mandatory Purchase (such purchase, a "Partial Mandatory
Purchase"),  then each Holder shall sell, and the Company shall  purchase,  such
portion of such Holder's  Remaining Amount Securities as determined  pursuant to
the  Purchase  Calculation.  Upon a Subsequent  Closing for a Partial  Mandatory
Purchase,  the Remaining  Amount shall be reduced by the amount of the Remaining
Amount  Securities  purchased  in the  Partial  Mandatory  Purchase  (the amount
resulting  from such  reduction,  the "New  Remaining  Amount")  and the Company
shall,  subject  to and in  accordance  with the  applicable  provisions  of the
Indenture,  execute, and shall instruct the Trustee to authenticate and deliver,
new  Registered  Securities  (the "New  Remaining  Amount  Securities")  to each
Holder,  or to the  Custodian  on behalf of a Holder  if so  instructed  by such
Holder,  in the  principal  amount  equal to such  Holder's  portion  of the New
Remaining Amount.  Notwithstanding the foregoing, if the principal amount of the
New Remaining  Amount  Securities  to be issued to any Holder  subsequent to any
Partial Mandatory Purchase pursuant to this Section 3.4 is equal to or less than
$10,000,  then the Company, in its sole discretion,  may, in lieu of instructing
the Trustee to authenticate and deliver such New Remaining Amount  Securities to
such  Holder,  pay to such  Holder  the amount  equal to the  product of (i) the
Purchase  Price  utilized  for  such  Partial  Mandatory  Purchase  and (ii) the
principal  amount of such  Remaining  Amount  Securities,  plus any  accrued and
unpaid  interest  on such  Remaining  Amount  Securities,  by delivery of a wire
transfer of immediately available funds to the account designated by such Holder
on  Schedule  I  hereto.  If  there is a  Partial  Mandatory  Purchase,  the New
Remaining Amount shall be deemed to be the Remaining Amount for purposes of this
Agreement. The New Remaining Amount Securities shall contain identical terms and
provisions,  except for principal  amount,  as the Remaining  Amount  Securities
(including  the  legend as set forth in Section  8.3  hereof)  and shall  remain
subject to the  Mandatory  Purchase and the other terms and  conditions  of this
Agreement and be deemed to be Remaining Amount Securities under this Agreement.

4.     Closings.
       --------

     4.1 Initial  Closing.  The closing of the sale and  purchase of the Initial
Purchase  Securities (the "Initial  Closing") shall take place at the offices of
Venable,  Baetjer and Howard,  LLP, 2010  Corporate  Ridge,  Suite 400,  McLean,
Virginia on the date hereof, or such other date (such date, the "Initial Closing
Date") and in such other  manner as may be mutually  agreed to by the parties in
writing.  At the Initial  Closing,  subject to the terms and  conditions  herein
contained:

     (i) Each  Holder  shall  deliver to the Company  the  certificates  for the
Initial Purchase Securities in accordance with Section 2.3 hereof.

     (ii) The Company shall  deliver to each Holder such  Holder's  share of the
Initial  Purchase  Amount  Price in  accordance  with Section 2.2 hereof by wire
transfers of immediately  available funds to the respective  accounts designated
by each of the Holders.

     (iii) The Company shall execute and deliver the Indenture  Supplement,  the
Pledge Agreement, the Security Agreement and all other documents and instruments
contemplated herein and in the Indenture Supplement,  the Security Agreement and
the Pledge Agreement to be executed and delivered by the Company at such time.

     4.2  Subsequent  Closings.  The  closing(s) of the sale and purchase of the
Remaining  Amount Securities  upon a  Mandatory  Purchase
pursuant to Section 3 hereof (each, a "Subsequent Closing" and collectively, the
"Subsequent  Closings") shall take place at the offices of Venable,  Baetjer and
Howard, LLP, 2010 Corporate Ridge, Suite 400, McLean, Virginia on the applicable
Mandatory  Purchase  Date or such other date  (each  such  date,  a  "Subsequent
Closing  Date") and in such  other  manner as may be  mutually  agreed to by the
parties  in  writing.  At the  Subsequent  Closing(s),  subject to the terms and
conditions herein contained:

     (i) Each Holder shall deliver,  or shall instruct the Custodian to deliver,
to the Company such Holder's  Remaining  Amount  Securities  in accordance  with
Section  3.4  hereof.  If a  Holder  fails to  surrender  its  Remaining  Amount
Securities  to be sold to the  Company  hereto,  all rights of such  Holder with
respect to such  Remaining  Amount  Securities,  except its right to receive its
share of the Remaining  Amount  Purchase  Price in accordance  with Sections 3.1
and, if applicable, 10.5 hereof, nonetheless shall cease and terminate.

     (ii) The Company shall  deliver to each Holder such  Holder's  share of the
Remaining  Amount  Purchase Price in accordance  with Section 3.1 hereof by wire
transfers of immediately  available funds to the respective  accounts designated
by each of the Holders.

     5.  Representations  and  Warranties  of Holders.  To induce the Company to
enter  into this  Agreement  and to  consummate  the  transactions  contemplated
hereby,  each of the  Holders,  severally  but not  jointly,  hereby  makes  the
following  representations  and  warranties  to the  Company  as of the  Initial
Closing Date or the Subsequent Closing Date(s), as applicable.

     5.1 Ownership of  Securities.  Such Holder is the sole owner,  beneficially
and of  record,  of the  Initial  Purchase  Securities,  and is the sole  owner,
beneficially, of the Remaining Amount Securities, as applicable, being conveyed,
transferred  or assigned and delivered to the Company  pursuant to the terms and
conditions of this Agreement,  free and clear of any liens,  security interests,
pledges,  options,  claims  or other  encumbrances  of any  kind.  Such  Initial
Purchase  Securities or Remaining  Amount  Securities,  as  applicable,  are not
subject to any restrictions on the transfer thereof,  except for restrictions on
transfer imposed by applicable federal and state securities laws.

     5.2 Authorization;  Execution and Delivery; Enforceability.  Holder has the
corporate power, authority and legal right to execute,  deliver and perform this
Agreement,  and any other document  executed in connection  herewith,  including
without  limitation,   such  Holder's  consent  referred  to  in  Section  7.1.2
(collectively the "Transaction Documents").  The Transaction Documents have been
duly  authorized,  validly  executed  and  delivered  by  the  Holder  or  by an
authorized  officer  of Holder  and  constitute  the  legal,  valid and  binding
obligations  of such Holder,  enforceable  against it in  accordance  with their
respective terms.

     5.3  Consents.  Except as set forth on Schedule  5.3  attached  hereto,  no
consent,  approval  or other  authorization  of or filing  with any  individual,
corporation, partnership, trust or unincorporated organization or any government
or any agency or political subdivision thereof, or any other person or entity is
required for the valid execution,  delivery and performance of this Agreement by
such Holder and the consummation by such Holder of the transactions contemplated
hereby.

     5.4  Litigation  and  Claims.  There  are no  suits,  actions,  claims,  or
judicial,   administrative,   or  governmental  proceedings,  or  investigations
existing, pending, or, to such Holder's best knowledge threatened,  against such
Holder that, if adversely  determined against such Holder, would have a material
adverse  effect on the ability of such  Holder to  consummate  the  transactions
contemplated hereby.

     6.  Representations  and  Warranties  of Company.  To induce the Holders to
enter  into this  Agreement  and to  consummate  the  transactions  contemplated
hereby, the Company hereby makes the following representations and warranties to
the Holders as of the Initial Closing Date or the Subsequent Closing Date(s), as
applicable.

     6.1  Organization  and  Authorization;  Enforceability.  The  Company  is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia.  The Company has the corporate power, authority
and legal right to execute,  deliver and perform the Transaction Documents.  The
Transaction Documents have been duly authorized,  validly executed and delivered
by an  authorized  officer of the Company and  constitute  the legal,  valid and
binding  obligations of the Company,  enforceable  against it in accordance with
their respective terms.

     6.2  Consents.  Except as set forth on Schedule  6.2  attached  hereto,  no
consent,  approval  or other  authorization  of or filing  with any  individual,
corporation, partnership, trust or unincorporated organization or any government
or any agency or political subdivision thereof, or any other person or entity is
required for the valid execution,  delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby.

     6.3  Litigation  and Claims.  Except as  described  in Schedule 6.3 hereof,
there  are  no  suits,  actions,   claims,  or  judicial,   administrative,   or
governmental  proceedings,  or  investigations  existing,  pending,  or,  to the
Company's  best  knowledge  threatened,  against the Company  that, if adversely
determined  against the  Company,  would have a material  adverse  effect on the
ability of the Company to consummate the transactions contemplated hereby.

     6.4 No Conflict.  Neither the execution  and delivery of this  Agreement by
the  Company,   nor  the   consummation  by  the  Company  of  the  transactions
contemplated  hereby,  nor  compliance by the Company with any of the provisions
hereof,  will (i)  conflict  with or result in a breach of any  provision of the
Company's  Articles of Incorporation,  as amended,  or Bylaws, as amended,  (ii)
constitute or result in a default under, or require any consent  pursuant to, or
result in the  creation  of any Lien on any asset of the  Company  or any of its
Subsidiaries under any contract,  indenture or agreement to which the Company or
any of its  Subsidiaries  is a party or by which their assets are bound or (iii)
violate  any  law  or  regulation  applicable  to  the  Company  or  any  of its
Subsidiaries or any of their respective assets.

5.40  6.5  Subsidiaries.  The  Company  has set  forth on  Schedule  6.5 of this
Agreement  all of its direct and  indirect  Subsidiaries  as of the date of this
Agreement.  The  Company or one of its  Subsidiaries  owns all of the issued and
outstanding shares of capital stock of each Subsidiary.

5.50 6.6 Financial Statements. The Financial Statements (as of the dates thereof
and for the periods  covered  thereby) (i) are in accordance  with the books and
records of the Company and its Subsidiaries,  which books and records accurately
and fairly  represent the business of the Company and its  Subsidiaries  and its
results of operations and have been  maintained in accordance with good business
practices,  and (ii) fairly  present in all material  respects the  consolidated
financial position of the Company as of the dates indicated and the consolidated
results of operations,  changes in stockholders'  equity,  and cash flows of the
Company and its  Subsidiaries  for the periods  indicated,  in  accordance  with
generally accepted accounting principles, except as disclosed therein; provided,
however, that the unaudited Financial Statements are subject to normal recurring
year-end  adjustments and do not contain all footnotes  required under generally
accepted accounting principles.

     5.60  6.7  Absence  of  Undisclosed  Liabilities.  As of the  date  of this
Agreement,  neither the Company nor any of its  Subsidiaries has any liabilities
that are reasonably likely to have, individually or in the aggregate, a material
adverse effect on the Company and its Subsidiaries taken as a whole,  except for
liabilities  that are fully  accrued or  reserved  against  in the  consolidated
balance  sheet of the Company as of September 30, 2000 included in the Financial
Statements  or  reflected  in the notes  thereto and  liabilities  disclosed  in
Schedule 6.7 hereto.

     6.8 Absence of Certain  Changes or Events.  Except as disclosed on Schedule
6.8 hereto,  since September 30, 2000,  there have been no events,  changes,  or
occurrences which have had, or are reasonably likely to have, individually or in
the aggregate,  a material  adverse  effect on the Company and its  Subsidiaries
taken as a whole.

6.9 5.80 Tax Matters.
         -----------

     6.9.1 Adequate provision for any taxes due or to become due for the Company
and its Subsidiaries for the period or periods through and including the date of
the  respective  Financial  Statements  has been  made and is  reflected  on the
Financial Statements.

     6.9.2  There are no Liens  with  respect to taxes upon any of the assets of
the Company or its Subsidiaries.

7.  Conditions Precedent to Initial Closing and Subsequent Closing(s).

     7.1 Conditions to Obligations  of Holders and Company.  The  obligations of
all of the parties hereto to consummate the transactions contemplated hereby are
subject to satisfaction  of the following  conditions at or prior to the Initial
Closing or the Subsequent Closing(s), as applicable:

     7.1.1 No  Restrictions.  No action or proceeding shall have been instituted
or threatened before any court or governmental  agency to restrain,  prohibit or
invalidate the transactions contemplated by this Agreement.

     7.1.2 Consents to Supplemental  Indenture.  The Company shall have received
written consents from holders of at least a majority of the aggregate  principal
amount  of  the   Securities   outstanding   consenting  to  and  approving  the
Supplemental Indenture.

     7.2 Conditions to Obligations of Company. The obligations of the Company to
purchase the Initial Purchase Securities from the Holders at the Initial Closing
and to pay the Initial Purchase Amount Price therefor, to purchase the Remaining
Amount  Securities from the Holders at the Subsequent  Closing(s) and to pay the
Remaining  Amount  Purchase  Price  therefor,  and otherwise to  consummate  the
transactions  contemplated hereby are subject to the satisfaction by the Holders
(jointly with respect to the Initial  Closing and severally with respect to each
Subsequent  Closing)  and/or the waiver by the Company of each of the  following
conditions at or prior to the Initial Closing or the Subsequent  Closing(s),  as
applicable:

     7.2.1 Compliance with this Agreement.  Each Holder shall have performed and
complied in all material respects with all of the terms, obligations,  covenants
and  conditions  of this  Agreement  which are  applicable  to the Holders;  the
representations and warranties of the Holders contained herein shall be true and
correct  in all  material  respects  as of the  Initial  Closing  Date  and  the
Subsequent  Closing  Date,  as  applicable,   as  if  such  representations  and
warranties  were made as of the Initial  Closing Date or the Subsequent  Closing
Date, as applicable.

     7.2.2 Delivery of Securities.  Each Holder shall have taken or caused to be
taken all  actions  required  under  Section  4 hereof  to  effect  the sale and
transfer of the Initial Purchase  Securities or Remaining Amount Securities,  as
applicable,  to the  Company,  including  the  delivery of the Initial  Purchase
Securities or Remaining  Amount  Securities,  as applicable,  to the Company for
transfer.

     7.3 Conditions to Obligations of Holders. The obligations of the Holders to
sell the Initial Purchase  Securities and the Remaining Amount Securities to the
Company and otherwise to consummate  the  transactions  contemplated  hereby are
subject to the  satisfaction  by the Company and/or the waiver by the Holders of
each of the  following  conditions  at or prior to the  Initial  Closing and the
Subsequent Closing(s), as applicable:

     7.3.1 Compliance with this Agreement.  The Company shall have performed and
complied in all material respects with all of the terms, obligations,  covenants
and  conditions of this  Agreement;  the  representations  and warranties of the
Company  contained herein shall be true and correct in all material  respects as
of the Initial Closing Date and the Subsequent  Closing Date, as applicable,  as
if such  representations and warranties were made as of the Initial Closing Date
or Subsequent Closing Date, as applicable.

     7.3.2 Payment of Purchase Price.  With respect to the Initial Closing,  the
Company shall have paid to each Holder its share of the Initial  Purchase Amount
Price set forth on Schedule 2.2 hereto,  in accordance  with Section 4.1 hereof,
and with respect to each Subsequent Closing, the Company shall have paid to each
Holder its pro-rata share (taking account of the rounding up used in determining
the Purchase  Calculation) of the Remaining Amount Purchase Price, in accordance
with Section 4.2 hereof.

     7.3.3 Legal Opinion. With respect to the Initial Closing, the Holders shall
have received an opinion from Venable,  Baetjer and Howard, LLP addressed to the
Holders,  dated  as of the  Initial  Closing  Date  and in  form  and  substance
acceptable  to the  Holders,  and an  opinion  from  Simpson  Thacher & Bartlett
addressed to the Holders,  dated as of the Initial  Closing Date and in form and
substance acceptable to the Holders.

     7.3.4  Execution and Delivery of Other  Agreements.  The Company shall have
executed and delivered  the  Indenture  Supplement,  the Pledge  Agreement,  the
Security Agreement and all other documents and instruments  contemplated  herein
and in the Indenture Supplement, the Security Agreement and the Pledge Agreement
to be executed and  delivered by the Company on or prior to the Initial  Closing
Date.

8.       Agreements.
         ----------

     8.1  Consents  and  Approvals.  Each Holder  hereby  agrees to use its best
efforts to cause all of  conditions  set forth in Sections 7.1 and 7.2 hereof to
be satisfied on or prior to the Initial  Closing and the Subsequent  Closing(s),
as applicable. The Company hereby agrees to use its best efforts to cause all of
the  conditions  set forth in Sections  7.1 and 7.3 hereof to be satisfied on or
prior to the Initial Closing and the Subsequent Closing(s), as applicable.

     8.2 Further  Assurances.  Each Holder hereby  agrees,  at any time and from
time to time after the Initial Closing Date, upon the reasonable  request by the
Company and  without  further  consideration,  to take such  further  actions or
execute such further  documents or agreements as may be reasonably  necessary in
the Company's discretion  effectively to convey,  transfer or assign and deliver
to the  Company  the  Initial  Purchase  Securities  and  any  Remaining  Amount
Securities purchased hereunder.

     8.3 Transfer;  Legend.  Each Holder hereby agrees that,  for so long as any
portion of the Remaining Amount remains outstanding,  it shall not sell, assign,
transfer,  pledge,  hypothecate or otherwise  dispose of, by operation of law or
otherwise (collectively,  a "Transfer") any Remaining Amount Securities,  or any
interest  therein,  except  that a Holder  may  Transfer  its  Remaining  Amount
Securities,  or any interest therein, if the transferee,  as a condition to such
Transfer,  delivers to the  Company a written  instrument  confirming  that such
transferee  shall be bound by all of the terms and  conditions of this Agreement
(a "Permitted  Transferee").  The Remaining  Amount  Securities now or hereafter
issued  to a  Holder  or a  Permitted  Transferee  shall  be  endorsed  with the
following legend:

                  "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
                  REPRESENTED  BY THIS  CERTIFICATE  IS SUBJECT TO THE TERMS AND
                  CONDITIONS OF A PURCHASE AGREEMENT (THE "PURCHASE  AGREEMENT")
                  BY AND BETWEEN DYNEX CAPITAL, INC. (THE "COMPANY") AND CERTAIN
                  HOLDERS OF THE  COMPANY'S  7.875% SENIOR DEBT  SECURITIES  DUE
                  JULY 15, 2002, WHICH PURCHASE AGREEMENT PROVIDES,  AMONG OTHER
                  THINGS, THAT THE COMPANY SHALL PURCHASE, AND THE HOLDER HEREOF
                  SHALL SELL, ALL OR A PORTION OF THE SECURITIES  REPRESENTED BY
                  THIS  CERTIFICATE  AT A DISCOUNTED  PURCHASE  PRICE ON CERTAIN
                  DATES  SET  FORTH  IN THE  PURCHASE  AGREEMENT.  A COPY OF THE
                  PURCHASE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
                  SECRETARY OF THE COMPANY."

     8.4 Claim of Holders in Event of Bankruptcy.  Notwithstanding any provision
contained  herein to the contrary,  the amount by which a Holder's  share of the
Initial  Purchase  Securities  exceeds the Holder's share (taking account of the
rounding  up  used in  determining  the  Purchase  Calculation)  of the  Initial
Purchase Amount Price therefor,  and the amount by which a Holder's share of the
Remaining Amount  Securities sold hereunder  exceeds the Holder's pro-rata share
(taking account of the rounding up used in determining the Purchase Calculation)
of the Remaining  Amount Purchase Price therefor,  shall remain an obligation of
the Company, and shall be secured by the Liens of the Security Agreement and the
Pledge  Agreement  (the  "Security  Interests");  provided  that such  remaining
obligations of the Company shall automatically be released, without the need for
further  action  by any  party,  on the 91st  day  after  the date on which  the
Security  Interests  have been  perfected if on that date the Company  shall not
have  filed  any  voluntary  proceeding  seeking  an order  for  relief or other
protection under the United States  Bankruptcy Code, as amended (the "Bankruptcy
Code"),  and no such involuntary  proceeding shall have been instituted  against
the Company and in which an order for relief is thereafter entered.

     8.5 Waiver of Certain  Rights.  Each Holder hereby agrees and  acknowledges
that the Company's obligation to repurchase  Securities held by such Holder upon
the  occurrence of any of the  transactions  or events  constituting a Change of
Control  pursuant to the terms and conditions of the Indenture and the Indenture
Supplement  shall  not be  applicable,  and shall be  deemed  waived,  if either
Blackrock  Management,  Trust Company of the West,  Fortress  Investment  Group,
Mariner  Investment Group,  Hanover Capital Mortgage  Holdings,  or any of their
respective Affiliates, is the Person that is entering into such transaction,  or
is a party to such event,  with the Company.  In no event shall this Section 8.5
in any way limit or restrict the  Company's  obligation  to purchase the Initial
Purchase  Securities and the Remaining Amount  Securities  pursuant to the terms
and conditions of this Agreement.

9.       Indemnification.
          ---------------

     9.1 Indemnification by Holder. Each Holder hereby agrees, severally but not
jointly, to indemnify and hold harmless the Company,  its Subsidiaries and their
respective officers, directors, employees, agents, professionals, successors and
assigns (each, an "Indemnitee") from and against any and all Damages incurred by
such Indemnitees  resulting or arising from any breach or  nonfulfillment of the
covenants or  agreements  of such Holder  contained  herein,  including  without
limitation Section 8.3 hereof.

     9.2 Indemnification by Company.  The Company hereby agrees to indemnify and
hold harmless the Holders and their respective officers,  directors,  employees,
agents,  professionals,  successors and assigns (each, an "Indemnitee") from and
against any and all Damages  incurred by such  Indemnitees  resulting or arising
(i) from any breach or  nonfulfillment  of the  covenants or  agreements  of the
Company contained herein, (ii) from any breach of any representation or warranty
of the Company  contained  herein, or (iii) in connection with or related to the
Indenture and this Agreement or duties arising  thereunder or hereunder from the
execution and delivery of this Agreement, the Indenture Supplement, the Security
Agreement and the Pledge Agreement by each of the parties hereto and thereto and
the  performance  of their  respective  obligations  hereunder and thereunder in
accordance with each of the terms and conditions  hereto and thereto;  provided,
however,  that the Company shall have no liability under this Section 9.2 to the
extent any such Damages  result or arise from any breach of any  representation,
warranty or covenant of any of the Holders  contained  herein or from any breach
of any  representation,  warranty or covenant of the Company under the Indenture
Supplement,  the  Security  Agreement  or the Pledge  Agreement;  and  provided,
further,  that the Company shall have no liability under this Section 9.2 to the
extent any such  Damages  result or arise  solely  from an  agreement  between a
Holder and any party other than the Company.

     9.3  Claims  and  Litigation.  If any  person or entity not a party to this
Agreement shall make any demand or claim, or file or threaten to file a lawsuit,
which demand, claim or lawsuit may result in any liability, damage or loss to an
Indemnitee for which such Indemnitee may be entitled to seek relief from a party
hereto (such party, an "Indemnitor")  pursuant to Section 9.1 or 9.2 hereof, the
Indemnitee  shall promptly  provide  written  notice to such  Indemnitor of such
demand,  claim or lawsuit,  and the Indemnitor shall then have the option at the
cost and  expense of the  Indemnitor,  to assume and  control the defense of any
such demand, claim, or lawsuit. Thereafter, the Indemnitee shall be permitted to
participate in such defense at its own expense.  If the Indemnitor shall fail to
respond  within thirty (30) days after  receipt of such notice,  or shall notify
the Indemnitee  that it does not intend to defend against such demand,  claim or
lawsuit,  the  Indemnitee  may conduct a defense  against such demand,  claim or
lawsuit as it in its  discretion may deem proper.  If the  Indemnitor  elects to
assume and control the defense of a third party claim, the Indemnitee  agrees to
cooperate in all reasonable respects with the Indemnitor in connection with such
defense,  including  retaining  and  delivering  to the  Indemnitor  records and
information which are reasonably relevant to such third party claim.  Whether or
not the  Indemnitor  shall have  assumed and  controlled  the defense of a third
party  claim,  no party shall admit any  liability  with  respect to, or settle,
compromise  or discharge  any such third party claim,  without the prior written
consent of the other party,  which consent shall not be  unreasonably  withheld,
conditioned or delayed if the proposed settlement is, in fact,  reasonable under
the  prevailing  facts and  circumstances.  Nothing  in this  Section  9.3 shall
prevent an Indemnitee  from taking such action as may be necessary  prior to the
end of the thirty-day  period  provided for above to prevent a default  judgment
from being entered.

     9.4 Making of Claims. A claim for indemnity  pursuant to this Section 9 may
be made by an Indemnitee by written notice to the Indemnitor, which notice shall
be given  within  thirty  (30) days after the  Indemnitee  becomes  aware of the
claim.  Such written notice shall set forth in reasonable  detail the basis upon
which such claim for indemnity is made.

     9.5  Attorneys'  Fees,  Costs and Expenses.  The rights of an Indemnitee to
seek  indemnification  hereunder  shall  include the right to recover  interest,
penalties,  cost and expenses,  including reasonable attorneys' fees (subject to
Section  9.3  hereof),  incident  to  any  claim  for  indemnification  made  in
accordance with the provisions of this Section 9.

10.      Miscellaneous.
         -------------

     10.1 Governing Law;  Jurisdiction.  This Agreement shall be governed by and
construed in accordance with the laws of the  Commonwealth of Virginia,  without
regard to principles  of conflict of laws.  Each party agrees that any action or
proceeding  with  respect to this  Agreement  shall be brought in any federal or
state court  situated in the  Commonwealth  of Virginia,  and by  execution  and
delivery of this  Agreement,  such party  irrevocably  consents to the exclusive
jurisdiction of, and venue in, each such court.

     10.2 Notices.  Unless otherwise expressly provided for herein, all notices,
requests,  demands,  and other  communications  between the  parties  under this
Agreement  shall be deemed to have been duly given (i) when  delivered  by hand,
(ii) one (1) business day after  deposited with a courier  service that provides
evidence of delivery,  (iii) two (2) business  days after mailed by certified or
registered mail, with postage pre-paid, or (iv) when sent by confirmed facsimile
if sent before 5:00 p.m.  Eastern  Time, or if not then on the next business day
to:

                           If to the Company:

                           Dynex Capital, Inc.
                           4551 Cox Road, Suite 300
                           Glen Allen, Virginia 23060
                           Facsimile: (804) 217-5860
                           Attn:    Thomas H. Potts

                           With a copy to:

                           Venable, Baetjer and Howard, LLP
                           2010 Corporate Ridge, Suite 400
                           McLean, Virginia  22102
                           Attn:  Joseph C. Schmelter, Esq.

                           If to a Holder,  at the address (and/or to the
                           facsimile  number) listed below the name of such
                           Holder on Schedule I hereto

                           With a copy to:

                           Arnold & Porter
                           555 Twelfth Street, N.W.
                           Washington, D.C., 20004
                           Attn:  Daniel M. Lewis, Esq.

                           or to such other address and/or  facsimile number as
                           any party provides to the other parties from time to
                           time.

     10.3 Entire Agreement;  Amendment; Waiver. This Agreement, the exhibits and
schedules  hereto,  and all  documents  delivered  pursuant  to this  Agreement,
constitute the entire  Agreement  between the parties  pertaining to the subject
matter hereof, and supersede any and all prior and  contemporaneous  agreements,
understandings,  negotiations,  and discussions of the parties,  whether oral or
written.  No amendment,  modification,  waiver or  termination of this Agreement
shall be binding  unless  executed in writing by the parties  hereto,  or in the
case of a waiver, by the party for whom such benefit was intended.  No waiver of
any of the  provisions of this Agreement  shall be deemed or shall  constitute a
waiver of any other  provision of this  Agreement,  whether or not similar,  nor
shall such waiver constitute a continuing  waiver unless otherwise  expressly so
provided in writing.

     10.4  Remedies;  Specific  Performance.  The parties  hereto agree that the
Initial Purchase Securities and the Remaining Amount Securities are unique, that
failure to perform the  obligations  provided by this Agreement  shall result in
irreparable  damage,  that remedies at law for any breach of this Agreement will
be inadequate and that specific performance of these obligations may be obtained
by suit in equity.

     10.5 Remedy for Failure to Deliver Remaining Amount Securities. If a Holder
shall  be  required  to  deliver  all or any  portion  of its  Remaining  Amount
Securities for transfer pursuant to any provision of this Agreement, and if such
Holder is unable  to, or for any  reason  does not,  deliver,  or  instruct  the
Custodian  to  deliver,  the  certificate   representing  the  Remaining  Amount
Securities to the Company in accordance  with the applicable  provisions of this
Agreement  and a Custodian has been  appointed by such Holder,  then the Company
may deposit such Holder's share of the Remaining  Amount Purchase Price for such
Remaining Amount Securities with the Custodian as trustee for such Holder, to be
held by the  Custodian  until  withdrawn  by such  Holder.  Upon  deposit by the
Company of such Holder's share of the Remaining  Amount  Purchase Price with the
Custodian,  such Holder's Remaining Amount Securities, or portion thereof, to be
sold pursuant to the applicable  provisions of this Agreement shall at such time
be deemed to have been sold, assigned,  transferred, and conveyed to the Company
and such Holder shall have no further right in such Remaining Amount Securities.

     10.6 Expenses.  Subject to Section 9 hereof,  each party shall pay the fees
of its legal counsel,  accountants,  advisors and any other expenses incurred by
it in connection  with the negotiation and preparation of this Agreement and the
consummation  of the  transactions  contemplated  by this  Agreement;  provided,
however,  that in  connection  with  the  negotiation  and  preparation  of this
Agreement,  the  Indenture  Supplement,   the  Security  Agreement,  the  Pledge
Agreement and all other instruments and documents  relating thereto,  as well as
all  discussions  and  negotiations  between  the Company and one or more of the
Holders occurring prior to the execution hereof, the Company shall pay, upon the
Initial Closing, the reasonable fees and expenses incurred by the Holders to the
parties listed in Schedule 10.6 hereto, such amounts not to exceed $550,000.

     10.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the  benefit of the  parties  hereto  and their  respective  heirs,  personal
representatives, successors and assigns.

     10.8  Severability.  If any  provision  or  clause  of  this  Agreement  is
determined by a court of competent  jurisdiction to be invalid or unenforceable,
the validity of the rest of the  Agreement  shall not be affected and the rights
and  obligations  of the  parties  shall be  construed  and  enforced as if this
Agreement  did  not  contain  the   particular   part  held  to  be  invalid  or
unenforceable.

     10.9  Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of  which  shall be  deemed  an  original,  and all of which
together shall constitute one and the same Agreement.  Execution and delivery of
this Agreement by facsimile  signature  shall be sufficient for all purposes and
shall be binding upon any party who executes this Agreement in such manner.

     10.10 No Third Party  Beneficiaries.  Nothing  contained in this  Agreement
shall be deemed to confer any rights or benefits upon any third parties.

     10.11 Survival. The obligations of the Company and the Holders to indemnify
any  Indemnitee  pursuant  to  Section 9 of this  Agreement  shall  survive  the
repurchase by the Company of all of the Securities owned by the Holders.
Exhibit  99.3

                          SUPPLEMENTAL TRUST INDENTURE

         THIS  SUPPLEMENTAL  TRUST INDENTURE (this  "Supplement") is dated as of
March 30, 2001,  and is made by and between DYNEX  CAPITAL,  INC., a corporation
organized  under the laws of  Virginia  (the  "Company"),  having its  principal
office at 4551 Cox Road,  Suite 300, Glen Allen,  Virginia 23060,  and HSBC BANK
USA, a banking  corporation  and trust company  organized and existing under the
laws of the State of New York (the  "Trustee"),  having its principal  office at
140 Broadway, New York, New York 10005.

                                    RECITALS

         A. The Company  issued and sold  $100,000,000  in  aggregate  principal
amount of its unsecured  7.875%  Senior Notes Due July 15, 2002 (the  "Unsecured
Securities")  under  an  Indenture,  dated as of July 14,  1997  (the  "Original
Indenture")  by and  between  the  Company  and  Texas  Commerce  Bank  National
Association ("Texas Commerce Bank").

         B. The Original Indenture was supplemented and amended by the Officers'
Certificate  dated July 14,  1997 (the  "Original  Officers'  Certificate,"  and
together with the Original Indenture, the "Indenture").

         C. Pursuant to that certain Instrument of Resignation,  Appointment and
Acceptance,  dated as of June 12, 2000, by and among the Company,  Chase Bank of
Texas,  National  Association  ("Chase  Bank")  and HSBC Bank USA,  Chase  Bank,
successor to Texas Commerce Bank, was replaced as Trustee under the Indenture by
HSBC Bank USA.

         D. The  Unsecured  Securities  were  issued in  global  form and all of
the outstanding  Unsecured  Securities  are  represented  by  one  permanent
global security identified as Dynex Capital, Inc. 7.875% Senior Note due
July 15, 2002, No. 1, CUSIP No.  26817Q AA 8,  registered in the name of CEDE &
CO., as nominee of The Depository Trust Company ("DTC") (the "Global Security").

         E.  Pursuant to Section 305 of the  Indenture,  and  Paragraph 8 on the
reverse of the Global  Security,  a global  Security shall be  exchangeable  for
definitive Securities if the Company, in its sole discretion,  notifies DTC that
all Outstanding  Securities  issued in the form of such global Security shall no
longer be represented by such global Security.

         F. The Company  notified  DTC that the  Unsecured  Securities  shall no
longer  be  represented  by a Global  Security  as of March  28,  2001,  and has
instructed the Trustee to issue certificated  securities registered in the names
of  the  persons  directed  by  DTC.  Such  certificated   securities  represent
securities of the same series, having the same terms as the Global Security, and
in the aggregate having the same principal amount of the Global Security.

         G. Pursuant to Section 902 of the Original Indenture,  with the consent
of Holders of not less than a majority in  principal  amount of all  Outstanding
Securities affected by a supplemental indenture, the Company and the Trustee may
enter into such supplemental  indenture for the purpose of adding any provisions
to or  changing  in any  manner  or  eliminating  any of the  provisions  of the
Indenture or of modifying in any manner the rights of the Holders of Securities,
subject to the limitation and restrictions described therein.

         H. The Company  desires to make certain changes to the Indenture and to
the Unsecured  Securities for the purposes of, among other things,  securing the
Unsecured Securities and eliminating, changing, and adding to certain provisions
of the Indenture.

         I. Pursuant to a Written  Consent to  Supplemental  Trust  Indenture of
even date herewith,  Holders of not less than a majority in principal  amount of
all Outstanding  Unsecured  Securities have consented to this Supplement and the
modifications to the Indenture described herein.

         J. All things  necessary to make this  Supplement a valid,  binding and
legal  instrument  have been performed by the Company.

                                   AGREEMENTS

         NOW,  THEREFORE,  for  consideration,  the adequacy and  sufficiency of
which are hereby  acknowledged by the parties hereto,  each party agrees for the
benefit of the other  party and for the equal and  proportionate  benefit of all
Holders of the Unsecured Securities, as follows:

                                    ARTICLE I

                            AUTHORITY AND DEFINITIONS

         SECTION 1.1.  Authority  and Effect.  This  Supplement  is entered into
pursuant to Section 902 of the  Original  Indenture  and this  Supplement  shall
become  effective  at the close of business  on the date first set forth  above,
upon its execution and delivery by all parties hereto.  This Supplement modifies
certain  provisions of both the Original  Indenture  and the Original  Officers'
Certificate, and except as expressly modified in this Supplement, the provisions
of the Original Indenture and the Original Officers'  Certificate shall continue
in full force and effect.

         SECTION 1.2. Terms From the Original Indenture.  Capitalized terms used
in this Supplement which are defined in the Original Indenture have the meanings
given to them in the Original  Indenture,  unless the context clearly  indicates
otherwise.

     SECTION  1.3.  Certain  Defined  Terms.  As used in  this  Supplement,  the
following defined terms shall have the respective meanings specified below:

     "Chase  Bank" has the meaning  specified  in Recital C of this  Supplement.
"DTC" has the meaning specified in Recital D of this Supplement.

     "Global   Security"  has  the  meaning  specified  in  Recital  D  of  this
Supplement.

     "Original  Indenture"  has  the  meaning  specified  in  Recital  A of this
Supplement.

     "Original Officers'  Certificate" has the meaning specified in Recital B of
this Supplement.

     "Texas  Commerce  Bank"  has the  meaning  specified  in  Recital A of this
Supplement.

     "Unsecured  Securities"  has the  meaning  specified  in  Recital A of this
Supplement.

                                   ARTICLE II

                                THE SENIOR NOTES

        SECTION 2.1. Exchange.  Promptly upon the execution and delivery of this
Supplement,  the  Company  shall  issue,  and shall  deliver  to the  Trustee in
accordance with the Indenture, new Senior Notes to reflect this Supplement.

        SECTION  2.2.  Form of  Senior  Notes.  The  Senior  Notes  shall  be in
substantially  the  form  set  forth  in  Exhibit  A, in  each  case  with  such
appropriate  insertions,  omissions,  substitutions  and other variations as are
required or permitted by the Indenture and this  Supplement (but which shall not
affect the rights,  duties or  obligations  of the  Trustee),  and may have such
letters,  numbers  or other  marks of  identification  or  designation  and such
legends or endorsements  placed thereon as the Company may deem  appropriate and
as are not inconsistent with the provisions of the Indenture or this Supplement,
or as may be required to comply with any law or with any rule or regulation made
pursuant  thereto or with any rule or regulation of any stock  exchange on which
the  Senior  Notes may be listed,  or to  conform to usage (but which  shall not
affect the rights, duties or obligations of the Trustee).

                                   ARTICLE III

                AMENDMENTS TO THE ORIGINAL OFFICERS' CERTIFICATE

         SECTION 3.1. Section 7 of the Original Officers' Certificate. Section 7
of the Original Officers'  Certificate is hereby deleted in its entirety and the
following is hereby inserted as Section 7 of the Original Officers' Certificate:

         "Except as provided in Section 14 hereof and except as may be agreed by
the Company and any particular Holder(s) of the Senior Notes, the Securities are
not  redeemable  at the  option of the  Holder  thereof  and the  Company is not
obligated to redeem,  repay or purchase the  Securities  pursuant to any sinking
fund or analogous provision."

         SECTION 3.2. Section 8 of the Original  Officers'  Certificate.  Clause
(i) of Section 8 of the Original Officers'  Certificate is hereby deleted in its
entirety and the following is hereby  inserted as clause (i) of Section 8 of the
Original Officers' Certificate:

         "(i) failure by the Company for 30 days after notice to comply with any
of its other  agreements in the  Indenture,  the Senior  Notes,  or the Security
Documents (as defined below);"

         SECTION 3.3. Section 10 of the Original Officers' Certificate.  Each of
Section 10 (i) -  Limitations  on  Incurrence  of  Indebtedness  and Issuance of
Disqualified Stock, Section 10(ii) - Limitation on Restricted Payments,  Section
10(iii) -  Limitation  on  Transactions  with  Affiliates  and Section  10(iv) -
Provision of Financial  Information  of the Original  Officers'  Certificate  is
hereby  deleted in its entirety and the following is hereby  inserted in Section
10 of the Original  Officers'  Certificate as new Sections 10(i),  (ii),  (iii),
(iv), (v), (vi), (vii) and (viii), respectively:

         "(i)     Reports.

     (A)  Regardless  of  whether  the  Company  is  subject  to  the  reporting
requirements  of Section 13 or 15(d) of the  Exchange  Act,  the  Company  shall
deliver to the Trustee within 15 days after it is or would have been required to
file such with the  Commission,  annual  and  quarterly  consolidated  financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the Commission if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with respect
to  annual  information  only,  a  report  thereon  by the  Company's  certified
independent  public accountants as such would be required in such reports to the
Commission  and,  in each case,  together  with a  management's  discussion  and
analysis of  financial  condition  and results of  operations  which would be so
required.

     (B) Delivery of such reports,  information  and documents to the Trustee is
for  informational  purposes  only and the  Trustee's  receipt of such shall not
constitute   constructive  notice  of  any  information   contained  therein  or
determinable  from  information  contained  therein,   including  the  Company's
compliance  with any of its  covenants  hereunder  (as to which the  Trustee  is
entitled to rely exclusively on Officers' Certificates).

     (ii) Limitation on Transactions with Affiliates.

     The  Company  will not,  and will not  permit  any of its  Subsidiaries  or
Affiliates  to,  directly  or  indirectly,  enter  into or  suffer  to exist any
transaction or series of related  transactions  (including,  without limitation,
the sale, purchase,  exchange or lease of assets, property or services) with any
Related  Person  (other  than a  Subsidiary  or an  Affiliate)  unless  (a) such
transaction or series of  transactions is on terms that are no less favorable to
the Company or such  Subsidiary or Affiliate,  as the case may be, than would be
available in a comparable  transaction  with an unrelated third party and (b)(1)
where  such   transaction   or  series  of   transactions   involves   aggregate
consideration   in  excess  of  $5  million,   such  transaction  or  series  of
transactions is approved by a majority of the Board of Directors of the Company,
including  the  approval  of  a  majority  of  the  independent,   disinterested
directors,  as  evidenced  by a  resolution  relating  thereto  of the  Board of
Directors  filed with the  Trustee and (2) where such  transaction  or series of
transactions  involves  aggregate  consideration  in excess of $15 million,  the
Company also  delivers to the Trustee an opinion  from a  nationally  recognized
investment  banking  firm as to the  fairness of such  transaction  or series of
transactions  to the Company or such  Subsidiary from a financial point of view.
Notwithstanding the foregoing, this provision will not apply to (A) compensation
or employee  benefit  arrangements  with any officer or director of the Company;
and (B) any  transaction  entered into in the ordinary course of business by the
Company, Subsidiary or Affiliate with a Subsidiary or an Affiliate.

         (iii) Limitation on Restricted  Payments.  Unless  expressly  permitted
below,  the Company will not and will not permit its  Subsidiaries or Affiliates
to (a)  declare  or pay any  dividend  or make  any  other  distribution  on the
Company's or any Subsidiary's or Affiliate's Capital Stock (other than dividends
or distributions  payable in Qualified  Capital Stock of the Company,  and other
than dividends or distributions  from any Subsidiary or Affiliate to the Company
); (b) purchase,  redeem,  defease or otherwise acquire or retire for value, any
Capital Stock of the Company or any  warrants,  rights or options to purchase or
acquire  shares  of any  class of such  Capital  Stock;  (c) make any  principal
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any  Indebtedness  that is unsecured or  subordinated to the
Senior Notes;  (d) pay any judgments (in cash or other  property,  including the
issuance  of any  promissory  note in  satisfaction  of such  judgment);  or (e)
purchase  any assets  (each of the  foregoing  actions set forth in clauses (a),
(b),  (c),  (d) and (e) and not  excluded  in the next  paragraph  below,  being
referred to as a "Restricted Payment").

     The foregoing provisions shall not prohibit any of the following:

     (1) [Intentionally Omitted];

     (2) The purchase or redemption of the Senior Notes;

     (3)  Cash  distributions,  which  may be in the form of  either  dividends,
redemptions,  repurchases,  retirement,  defeasance or other acquisition,  on or
account of the Company's Capital Stock,  provided that such distributions do not
exceed the sum of the following:

     (a)  distributions  required in order to maintain the status of the Company
and its Subsidiaries as a Real Estate Investment Trust under the Code;

     (b) cash proceeds from the sale of Permitted Subordinated Indebtedness;

     (c) cash proceeds from the sale of Qualified Capital Stock; and

     (d) $26 million;

     (4) The purchase of permitted  assets in  accordance  with Section  10(vii)
below;

     (5) Payments made in respect of Ordinary Course Trade Debt; and

     (6) (a)  Payments of  settlements  or  judgments  up to $3 million,  or (b)
payments  resulting  from  settlement of any claims  (provided  such  settlement
payments are structured as Permitted Subordinated Indebtedness).

     The  Company  will not,  and will not  permit  any of its  Subsidiaries  or
Affiliates,  to directly or indirectly,  make any Restricted  Payments unless at
the time of such  Restricted  Payments  after  giving  pro forma  effect to such
Restricted  Payments,  no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof under any Indebtedness of the
Company.

         (iv)  Limitation  on Incurrence  of  Additional  Indebtedness.  (1) The
Company will not, and will not permit any  Subsidiary or Affiliate  to,  create,
incur, assume, guarantee, become liable, contingently or otherwise, with respect
to, or otherwise become  responsible for the payment of any Indebtedness,  other
than the  Indebtedness  described  in clauses (a)  through  (j) below,  provided
however,  immediately after giving effect to the incurrence of such Indebtedness
(and other than Indebtedness  described in clauses (a), (b), (f) and (g) below),
the Company's  Adjusted  Consolidated  Indebtedness  must not exceed 150% of the
Company's Adjusted Consolidated Tangible Net Worth.

     (a)  Indebtedness  existing on March 30. 2001, as set forth in an Officers'
Certificate delivered to the Trustee on March 30, 2001;

     (b) Indebtedness represented by the Senior Notes;

     (c) [Intentionally Omitted];

     (d) Ordinary Course Trade Debt;

     (e) Up to $5 million  of  Indebtedness  secured  by Tax Liens  owned by the
Company or for which the Company has
a commitment to purchase as of the Exchange Date;

     (f)  Indebtedness  issued in exchange for, or the net proceeds of which are
used to,  refinance  any  Indebtedness  that has a  maturity  date  prior to the
Maturity  Date;  provided  however,  that (1) the  principal  amount  of the new
Indebtedness  does not exceed the principal amount of the Indebtedness  being so
redeemed,  repurchased,  retired or acquired,  (2) such new  Indebtedness is not
more  senior  to  the  Indebtedness  to be  redeemed,  repurchased,  retired  or
acquired, (3) such new Indebtedness has a final scheduled maturity date equal to
or later than the Indebtedness being redeemed, repurchased, acquired or retired,
and (4) such  Indebtedness  has a Weighted  Average  Life to  Maturity  equal or
greater than the remaining Weighted Average Life to Maturity of the Indebtedness
being redeemed, repurchased, acquired or retired;

     (g) Permitted Subordinated Indebtedness;

     (h) Collateralized bond obligations that are non-recourse to the Company or
any Subsidiary;

     (i)  Indebtedness  incurred in connection with the redemption or repurchase
of collateralized  securities previously issued by the Company, its Subsidiaries
or its Affiliates under a plan to re-securitize or sell the collateral or assets
underlying such  securities  within 120 days from the date of such redemption or
repurchase;  provided  however,  that the incurrence of such  indebtedness  must
occur  substantially  simultaneously  with  such  redemption  or  repurchase  of
collateralized  securities only to the extent the Company believes in good faith
that immediately  following the  re-securitization  or sale of the collateral or
assets  underlying  such  securities  that  the  Company  will be in a net  cash
positive position relative to no such redemption or repurchase of collateralized
securities having taken place; and

     (j) Indebtedness incurred in connection with the payment of judgments up to
an aggregate amount of $3 million.

     (2) The  Company  may not and will not  permit any of its  Subsidiaries  or
Affiliates  to  incur  any   Unsecured   Indebtedness   (other  than   Permitted
Subordinated  Indebtedness)  if the  ratio  of  Income  Available  for  Interest
Payments  to Interest  Expense for the four  consecutive  fiscal  quarters  most
recently ended prior to the date such additional  Indebtedness is to be incurred
shall  have  been less than 2 to 1 on a pro forma  basis,  after  giving  effect
thereto and the application of proceeds therefrom.

     (v) Limitation on Disqualified Capital Stock. The Company will not issue or
cause any Subsidiary to issue any Disqualified Stock.

         (vi) Limitation on Liens. The Company will not, and will not permit any
Subsidiary or Affiliate to,  create,  incur,  assume or suffer to exist any Lien
(as defined  below) on any of its assets or  properties  of any character or any
share  of  Capital  Stock  or  Indebtedness  of any  Subsidiary.  The  foregoing
limitation does not apply to:

     (a)  Liens  existing  on  March  30,  2001  as set  forth  in an  Officers'
Certificate delivered to the Trustee on March 30, 2001;

     (b) Liens securing the Senior Notes;

     (c) Liens  with  respect  to the  assets of a  Subsidiary  granted  by such
Subsidiary  to the Company or a Subsidiary to secure  Indebtedness  owing to the
Company or such other  Subsidiary,  provided that such Liens are  subordinate to
the Liens securing the Senior Notes;

     (d) Liens  securing  Indebtedness  which is incurred to  refinance  secured
Indebtedness  which is permitted to be incurred under Section  10(iv)(f)  above;
provided  however,  that such  Liens do not extend to or cover any  property  or
assets of the  Company  or any  Subsidiary  other  than the  property  or assets
securing the Indebtedness being refinanced;

     (e) (i) Liens  incurred in connection  with the redemption or repurchase of
collateralized  securities previously issued by the Company, its Subsidiaries or
its Affiliates  under a plan to  re-securitize  or sell the collateral or assets
underlying such  securities  within 120 days from the date of such redemption or
repurchase pursuant to Section 10(iv)(i),  provided however,  that such Liens do
not extend to or cover any  property or assets of the Company or any  Subsidiary
other than the property or assets securing the Indebtedness being refinanced;

     (f) Liens on Tax Liens in  connection  with the borrowing by the Company of
up to $5 million as permitted by Section 10(iv) above; and

     (g) Permitted Liens.

     (vii)  Limitations on Asset  Purchases.  The Company will not, and will not
permit  its  Subsidiaries  or  Affiliates  to,  purchase  assets in excess of $1
million in any calendar  quarter other than (i) in connection with Permitted Tax
Lien  Purchases,  and (ii) in  connection  with the  redemption or repurchase of
collateralized  securities  previously issued by the Company or its Subsidiaries
or  Affiliates  as  part  of a plan  to  resecuritize  or  sell  the  underlying
collateral,  provided  however,  that the  Company  believes  in good faith that
immediately  following the re-securitization or sale of the collateral or assets
underlying  such  securities  that the  Company  will be in a net cash  positive
position  relative  to  no  such  redemption  or  repurchase  of  collateralized
securities having taken place.

     (viii)  Eligible  Investments.  The  Company  covenants  and agrees for the
benefit of the  Holders  of the Senior  Notes that until such time as the Senior
Notes are no longer  outstanding,  all cash and cash  equivalents of the Company
and its  Subsidiaries  (other than Restricted  Cash/Cash  Equivalents)  shall be
invested only in Eligible  Investments,  provided,  however,  that the foregoing
shall not  prohibit  the Company  from using cash and cash  equivalents  for the
purposes otherwise permitted under the Indenture.

     SECTION 3.4.  Certain  Definitions in the Original  Officers'  Certificate.
Section 10 of the Original Officers' Certificate is hereby amended by adding the
following definitions:

         "Available  Amount" means,  on April 15, 2001,  June 1, 2001,  July 15,
2001,  September 1, 2001, October 15, 2001,  December 1, 2001, January 15, 2002,
March 1, 2002, April 15, 2002 and June 1, 2001, the cash and cash equivalents of
the Company and its  Subsidiaries,  on a  consolidated  basis,  less (i) amounts
necessary  to service  accrued  and unpaid  interest on the Senior  Notes,  (ii)
amounts  in  existence  as of April  15,  2001,  June 1,  2001,  July 15,  2001,
September 1, 2001,  October 15, 2001,  December 1, 2001, January 15, 2002, March
1, 2002,  April 15, 2002 and June 1, 2001 and  designated  by the Company for or
relating to payments and/or distributions permitted by Section 10(iii)(3) above,
(iii)  an  amount  not to  exceed  $3,000,000,  and  (iv)  Restricted  Cash/Cash
Equivalents.

         "Capitalized   Lease   Obligations"   means,  as  to  any  Person,  the
obligations  of such  Person  under a lease of any  property  by such  Person as
lessee  which,  in  conformity  with GAAP,  is required to be accounted for as a
capital  lease  on the  balance  sheet  of such  Person.  For  purposes  of this
Indenture,  the amount of such  obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.

         "Eligible  Investments"  means (i) marketable direct obligations issued
by, or unconditionally  guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case  maturing  within two years from the date of  acquisition  thereof;
(ii) marketable direct  obligations  issued by any state of the United States or
any  political  subdivision  of any  such  state or any  public  instrumentality
thereof  maturing within two years form the date of acquisition  thereof and, at
the time of acquisition,  having one of the two highest ratings  obtainable from
either  Standard  & Poor's  Ratings  Services,  a  division  of The  McGraw-Hill
Companies,  Inc. ("S&P"), or Moody's Investors Service, Inc. ("Moody's");  (iii)
commercial  paper  maturing  no more  than two years  from the date of  creation
thereof  and, at the time of  acquisition,  having a rating of at least A-1 from
S&P or at least P-1 from  Moody's;  (iv)  certificates  of deposit  or  bankers'
acceptances  maturing  within  two years  from the date of  acquisition  thereof
issued  by any  commercial  bank,  having  at the  date of  acquisition  thereof
combined capital and surplus of not less than $500,000,000,  organized under the
laws of the United  States or any state  thereof or the  District of Columbia or
any U.S. branch of a foreign bank; (v) repurchase obligations with a term of not
more than 30 days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications  specified in clause
(iv)  above;   and  (vi)   investments   in  money  market  funds  which  invest
substantially  all their assets in securities of the types  described in clauses
(i) through (v) above.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Maturity Date" means July 15, 2002.

     "Ordinary  Course  Trade  Debt"  means  accounts  payables  incurred in the
ordinary course of business,  including the deferred  purchase price of property
or services, provided however, that such amount shall not exceed $3 million.

     "Permitted  Liens"  means (i) Liens for taxes not yet subject to  penalties
for  non-payment  or which are being  contested in good faith and by appropriate
proceedings,  if adequate  reserve,  as may be required by GAAP, shall have been
made therefor, (ii) survey exceptions,  encumbrances,  easements or reservations
of, or rights of others for, rights of way,  sewers,  electric lines,  telegraph
and telephone lines and other similar purposes,  or zoning or other restrictions
on the use of real property, and (iii) Liens arising from judgments,  decrees or
attachments   expressly   permitted   under  the  terms  of  the   Indenture  in
circumstances not constituting an Event of Default.

     "Permitted  Subordinated  Indebtedness" means subordinated  Indebtedness of
the Company that:  (i) is unsecured and  subordinate  to the Senior Notes;  (ii)
prohibits  any payments  thereon  until the Senior  Notes are paid in full;  and
(iii) provides for a complete  "stand-still" of all acceleration rights or other
remedies while any Senior Notes are outstanding.

     "Permitted Tax Lien  Purchases"  means the purchase of Tax Liens secured by
real property in Allegheny County,  Pennsylvania or Cuyahoga County,  Ohio in an
amount not to exceed $10 million after the date hereof.

     "Qualified  Capital Stock" means,  with respect to any Person,  any Capital
Stock of such  Person  that is not  Disqualified  Stock or  convertible  into or
exchangeable or exercisable for Disqualified Stock.

     "Restricted  Cash/Cash  Equivalents" means cash and cash equivalents of the
Company  and  its  Subsidiaries  required  to be  held  (a)  by  trustees  under
indentures  or trust  agreements  related to the  securitizations  issued by the
Company's  Subsidiaries  or  Affiliates,  or (b) under escrow  agreements as set
forth on Schedule  1.1  attached  hereto;  provided,  that any such cash or cash
equivalents shall no longer be deemed Restricted  Cash/Cash  Equivalents at such
time as it is released from the applicable indenture,  trust agreement or escrow
agreement.

     "Tax Liens" means liens on real property securing unpaid real estate taxes,
accrued interest thereon, and related penalties, costs, fees and charges for the
failure of the  property  owner to pay such  taxes on time.  Tax Liens will also
include  any  property  owned as a  result  of the  realization  of the Tax Lien
through foreclosure.

     SECTION 3.5.  Certain  Definitions in the Original  Officers'  Certificate.
Section 10 of the Original  Officers'  Certificate is hereby amended by deleting
the  definitions  of  "Acquired  Indebtedness,"  "Cash  Equivalents,"  "Coverage
Ratio," "Default," "Equity  Interests,"  "Hedging  Obligations,"  "Investments,"
"Permitted   Investments,"   "Restricted   Investment,"  "Restricted  Payments,"
"Subordinated Indebtedness" and "Wholly Owned Subsidiary."

     SECTION 3.6.  Certain  Definitions in the Original  Officers'  Certificate.
Section 10 of the Original  Officers'  Certificate is hereby amended by deleting
the definitions of "Adjusted Consolidated  Indebtedness,"  "Disqualified Stock,"
and "Indebtedness" substituting the following definitions in lieu thereof:

     "Adjusted  Consolidated  Indebtedness"  of the Company means the sum of the
aggregate principal amount of all Indebtedness of the Company, on a consolidated
basis, minus the aggregate principal amount of the following  Indebtedness:  (i)
Indebtedness  under any loan  repurchase  agreements  or  repurchase  facilities
entered into in the ordinary course of business with an original maturity not to
exceed 180 days, (ii) Indebtedness under any warehouse line of credit, letter of
credit  or  similar  facility  secured  primarily  by  loans  held  for  sale or
securitization or tax-exempt bonds, (iii)  collateralized  bond obligations that
are  non-recourse  to the Company or its  Subsidiaries  or Affiliates,  and (iv)
Permitted Subordinated Indebtedness.

     "Disqualified  Stock" means, with respect to any Person,  any capital stock
or partnership  interest of such Person which by the terms of such capital stock
or  partnership  interest  (or by the  terms of any  security  into  which it is
convertible or for which it is exchangeable or exercisable), upon the occurrence
of any event or otherwise: (i) matures or is mandatory redeemable, pursuant to a
sinking fund obligation or otherwise;  (ii) is convertible  into or exchangeable
or exercisable for Indebtedness (other than Permitted Subordinated Indebtedness)
or Disqualified  Stock described by clause (i) or (iii) of this  definition;  or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the maturity of the Senior Notes.

     "Indebtedness" means with respect to any Person,  without duplication,  (i)
all obligations of such Person for borrowed money,  (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease  Obligations of such Person,  (iv) all obligations of such
Person issued or assumed as the deferred purchase price of property or services,
(v) all  conditional  sale  obligations  and all  obligations  under  any  title
retention agreement (but excluding trade accounts payable,  accrued expenses and
deferred taxes arising in the ordinary course of business), (vi) all obligations
of any other Person of the type referred to in clauses (i) through (v) which are
secured by any Lien on any property or asset of such first Person and the amount
of such obligation shall be the lesser of the value of such property or asset or
the amount of the obligation so secured, (vii) all guarantees of Indebtedness by
such Person, (viii) Disqualified Stock valued at the greater of its voluntary or
involuntary  maximum fixed repurchase  price plus accrued and unpaid  dividends,
and (ix) any amendment, supplement,  modification,  deferral, renewal, extension
or  refunding of any  liability of the types  referred to in clauses (i) through
(viii) above. For purposes hereof,  the "maximum fixed repurchase  price" of any
Disqualified  Stock which, by its terms,  does not have a fixed repurchase price
shall be calculated in accordance with the terms of such  Disqualified  Stock as
if such  Disqualified  Stock were  purchased  on any date on which  Indebtedness
shall be required to be determined pursuant to the Indenture.

     SECTION 3.7. Section 11 of the Original Officers'  Certificate.  Section 11
of the Original Officers'  Certificate is hereby deleted in its entirety and the
following is hereby inserted as Section 11 of the Officers' Certificate:

     "The Senior Notes shall be exchangeable  only as provided in Section 305 of
the Indenture. The form of the Senior Notes is attached hereto."

     SECTION  3.8.  Section  15  of  the  Original  Officers'  Certificate.  The
following shall be added as Section 15 of the Original Officers' Certificate:

     "15.  The  Senior  Notes  shall  be  subject  to the  following  additional
covenants and other terms:

     "(i)  Pledge Of  Collateral.  To secure  the  Secured  Obligations,  and in
consideration  of the promises and of the  covenants  herein  contained  and for
other good and valuable  consideration,  the receipt and sufficiency  whereof is
hereby acknowledged,  upon receipt by the Trustee of the Collateral, the Trustee
does  hereby  declare  that it holds as  security  trustee  in trust  under  the
Indenture  all of the right,  title and interest of the Trustee to and under the
Collateral, to hold the Collateral as security for, and as additional sources of
payment of, the Secured  Obligations,  and for the uses and purposes and subject
to the terms and provisions set forth in the Indenture.  The Collateral shall be
held in trust under and subject to the terms and conditions herein set forth for
the sole benefit of the Holders of the Senior Notes and for the  enforcement  of
the prompt and complete payment when due of the Secured Obligations held by them
and for the  performance  by the Company of its  obligations  under the Security
Documents.  Any  opinions  required by TIA Sections  314(b)(1)  and (2) shall be
delivered to the Trustee,  if, and at such time(s),  as required by TIA Sections
314(b)(1) and (2).

         As among the  Holders of the Senior  Notes,  the  Collateral  as now or
hereafter  constituted  shall be held for the equal and  ratable  benefit of the
Holders of the Senior Notes without  preference,  priority or distinction of any
thereof  over any other by reason of  difference  in time of  issuance,  sale or
otherwise, as security for the Senior Notes.

         (ii)  Satisfaction  And Discharge;  Defeasance.  The Company and Issuer
Holding  Corp.  shall  be  entitled  to  obtain  a  full  release  of all of the
Collateral  from the Lien in respect of the Security  Documents upon  compliance
with all of the  conditions  precedent  for  satisfaction  and  discharge of the
Indenture set forth in Section 401 of the Indenture or for  defeasance  pursuant
to  Section  1402 of the  Indenture,  with  respect to the  Senior  Notes.  Upon
delivery  by the Company to the Trustee of Board  Resolutions  authorizing  such
actions and an  Officers'  Certificate  and an Opinion of  Counsel,  each to the
effect that all of the  conditions  precedent have been complied with (which may
be the same  Officers'  Certificate  and Opinion of Counsel  required by Article
Fourteen of the Indenture),  the Trustee shall take all necessary action, at the
written  request and  expense of the  Company,  to release  and  reconvey to the
Company and Issuer Holding Corp. (as the case may be) all of the Collateral, and
shall  deliver  such  Collateral  in its  possession  to the  Company and Issuer
Holding Corp. (as the case may be).

         (iii) Trust Indenture Act  Requirements.  The release of any Collateral
from the Lien in respect of the Security  Documents will not be deemed to impair
such Lien in  contravention  of the  provisions  hereof if and to the extent the
Collateral is released pursuant to the Pledge Agreement, the Security Agreement,
and  pursuant  to  the  terms  hereof.  Each  of the  Holders  of  Senior  Notes
acknowledge  that a release of Collateral  strictly in accordance with the terms
of the Pledge Agreement,  the Security Agreement,  and the terms hereof will not
be deemed  for any  purpose  to be an  impairment  of the Lien in respect of the
Security  Documents  in  contravention  of the terms of the  Indenture.  Without
limitation,  the Company and each other  obligor on the Senior Notes shall cause
TIA Section  314(d)  relating to the release of property or securities  from the
Lien in respect of the Security  Documents to be complied with. Any  certificate
or  opinion  required  by TIA  Section  314(d)  may be made by an officer of the
Company, except in cases which TIA Section 314(d) requires that such certificate
or opinion be made by an independent Person.

         (iv) Purchaser Protected. In no event shall any purchaser in good faith
of any Collateral  purported to be released  hereunder be bound to ascertain the
authority  of the  Trustee  to  execute  the  release  or to  inquire  as to the
satisfaction  of any  conditions  required  by the  provisions  hereof  for  the
exercise of such  authority or to see to the  application  of any  consideration
given by such  purchaser or other  transferee;  nor shall any purchaser or other
transferee of any  Collateral  permitted by this Section  Fifteen to be released
under  obligation  to ascertain or inquire into the  authority of the Company to
make any such or other transfer.

         (v) Determinations Relating To Collateral. In the event (A) the Trustee
shall receive any written  request from the Company  and/or Issuer Holding Corp.
under any of the Security  Documents for consent or approval with respect to any
matter or thing  relating to any  Collateral or the Company's or Issuer  Holding
Corp.'s  obligations with respect thereto (including,  without  limitation,  the
determination as to whether any portion of the Collateral  constitutes  released
Collateral)  or (B)  there  shall  be due  to or  from  the  Trustee  under  the
provisions of any of the Security  Documents any  performance or the delivery of
any  instrument  or  (C)  the  Trustee  shall  be  notified  in  writing  of any
nonperformance by the Company and/or Issuer Holding Corp. of any covenant or any
breach of any  representation  or warranty of the Company  and/or Issuer Holding
Corp. set forth in any of the Security Documents,  then, in each such event, the
Trustee may consult  with any expert,  consultant,  agent or attorney for advice
with respect thereto.  The Trustee shall be fully protected in the taking of any
action recommended or approved by any such expert, consultant, agent or attorney
or agreed to by a majority of Holders of Senior Notes pursuant to Section 602 of
the Indenture.

         (vi) Form and  Sufficiency  of  Release.  In the event that the Company
and/or Issuer Holding Corp.  has sold,  exchanged,  or otherwise  disposed of or
proposes to sell, exchange or otherwise dispose of any portion of the Collateral
which under the provisions of the Security  Documents may be sold,  exchanged or
otherwise  disposed of by the  Company  and/or  Issuer  Holding  Corp.,  and the
Company,  upon delivery of an Officers'  Certificate,  Board  Resolutions and an
Opinion  of  Counsel,  requests  in  writing  the  Trustee  to furnish a written
disclaimer, release or quitclaim of any interest in such Collateral under any of
the Security  Documents,  the Trustee,  subject to Section  15(ii) above,  shall
promptly  execute  such  an  instrument   promptly  after  satisfaction  of  the
conditions   set  forth  in  Section   15(ii)  for  delivery  of  such  release.
Notwithstanding  the  preceding  sentence,  all  purchasers  and grantees of any
Collateral  purported to be released herefrom shall be entitled to rely upon any
release executed by the Trustee  hereunder as sufficient for the purposes of the
Indenture and as  constituting a good and valid release of the property  therein
described from the Lien in respect of the Security Documents.

         (vii) Release Upon  Termination  of the Company's  Obligations.  In the
event that the  Company  delivers  an  Officers'  Certificate  and an Opinion of
Counsel  certifying  that the provisions of Section 401 or 1402 of the Indenture
with respect to the Senior Notes have been complied  with, the Trustee shall (a)
execute and deliver such releases,  termination statements and other instruments
as the Company may reasonably  request in writing  evidencing the termination of
the Lien in respect of the Security Documents and (b) not be deemed to hold such
Liens for the benefit of the Holders.

     (viii) Acceleration of Maturity; Remedies; Rescission and Annulment.

     (1)  Notwithstanding  any other provision in the Indenture,  if an Event of
Default with respect to Senior Notes occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the  Outstanding  Senior  Notes may declare the  principal  of all the
Senior  Notes to be due and payable  immediately,  by a notice in writing to the
Company  (and to the  Trustee  if  given  by the  Holders),  and  upon  any such
declaration  such  principal  and the  accrued  interest  thereon,  if  any,  or
specified portion thereof shall become immediately due and payable.

     (A) At any time after such a declaration  of  acceleration  with respect to
the Senior  Notes has been made and before a judgment  or decree for  payment of
the money due has been  obtained by the Trustee as  hereinafter  in this Section
provided,  the  Holders  of a  majority  in  aggregate  principal  amount of the
Outstanding Senior Notes, by written notice to the Company and the Trustee,  may
rescind and annul such declaration and its consequences if:

     (i) the Company has paid or deposited  with the Trustee a sum sufficient to
pay in the currency or currency  unit or composite  currency in which the Senior
Notes are payable:

     (a) the principal of (and premium, if any, on) any Outstanding Senior Notes
which have become due otherwise  than by such  declaration of  acceleration  and
interest  thereon at the rate or rates borne by or  provided  for in such Senior
Notes,

     (b) to the extent that payment of such  interest is lawful,  interest  upon
overdue installments of interest at the Overdue Rate, and

     (c) all sums paid or advanced by the Trustee under the  Indenture,  and the
reasonable  compensation,  expenses,  disbursements and advances of the Trustee,
its agents and counsel,  and any other  amounts due to the Trustee under Section
606 of the Indenture; and

     (ii) All Events of Default with respect to the Senior Notes, other than the
nonpayment  of the  principal of (or premium,  if any) or interest on the Senior
Notes which have become due solely by such  declaration  of  acceleration,  have
been cured or waived as provided in Section 513 of the Indenture.

     (B) No such  rescission  shall affect any subsequent  default or impair any
right consequent thereon.

     (2)  Notwithstanding  any other provision in the Indenture,  if an Event of
Default with respect to the Senior Notes occurs and is  continuing,  then and in
every such case the Trustee,  subject to the rights and  immunities set forth in
Article Six of the Indenture, may:

     (A) exercise  all of the rights and  remedies in respect of the  Collateral
under  applicable  law and  all of the  rights  and  remedies  conferred  in the
Indenture and in the other Security Documents, and

     (B) exercise  all of the rights and  remedies of a secured  party under the
Uniform Commercial Code of any applicable  jurisdiction,  and may (but shall not
be  obligated  to) proceed to protect and enforce the  Indenture  and any of the
other Security  Documents by suit or suits or proceedings at law, in equity,  in
bankruptcy  or  otherwise,  and  whether  for the  specific  performance  of any
covenant or agreement herein or therein  contained or in execution or aid of any
power therein or therein granted, or for foreclosure hereunder or thereunder, or
for the  appointment  of a receiver or receivers for the  Collateral or any part
thereof or for the enforcement of any legal, equitable or other remedy available
under applicable law, and

     (C)  protect  and  enforce  the  Indenture  or any one or more of the other
Security  Documents  by suit or suits  or  proceedings  at law,  in  equity,  in
bankruptcy  or  otherwise,  and  whether  for the  specific  performance  of any
covenant or agreement herein or therein  contained or in the execution or aid of
any power  herein or  therein  granted,  or for the  enforcement  of any  legal,
equitable or other remedy available under applicable law.

     (3) Notwithstanding  any other provision in the Indenture,  the Trustee may
(but shall not be obligated to) act, if any Event of Default exists with respect
to the Senior Notes,  where action is reasonably  required  before any necessary
instructions may be received in accordance with the Indenture,  to the extent it
deems necessary and without instruction from the Holders of the Senior Notes, in
order to

     (A) protect the Collateral,

     (B) instruct or give any notice to the Company, or

     (C) otherwise promote and protect the interests of the Holders.

     (ix) Application of Money Collected. Notwithstanding any other provision in
the Indenture,  the proceeds of any exercise of rights pursuant to this Section,
including,  but not  limited  to, the  proceeds  of any  exercise of rights with
respect to the Collateral,  or any part thereof, shall be paid to and applied as
follows:

     (1)  First  -- to the  payment  of all  amounts  due  the  Trustee  and any
predecessor Trustee under Section 606 of the Indenture;

     (2) Second -- to the payment of

     (A) costs and expenses of foreclosure or suit, if any, and of any permitted
sale, and of all proper expenses,  liabilities and advances,  including, without
limitation, fees and expenses of attorneys, agents and experts, incurred or made
hereunder or under the other  Security  Documents by the Trustee with respect to
the Collateral, and

     (B) all taxes,  assessments or Liens superior to the Lien in respect of the
Security  Documents,  except  any taxes,  assessments  or other  superior  Liens
subject to which such sale may have been made;

     (3) Third -- to the  payment of the  amounts  then due and unpaid  upon the
Senior  Notes and coupons  for  principal  (and  premium,  if any) and  interest
payable,  in  respect  of which or for the  benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
aggregate amounts due and payable on such Senior Notes and coupons for principal
(and premium, if any), and interest, respectively; and

     (4) Fourth -- to the payment of the remainder, if any, to the Company.

        (x) Unconditional  Right of Holders to Receive  Principal,  Premium,  if
any, Interest and Additional Amounts. Notwithstanding any other provision in the
Indenture,  the Holder of any Senior Note or coupon shall have the right,  which
is absolute  and  unconditional,  to receive  payment of the  principal  of (and
premium, if any) and (subject to Sections 305 and 307 of the Indenture) interest
     on, such Security or payment of such coupon on the respective due dates
expressed in such Senior Note or coupon (or, in the case of  redemption,  on the
Redemption  Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder, except
to the extent that the  institution  or prosecution of such suit or the entry of
judgment  therein  would,   under  applicable  law,  result  in  the  surrender,
impairment, waiver or loss of the Lien in respect of the Security Documents upon
the Collateral.

     (xi)  Maintenance  of Liens.  So long as the Indenture  shall not have been
satisfied and discharged as set forth in Section 401 of the Indenture in respect
to the Senior  Notes,  or until the  defeasance  of the  Indenture  pursuant  to
Section 1402 of the Indenture in respect to the Senior Notes,  the Trustee will,
solely for the benefit of the Holders of the Senior Notes,

     (A) execute  continuation  statements under the Uniform  Commercial Code of
the specified  jurisdictions  with respect to those UCC-1  financing  statements
listed in the Opinion of Counsel from the Company, and deliver such continuation
statements  to the Company for  filing,  provided,  that at least six (6) months
prior to the  expiration  of such UCC-1  financing  statements,  the Company has
delivered to the Trustee an Opinion of Counsel and written  notice setting forth
the requirement to file such continuation statements; and

     (B) upon receipt of written instruction by the Holders of not less than 25%
in  aggregate  principal  amount of the  Outstanding  Senior  Notes,  and at the
expense of the Company,  execute, procure,  acknowledge,  deliver and record, or
cause to be executed,  procured,  acknowledged,  delivered or recorded, all such
further  instruments,   deeds,  conveyances,   mortgages,  transfers,  financing
statements,   continuation   statements  and  assurances  as  reasonably  deemed
necessary  by such  Holders  subject  to the  Lien in  respect  of the  Security
Documents,  and to  preserve,  continue  and  protect the Lien in respect of the
Security Documents on, all or any portion of the Collateral.

Definitions.  As used herein,

     "Collateral" means,  collectively,  all of the property and assets that are
from time to time subject to the Pledge Agreement and the Security Agreement and
all other  property  and  assets  that are from time to time  made  subject,  or
required to be made subject,  to Liens for the benefit of the Trustee and of the
Holders  pursuant  to  the  Pledge  Agreement,  the  Security  Agreement  or the
Indenture.

     "Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's length free market  transaction,  for cash,  between a
willing seller and a willing  buyer,  neither of whom is under undue pressure or
compulsion to complete the transaction.  Unless otherwise specified herein, Fair
Market  Value  of any  asset  of the  Company  and  its  Subsidiaries  shall  be
determined  by the Board of  Directors  of the Company  acting in good faith and
shall be evidenced by a Board Resolution thereof delivered to the Trustee.

     "Lien"  means  (x) any lien,  mortgage,  deed of  trust,  pledge,  security
interest, charge or encumbrance of any kind including,  without limitation,  any
conditional  sale or other title  retention  agreement,  any lease in the nature
thereof,  any option or other  agreement  to sell,  any  setoff,  recoupment  or
repurchase  arrangement  and any  filing  of or  agreement  to file a  financing
statement as debtor under the Uniform Commercial Code or any similar statute and
(y) any agreement to enter into any of the foregoing.

     "Pledge  Agreement"  means the  Indemnity  Pledge  Agreement,  of even date
herewith, by Issuer Holding Corp., a wholly-owned  subsidiary of the Company, in
favor  of the  Trustee,  as the  same  may be  amended,  amended  and  restated,
supplemented  or otherwise  modified  from time to time in  accordance  with its
terms.

     "Security Agreement" means the Pledge and Security Agreement,  of even date
herewith,  by the Company in favor of the  Trustee,  as the same may be amended,
amended and restated,  supplemented  or otherwise  modified from time to time in
accordance with its terms.

     "Security  Documents"  means  the  Indenture,  the  Pledge  Agreement,  the
Security  Agreement,  the  Senior  Notes  and  each  other  security  agreement,
financing  statement  or other  instrument  pursuant to which any of the Secured
Obligations shall be secured from time to time.

     "Secured  Obligations" means, at any time, all obligations and undertakings
of the Company in respect of the principal of, and interest, on the Senior Notes
at such  time and the  payment  of all  other  amounts  payable,  and all  other
indebtedness owing, by the Company thereunder and under the Indenture, including
without  limitation  all  amounts due to the  Trustee  under  Section 606 of the
Indenture."

     SECTION  3.9.  Section  16  of  the  Original  Officers'  Certificate.  The
following shall be added as Section 16 of the Original Officers' Certificate:

         "16. Any legal action or  proceeding  arising out of or relating to the
Senior Notes,  other than in connection  with suits for the  enforcement  of any
payment on the Senior Notes on or after the Stated  Maturity  thereof,  shall be
brought in the state or federal courts of Virginia, and the Holder of any Senior
Note hereby expressly submits to the exclusive  personal  jurisdiction and venue
of such  courts  for the  purposes  thereof  and  expressly  waives any claim of
improper venue and any claim that such courts are an inconvenient forum."

                                   ARTICLE IV

                                  MISCELLANEOUS

     SECTION 4.1. Execution of Counterparts.  This Supplement may be executed in
several counterparts,  each of which shall be an original and all of which shall
constitute but one and the same instrument.

     SECTION  4.2.  Governing  Law.  This  Supplement  shall be  governed by and
construed  in  accordance  with the laws of the  jurisdiction  which  govern the
Indenture and its construction.

     SECTION 4.3. Binding Effect.  This Supplement shall inure to the benefit of
and shall be binding upon the Trustee and its  successors  and assigns,  and the
Company and its successors and assigns.

     SECTION 4.4. Trustee. The recitals contained herein and in the Senior Notes
shall  be  taken  as  statements  of the  Company  and the  Trustee  assumes  no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Supplement, the Senior Notes or the security
afforded hereby or thereby.
Exhibit  99.4

                         PLEDGE AND SECURITY AGREEMENT

     THIS PLEDGE AND SECURITY  AGREEMENT  (this  "Agreement") is dated as of the
30th day of  March,  2001,  by and  between  DYNEX  CAPITAL,  INC.,  a  Virginia
corporation  ("Dynex"),  and HSBC Bank  USA,  a  banking  corporation  and trust
company duly organized and existing under the laws of the State of New York (the
"Trustee"),  as  Trustee on behalf of the  holders  (the  "Holders")  of Dynex's
7.875%  Senior  Notes Due July 15, 2002 (the  "Securities")  under an  Indenture
dated July 14,  1997,  as amended  by,  among  things,  that  certain  Officers'
Certificate dated July 14, 1997 (the "Original  Officers'  Certificate") and the
"Supplemental  Indenture"  described  below (such  Indenture,  as  amended,  the
"Indenture") between Dynex and the Trustee.

                               W I T N E S S E T H:
                               - - - - - - - - - -

     WHEREAS, in order to induce a sufficient number of Holders to consent to an
amendment to the Indenture  effected by a Supplemental  Trust  Indenture of even
date herewith  (the  "Supplemental  Indenture"),  Dynex has agreed to enter into
this Agreement and in so doing to grant a security  interest to the Trustee,  on
behalf of all  Holders,  in certain  assets of Dynex to secure  repayment of all
obligations of Dynex relating to the Securities,  all as more  particularly  set
forth below; and

     WHEREAS, unless otherwise defined herein or the context otherwise requires,
the capitalized  terms used herein shall have the same meanings assigned to them
in the Indenture.

     NOW,  THEREFORE,  in  consideration of the foregoing and in order to induce
certain of the Holders to consent to an amendment to the  Indenture  effected by
the Supplemental Indenture, Dynex hereby agrees with the Trustee as follows:

     1. Pledge.  In order to secure the payment in full of (i) all  principal of
and interest on the Securities as and when the same become due and payable under
the Indenture  (whether by lapse of time,  acceleration or otherwise),  (ii) all
other fees and charges  payable by Dynex and/or Issuer Holding Corp., a Virginia
corporation and a wholly-owned  subsidiary of Dynex ("IHC"),  under the terms of
this Agreement,  an Indemnity Pledge Agreement of even date herewith between IHC
and the Trustee,  the  Securities and the Indenture  (collectively,  the "Senior
Note Documents"),  (iii) all other indebtedness,  obligations and liabilities of
Dynex  and/or IHC arising  under,  and the  observance  and  performance  of all
covenants  and  agreements  contained in, the Senior Note  Documents,  including
without limitation all amounts due to the Trustee pursuant to Section 606 of the
Indenture,  and (iv) all  expenses and charges,  legal or  otherwise,  including
reasonable attorneys' fees, suffered or incurred by the Trustee in collecting or
enforcing  payment of any of the Securities or in realizing upon,  protecting or
preserving  any  collateral  security  for any  such  indebtedness  (all of such
indebtedness,  obligations  and  liabilities  referred  to  in  the  immediately
foregoing clauses (i) through (iv) being hereinafter collectively referred to as
the  "Obligations"),  Dynex hereby  grants to the Trustee,  its  successors  and
permitted  assigns,  a  continuing  security  interest  in,  and  pledges to the
Trustee,  the following  property,  whether now owned or hereafter  acquired and
wherever held (collectively, the "Collateral"):

     (a) all shares of the  outstanding  equity  securities held by Dynex in the
subsidiaries listed on Schedule 1(a) attached hereto and made a part hereof (the
"Subsidiaries");

     (b) any and all  additional  shares of any  class of stock or other  equity
securities of any of the Subsidiaries, or any other subsidiaries of Dynex, which
Dynex may from time to time acquire,  directly or  indirectly,  between the date
hereof and the date of the  satisfaction  and  discharge of the  Indenture  with
respect to the  Securities in accordance  with Section 401 thereof or defeasance
pursuant to Section 1402 thereof;

     (c) the assets  described on Schedule 1(c) attached  hereto and made a part
hereof;

     (d) the  "Collateral  Account"  described in Section 9(a) hereof,  together
with (i) all cash, credit balances,  securities,  financial assets, instruments,
investment property,  accounts,  contract rights,  general intangibles and other
property of whatever kind or description  now or hereafter in or credited to the
Collateral Account, (ii) all proceeds thereof or income therefrom, and (iii) all
security entitlements in respect thereof;

     (e) the  "Collection  Account"  described in Section 9(b) hereof,  together
with (i) all amounts deposited therein and all certificates and instruments,  if
any, from time to time  representing  or evidencing  such  Collateral,  (ii) all
interest, cash and monies,  instruments and other property or proceeds from time
to time  received,  receivable  or  otherwise  distributed  in  respect of or in
exchange for any or all of the  foregoing  Collateral,  and (iii) all rights and
privileges of Dynex with respect to the foregoing Collateral;

     (f) all  supporting  evidence  and  documents  relating to any of the above
described property,  including without limitation the books and records relating
thereto;

     (g) all accessions and additions to and  substitutions  and replacements of
any and all of the  foregoing,  whether  now  existing or  hereafter  arising or
attaching; and

     (h) all cash and non-cash proceeds of the foregoing (subject
to Section 3 hereof),  including  (without  limitation)  all dividends and other
distributions.

     In order to  continuously  perfect the security  interest in the Collateral
granted under Section 1(a) above, Dynex has,  simultaneously  with the execution
hereof,  physically delivered to the Trustee the stock certificates representing
said shares of stock in the  subsidiary  corporations  listed on  Schedule  1(a)
(which stock  certificates  are accompanied by appropriate  undated stock powers
duly executed by Dynex in blank).

     2. Conditional  Pledge.  In order to further secure the Obligations,  Dynex
hereby grants to the Trustee, its successors and permitted assigns, a continuing
security  interest  in, and pledges to the Trustee,  the  property  described on
Schedule 2 attached hereto and made a part hereof; provided,  however, that such
grant shall not become  effective until the repurchase of such property by Dynex
pursuant to that certain Master  Repurchase  Agreement dated as of April 7, 2000
between Dynex and Lehman Brothers,  Inc. and Lehman Commercial  Paper,  Inc., as
amended and supplemented by those certain Addendum  Agreements dated as of April
7, 2000 and April 18, 2000 (such agreement, as so amended and supplemented,  the
"Lehman Repurchase Agreement"),  in a transaction in which Dynex does not, on or
about the date of such transaction, enter into any similar repurchase or similar
arrangement  that  effectively  refinances  its  obligations  under  the  Lehman
Repurchase  Agreement.  Upon  the  effectiveness  of the  foregoing  grant  such
property  shall be deemed  "Collateral"  hereunder for all  purposes,  and Dynex
shall promptly (i) notify the Trustee in writing of such  effectiveness and (ii)
execute and deliver all further instruments and documents,  and take all further
action, that may be necessary or desirable,  in order to perfect and protect the
security interest granted pursuant to this Section 2.

     3. Sale of Certain  Collateral.  Notwithstanding any provision hereof or of
the  Indenture  to the  contrary,  unless  and until an "Event of  Default"  (as
hereinafter defined) has occurred and is continuing,  Dynex may, without further
consent or approval of the Trustee, sell, assign,  transfer,  lease or otherwise
dispose  of  (each,  a  "Permitted  Disposition")  all  or  any  portion  of the
Collateral,  including without limitation the Collateral described on Schedule 3
attached hereto and made a part hereof;  provided,  however, that Dynex shall be
permitted  to use the  proceeds of any such  Permitted  Disposition  (net of any
expenses  incurred in connection with any such Permitted  Disposition) only in a
manner  permitted  by the  Original  Officers'  Certificate,  as  amended by the
Supplemental Indenture; and provided, further, that until any such permitted use
of net proceeds,  such net proceeds shall be deposited in the Collection Account
and shall  remain  cash  Collateral  subject to the  security  interest  created
hereunder.  Promptly  upon  written  notice  from  Dynex of any  such  Permitted
Disposition,  the Trustee  shall  execute  and  deliver to Dynex such  releases,
termination  statements and estoppel certificates as Dynex may reasonably direct
in writing;  provided that all such  documents  shall be prepared,  reviewed and
filed or recorded at Dynex's sole cost and expense.

         4. Event of  Default;  Remedies.  Each and every  "Event of Default" as
defined in the Indenture,  including without limitation any failure by Dynex for
30 days after notice to comply with any of its agreements herein, and any breach
by Dynex of its obligations under Section 9(a) or Section 9(b) hereof within the
time periods  therein  specified  (without regard to any grace or cure periods),
shall constitute an "Event of Default" hereunder. Upon the occurrence and during
the  continuation  of any such Event of Default,  the Trustee  shall be entitled
(but  shall  not be  obligated)  to  exercise  any one or more of the  following
remedies:

     (a) The  Trustee  may from time to time take  whatever  action at law or in
equity  is  necessary  or  desirable  in order to  collect  the  moneys  payable
hereunder or secured  hereby or to enforce  performance  and  observance  of any
obligation, agreement or covenant hereunder.

     (b)  The  Trustee  may  foreclose  its  security  interest  in  any  of the
Collateral  in any  way  permitted  by  applicable  law;  and  the  Trustee  may
thereupon,  or at any time  thereafter,  without  notice or demand  (except such
notice as may be  specifically  required by applicable  law) and with or without
having the Collateral at the time or place of sale, sell, assign, give option or
options to purchase or otherwise  dispose of and deliver the  Collateral  or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
any public or private  sale or sales,  in the  over-the-counter  market,  at any
exchange,  broker's  board or office of the Trustee or elsewhere upon such terms
and conditions as it may determine and at such prices as it may  determine,  for
cash or on credit or for future delivery without  assumption of any credit risk.
In the exercise of such remedy,  the Trustee may sell all of the Collateral as a
unit  even  though  the sales  price  thereof  may be in  excess of the  amounts
remaining unpaid on the Obligations. At any such public sale the Trustee may bid
for and become the purchaser of all or any part of the Collateral, and such sale
or sales may be held without demand of performance, notice of intention to sell,
the time or place of sale or any other matter,  except for such notice as may be
specifically  required  by law;  and the  purchaser  at any  such  sale or other
disposition  shall  thereafter hold the Collateral sold absolutely free from any
claim or right of Dynex of whatsoever kind, including any right of redemption of
Dynex,  all such rights being hereby  expressly  waived and released by Dynex to
the extent permitted by law.

     (c) The Trustee may apply for a receiver  for the  Collateral  and may sell
the  Collateral  pursuant to a judicial  sale,  and Dynex hereby  assents to the
passage of a decree for the sale of any of the  Collateral  by any court  having
jurisdiction.  Dynex  hereby  authorizes  and  empowers  the Trustee to sell its
interest  in  the  Collateral  in  accordance  with  any  applicable  law.  Such
Collateral  or any  interest  therein may be sold upon such terms and in as many
lots as the Person  conducting the sale may, in its sole  discretion,  elect. No
readvertisements  of any sale  shall be  required  if the sale is  adjourned  by
announcement,  at the time or place set therefor,  of the date, time or place to
which the same is to be adjourned.

     (d) The Trustee may exercise any and all rights of conversion,  exchange or
subscription  and any other rights,  privileges or options  pertaining to any of
the  Collateral,  as if the Trustee were the absolute owner  thereof,  including
(without  limitation)  the right to exchange any and all of the Collateral  upon
the   merger,   consolidation,   reorganization,   recapitalization   or   other
readjustment  of any  Subsidiary  or upon the  exercise  by or on  behalf of any
Subsidiary or the Trustee of any right, privilege or option pertaining to any of
the Collateral.

     (e) The  Trustee  may take any or all of the  following  actions:  (i) take
possession of the Collateral  pursuant  hereto without legal process and without
incurring  liability to Dynex  therefor for the purpose of exercising its rights
hereunder;  (ii) deliver a "Notice of Exclusive  Control" in accordance with the
account control agreement  referred to in Section 9(a) hereof; and (iii) deliver
a "Notice of Effectiveness"  in accordance with the "Blocked Account  Agreement"
(as hereinafter defined).

     (f) The Trustee may  exercise any other right or remedy with respect to any
of the  Collateral  given  to  secured  parties  under  the  applicable  Uniform
Commercial  Code in  effect  in the  State of New York  from  time to time  and,
without  limitation  of the  generality  of the  foregoing,  as the  same may be
amended  by  Revised  Article  9 (the  "UCC").  "Revised  Article  9" means  the
provisions of New York S7484,  introduced  April 17, 2000,  containing  proposed
revisions to Article 9 of the UCC which would become  effective July 1, 2001, as
such provisions may be modified from time to time.

     (g) Any notification required by Section 9-504 (or any successor provision)
of the UCC shall be deemed  reasonably  and  properly  given if deposited in the
mail, certified or registered mail, postage prepaid, to Dynex, at least ten (10)
days before any sale or disposition of any of the Collateral which is subject to
the UCC.

     (h) Any proceeds received from the exercise of any remedy hereunder,  after
deducting  therefrom  any  and all  costs  and  expenses  incurred  in  securing
possession  of any  Collateral,  in  shipping  and storing  the  Collateral,  in
preparing the Collateral for sale or otherwise  dealing with Collateral prior to
any sale or other  disposition  thereof and in connection with the sale or other
disposition thereof (including,  without limitation,  reasonable  attorneys' and
accountants'  fees and  expenses  and  brokers'  commissions),  shall be applied
toward  the  payment  of any and all  amounts  due under or with  respect to the
Obligations,  including  interest  thereon,  and all other  costs  and  expenses
incurred by the Trustee in connection with this Agreement or the Indenture which
are then due and payable, in such order and amounts as the Trustee may elect. If
such net proceeds should be insufficient to pay the same and a deficiency  shall
result, Dynex shall nevertheless remain liable for such deficiency;  and if such
proceeds  should be more  than  sufficient  to pay the  same,  then in case of a
surplus,  such surplus  shall be accounted for and, if any amounts due under the
Obligations remain outstanding, retained by the Trustee, who shall hold the same
as security for the payment of the Obligations; otherwise, such surplus shall be
paid over to Dynex or to  whomsoever  a court of  competent  jurisdiction  shall
determine to be entitled thereto.

                  (i) Dynex  recognizes that the Trustee may be unable to effect
a public sale of any or all of the Collateral, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities  Act"), and
applicable state securities laws or otherwise, and may be compelled to resort to
one or more private sales thereof to a restricted group of purchasers which will
be obliged to agree,  among other things,  to acquire such  securities for their
own account for  investment  and not with a view to the  distribution  or resale
thereof.  Dynex acknowledges and agrees that any such private sale may result in
prices and other terms less  favorable  to the Trustee  than if such sale were a
public  sale and agrees  that no such  private  sale shall be deemed not to have
been  made  in a  commercially  reasonable  manner  solely  by  virtue  of  such
circumstances.  The Trustee  shall be under no obligation to delay a sale of any
of the  Collateral for the period of time necessary to permit the issuers of the
securities   constituting  any  portion  of  the  Collateral  to  register  such
Collateral  for public sale under the  Securities Act (and Dynex and the issuers
shall have no obligation to do so), or under  applicable  state securities laws,
even if the issuers would agree to do so.

     5.  Representations,  Warranties  and Covenants.  Dynex hereby  represents,
warrants and covenants to the Trustee as follows:

     (a) Dynex is a corporation  duly  organized,  validly  existing and in good
standing under the laws of the Commonwealth of Virginia. Dynex has the corporate
power, authority and legal right to execute, deliver and perform this Agreement.
This Agreement has been duly authorized and validly executed and delivered by an
authorized  officer  of Dynex and  constitutes  the  legal,  valid  and  binding
obligations of Dynex, enforceable against it in accordance with this Agreement's
terms.

     (b) Set forth on Schedule 5(b) hereto is a description of all of the assets
and property  used  exclusively  in the business of Dynex as presently  operated
that are not included as Collateral  hereunder or otherwise subject to Section 2
hereof (the  "Excluded  Assets").  The  Collateral,  the  property  described on
Schedule 2 hereto and the Excluded  Assets  constitute,  directly or indirectly,
all of the assets or property used in the business of Dynex and its subsidiaries
as presently operated.

     (c)  Dynex  is and  will  remain  the  true  and  lawful  owner  of all the
Collateral and, except for the security  interest  created  hereunder and except
for "Permitted Liens" (defined below), it has and will continue to have good and
marketable title thereto,  free and clear of all liens, charges and encumbrances
whatsoever.

     (d)  Except  for  liens  or  security  interests  permitted  under  Section
10(vi)(a) through (g) of the Original Officers'  Certificate,  as amended by the
Supplemental Indenture ("Permitted Liens"), and except as expressly permitted by
Section 3 hereof,  Dynex will not,  without the Trustee's  prior written consent
(upon written instructions from the Holders of a majority in aggregate principal
amount outstanding of the Securities) sell, assign,  factor,  mortgage,  pledge,
encumber,  transfer,  lease or otherwise dispose of or otherwise grant or suffer
to exist any Lien with respect to, the Collateral or any part thereof.

     (e) This Agreement creates a valid security interest in the Collateral and,
as of the date hereof,  the security  interest of the Trustee in the  Collateral
has  been  duly  perfected  under  the  UCC or  other  applicable  law in  every
appropriate  jurisdiction  and, except for Permitted Liens,  constitutes a first
priority lien upon the  Collateral and every part thereof;  and Dynex  covenants
that the Trustee's security interest shall, except for Permitted Liens, remain a
first priority lien upon the Collateral so long as any of the Obligations  shall
remain outstanding.

     (f)  Dynex has and will  continue  to have  full  legal  power and right to
pledge and grant the security  interest  conveyed  hereby in the  Collateral and
every part thereof;  the making of such pledge and the granting of such security
interest  do not and will not  violate the  provisions  of any law,  regulation,
contract,  agreement,  restrictive covenant or legend, order of court, corporate
charter or bylaw,  stockholders agreement or other instrument binding upon it or
any part of the Collateral;  and no consent or approval of any governmental body
or regulatory authority,  or any securities exchange, was or is necessary to the
validity or effectiveness thereof.

     (g)  Dynex is and  shall  at all  times  remain  the  sole  registered  and
beneficial owner of all shares of capital stock or other equity interests now or
hereafter  issued  by any  Subsidiary;  it will not  sell,  transfer,  assign or
encumber any such shares of capital  stock or other  equity  interests to or for
the benefit of any person or entity  other than the Trustee;  and neither  Dynex
nor any  Subsidiary has made or shall make any  commitments  for the issuance or
transfer of any such capital stock or other equity  interests under any options,
warrants or other similar rights.

     (h)  Dynex's  chief  executive  office and  principal  place of business is
located at 4551 Cox Road,  Suite 300, Glen Allen,  Virginia 23060, and Dynex has
no other offices or places of business in Virginia.

     6. Dividends/Distributions. Upon the occurrence and during the continuation
of any Event of Default,  Dynex shall  deliver to the  Trustee,  and the Trustee
shall be entitled to receive,  all dividends or similar  distributions paid upon
or in respect of the  Collateral  and the  Trustee  shall,  in the case of cash,
apply such dividends and  distributions  to the payment of the  Obligations  (in
whatever  order and  priority it may elect) and shall,  in the case of all other
property,  hold such property pursuant hereto as part of the Collateral  pledged
under and subject to the terms of this Agreement. So long as no Event of Default
or shall have occurred and be continuing,  Dynex shall have the right to receive
and retain all dividends or similar distributions paid upon or in respect of the
Collateral.

     7. Voting Rights.  Upon the occurrence and during the  continuation  of any
Event of Default,  the Trustee may (but shall not be obligated  to) exercise all
voting  rights  and all other  rights  conferred  on the owner of any  shares of
capital stock or other equity interests  included among the Collateral.  So long
as no Event of Default or shall have  occurred  and be  continuing,  Dynex shall
have the right to vote its shares of capital stock or other equity  interests in
the  Subsidiaries  on all corporate  matters  arising in the ordinary  course of
business;  provided,  however,  that Dynex  will not  exercise  or refrain  from
exercising any such right if such action would have a material adverse effect on
the value of the Collateral or any part thereof.  Under any circumstances and as
to any matters not governed by the foregoing provisions of this Section 7, Dynex
may only  exercise  its voting  rights with respect to the  Collateral  with the
prior written consent of the Trustee (upon written instructions from the Holders
of a majority in aggregate principal amount outstanding of the Securities).

     8.  Further  Assurances.  (a) Dynex  will  from  time to time,  at its sole
expense, promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or desirable, in order to perfect
and protect any  security  interest  granted or purported to be granted by Dynex
hereunder  or to enable  the  Trustee to  exercise  and  enforce  its rights and
remedies  hereunder  with  respect  to  any  Collateral.  Without  limiting  the
generality of the foregoing,  Dynex will: (i) execute and file such financing or
continuation  statements,  or amendments thereto,  and such other instruments or
notices, as may be necessary or desirable,  in order to perfect and preserve the
security interest granted or purported to be granted hereby, (ii) deliver to and
pledge  to  the  Trustee  for  its  benefit  and  the  benefit  of  the  Holders
certificates  representing  securities included in the Collateral accompanied by
undated stock powers executed in blank.

     (b) A photocopy or other  reproduction  of this  Agreement or any financing
statement  covering the  Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.

     (c) Dynex will  furnish to the Trustee  and the Holders  from time to time,
and upon any  additions  to or deletions  from the  Collateral,  statements  and
schedules  further  identifying  and  describing  the  Collateral and such other
reports in connection with the Collateral as any Holder may reasonably  request,
all in reasonable detail.

     9.  Covenants.  Dynex  covenants and agrees with the Trustee that, from and
after the date of this Agreement:

     (a)  Establishment  of Collateral  Account.  Within three (3) Business Days
after the date of this Agreement, Dynex shall establish with HSBC Bank USA, as a
"securities  intermediary" within the meaning of Section 8-102(a)(14) the UCC, a
securities account (the "Collateral  Account") to hold all Collateral hereunder,
with the  intent of the  parties  that the  Collateral  Account  be treated as a
"securities  account" within the meaning of Section 8-501(a) of the UCC and that
all Collateral in the Collateral  Account be treated as "securities"  within the
meaning of Section 8-102(a)(15) of the UCC or "security entitlements" within the
meaning of Section 8-501(b) of the UCC (as the case may be), and in all cases as
"financial assets" within the meaning of Section  8-102(a)(9) of the UCC. Within
thirty (30) days after the date of this Agreement,  Dynex shall cause Chase Bank
of Texas,  National  Association  to transfer  substantially  all Collateral not
already in possession  of HSBC Bank USA on the date hereof into such  Collateral
Account. Within three (3) Business Days after the date of this Agreement,  Dynex
and HSBC Bank USA, in its capacity as Trustee hereunder and also in its capacity
as a "securities  intermediary"  within the meaning of Section  8-102(a)(14) the
UCC, shall also enter in an "account  control  agreement"  substantially  in the
form of Annex A  attached  hereto,  such  that the  Trustee,  on  behalf  of the
Holders,  shall  obtain  "control"  over the  Collateral  within the  meaning of
Section 8-106 of the UCC.

     (b)  Establishment  of Collection  Account.  Within three (3) Business Days
after the date of this  Agreement,  Dynex shall establish and maintain with HSBC
Bank USA a deposit account (the "Collection Account"). Within three (3) Business
Days after the date of this Agreement,  Dynex and HSBC Bank USA, in its capacity
as Trustee  hereunder  and also in its capacity as a depositary  with respect to
the  Collection  Account,  shall also enter into a "blocked  account  agreement"
substantially  in the form of Annex B  attached  hereto  (the  "Blocked  Account
Agreement")  such  that the  Trustee,  on behalf of the  Holders,  shall  obtain
exclusive dominion and control over the funds in the Collection Account upon the
occurrence and during the  continuation of an Event of Default.  Dynex shall not
be permitted to transfer the Collection  Account to another  depository  without
the prior written  consent of the Trustee (upon  written  instructions  from the
Holders  of  a  majority  in  aggregate  principal  amount  outstanding  of  the
Securities). .

     (c) Place of Perfection;  Records.  Dynex will keep (i) its jurisdiction of
incorporation,  and (ii) its  chief  executive  office  and  principal  place of
business and the office where it keeps its records  concerning the Collateral at
its current  address in the  Commonwealth  of  Virginia  or, upon 30 days' prior
written notice to the Trustee,  at such other locations in a jurisdiction  where
all actions required to perfect the security  interest granted hereby shall have
been taken with respect to the Collateral.

     (d) Payments  Collection.  Subject to Section 3 hereof,  (i) Dynex will (A)
continue to collect and will direct its respective  subsidiaries and affiliates,
as  appropriate,  to  collect,  at its or their  own  expense,  and (B) take all
corporate and other action necessary to direct such  subsidiaries and affiliates
to dividend to Dynex,  all payments on account of or arising from the Collateral
(the  "Collateral  Payments"),  including  without  limitation  all  payments of
interest, penalties, distributions, fees, compensation, reimbursements, net cash
flow,  return of principal,  proceeds of sale or other disposition and all other
amounts due or to become due to Dynex, either directly or indirectly through one
or  more  of its  subsidiaries  or  affiliates,  or to any  such  subsidiary  or
affiliate,  which  have been  assigned  and  pledged  and as to which a security
interest  has been granted  hereunder,  and (ii) Dynex will remit and will cause
its respective subsidiaries and affiliates to remit, directly and forthwith, all
such  Collateral  Payments  directly  to the  Collection  Account to be held and
applied in accordance  with the Blocked  Account  Agreement.  In connection with
such  collections,  Dynex will take such action as may be necessary or advisable
to enforce  collection  in order to perfect and preserve  the security  interest
granted or purported to be granted hereby.

     (e) Dynex shall not take any action in connection  with the Collateral that
would  impair the value of the  interest  or rights of Dynex  thereunder  or the
interest or rights of the Trustee.

     10. Trustee Appointed Attorney-in-Fact;  Performance. (a) Dynex irrevocably
appoints the Trustee its attorney-in-fact,  with full authority in the place and
stead of Dynex and in the name of Dynex or otherwise, from time to time but only
upon the occurrence and during the continuation of an Event of Default,  to take
any action and to execute any instrument  which may be necessary or advisable to
accomplish the purposes of this Agreement, including without limitation:

     (i) to ask for, demand, collect, sue for, recover, compromise,  receive and
give  acquittance  and  receipts  for  moneys  due and to become due under or in
connection with the Collateral;

     (ii) to receive,  endorse,  and  collect  any drafts or other  instruments,
documents and chattel paper, in connection therewith; and

     (iii) to file any claims or take any action or  institute  any  proceedings
that may be necessary or desirable for the  collection of any of the  Collateral
or  otherwise  to enforce the rights of the Trustee  with  respect to any of the
Collateral.

     (b) If Dynex fails to perform any agreement  contained herein,  the Trustee
may (but shall not be obligated to) cause performance of such agreement, and the
expenses of the Trustee  incurred in  connection  therewith  shall be payable by
Dynex.

     11. Limitation on Duties Regarding Collateral.  The powers conferred on the
Trustee  hereunder  are solely to protect  its  interest  in the  Collateral  as
Trustee  and shall not  impose  any duty upon it to  exercise  any such  powers.
Except for the custody of any  Collateral in its  possession  and the accounting
for moneys actually received by it hereunder,  the Trustee shall have no duty as
to any  Collateral or as to the taking of any action to preserve  rights against
prior  parties or any other rights  pertaining  to any  Collateral.  The Trustee
shall  be  deemed  to  have  exercised   reasonable  care  in  the  custody  and
preservation  of any Collateral in its possession if such Collateral is accorded
treatment  substantially  equal  to  that  which  the  Trustee  accords  its own
property.

     12. Term. This Agreement  shall  terminate on the date of the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or defeasance pursuant to Section 1402 thereof.

     13.  Perfection.  Dynex  will  execute  and  deliver  to the  Trustee  such
financing   statements,   amendments  to  financing   statements,   continuation
statements and other documents, certificates,  instruments and agreements as may
be  necessary  or  advisable  to  accomplish  or  facilitate  the   transactions
contemplated  hereby and will pay all filing,  recordation and registration fees
and taxes incurred in connection therewith.

         14.  Exercise of Rights.  Any delay on the part of any party  hereto in
exercising any power, option,  privilege or right hereunder shall not operate as
a waiver  thereof,  and no single or  partial  exercise  of any  power,  option,
privilege or right hereunder shall preclude other or future exercise thereof, or
the exercise of any other power,  option,  privilege or right. The waiver by the
Trustee of any Event of Default (upon written instructions from the Holders of a
majority in aggregate  principal amount outstanding of the Securities) shall not
constitute a waiver of any  subsequent  default,  but shall be restricted to the
default so waived.  If any part of this Agreement should be contrary to any law,
or be otherwise  defective,  the other provisions of this Agreement shall not be
affected  thereby,  but shall  continue  in full force and  effect.  All rights,
remedies and powers of the Trustee hereunder are irrevocable and cumulative, and
not  alternative  or  exclusive,  and shall be in addition to all other  rights,
remedies and powers given hereunder or in or by any other  instrument or any law
now existing or hereafter made or enacted. Dynex shall reimburse the Trustee for
all  expenses  incurred by it in  connection  with the  exercise of any remedies
granted hereunder,  which sums shall be secured by the security interest granted
hereunder.

     15. Binding  Nature.  This  Agreement,  and all of the terms and conditions
hereof,  shall be binding  upon and shall  inure to the  benefit of the  parties
hereto and their  successors and permitted  assigns,  but shall not inure to the
benefit of any other person.

     16.  Construction.  When used  herein,  the  singular may also refer to the
plural,  and vice versa;  and the use of any gender shall be  applicable  to all
genders. All representations,  warranties, covenants, undertakings, obligations,
waivers and other  agreements of Dynex herein shall  survive the effective  date
hereof and shall continue in effect throughout the term of this Agreement.

     17.  Governing Law. This  Agreement  shall be governed by, and construed in
accordance with, the laws of the State of New York.

     18.  Subject to Indenture.  Any and all rights granted to the Trustee under
this  Agreement  are to be held and  exercised by the Trustee as trustee for the
benefit of the Holders,  pursuant to the  provisions  of the  Indenture.  To the
extent set forth in the Senior Note  Documents,  each of the Holders  shall be a
beneficiary of the terms of this Agreement. Any and all obligations hereunder of
the parties to this Agreement,  and the rights granted to the Trustee hereunder,
are created and granted subject to the terms of the Indenture.

     19. Release.  Subject to Section 3 hereof,  promptly upon the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or  defeasance  pursuant to Section  1402  thereof  (and the
delivery by Dynex to the Trustee of an Officers'  Certificate  and an Opinion of
Counsel  certifying  that such  provisions of the Indenture  with respect to the
Securities  have been complied  with),  the Trustee shall execute and deliver to
Dynex such releases,  termination  statements and estoppel certificates as Dynex
may  reasonably  direct in writing;  provided that all such  documents  shall be
prepared, reviewed and filed or recorded at Dynex's sole cost and expense.

     20. Recitals. The recitals contained herein shall be taken as statements of
Dynex and the  Trustee  assumes no  responsibility  for their  correctness.  The
Trustee  makes  no  representations  as the  validity  or  sufficiency  of  this
Agreement or the security afforded hereby.
Exhibit  99.5

                           INDEMNITY PLEDGE AGREEMENT

                  THIS INDEMNITY PLEDGE AGREEMENT (this "Agreement") is dated as
of the 30th day of March,  2001, by and between ISSUER HOLDING CORP.  ("IHC"), a
Virginia  corporation  and a  wholly-owned  subsidiary  of Dynex  Capital,  Inc.
("Dynex"),  and HSBC Bank USA,  a banking  corporation  and trust  company  duly
organized and existing under the laws of the State of New York (the  "Trustee"),
as Trustee on behalf of the holders (the  "Holders")  of the 7.875% Senior Notes
Due July 15, 2002 (the  "Securities") of Dynex under an Indenture dated July 14,
1997, as amended by, among things, that certain Officers' Certificate dated July
14, 1997 (the "Original Officers' Certificate") and the "Supplemental Indenture"
described below (such Indenture,  as amended, the "Indenture") between Dynex and
the Trustee.

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS,  simultaneously  with the execution hereof,  Dynex and the Trustee
have entered into a  Supplemental  Trust  Indenture of even date  herewith  (the
"Supplemental Indenture"), and in so doing Dynex has agreed, among other things,
to grant a  security  interest  to the  Trustee,  on behalf of all  Holders,  in
certain assets of Dynex to secure repayment of all obligations of Dynex relating
to the  Securities,  all as more  particularly  set forth in the Indenture and a
Pledge  and  Security  Agreement  of even date  herewith  between  Dynex and the
Trustee (the "Dynex Security Agreement"); and

     WHEREAS, in order to induce a sufficient number of Holders to consent to an
amendment  to the  Indenture  effected by the  Supplemental  Indenture,  IHC has
agreed to enter into this Agreement; and

                  WHEREAS,  unless  otherwise  defined  herein  or  the  context
     otherwise requires, the capitalized terms used herein shall have the same
meanings assigned to them in the Indenture.

     NOW,  THEREFORE,  in  consideration of the foregoing and in order to induce
certain of the Holders to consent to an amendment to the  Indenture  effected by
the Supplemental Indenture, IHC hereby agrees with the Trustee as follows:

         1. Pledge.  In order to secure the payment in full of (i) all principal
of and  interest on the  Securities  as and when the same become due and payable
     under the Indenture (whether by lapse of time,  acceleration or otherwise),
(ii)
all other fees and charges  payable by IHC and/or  Dynex under the terms of this
Agreement,  the Dynex  Security  Agreement,  the  Securities  and the  Indenture
(collectively,  the  "Senior  Note  Documents"),  (iii) all other  indebtedness,
obligations  and  liabilities  of  IHC  and/or  Dynex  arising  under,  and  the
observance and  performance  of all covenants and  agreements  contained in, the
Senior  Note  Documents,  including  without  limitation  all amounts due to the
Trustee  pursuant to Section 606 of the  Indenture,  and (iv) all  expenses  and
charges,  legal or otherwise,  including reasonable attorneys' fees, suffered or
incurred  by the  Trustee  in  collecting  or  enforcing  payment  of any of the
Securities  or in  realizing  upon,  protecting  or  preserving  any  collateral
security for any such  indebtedness (all of such  indebtedness,  obligations and
liabilities  referred to in the immediately  foregoing  clauses (i) through (iv)
being hereinafter  collectively  referred to as the  "Obligations"),  IHC hereby
grants to the  Trustee,  its  successors  and  permitted  assigns,  a continuing
security  interest  in, and  pledges to the  Trustee,  the  following  property,
whether now owned or hereafter  acquired and wherever  held  (collectively,  the
"Collateral"):

     (a) all  shares of the  outstanding  equity  securities  held by IHC in the
wholly-owned  subsidiaries  listed on Schedule 1(a)  attached  hereto and made a
part hereof (the "Subsidiaries");

     (b) any and all  additional  shares of any  class of stock or other  equity
securities of any of the  Subsidiaries  which IHC may from time to time acquire,
directly or indirectly, between the date hereof and the date of the satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or defeasance pursuant to Section 1402 thereof;

     (c) all  supporting  evidence  and  documents  relating to any of the above
described property,  including without limitation the books and records relating
thereto;

     (d) all accessions and additions to and  substitutions  and replacements of
any and all of the  foregoing,  whether  now  existing or  hereafter  arising or
attaching; and

     (e) all cash and non-cash  proceeds of the  foregoing,  including  (without
limitation) all dividends and other distributions.

     In order to  continuously  perfect the security  interest in the Collateral
granted hereby, IHC has,  simultaneously  with the execution hereof,  physically
delivered  to the Trustee  the stock  certificates  representing  said shares of
stock  in  the  Subsidiaries   (which  stock  certificates  are  accompanied  by
appropriate undated stock powers duly executed by IHC in blank).

     2. Sale of Certain  Collateral.  Notwithstanding any provision hereof or of
the  Indenture  to the  contrary,  unless  and until an "Event of  Default"  (as
hereinafter  defined) has occurred and is continuing,  IHC may,  without further
consent or approval of the Trustee, sell, assign,  transfer,  lease or otherwise
dispose  of  (each,  a  "Permitted  Disposition")  all  or  any  portion  of the
Collateral;  provided,  however, that IHC shall be permitted to use the proceeds
of any such Permitted  Disposition  (net of any expenses  incurred in connection
with any such Permitted  Disposition) only in a manner permitted by the Original
Officers' Certificate,  as amended by the Supplemental Indenture;  and provided,
further,  that until any such  permitted use of net proceeds,  such net proceeds
shall remain cash Collateral subject to the security interest created hereunder.
Promptly upon written  notice from IHC of any such  Permitted  Disposition,  the
Trustee shall execute and deliver to IHC such releases,  termination  statements
and estoppel certificates as IHC may reasonably direct in writing; provided that
all such  documents  shall be prepared,  reviewed and filed or recorded at IHC's
sole cost and expense.

     3.  Event of  Default;  Remedies.  Each and every  "Event of  Default"  (as
defined in the Indenture) shall constitute an "Event of Default" hereunder. Upon
the occurrence  and during the  continuation  of any such Event of Default,  the
Trustee  shall be entitled  (but shall not be  obligated) to exercise any one or
more of the following remedies:

     (a) The  Trustee  may from time to time take  whatever  action at law or in
equity  is  necessary  or  desirable  in order to  collect  the  moneys  payable
hereunder or secured  hereby or to enforce  performance  and  observance  of any
obligation, agreement or covenant hereunder.

     (b)  The  Trustee  may  foreclose  its  security  interest  in  any  of the
Collateral  in any  way  permitted  by  applicable  law;  and  the  Trustee  may
thereupon,  or at any time  thereafter,  without  notice or demand  (except such
notice as may be  specifically  required by applicable  law) and with or without
having the Collateral at the time or place of sale, sell, assign, give option or
options to purchase or otherwise  dispose of and deliver the  Collateral  or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
any public or private  sale or sales,  in the  over-the-counter  market,  at any
exchange,  broker's  board or office of the Trustee or elsewhere upon such terms
and conditions as it may determine and at such prices as it may  determine,  for
cash or on credit or for future delivery without  assumption of any credit risk.
In the exercise of such remedy,  the Trustee may sell all of the Collateral as a
unit  even  though  the sales  price  thereof  may be in  excess of the  amounts
remaining unpaid on the Obligations. At any such public sale the Trustee may bid
for and become the purchaser of all or any part of the Collateral, and such sale
or sales may be held without demand of performance, notice of intention to sell,
the time or place of sale or any other matter,  except for such notice as may be
specifically  required  by law;  and the  purchaser  at any  such  sale or other
disposition  shall  thereafter hold the Collateral sold absolutely free from any
claim or right of IHC of whatsoever  kind,  including any right of redemption of
IHC, all such rights being  hereby  expressly  waived and released by IHC to the
extent permitted by law.

     (c) The Trustee may apply for a receiver  for the  Collateral  and may sell
the  Collateral  pursuant  to a judicial  sale,  and IHC  hereby  assents to the
passage of a decree for the sale of any of the  Collateral  by any court  having
jurisdiction.  IHC  hereby  authorizes  and  empowers  the  Trustee  to sell its
interest  in  the  Collateral  in  accordance  with  any  applicable  law.  Such
Collateral  or any  interest  therein may be sold upon such terms and in as many
lots as the Person  conducting the sale may, in its sole  discretion,  elect. No
readvertisements  of any sale  shall be  required  if the sale is  adjourned  by
announcement,  at the time or place set therefor,  of the date, time or place to
which the same is to be adjourned.

     (d) The Trustee may exercise any and all rights of conversion,  exchange or
subscription  and any other rights,  privileges or options  pertaining to any of
the  Collateral,  as if the Trustee were the absolute owner  thereof,  including
(without  limitation)  the right to exchange any and all of the Collateral  upon
the   merger,   consolidation,   reorganization,   recapitalization   or   other
readjustment  of any  Subsidiary  or upon the  exercise  by or on  behalf of any
Subsidiary or the Trustee of any right, privilege or option pertaining to any of
the Collateral.

     (e) The Trustee  may take  possession  of the  Collateral  pursuant  hereto
without  legal process and without  incurring  liability to IHC therefor for the
purpose of exercising its rights hereunder.

     (f) The Trustee may  exercise any other right or remedy with respect to any
of the  Collateral  given  to  secured  parties  under  the  applicable  Uniform
Commercial  Code in  effect  in the  State of New York  from  time to time  and,
without  limitation  of the  generality  of the  foregoing,  as the  same may be
amended  by  Revised  Article  9 (the  "UCC").  "Revised  Article  9" means  the
provisions of New York S7484,  introduced  April 17, 2000,  containing  proposed
revisions to Article 9 of the UCC which would become  effective July 1, 2001, as
such provisions may be modified from time to time.

     (g) Any notification required by Section 9-504 (or any successor provision)
of the UCC shall be deemed  reasonably  and  properly  given if deposited in the
mail,  certified or registered mail, postage prepaid,  to IHC, at least ten (10)
days before any sale or disposition of any of the Collateral which is subject to
the UCC.

     (h) Any proceeds received from the exercise of any remedy hereunder,  after
deducting  therefrom  any  and all  costs  and  expenses  incurred  in  securing
possession  of any  Collateral,  in  shipping  and storing  the  Collateral,  in
preparing the Collateral for sale or otherwise  dealing with Collateral prior to
any sale or other  disposition  thereof and in connection with the sale or other
disposition thereof (including,  without limitation,  reasonable  attorneys' and
accountants'  fees and  expenses  and  brokers'  commissions),  shall be applied
toward  the  payment  of any and all  amounts  due under or with  respect to the
Obligations,  including  interest  thereon,  and all other  costs  and  expenses
incurred by the Trustee in connection with this Agreement or the Indenture which
are then due and payable, in such order and amounts as the Trustee may elect. If
such net proceeds should be insufficient to pay the same and a deficiency  shall
result,  IHC shall nevertheless  remain liable for such deficiency;  and if such
proceeds  should be more  than  sufficient  to pay the  same,  then in case of a
surplus,  such surplus  shall be accounted for and, if any amounts due under the
Obligations remain outstanding, retained by the Trustee, who shall hold the same
as security for the payment of the Obligations; otherwise, such surplus shall be
paid  over to IHC or to  whomsoever  a court  of  competent  jurisdiction  shall
determine to be entitled thereto.

     (i) IHC  recognizes  that the Trustee may be unable to effect a public sale
of any or all of the Collateral,  by reason of certain prohibitions contained in
the Securities Act of 1933, as amended (the  "Securities  Act"),  and applicable
state  securities  laws or  otherwise,  and may be compelled to resort to one or
more private  sales thereof to a restricted  group of  purchasers  which will be
obliged to agree,  among other things,  to acquire such securities for their own
account  for  investment  and not  with a view  to the  distribution  or  resale
thereof.  IHC  acknowledges  and agrees that any such private sale may result in
prices and other terms less  favorable  to the Trustee  than if such sale were a
public  sale and agrees  that no such  private  sale shall be deemed not to have
been  made  in a  commercially  reasonable  manner  solely  by  virtue  of  such
circumstances.  The Trustee  shall be under no obligation to delay a sale of any
of the  Collateral for the period of time necessary to permit the issuers of the
securities   constituting  any  portion  of  the  Collateral  to  register  such
Collateral  for public  sale under the  Securities  Act (and IHC and the issuers
shall have no obligation to do so), or under  applicable  state securities laws,
even if the issuers would agree to do so.

     (j)  Notwithstanding  any provision of this Agreement to the contrary,  the
parties agree in no event shall the Collateral be sold or otherwise transferred,
upon the occurrence and during the  continuation  of any Event of Default,  to a
party or parties that do not qualify as a "real estate  investment trust" within
the meaning of the Internal Revenue Code of 1986, as amended.

     4.  Representations,  Warranties  and  Covenants.  IHC  hereby  represents,
warrants and covenants to the Trustee as follows:

     (a) IHC is a  corporation  duly  organized,  validly  existing  and in good
standing under the laws of the  Commonwealth of Virginia.  IHC has the corporate
power, authority and legal right to execute, deliver and perform this Agreement.
This Agreement has been duly authorized and validly executed and delivered by an
authorized  officer  of  IHC  and  constitutes  the  legal,  valid  and  binding
obligations of IHC,  enforceable  against it in accordance with this Agreement's
terms.  (b) IHC is a wholly-owned  subsidiary of Dynex and the assumption of the
obligations and liabilities  hereunder will result in direct financial  benefits
to IHC.

     (d) IHC is and will remain the true and lawful owner of all the  Collateral
and, except for "Permitted  Liens" (defined below),  it has and will continue to
have good and marketable title thereto, free and clear of all liens, charges and
encumbrances whatsoever.

     (e)  Except  for  liens  or  security  interests  permitted  under  Section
10(vi)(a) through (g) of the Original Officers'  Certificate,  as amended by the
Supplemental  Indenture ("Permitted Liens"), IHC will not, without the Trustee's
prior written consent (upon written  instructions from the Holders of a majority
in aggregate  principal  amount  outstanding of the Securities),  sell,  assign,
factor, mortgage,  pledge, encumber,  transfer, lease or otherwise dispose of or
otherwise  grant or suffer to exist any Lien with respect to, the  Collateral or
any part thereof.

     (f) This Agreement creates a valid security interest in the Collateral and,
as of the date hereof,  the security  interest of the Trustee in the  Collateral
has  been  duly  perfected  under  the  UCC or  other  applicable  law in  every
appropriate  jurisdiction  and, except for Permitted Liens,  constitutes a first
priority lien upon the Collateral and every part thereof; and IHC covenants that
the Trustee's  security  interest shall,  except for Permitted  Liens,  remain a
first priority lien upon the Collateral so long as any of the Obligations  shall
remain outstanding.

     (g) IHC has and will  continue to have full legal power and right to pledge
and grant the security interest conveyed hereby in the Collateral and every part
thereof; the making of such pledge and the granting of such security interest do
not and will not  violate  the  provisions  of any  law,  regulation,  contract,
agreement,  restrictive covenant or legend, order of court, corporate charter or
bylaw, stockholders agreement or other instrument binding upon it or any part of
the  Collateral;  and no  consent  or  approval  of  any  governmental  body  or
regulatory  authority,  or any securities  exchange,  was or is necessary to the
validity or effectiveness thereof.

     (h) IHC is and shall at all times remain the sole registered and beneficial
owner of all shares of capital stock now or hereafter  issued by any Subsidiary;
it will not sell, transfer,  assign or encumber any such shares of capital stock
to or for the  benefit  of any  person or entity  other  than the  Trustee;  and
neither IHC nor any such  Subsidiary has made or shall make any  commitments for
the issuance or transfer of any such capital  stock under any options,  warrants
or other similar rights.

     (i) IHC's chief executive office and principal place of business is located
at 4551 Cox Road,  Suite 300, Glen Allen,  Virginia 23060,  and IHC has no other
offices or places of business in Virginia.

     5. Dividends/Distributions. Upon the occurrence and during the continuation
of any Event of Default, IHC shall deliver to the Trustee, and the Trustee shall
be entitled to receive,  all dividends or similar  distributions paid upon or in
respect of the Collateral and the Trustee shall, in the case of cash, apply such
dividends and distributions to the payment of the Obligations (in whatever order
and priority it may elect) and shall,  in the case of all other  property,  hold
such  property  pursuant  hereto  as part of the  Collateral  pledged  under and
subject to the terms of this Agreement.  So long as no Event of Default or shall
have occurred and be continuing,  IHC shall have the right to receive and retain
all  dividends  or  similar  distributions  paid  upon  or  in  respect  of  the
Collateral.

     6. Voting Rights.  Upon the occurrence and during the  continuation  of any
Event of Default,  the Trustee may (but shall not be obligated  to) exercise all
voting  rights  and all other  rights  conferred  on the owner of any  shares of
capital stock or other equity interests  included among the Collateral.  So long
as no Event of Default or shall have occurred and be continuing,  IHC shall have
the  right to vote its  shares  of  capital  stock  in the  Subsidiaries  on all
corporate matters arising in the ordinary course of business; provided, however,
that IHC will not  exercise or refrain  from  exercising  any such right if such
action would have a material  adverse  effect on the value of the  Collateral or
any part thereof.  Under any circumstances and as to any matters not governed by
the  foregoing  provisions  of this Section 6, IHC may only  exercise its voting
rights with  respect to the  Collateral  with the prior  written  consent of the
Trustee (upon written  instructions  from the Holders of a majority in aggregate
principal amount outstanding of the Securities).

     7. Further Assurances. (a) IHC will from time to time, at its sole expense,
promptly execute and deliver all further instruments and documents, and take all
further  action,  that may be  necessary or  desirable,  in order to perfect and
protect  any  security  interest  granted  or  purported  to be  granted  by IHC
hereunder  or to enable  the  Trustee to  exercise  and  enforce  its rights and
remedies  hereunder  with  respect  to  any  Collateral.  Without  limiting  the
generality of the  foregoing,  IHC will:  (i) execute and file such financing or
continuation  statements,  or amendments thereto,  and such other instruments or
notices,  as may be  necessary or desirable in order to perfect and preserve the
security interest granted or purported to be granted hereby, (ii) deliver to and
pledge  to  the  Trustee  for  its  benefit  and  the  benefit  of  the  Holders
certificates  representing  securities included in the Collateral accompanied by
undated stock powers executed in blank.

     (b) A photocopy or other  reproduction  of this  Agreement or any financing
statement  covering the  Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.

     (c) IHC will furnish to the Trustee and the Holders from time to time,  and
upon any additions to or deletions from the Collateral, statements and schedules
further  identifying  and  describing  the  Collateral and such other reports in
connection  with the  Collateral as any Holder may  reasonably  request,  all in
reasonable detail.

     8. Trustee  Appointed  Attorney-in-Fact;  Performance.  (a) IHC irrevocably
appoints the Trustee its attorney-in-fact,  with full authority in the place and
stead of IHC and in the  name of IHC or  otherwise,  from  time to time but only
upon the occurrence and during the continuation of an Event of Default,  to take
any action and to execute any instrument  which may be necessary or advisable to
accomplish the purposes of this Agreement, including without limitation:

     (i) to ask for, demand, collect, sue for, recover, compromise,  receive and
give  acquittance  and  receipts  for  moneys  due and to become due under or in
connection with the Collateral;

     (ii) to receive,  endorse,  and  collect  any drafts or other  instruments,
documents and chattel paper, in connection therewith; and

     (iii) to file any claims or take any action or  institute  any  proceedings
that may be necessary or desirable for the  collection of any of the  Collateral
or  otherwise  to enforce the rights of the Trustee  with  respect to any of the
Collateral.

     (b) If IHC fails to perform any agreement contained herein, the Trustee may
(but shall not be obligated to) cause  performance  of such  agreement,  and the
expenses of the Trustee  incurred in  connection  therewith  shall be payable by
IHC.

     9. Limitation on Duties Regarding  Collateral.  The powers conferred on the
Trustee  hereunder  are solely to protect  its  interest  in the  Collateral  as
Trustee  and shall not  impose  any duty upon it to  exercise  any such  powers.
Except for the custody of any  Collateral in its  possession  and the accounting
for moneys actually received by it hereunder,  the Trustee shall have no duty as
to any  Collateral or as to the taking of any action to preserve  rights against
prior  parties or any other rights  pertaining  to any  Collateral.  The Trustee
shall  be  deemed  to  have  exercised   reasonable  care  in  the  custody  and
preservation  of any Collateral in its possession if such Collateral is accorded
treatment  substantially  equal  to  that  which  the  Trustee  accords  its own
property.

     10. Term. This Agreement  shall  terminate on the date of the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or defeasance pursuant to Section 1402 thereof.

     11. Perfection.  IHC will execute and deliver to the Trustee such financing
statements,  amendments to financing  statements,  continuation  statements  and
other documents, certificates, instruments and agreements as may be necessary or
advisable to accomplish or facilitate the transactions  contemplated  hereby and
will pay all filing,  recordation  and  registration  fees and taxes incurred in
connection therewith.

         12.  Exercise of Rights.  Any delay on the part of any party  hereto in
exercising any power, option,  privilege or right hereunder shall not operate as
a waiver  thereof,  and no single or  partial  exercise  of any  power,  option,
privilege or right hereunder shall preclude other or future exercise thereof, or
the exercise of any other power,  option,  privilege or right. The waiver by the
Trustee of any Event of Default (upon written instructions from the Holders of a
majority in aggregate  principal amount outstanding of the Securities) shall not
constitute a waiver of any  subsequent  default,  but shall be restricted to the
default so waived.  If any part of this Agreement should be contrary to any law,
or be otherwise  defective,  the other provisions of this Agreement shall not be
affected  thereby,  but shall  continue  in full force and  effect.  All rights,
remedies and powers of the Trustee hereunder are irrevocable and cumulative, and
not  alternative  or  exclusive,  and shall be in addition to all other  rights,
remedies and powers given hereunder or in or by any other  instrument or any law
now existing or hereafter made or enacted.  IHC shall  reimburse the Trustee for
all expenses  reasonably  incurred by it in connection  with the exercise of any
remedies granted hereunder, which sums shall be secured by the security interest
granted hereunder.

     13. Binding  Nature.  This  Agreement,  and all of the terms and conditions
hereof,  shall be binding  upon and shall  inure to the  benefit of the  parties
hereto and their  successors and permitted  assigns,  but shall not inure to the
benefit of any other person.

     14.  Construction.  When used  herein,  the  singular may also refer to the
plural,  and vice versa;  and the use of any gender shall be  applicable  to all
genders. All representations,  warranties, covenants, undertakings, obligations,
waivers and other  agreements  of IHC herein shall  survive the  effective  date
hereof and shall continue in effect throughout the term of this Agreement.

     15.  Governing Law. This  Agreement  shall be governed by, and construed in
accordance with, the laws of the State of New York.

     16.  Subject to Indenture.  Any and all rights granted to the Trustee under
this  Agreement  are to be held and  exercised by the Trustee as trustee for the
benefit of the Holders,  pursuant to the  provisions  of the  Indenture.  To the
extent set forth in the Senior Note  Documents,  each of the Holders  shall be a
beneficiary of the terms of this Agreement. Any and all obligations hereunder of
the parties to this Agreement,  and the rights granted to the Trustee hereunder,
are created and granted subject to the terms of the Indenture.

     17. Release.  Subject to Section 2 hereof,  promptly upon the  satisfaction
and discharge of the Indenture with respect to the Securities in accordance with
Section 401 thereof or  defeasance  pursuant to Section  1402  thereof  (and the
delivery by Dynex to the Trustee of an Officers'  Certificate  and an Opinion of
Counsel  certifying  that such  provisions of the Indenture  with respect to the
Securities  have been complied  with),  the Trustee shall execute and deliver to
IHC such releases,  termination  statements and estoppel certificates as IHC may
reasonably  direct  in  writing;  provided  that  all  such  documents  shall be
prepared, reviewed and filed or recorded at IHC's sole cost and expense.

     18. Recitals. The recitals contained herein shall be taken as statements of
IHC and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as the validity or sufficiency of this Agreement or the
security afforded hereby.