UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number: 0-17995
ZIX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
|
|
|
Texas |
|
75-2216818 |
(State of
Incorporation) |
|
(I.R.S. Employer
Identification Number) |
2711 North Haskell Avenue
Suite 2200, LB 36
Dallas, Texas 75204-2960
(Address of Principal Executive Offices)
(214) 370-2000
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
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|
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Large accelerated filer |
|
¨ |
|
Accelerated filer |
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x |
|
|
|
|
Non-accelerated filer |
|
¨ (Do not check if a smaller reporting company) |
|
Smaller reporting company |
|
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
|
|
|
Class |
|
Outstanding at August 3, 2015 |
Common Stock, par value $0.01 per share |
|
57,524,999 |
INDEX
2
ZIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
(In thousands, except share and par value data) |
|
June 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,974 |
|
|
$ |
21,685 |
|
Receivables, net |
|
|
1,259 |
|
|
|
1,452 |
|
Prepaid and other current assets |
|
|
2,361 |
|
|
|
2,372 |
|
Deferred tax assets |
|
|
1,324 |
|
|
|
1,763 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
32,918 |
|
|
|
27,272 |
|
Property and equipment, net |
|
|
4,595 |
|
|
|
4,399 |
|
Goodwill |
|
|
2,161 |
|
|
|
2,161 |
|
Deferred tax assets |
|
|
49,278 |
|
|
|
49,892 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
88,952 |
|
|
$ |
83,724 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
619 |
|
|
$ |
506 |
|
Accrued expenses |
|
|
3,070 |
|
|
|
2,930 |
|
Deferred revenue |
|
|
21,159 |
|
|
|
21,587 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
24,848 |
|
|
|
25,023 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
1,107 |
|
|
|
898 |
|
Deferred rent |
|
|
1,479 |
|
|
|
1,533 |
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
2,586 |
|
|
|
2,431 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
27,434 |
|
|
|
27,454 |
|
Commitments and contingencies (see Note 7) |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and outstanding |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 175,000,000 shares authorized; 76,201,826 issued and 57,837,766 outstanding in 2015 and 75,017,775
issued and 56,980,789 outstanding in 2014 |
|
|
752 |
|
|
|
741 |
|
Additional paid-in capital |
|
|
366,043 |
|
|
|
361,579 |
|
Treasury stock, at cost; 18,364,060 common shares in 2015 and 18,036,986 common shares in 2014 |
|
|
(68,400 |
) |
|
|
(66,882 |
) |
Accumulated deficit |
|
|
(236,877 |
) |
|
|
(239,168 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
61,518 |
|
|
|
56,270 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
88,952 |
|
|
$ |
83,724 |
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
3
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(In thousands, except share and per share data) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Revenues |
|
$ |
13,302 |
|
|
$ |
12,615 |
|
|
$ |
26,375 |
|
|
$ |
24,777 |
|
Cost of revenues |
|
|
2,429 |
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|
|
2,032 |
|
|
|
4,642 |
|
|
|
4,057 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
10,873 |
|
|
|
10,583 |
|
|
|
21,733 |
|
|
|
20,720 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
2,094 |
|
|
|
2,218 |
|
|
|
4,199 |
|
|
|
4,419 |
|
Selling, general and administrative |
|
|
7,046 |
|
|
|
6,778 |
|
|
|
13,961 |
|
|
|
13,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total operating expenses |
|
|
9,140 |
|
|
|
8,996 |
|
|
|
18,160 |
|
|
|
17,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,733 |
|
|
|
1,587 |
|
|
|
3,573 |
|
|
|
3,234 |
|
Other income, net |
|
|
29 |
|
|
|
12 |
|
|
|
52 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,762 |
|
|
|
1,599 |
|
|
|
3,625 |
|
|
|
3,308 |
|
Income tax expense |
|
|
(647 |
) |
|
|
(622 |
) |
|
|
(1,334 |
) |
|
|
(1,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,115 |
|
|
$ |
977 |
|
|
$ |
2,291 |
|
|
$ |
2,036 |
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
Basic income per common share |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
57,146,014 |
|
|
|
58,565,002 |
|
|
|
56,822,953 |
|
|
|
58,967,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
58,373,407 |
|
|
|
59,466,867 |
|
|
|
57,886,307 |
|
|
|
60,176,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
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|
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Stockholders Equity |
|
(In thousands, except shares) |
|
Common Stock |
|
|
Additional
Paid-In |
|
|
Treasury |
|
|
Accumulated |
|
|
Total
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Equity |
|
Balance, December 31, 2014 |
|
|
75,017,775 |
|
|
$ |
741 |
|
|
$ |
361,579 |
|
|
$ |
(66,882 |
) |
|
$ |
(239,168 |
) |
|
$ |
56,270 |
|
Issuance of common stock upon exercise of stock options |
|
|
1,146,551 |
|
|
|
11 |
|
|
|
3,631 |
|
|
|
|
|
|
|
|
|
|
|
3,642 |
|
Issuance of common stock upon vesting of restricted stock units |
|
|
37,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation costs |
|
|
|
|
|
|
|
|
|
|
833 |
|
|
|
(185 |
) |
|
|
|
|
|
|
648 |
|
Treasury repurchase program |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,333 |
) |
|
|
|
|
|
|
(1,333 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,291 |
|
|
|
2,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2015 |
|
|
76,201,826 |
|
|
$ |
752 |
|
|
$ |
366,043 |
|
|
$ |
(68,400 |
) |
|
$ |
(236,877 |
) |
|
$ |
61,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,291 |
|
|
$ |
2,036 |
|
Non-cash items in net income: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,051 |
|
|
|
794 |
|
Employee stock-based compensation costs |
|
|
833 |
|
|
|
917 |
|
Changes in deferred taxes |
|
|
1,053 |
|
|
|
1,061 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
193 |
|
|
|
(221 |
) |
Prepaid and other current assets |
|
|
11 |
|
|
|
(79 |
) |
Accounts payable |
|
|
266 |
|
|
|
281 |
|
Deferred revenue |
|
|
(219 |
) |
|
|
11 |
|
Accrued and other liabilities |
|
|
86 |
|
|
|
1,040 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
5,565 |
|
|
|
5,840 |
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,400 |
) |
|
|
(857 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,400 |
) |
|
|
(857 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
3,642 |
|
|
|
62 |
|
Purchase of treasury shares |
|
|
(1,518 |
) |
|
|
(6,403 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
2,124 |
|
|
|
(6,341 |
) |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
6,289 |
|
|
|
(1,358 |
) |
Cash and cash equivalents, beginning of period |
|
|
21,685 |
|
|
|
27,518 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
27,974 |
|
|
$ |
26,160 |
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
6
ZIX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Zix Corporation (ZixCorp, the
Company, we, our, us) should be read in conjunction with the audited consolidated financial statements included in the Companys 2014 Annual Report on Form 10-K. These financial statements are
unaudited, but have been prepared in the ordinary course of business for the purpose of providing information with respect to the covered interim periods. Management of the Company believes that all adjustments necessary for a fair presentation for
such periods have been included and are of a normal recurring nature. The results of operations for the six-month period ended June 30, 2015, are not necessarily indicative of the results to be expected for any future periods or for the full
fiscal year.
2. Recent Accounting Standards and Pronouncements
Revenue Recognition
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes most current revenue recognition guidance under U.S.
GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU
2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard is effective for us beginning 2018, and requires using either of the following transition methods: (i) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized
at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will
adopt the standard in 2018.
Debt Issuance
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03),
which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for us
beginning in 2016, and is not expected to have a material impact on our consolidated financial statements.
3. Stock- Based Awards and Stock-Based Employee Compensation Expense
Our stock-based awards include stock options, restricted stock awards (Restricted Stock), and restricted stock
units (RSUs). During our annual meeting held June 24, 2015, our shareholders approved the Zix Corporation Amended and Restated 2012 Incentive Plan which increased the number of shares available for grant by 3,600,000. As of
June 30, 2015, the Company had 3,298,333 stock options outstanding and 3,943,348 shares available for grant.
Stock Option Activity
There were 740,539 and 1,146,551 stock options exercised for the three and six month period ended June 30, 2015,
respectively. There were 7,500 and 23,973 stock options exercised for the three and six month period ended June 30, 2014, respectively. There was no excess tax benefit recorded in the three or six month period ended June 30, 2015, related
to the 740,539 or 1,146,551 option exercises, respectively.
7
The following is a summary of all stock option transactions during the three months ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (Yrs) |
|
Outstanding at March 31, 2015 |
|
|
4,044,497 |
|
|
$ |
3.39 |
|
|
|
|
|
Granted at market price |
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired |
|
|
(5,625 |
) |
|
$ |
2.49 |
|
|
|
|
|
Exercised |
|
|
(740,539 |
) |
|
$ |
2.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2015 |
|
|
3,298,333 |
|
|
$ |
3.50 |
|
|
|
4.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2015 |
|
|
3,076,144 |
|
|
$ |
3.55 |
|
|
|
4.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2015, we had 3,298,333 stock options outstanding and 3,061,588 options exercisable with an
exercise price lower than the market price of the Companys common stock on that date. The aggregate intrinsic value of these options was $5.5 million and $4.9 million, respectively.
Restricted Stock Activity
The following is a
summary of all Restricted Stock activity during the three months ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
Restricted Shares |
|
|
Weighted Average Fair Value |
|
Non-vested at March 31, 2015 |
|
|
473,000 |
|
|
$ |
3.36 |
|
Granted at market price |
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(40,250 |
) |
|
|
3.57 |
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock at June 30, 2015 |
|
|
432,750 |
|
|
$ |
3.34 |
|
|
|
|
|
|
|
|
|
|
Restricted Stock Unit Activity
The following is a summary of all RSU activity during the three months ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units |
|
|
Weighted Average Fair Value |
|
Non-vested at March 31, 2015 |
|
|
360,250 |
|
|
$ |
3.69 |
|
Granted at market price |
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(32,500 |
) |
|
|
3.88 |
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units at June 30, 2015 |
|
|
327,750 |
|
|
$ |
3.68 |
|
|
|
|
|
|
|
|
|
|
Performance Unit Activity
The following is a summary of all performance unit (PU) activity during the three months ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
Performance Units |
|
|
Weighted Average Fair Value |
|
Non-vested at March 31, 2015 |
|
|
215,000 |
|
|
$ |
3.88 |
|
Granted at market price |
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(32,500 |
) |
|
|
3.88 |
|
|
|
|
|
|
|
|
|
|
Unvested performance units at June 30, 2015 |
|
|
182,500 |
|
|
$ |
3.88 |
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of awards of Restricted Stock, RSUs, and PUs is based
on the quoted market price of the Companys common stock on the date of grant.
8
Stock-Based Compensation Expense
For the three and six month period ended June 30, 2015, the total stock-based employee compensation expense resulting from stock options,
Restricted Stock, RSUs, and PUs was recorded to the following line items of the Companys condensed consolidated statements of income:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Three Months Ended June 30, 2015 |
|
|
Six Months Ended June 30, 2015 |
|
Cost of revenues |
|
$ |
47 |
|
|
$ |
99 |
|
Research and development |
|
|
61 |
|
|
|
126 |
|
Selling, general and administrative |
|
|
257 |
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
$ |
365 |
|
|
$ |
833 |
|
|
|
|
|
|
|
|
|
|
A deferred tax asset totaling $223 thousand and $254 thousand, resulting from stock-based compensation expense
associated with awards relating to the Companys U.S. operations, was recorded for the six month periods ended June 30, 2015 and 2014, respectively. As of June 30, 2015, there was $2.9 million of total unrecognized stock-based
compensation related to non-vested stock-based compensation awards granted under the incentive plans. This cost is expected to be recognized over a weighted average period of 1.45 years.
For additional information regarding the Companys Equity Awards and Stock-based Employee Compensation, see Note 3 to the consolidated
financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
4. Supplemental Cash Flow Information
Supplemental cash flow information relating to taxes and non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
(In thousands) |
|
2015 |
|
|
2014 |
|
Cash income tax payments |
|
$ |
260 |
|
|
$ |
292 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Payables related to purchases of capitalized assets |
|
$ |
153 |
|
|
$ |
72 |
|
Excess tax benefit on exercise of employee stock options |
|
$ |
|
|
|
$ |
9 |
|
Excess tax benefit on vesting of restricted awards |
|
$ |
|
|
|
$ |
41 |
|
5. Receivables, net
|
|
|
|
|
|
|
|
|
(In thousands) |
|
June 30, 2015 |
|
|
December 31, 2014 |
|
Gross Accounts Receivables |
|
$ |
10,018 |
|
|
$ |
8,116 |
|
Allowance for returns and doubtful accounts |
|
|
(186 |
) |
|
|
(108 |
) |
Unpaid portion of deferred revenue |
|
|
(8,573 |
) |
|
|
(6,556 |
) |
Note receivable |
|
|
458 |
|
|
|
458 |
|
Allowance for note receivable |
|
|
(458 |
) |
|
|
(458 |
) |
|
|
|
|
|
|
|
|
|
Receivables, net |
|
$ |
1,259 |
|
|
$ |
1,452 |
|
|
|
|
|
|
|
|
|
|
Our gross accounts receivables for the year ended 2014 included $318 thousand associated with a tenant
improvement allowance received as an incentive when we renewed the lease for our Dallas headquarters in 2013. The tenant improvement receivable was collected in full at March 31, 2015.
The allowance for doubtful accounts includes all specific accounts receivable which we believe are likely not collectible based on known
information. In addition, we record 2.5% of all accounts receivable greater than 90 days past due, net of those accounts specifically reserved, as a general allowance against accounts that could potentially become uncollectible.
9
The reduction for unpaid deferred revenue represents future customer service or maintenance
obligations which have been billed to customers, but remain unpaid as of the respective balance sheet dates. Deferred revenue on our consolidated balance sheets represents future customer service or maintenance obligations which have been billed and
collected as of the respective balance sheet dates.
The note receivable represents the remaining outstanding balance of an original note
related to the sale of a product line in 2005 in the amount of $540 thousand. This was fully reserved at the time of the sale as the notes collectability was not assured. The note receivable is fully reserved at June 30, 2015.
6. Earnings Per Share and Potential Dilution
Basic earnings per share are computed using the weighted average number of common shares outstanding for the period. The
dilutive effect of potential common shares outstanding is included in diluted earnings per share. The computations for basic and diluted earnings per share for the three and six months ended June 30, 2015 and 2014, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, |
|
|
Six Months ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Basic weighted average shares |
|
|
57,146,014 |
|
|
|
58,565,002 |
|
|
|
56,822,953 |
|
|
|
58,967,904 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee and director stock options |
|
|
889,639 |
|
|
|
700,857 |
|
|
|
776,782 |
|
|
|
937,757 |
|
Restricted stock |
|
|
185,581 |
|
|
|
153,583 |
|
|
|
182,945 |
|
|
|
209,341 |
|
RSUs |
|
|
100,810 |
|
|
|
47,425 |
|
|
|
77,945 |
|
|
|
61,872 |
|
PUs |
|
|
51,363 |
|
|
|
|
|
|
|
25,682 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential dilutive common shares |
|
|
58,373,407 |
|
|
|
59,466,867 |
|
|
|
57,886,307 |
|
|
|
60,176,977 |
|
During the three months ended June 30, 2015, weighted average shares related to 960,051 stock options,
67,445 shares of Restricted Stock, and 27,500 RSUs were excluded from the calculation of diluted earnings per share because they were anti-dilutive. During the six months ended June 30, 2015, weighted average shares related to 1,535,007
stock options, 86,223 shares of Restricted Stock, 67,024 RSUs and 48,972 PUs were excluded from the calculation of diluted earnings per share because the awards were similarly anti-dilutive.
7. Commitments and contingencies
A summary of our fixed contractual obligations and commitments at June 30, 2015, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
(In thousands) |
|
Total |
|
|
1 Year |
|
|
Years 2 & 3 |
|
|
Years 4 & 5 |
|
|
Beyond 5 Years |
|
Operating leases |
|
$ |
10,329 |
|
|
$ |
1,468 |
|
|
$ |
2,161 |
|
|
$ |
2,055 |
|
|
$ |
4,645 |
|
We have not entered into any material, non-cancelable purchase commitments at June 30, 2015.
Claims and Proceedings
We are
from time to time involved in legal claims, litigation, and other legal proceedings. Although we may incur significant expenses in those matters, we expect no material adverse effect on our operations or financial results from current or concluded
legal proceedings.
10
8. Fair Value Measurements
FASB guidance regarding fair value measurement establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets and
liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
For certain of the Companys financial instruments, including cash and cash equivalents, trade receivables, and accounts payable, the
fair values approximate carrying values due to the short-term maturities of these instruments. The carrying values of other current assets and accrued expenses are also not recorded at fair value, but approximate fair values primarily due to their
short-term nature.
9. Common Stock Repurchase Program
On May 11, 2015, the Companys board of directors approved a share repurchase program that enables the Company to
purchase up to $15 million of its shares of common stock from time to time in the open market or in block purchase transactions. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other
factors. Any share purchases would be funded from existing cash resources and may be suspended or discontinued at any time. The share repurchase program will expire on October 31, 2015. During the three months ended June 30, 2015, the
Company repurchased 278,600 shares at an aggregate cost of $1.3 million under this program. On May 11, 2015, the board of directors also approved the termination of the $10 million share repurchase program announced in January 2015. No shares
were repurchased under that program.
During the three months ended March 31, 2014, the Company repurchased 1,407,129 shares at an
aggregate cost of $6.2 million, completing a $15 million share repurchase program authorized by our board of directors in 2013.
10. Income Taxes
The operating losses incurred by the Companys U.S. operations in past years and the resulting net operating losses for
U.S. Federal tax purposes are subject to a $46 million reserve. Any reduction to this $46 million valuation allowance is based on an assessment of future utilization following accounting guidance, which relies largely on historical earnings. Using
this methodology, and updating the future taxable earnings estimates based on first and second quarter 2015 actual earnings, the Company believes the deferred tax asset allowance as of December 31, 2014, will remain unchanged at
December 31, 2015. For this reason, the Company has recognized its first and second quarter 2015 federal deferred tax provision in full. If in prospective periods we conclude our future U.S. federal taxable estimate established at the end of
the year will exceed the prior year estimate, the Company will offset its federal deferred tax provision by reducing its valuation allowance by an equal amount, thereby eliminating from its deferred tax provision federal taxes in excess of the
estimated Alternative Minimum Tax from the Companys financial statements. The Company will continue to reevaluate the need for its valuation allowance each quarter, following the same assessment methodology described above. Adjusting our
valuation allowance could have a significant impact on operating results for each period that it becomes more likely than not that an additional portion of our deferred tax assets will or will not be realized.
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Statements in this report which are not purely historical facts or which necessarily depend upon future events, including statements about
trends, uncertainties, hopes, beliefs, anticipations, expectations, plans, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks and uncertainties described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2014. Any of these risk factors could have a material adverse effect on our business, financial condition or financial results and reduce the value of an investment in our securities. We may not
succeed in addressing these and other risks associated with an investment in our securities, with our business and with our achieving any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements.
All forward-looking statements are based upon information available to us on the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
11
Overview
ZixCorp® offers email encryption, data loss prevention (DLP), and
Bring-Your-Own-Device (BYOD) security to meet business data protection and compliance needs. We primarily serve organizations in the healthcare, financial services, insurance and government sectors, including significant federal
financial regulators such as the Federal Financial Institutions Examination Council (FFIEC), divisions of the U.S. Treasury, the U.S. Securities and Exchange Commission (SEC), one in every four U.S. banks, more than 30 Blue Cross Blue
Shield organizations and one in every five U.S. hospitals.
ZixTM Email Encryption
enables the secure exchange of email that includes sensitive information through a comprehensive secure messaging service, which allows an enterprise to use policy-driven rules to determine which email messages should be sent securely to comply with
regulations or company-defined policies. Zix Email Encryption is a Software-as-a-Service (SAAS) solution, for which customers pay an annual service subscription fee.
The main differentiation for Zix Email Encryption in the marketplace is our exceptional ease of use. The best example of this is our ability
to provide transparent delivery of secure, encrypted email. Most email encryption solutions are focused on the sender. They typically introduce an added burden on receivers, often requiring additional user authentication with creation of a new user
identity and password. We designed our solution to alleviate the receivers burden by enabling the delivery of encrypted email automatically and transparently. ZixCorp enables transparent delivery by (1) ZixDirectory®, the worlds largest email encryption community which is designed to share identities of our tens of millions of members (growing by approximately 110,000 members per week),
(2) ZixCorps Best Method of DeliveryTM, which is designed to deliver email according to the senders encryption policy, and (3) ZixGateway®, which is an enterprise gateway that automatically decrypts the message. The result is the industrys only transparent encrypted email, such that secure email can be exchanged without extra
steps or passwords for both sender and receiver. ZixCorp delivers more than 1,100,000 encrypted messages on a typical day. Of those messages, 75% are exchanged transparently between senders and receivers.
ZixCorp launched ZixDLP®, an email-specific DLP solution in early 2013. By focusing
strictly on email, ZixDLP addresses businesss greatest source of data loss corporate email. ZixDLPs straightforward approach decreases the complexity and cost often associated with other DLP solutions. ZixDLP is also designed to
reduce deployment time from months to hours and to minimize impact on customer resources and workflow. In addition, ZixDLP offers a convenient experience for both employees interacting with the solution and administrators managing the system.
Leveraging the Companys leadership and expertise in email encryption, ZixDLP uses ZixCorps proven policy and content scanning
capabilities with new quarantine functionality. The quarantine system and its intuitive interface allow administrators to (1) easily define policies and create custom lexicons for quarantining email messages, (2) conveniently manage
quarantined messages using flexible searching and filtering options, (3) release or delete individual or multiple quarantined messages with one click, (4) review reports that monitor quarantine activities and trends and (5) automate
custom notifications informing employees of quarantined messages.
ZixDLP is available as an add-on for existing ZixCorp customers or as a
bundle with ZixCorp Email Encryption for new customers. ZixDLP is also available as a standalone solution that can easily integrate with most email systems and email encryption solutions.
In late 2013, ZixCorp launched ZixOne®, a unique mobile email app that solves the key
IT challenge created by the BYOD trend in the workplace. BYOD describes the increasing trend of employees using their personal devices to conduct work. ZixOne provides access to corporate email while never allowing that data to be
persistently stored on the device where it is vulnerable to loss or theft. If the device is lost or stolen, an administrator can simply disable access to corporate email from that device through ZixOne.
Unlike other BYOD solutions, ZixOne meets employee demands of convenience, control and privacy while giving companies the ability to
secure corporate data and meet compliance needs. With seamless access to work email in a secure, simple-to-use environment, employees can stay productive while preserving device independence. A BYOD solution that is acceptable to employees and yet
provides strong data protection for corporate data solves one of todays greatest IT management challenges.
Our business operations
and service offerings are supported by the ZixData Center, a SysTrust/SOC3 certified, SOC2 accredited, PCI, DSS V2.0 certified facility. The operations of the ZixData Center are independently audited annually to maintain AICPA SysTrust/SOC3
certification in the areas of security, confidentiality, integrity and availability. Auditors also produce a SOC2 (formerly SAS70 Type II) report on the effectiveness of operational controls used over the audit period. The ZixData Center is staffed
24 hours a day and has a track record that exceeds 99.99% availability.
12
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United
States requires the Companys management to make estimates and assumptions that affect the amounts reported in the Companys condensed consolidated financial statements and accompanying notes. Actual results could differ from these
estimates and assumptions. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of the Companys financial condition and results and require managements most subjective judgments.
We describe our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. We discuss our Critical Accounting Policies and Estimates in Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2014.
Results of Operations
Second Quarter 2015 Summary of Operations
Financial
|
|
|
Revenue for the quarter ended June 30, 2015, was $13.3 million compared with $12.6 million for the same period in 2014, representing a 5% increase. |
|
|
|
Gross margin for the quarter ended June 30, 2015, was $10.9 million or 82% of revenues compared with $10.6 million or 84% of revenues for the comparable period in 2014. |
|
|
|
Net income for the quarter ended June 30, 2015, was $1.1 million compared with net income of $1.0 million in the comparable period in 2014. |
|
|
|
Ending cash and cash equivalents were $28.0 million on June 30, 2015, compared with $21.7 million on December 31, 2014. |
Operations
|
|
|
New first year orders (NFYOs) for the quarter ended June 30, 2015, were $2.5 million. As of June 30, 2015, backlog was $73.9 million. |
Revenues
Our Company provides
subscription-based services. The following table sets forth the quarter-over-quarter and six month comparisons of the Companys revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
3-month Variance 2015 vs. 2014 |
|
|
Six Months Ended June 30, |
|
|
6-month Variance 2015 vs. 2014 |
|
(in thousands) |
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Revenues |
|
$ |
13,302 |
|
|
$ |
12,615 |
|
|
$ |
687 |
|
|
|
5 |
% |
|
$ |
26,375 |
|
|
$ |
24,777 |
|
|
$ |
1,598 |
|
|
|
6 |
% |
The increase in revenue was due to the growth inherent in a successful subscription-based business model with
steady additions to the subscriber base coupled with a high rate of existing customer renewals.
Revenue Indicators Backlog,
Orders and Deployments
Backlog Our end-user order backlog is comprised of contractually binding agreements that we
expect to amortize into revenue as the services are performed. The timing of revenue is affected by both the length of time required to deploy a service and the length of the service contract.
As of June 30, 2015, total backlog was $73.9 million and we expect approximately 56% of the total backlog to be recognized as revenue
during the next twelve months. As of June 30, 2015, the backlog was comprised of the following elements: $22.2 million of deferred revenue that has been billed and paid, $8.6 million billed but unpaid, and approximately $43.1 million of
unbilled contracts. The backlog at June 30, 2015, was 8% higher than the $68.4 million backlog at the end of the second quarter 2014 and 7% higher than the ending backlog of $69.3 million at December 31, 2014.
13
Orders Total orders were $17.4 million and $15.7 million for the three-month
periods ended June 30, 2015 and 2014, respectively. Total orders include contract renewals, NFYOs, and in the case of new multi-year contracts, the years beyond the first year of service. NFYOs were $2.5 million and $2.4 million for the
three-month periods ended June 30, 2015 and 2014, respectively.
Cost of Revenues
The following table sets forth the quarter-over-quarter and six month comparisons of the cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
3-month Variance 2015 vs. 2014 |
|
|
Six Months Ended June 30, |
|
|
6-month Variance 2015 vs. 2014 |
|
(in thousands) |
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Cost of revenues |
|
$ |
2,429 |
|
|
$ |
2,032 |
|
|
$ |
397 |
|
|
|
20 |
% |
|
$ |
4,642 |
|
|
$ |
4,057 |
|
|
$ |
585 |
|
|
|
14 |
% |
Cost of revenues is comprised of costs related to operating and maintaining the ZixData Center, a field
deployment team, customer service and support and the amortization of Company-owned, customer-based computer appliances. The three and six month variances reflected in the table above resulted primarily from increases in average headcount and
depreciation expense relating to investments in ZixOne networking equipment.
Research and Development Expenses
The following table sets forth the quarter-over-quarter and six month comparisons of our research and development expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
3-month Variance 2015 vs. 2014 |
|
|
Six Months Ended June 30, |
|
|
6-month Variance 2015 vs. 2014 |
|
(in thousands) |
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Research and development expenses |
|
$ |
2,094 |
|
|
$ |
2,218 |
|
|
$ |
(124 |
) |
|
|
(6 |
)% |
|
$ |
4,199 |
|
|
$ |
4,419 |
|
|
$ |
(220 |
) |
|
|
(5 |
)% |
Research and development expenses consist primarily of salary, benefits, and stock-based compensation for our
development staff and development contractors, and other direct and indirect costs associated with enhancing our existing products and services and developing new products and services. The three and six month decreases reflected in the table above
resulted primarily from reductions in average internal staff and contractor headcount, partially offset by increased depreciation expense.
Selling
and Marketing Expenses
The following table sets forth the quarter-over-quarter and six month comparisons of our selling and
marketing expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
3-month Variance 2015 vs. 2014 |
|
|
Six Months Ended June 30, |
|
|
6-month Variance 2015 vs. 2014 |
|
(in thousands) |
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
Selling and marketing expenses |
|
$ |
4,859 |
|
|
$ |
4,713 |
|
|
$ |
146 |
|
|
|
3 |
% |
|
$ |
9,653 |
|
|
$ |
8,930 |
|
|
$ |
723 |
|
|
|
8 |
% |
Selling and marketing expenses consist primarily of salary, commissions, travel, stock-based compensation and
employee benefits for selling and marketing personnel as well as costs associated with promotional activities and advertising. The 3% increase in the second quarter of 2015 compared to the same period in 2014 resulted primarily from an increase in
average headcount, increases in bad debt expense and software license expenses, offset by a decrease in advertising and promotional expense. The 8% six-month variance resulted primarily from an increase in average headcount and software license
expenses.
14
General and Administrative Expenses
The following table sets forth the quarter-over-quarter and six month comparisons of our general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
3-month Variance 2015 vs. 2014 |
|
|
Six Months Ended June 30, |
|
|
6-month Variance 2015 vs. 2014 |
|
(in thousands) |
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
|
2015 |
|
|
2014 |
|
|
$ |
|
|
% |
|
General and administrative expenses |
|
$ |
2,187 |
|
|
$ |
2,065 |
|
|
$ |
122 |
|
|
|
6 |
% |
|
$ |
4,308 |
|
|
$ |
4,137 |
|
|
$ |
171 |
|
|
|
4 |
% |
General and administrative expenses consist primarily of salary and bonuses, travel, stock-based compensation
and benefits for administrative and executive personnel as well as fees for professional services and other general corporate activities. The three and six month increases reflected in the table above resulted primarily from an increase in average
headcount and consulting fees.
Provision for Income Taxes
The provision for income taxes was $647 thousand and $622 thousand for the three-month periods ended June 30, 2015 and 2014, respectively,
and $1.3 million for each of the six-month periods ended June 30, 2015 and 2014. The operating losses incurred by the Companys U.S. operations in past years and the resulting net operating losses for U.S. Federal income tax purposes are
subject to a $46 million reserve because of the uncertainty of future taxable income levels sufficient to utilize our net operating losses and credits. Our June 30, 2015, provision of $1.3 million includes $1.1 million in deferred taxes, $145
thousand in state taxes currently payable based on gross revenues, $52 thousand related to the federal Alternative Minimum Tax, and $83 thousand in taxes related to our Canadian operations. Our June 30, 2014, provision of $1.3 million included
$1.1 million in deferred taxes, $104 thousand in state taxes then payable based on gross revenues, $39 thousand related to the federal Alternative Minimum Tax, and $69 thousand in taxes related to our Canadian operations
There were no penalty-related charges to selling, general and administrative expenses accrued or recognized for the three month periods ended
June 30, 2015 and 2014. Additionally, we have not taken a tax position that would have a material effect on our financial statements or our effective tax rate for the three-month period ended June 30, 2015. We are currently subject to a
three-year statute of limitations by major tax jurisdictions.
At June 30, 2015, the Company partially reserved its U.S. net deferred
tax assets due to the uncertainty of future taxable income sufficient to utilize net loss carryforwards prior to their expiration, as noted above. The Company did not reserve $50.6 million of its U.S. net deferred tax assets. The majority of this
unreserved portion related to $42.8 million in U.S. net operating losses (NOLs) because we believe the Company will generate sufficient taxable income in future years to utilize these NOLs prior to their expiration. The remaining balance
consists of $4.7 million relating to temporary differences between GAAP and tax-related expense, $1.9 million relating to U.S. state income tax credits and net operating loss carryovers, and $1.2 million related to Alternative Minimum Tax credits.
Any reduction to the $46 million valuation allowance related to our deferred tax asset is based on an assessment of future utilization
following accounting guidance, which relies largely on historical earnings. Using this methodology, and updating the future taxable earnings estimates based on first and second quarter 2015 actual earnings, the Company believes the deferred tax
asset allowance as of December 31, 2014, will remain unchanged at December 31, 2015. For this reason, the Company has recognized its first and second quarter 2015 federal deferred tax provision in full. If in future periods we conclude our
future U.S. federal taxable estimate established at the end of the year will exceed the prior year estimate, the Company will offset its federal deferred tax provision by reducing its valuation allowance by an equal amount, thereby eliminating from
its deferred tax provision federal taxes in excess of the estimated Alternative Minimum Tax from the Companys financial statements. Significant judgment is required in determining any valuation allowance recorded against the deferred tax
asset. In assessing the need for such an allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. The Company will continue to reevaluate the
need for its valuation allowance each quarter, following the same assessment methodology described above. Adjusting our valuation allowance could have a significant impact on operating results for each period during which it becomes more likely than
not that an additional portion of our deferred tax assets will or will not be realized.
15
We have determined that utilization of existing net operating losses against future taxable
income is not currently subject to limitation by Section 382 of the Internal Revenue Code. Future ownership changes, however, may limit the companys ability to fully utilize its existing net operating loss carryforwards against future
taxable income.
Net Income
Our net income for the three months ended June 30, 2015, of $1.1 million is a slight increase of $0.1 million compared to our net income
of $1.0 million for the same period last year. The slight increase in our net income was due to our increased revenue and lower research and development costs offset primarily by higher selling and marketing and general and administrative expense,
all as discussed above.
Liquidity and Capital Resources
Overview
Based on our performance
over the last four quarters and current expectations, we believe our cash and cash equivalents and cash generated from operations, will satisfy our working capital needs, capital expenditures, investment requirements, contractual obligations, and
other liquidity requirements associated with our operations through at least the next twelve months. We plan for and measure our liquidity and capital resources through an annual budgeting process. At June 30, 2015, our cash and cash
equivalents totaled $28.0 million, an increase of $6.3 million from the December 31, 2014 balance, and we had no debt.
Sources and Uses of
Cash Summary
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
(In thousands) |
|
2015 |
|
|
2014 |
|
Net cash provided by operations |
|
$ |
5,565 |
|
|
$ |
5,840 |
|
Net cash used in investing activities |
|
$ |
(1,400 |
) |
|
$ |
(857 |
) |
Net cash provided by (used in) financing activities |
|
$ |
2,124 |
|
|
$ |
(6,341 |
) |
Our primary source of liquidity from our operations is the collection of revenue in advance from our customers
and collection of accounts receivable from our customers, net of the timing of payments to our vendors and service providers.
Our
investing activities consist primarily of computer and networking equipment purchases. In the first six months of 2015 we additionally invested in furniture and leasehold improvements associated with the lease renewal for our Dallas headquarters.
Financing activities in the first six months of 2015 include the receipt of $3.6 million from the exercise of stock options offset by
$1.3 million used in the share repurchase program authorized by our board of directors and $185 thousand used in the repurchase of common stock related to the tax impact of vesting restricted awards. Cash used in financing activities in the first
six months of 2014 included $6.2 million used in completion of the $15 million share repurchase program authorized by our board of directors, and $160 thousand used in the repurchase of common stock related to the tax impact of vesting restricted
awards. These usages were partially offset by $62 thousand received from the exercise of stock options.
Options of ZixCorp Common Stock
We have significant options outstanding that are currently vested. There is no assurance that any of these options will be
exercised; therefore, the extent of future cash inflow from additional option activity is not certain. The following table summarizes the options that were outstanding as of June 30, 2015. The vested shares are a subset of the outstanding
shares. The value of the shares is the number of shares multiplied by the exercise price for each share.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Outstanding Options |
|
Exercise Price Range |
|
Outstanding Options |
|
|
Total Value of Outstanding Options (In thousands) |
|
|
Vested Options (included in outstanding options) |
|
|
Total Value of Vested Options (In thousands) |
|
$1.11 - $1.99 |
|
|
263,806 |
|
|
$ |
382 |
|
|
|
263,806 |
|
|
$ |
382 |
|
$2.00 - $3.49 |
|
|
1,329,600 |
|
|
|
3,548 |
|
|
|
1,107,411 |
|
|
|
2,950 |
|
$3.50 - $4.99 |
|
|
1,704,927 |
|
|
|
7,551 |
|
|
|
1,704,927 |
|
|
|
7,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,298,333 |
|
|
$ |
11,481 |
|
|
|
3,076,144 |
|
|
$ |
10,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
None.
Contractual Obligations, Contingent
Liabilities and Commitments
A summary of our fixed contractual obligations and commitments at June 30, 2015, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
(In thousands) |
|
Total |
|
|
1 Year |
|
|
Years 2 & 3 |
|
|
Beyond 3 Years |
|
Operating leases |
|
$ |
10,329 |
|
|
$ |
1,468 |
|
|
$ |
2,161 |
|
|
$ |
6,700 |
|
We have not entered into any material, non-cancelable purchase commitments at June 30, 2015.
We have severance agreements with certain employees which would require the Company to pay approximately $4.1 million if all such employees
separated from employment with our Company following a triggering event (e.g., change of control) as defined in the severance agreements.
17
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We have no material changes
to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2014.
ITEM 4. |
CONTROLS AND PROCEDURES |
The Company, under the supervision and with the participation
of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e))
under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as
of June 30, 2015.
Changes in Internal Controls over Financial Reporting
During the six months ended June 30, 2015, there have been no changes in our internal control over financial reporting that have
materially affected or are reasonably likely to materially affect internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. |
Legal Proceedings |
None.
See Part I, Item 1A, Risk Factors, of the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have been no material changes in our risk factors from those disclosed in such Annual Report on Form 10-K. The risk factors in our Form 10-K should be read in
conjunction with the considerations set forth above in Managements Discussion and Analysis of Financial Condition and Results of Operations and in Managements Discussion and Analysis of Financial Condition and Results
of Operations set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|
(c) |
Purchases of Equity Securities by the Issuer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or |
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Value) of Shares |
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
(or Units) that May |
|
|
|
|
|
|
|
|
|
part of Publicly |
|
|
Yet Be Purchased |
|
|
|
Total Number of Shares |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
Under the Plans or |
|
Period |
|
Purchased(1) |
|
|
per Share(1) |
|
|
Programs |
|
|
Programs |
|
April 1, 2015 to April 30, 2015 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
May 1, 2015 to May 31, 2015 |
|
|
184,800 |
|
|
$ |
4.68 |
|
|
|
184,800 |
|
|
$ |
14,100,000 |
|
June 1, 2015 to June 30, 2015 |
|
|
93,800 |
|
|
$ |
4.99 |
|
|
|
93,800 |
|
|
$ |
13,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
278,600 |
|
|
$ |
4.79 |
|
|
|
278,600 |
|
|
$ |
13,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The shares were repurchased under the $15 million stock repurchase program approved by our board of directors May 11, 2015. No shares were purchased other than through publicly announced programs during the periods
shown. |
18
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. |
OTHER INFORMATION |
None.
19
a. Exhibits
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:
|
|
|
Exhibit No. |
|
Description of Exhibits |
|
|
3.1 |
|
Restated Articles of Incorporation of Zix Corporation, as filed with the Texas Secretary of State on November 10, 2005. Filed as Exhibit 3.1 to Zix Corporations Annual Report on Form 10-K for the year ended December 31, 2005,
and incorporated herein by reference. |
|
|
3.2 |
|
Amended and Restated Bylaws of Zix Corporation, dated March 12, 2014. Filed as Exhibit 3.2 to Zix Corporations Annual Report on Form 10-K, for the year ended December 31, 2013, and incorporated herein by reference. |
|
|
10.1* |
|
Form of Amended and Restated Employment Termination Benefits Agreement. |
|
|
10.2 |
|
Zix Corporation Amended and Restated 2012 Incentive Plan (incorporated herein by reference to Appendix A of the Companys Definitive Proxy Statement on Schedule 14A (File No. 000-17995) filed with the Securities and Exchange
Commission on May 13, 2015). |
|
|
10.3* |
|
Letter Agreement Concerning Transition Matters, dated as of July 21, 2015, by and between Zix Corporation and Richard D. Spurr. |
|
|
10.4* |
|
Second Amended and Restated Employment Termination Benefits Agreement, dated as of July 21, 2015, by and between Zix Corporation and Richard D. Spurr. |
|
|
31.1* |
|
Certification of Richard D. Spurr, President and Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2* |
|
Certification of Michael W. English, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1** |
|
Certification of CEO and CFO, pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
101.1* |
|
101. INS (XBRL Instance Document) 101. SCH
(XBRL Taxonomy Extension Schema Document) 101. CAL (XBRL Calculation Linkbase Document)
101. LAB (XBRL Taxonomy Label Linkbase Document) 101. DEF (XBRL
Taxonomy Linkbase Document) 101. PRE (XBRL Taxonomy Presentation Linkbase Document) |
20
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, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
ZIX CORPORATION |
|
|
|
|
Date: August 5, 2015 |
|
|
|
By: |
|
/s/ MICHAEL W. ENGLISH |
|
|
|
|
|
|
Michael W. English |
|
|
|
|
|
|
Chief Financial Officer (Principal Financial |
|
|
|
|
|
|
Officer and Principal Accounting Officer) |
21
Exhibit 10.1
AMENDED AND RESTATED
EMPLOYMENT TERMINATION BENEFITS AGREEMENT
This Amended and Restated Employment Termination Benefits Agreement, dated effective as of
, 20 , is entered into by and between Zix Corporation, a Texas corporation (Company), and the undersigned individual
(Employee). This agreement serves to amend and restate the existing Employment Termination Benefits Agreement between the Company and Employee, which was entered into effective as of
, 20 .
Employee is an at
will employee of an Affiliate of Company and is based in .
Company wishes to specify terms under which Employee would leave employment in the circumstances described in this agreement.
The parties agree as follows:
Capitalized terms not otherwise defined in this agreement have the meanings ascribed to them in section 5.
1. Separation Payment. If the Company or its Affiliate terminates Employees employment other than for Cause, then the Company shall pay to
Employee the Separation Payment pursuant to and in accordance with subsection 1.B. If Employee resigns from employment (subject to the notice and cure provisions set forth below) with the Company and its Affiliates within 24 months after a
Change in Control and the resignation was for a Change In Control Good Reason, then the resignation will be deemed to be a termination of Employees employment other than for Cause and the Company shall pay to Employee the Separation Payment
pursuant to and in accordance with subsection 1.B. Neither Employees death nor Employees resignation (other than for a Change in Control Good Reason) or termination for Cause or on account of disability will give rise to any
Separation Payment. The Companys obligation to make the Separation Payment will not be mitigated or offset by virtue of Employee obtaining new employment or failing to seek new employment. The Separation Payment encompasses and includes any
applicable employment standards entitlements.
A. Notice Required for Change in Control Good Reason. Notwithstanding anything to the
contrary in the preceding paragraph, Employee will not be deemed to have resigned employment for a Change In Control Good Reason unless and until: (i) Employee provided to the Company notice of the existence of the Change In Control Good Reason
condition within 90 days of its initial existence; (ii) the Company failed to remedy the Change In Control Good Reason condition within 30 days after the Company received the notice; and (iii) Employee resigned employment within 180 days
after the initial existence of the Change In Control Good Reason condition.
1
B. Time of Payment. The Company shall pay the Separation Payment to Employee in equal
monthly payments over the number of months of base salary used to calculate the Separation Payment, beginning as soon as practicable after termination of Employees employment but no later than 60 days after such termination, subject to
subsection 7.O(5).
C. Liability Release as Condition to Payment. Notwithstanding anything to the contrary in this agreement, the
Companys obligation to pay the Separation Payment is subject to and conditioned upon the Companys receiving from the Employee, within 60 days after Employees termination other than for Cause or resignation for a Change in Control
Good Reason, a duly executed separation agreement containing a release of claims in a form reasonably satisfactory to the Company. If Employee fails to execute and deliver such a separation agreement to the Company within that 60-day time period, or
Employee revokes such release pursuant to the terms of the separation agreement, then Employee is deemed to forfeit any entitlement to receive the Separation Payment and shall promptly return any portion of the Separation Payment which he or she
received before such failure to execute and deliver or revocation. The Company will provide the separation agreement to Employee promptly after Employees termination other than for Cause or resignation for a Change in Control Good Reason.
D. Withholding. Employee is responsible for all withholdings for taxes and other withholdings required by applicable law as to any
amounts owed by Employee to Company, and Employee shall pay the same to the Company promptly upon demand if not otherwise withheld.
2. Accelerated
Vesting of Stock-Based Compensation. Notwithstanding anything to the contrary in any award agreement between Employee and Company:
A.
Change in Control.
(1) Awards not Assumed or Substituted by Surviving Entity. Upon the occurrence of a
Change in Control, and except with respect to any awards described in subsection 2.A(2) below: (i) any outstanding stock options or stock appreciation rights (SARs) held by Employee will immediately become fully
exercisable; (ii) any time-based restrictions on other outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and all such awards will become fully vested, disregarding any performance-based
vesting criteria; and (iii) the payout level under any outstanding performance-based cash awards held by Employee will be determined and deemed to have been earned as of the effective date of the Change in Control based upon (A) an assumed
achievement of all relevant performance goals at the target level if the Change in Control occurs during the first half of the applicable performance period, or (B) the greater of (1) the assumed achievement of all relevant
performance goals at the target level and (2) the actual level of achievement of all relevant performance goals against target (measured as of the date of the Change in Control), if the Change in Control occurs during the second
half of the applicable performance period, and, in either such case, Employee will receive a prorata payout within sixty (60) days following the Change in Control (unless a later date is required by subsection 7.O hereof), based upon the length
of time within the performance period that has elapsed prior to the Change in Control. Any options or SARs will thereafter continue or lapse in accordance with the other provisions of the applicable plan and the applicable award agreement. To the
extent that this provision causes incentive stock options to exceed the dollar limitation set forth in section 422(d) of the Code, the excess stock options will be deemed to be nonstatutory stock options. In addition, the Company has the right
to settle stock awards in accordance with subsection 2.D below.
2
(2) Stock Awards Assumed or Substituted by Surviving Entity. With respect
to stock awards that are assumed by the Surviving Entity or are otherwise equitably converted or substituted in connection with a Change in Control in a manner approved by the Board, if, within two years after the effective date of the Change in
Control, either (a) the Company or its Affiliate or the Surviving Entity terminates Employees employment other than for Cause or (b) Employee resigns for a Change in Control Good Reason: then (i) any outstanding stock options or
SARs held by Employee will immediately become fully exercisable; (ii) any time-based restrictions on other outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and all such awards will
become fully vested, disregarding any performance-based vesting criteria and (iii) the payout level under any performance-based cash awards held by Employee that were outstanding immediately prior to effective time of the Change in Control will
be determined and deemed to have been earned as of the date of termination based upon (A) an assumed achievement of all relevant performance goals at the target level if the date of termination occurs during the first half of the
applicable performance period, or (B) the greater of (1) the assumed achievement of all relevant performance goals at the target level, and (2) the actual level of achievement of all relevant performance goals against
target (measured as of the end of the calendar quarter immediately preceding the date of termination), if the date of termination occurs during the second half of the applicable performance period, and, in either such case, Employee will
receive a prorata payout within sixty (60) days following the date of termination of employment (unless a later date is required by subsection 7.O hereof), based upon the length of time within the performance period that has elapsed prior to
the date of termination of employment. Any options or SARs will thereafter continue or lapse in accordance with the other provisions of the applicable plan and the applicable award agreement. To the extent that this provision causes incentive stock
options to exceed the dollar limitation set forth in section 422(d) of the Code, the excess stock options will be deemed to be nonstatutory stock options.
B. Termination Other Than for Cause. If the Company or its Affiliate terminates Employees employment other than for Cause absent a
Change in Control, then (i) any outstanding stock options or SARs held by Employee will immediately become fully exercisable; and (ii) any time-based restrictions on other outstanding stock awards (such as restricted stock and restricted
stock units) held by Employee will lapse and such awards will become fully vested, and (iii) the payout level under any outstanding performance-based stock awards held by Employee will be determined and deemed to have been earned based upon the
actual level of achievement of all relevant performance goals against target (measured over the full performance period), and Employee will receive a prorata payout within thirty (30) days following the date the performance against
such goals is certified by the Compensation Committee (unless a later date is required by subsection 7.O hereof), based upon the length of time within the performance period that has elapsed prior to the date of termination of employment.
C. Phrases referring to Employees termination not for Cause or other than for Cause in this agreement exclude any
termination or resignation as a result of Employees death or disability. Neither Employees death nor Employees resignation (other than for a Change in Control Good Reason) or termination on account of disability will give rise to
any accelerated vesting or right to settlement of any stock awards under this agreement.
3
D. Companys Election. In the circumstances described in subsection 2.A, the
Company has the right to choose to settle in cash, as described in subsection 2.E below, all or any portion of Employees stock awards. The Employee shall surrender and transfer to the Company all stock awards that the Company elects to
settle in cash. Any stock awards that are not settled in cash shall thereafter continue or lapse in accordance with the other provisions of the plan and the award agreement under which they were granted.
E. Settlement in Cash. If the Company chooses to settle some or all of the stock awards in cash, pursuant to subsection 2.D above,
it may do so
(1) in the case of stock options or SARs, by paying Employee either (i) the difference (if any,
including a deemed distribution of $0) between the price being paid for the Companys common stock in the Change in Control over the exercise or base price, as applicable, of the award (that difference, the Spread Amount),
multiplied by the number of such stock options or SARs; or (ii) the fair value of those stock options or SARs under Generally Accepted Accounting Principles (as determined as of the settlement date through the Black-Scholes,
binomial, or any other option pricing model permissible under FASB Accounting Standards Codification 718 or a successor standard), but only if that fair value would yield a greater payment to Employee than the Spread Amount. The Company shall pay
the settlement amount, net of any required withholding, to Employee within sixty (60) days after the Change in Control (unless a later date is required by subsection 7.O hereof); or
(2) in the case of stock awards other than stock options or SARs (such as restricted stock or restricted stock units), by
paying Employee the price being paid for the Companys common stock in the Change in Control multiplied by the number of such shares underlying the stock award. The Company shall pay the settlement amount, net of any required withholding, to
Employee within sixty (60) days after the Change in Control (unless a later date is required by subsection 7.O hereof).
3. No Conflict of
Interest. Without limiting Employees obligations to comply with the Companys Code of Conduct and Code of Ethics, Employee agrees that during the term of Employees employment:
A. Employee shall not engage, either directly or indirectly, in any activity that may involve a conflict of interest with the Company or
its Affiliate, including without limitation ownership in any supplier, contractor, subcontractor, customer or other entity with which the Company or its Affiliate does business (other than as a shareholder of less than one percent (1%) of a
publicly-traded or privately-held class of equity ownership) (Conflict of Interest);
B. Employee shall promptly
report to the Companys Chief Compliance Officer any information about which Employee becomes aware that might involve or give rise to a Conflict of Interest or potential Conflict of Interest.
C. Employee shall not accept any material payment, service, loan, gift, trip, entertainment or other favor from a supplier, contractor,
subcontractor, customer or other entity with which the Company or its Affiliate does business.
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D. Employee shall promptly report to the Companys Chief Compliance Officer each offer by
any entity with which the Company or its Affiliate does business for any material payment, service, loan, gift, trip, entertainment or other favor.
4.
Ongoing Covenants. Employee acknowledges that the Company has a legitimate interest in (i) maintaining the confidentiality of the Companys confidential information and (ii) restraining Employee from competing against the
Company and its Affiliates during and for a reasonable time after Employees employment by the Company or its Affiliate. Employee agrees to the restrictions in subsection 4.A: (i) in consideration of the benefits described in this
agreement and the Companys providing Employee with confidential information, and (ii) in order to enforce Employees agreement to maintain the confidentiality of the Companys confidential information.
A. Restrictive Covenants. Throughout the term of Employees employment by the Company or its Affiliate, and throughout the 12 month
period beginning upon Employees separation from employment with the Company for any reason, Employee shall not do any of the following:
(1) Non-Competition. Directly or indirectly engage in, sell or otherwise provide Competitive Services within the
Restricted Territory while serving in a position that is the same as or substantially similar to the [INSERT NAME OF POSITION EMPLOYEE HOLDS] position that Employee held with the Company, whether on his own behalf or as a Principal or Representative
of any Person other than the Company; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Employee of not more than 1% of any class of securities of any corporation having a class
of securities registered pursuant to the Securities Exchange Act of 1934, as amended.
(2) Non-Solicitation of Protected
Customers. Directly or indirectly, on Employees own behalf or on behalf of a competitor of the Companys Business, or as a Principal or Representative of any other Person, solicit, divert, take away or attempt to solicit, divert, or
take away a Protected Customer for purposes of providing or selling services or products that are the same as or substantially similar to the services and products that are provided or sold by the Company.
(3) Non-Solicitation of Protected Employees. Directly or indirectly, on Employees own behalf or as Principal or
Representative of any other Person, solicit or induce or attempt to solicit or induce any Protected Employee to terminate his or her employment with the Company or to enter into employment with any other Person.
B. Restrictions Are Reasonable. The Company and Employee have, in good faith, used their best efforts to make the restrictions in
subsection 4.A reasonable in all pertinent respects, and it is not anticipated, nor is it intended, by either party that any arbitrator or court will find it necessary to reform any restriction to make it reasonable. Employee has carefully read
and considered the restrictions in subsection 4.A and agrees that the restrictions, including, but not limited to, the time period of restriction, the geographic areas of restriction, and the scope of the restriction are fair and reasonable,
are supported by sufficient and valid consideration, and these restrictions do not impose any greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company. Employee acknowledges that these
5
restrictions will not prevent Employee from obtaining gainful employment in Employees occupation or field of expertise or cause Employee undue hardship and that there are numerous other
employment and business opportunities available to Employee that are not affected by these restrictions.
C. Modification of
Covenants. It is the desire and intent of each of the parties that the provisions of section 4.A be enforced to the fullest extent legally permissible. If an arbitrator or court determines it is necessary to reform any restriction to make
it reasonable in all pertinent respects, then any damages due to a breach of the restriction, as so reformed, will be deemed to accrue to the Company as and from the date of such a breach only, and only so far as the damages for such breach related
to an action that accrued within the scope of the restriction as so reformed. The covenants set forth in this Agreement shall be construed as separate and independent covenants. Should any part or provision of any covenant be held invalid, void or
unenforceable, such invalidity, voidness, or unenforceability shall not render invalid, void or unenforceable any other part or provision of this Agreement. If any portion of subsection 4.A is adjudicated to be invalid or unenforceable, this
section 4 will be deemed amended (i) to reform the particular portion to provide for such maximum restrictions as will be valid and enforceable or, if that is not possible, then (ii) to delete therefrom only the portion thus
adjudicated to be invalid or unenforceable
D. Successors. Subsection 4.A will inure to the benefit of and be enforceable by
any successor to the Company and/or any successor to any Affiliate of the Company that is then conducting the Email Encryption business or any Other Material Business.
E. Notification of Future Employer. Employee shall, and the Company has the right to, notify any person or entity employing Employee or
evidencing an intention to employ Employee about the existence and terms of subsection 4.A.
F. Remedies. If Employee violates
any of the obligations set forth in subsection 4.A, the period of restriction applicable to each obligation violated shall cease to run during the pendency of any litigation over such violation, provided that such litigation was initiated
during the period of restriction. Employee acknowledges that the violation of any of the covenants or agreements contained in subsection 4.A would cause irreparable injury to the Company, that the remedy at law for any such violation or
threatened violation thereof would be inadequate, and Employee agrees that the Company will be entitled, in addition to any other remedy, to temporary and permanent injunctive or other equitable relief from a court of competent jurisdiction without
the necessity of proving actual damages or posting a bond as well as to the recovery of its reasonable attorneys fees.
5. Definitions.
A. Acquiring Person means any person (including any person as such term is used in subsections 13(d)(3) or
14(d)(2) of the Exchange Act) that, together with all Affiliates and Associates of such person, is the beneficial owner (as the term beneficial owner is defined under rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act)) of 10% or more of the outstanding Common Stock. The term Acquiring Person does not include the Company, any majority-owned subsidiary of the Company, any employee benefit plan of the Company or a majority-owned subsidiary
of the Company, or any person to the extent such person is holding Common Stock for or pursuant to the terms of any such plan. For the purposes
6
of this agreement, a person who becomes an Acquiring Person by acquiring beneficial ownership of 10% or more of the Common Stock at any time after the date of this agreement will continue to be
an Acquiring Person whether or not such person continues to be the beneficial owner of 10% or more of the outstanding Common Stock.
B. Affiliate and Associate have the respective meanings ascribed to such terms in rule 12b-2 under
the Exchange Act.
C. Board means the Companys board of directors or the compensation committee thereof.
D. Cause means any of the following shall have occurred: (1) the intentional and continued failure by
Employee to substantially perform Employees employment duties, such intentional failure involving willful and deliberate malfeasance or gross negligence in the performance of Employees duties (other than any such failure resulting from
Employees incapacity due to physical or mental illness), after (i) written demand for substantial performance is delivered by or on behalf of the Company, which demand reasonably identifies the manner in which the Company believes
Employee has not substantially performed Employees duties, and (ii) Employees failure to cure such performance failure within five business days after receipt of such written demand; (2) the intentional engaging by Employee in
misconduct that is materially injurious to the Company; (3) the conviction of Employee or a plea of nolo contendere, or the substantial equivalent to either of the foregoing, of or with respect to, any felony; (4) the commission by
Employee of acts of moral turpitude that are injurious to the Company; (5) a breach by Employee of the Confidentiality and Invention Agreement between the Company (or its affiliate) and Employee; (6) a breach by Employee of Employees
obligations under this agreement or the Arbitration Agreement (as hereinafter defined); or (7) a breach by Employee of the Companys Code of Ethics and Code of Conduct as then in effect. For purposes of this definition, no act, or failure
to act, on Employees part shall be considered intentional unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in, or not opposed to, the best interest of the
Company.
Notwithstanding the foregoing, Employee will not be deemed to have been terminated for Cause without (1) reasonable
written notice to Employee, setting forth the reasons for the Companys intention to terminate for Cause; (2) an opportunity for Employee to be heard by the [Company][Board] (or an authorized representative thereof); and (3) delivery
to Employee of a written notice of termination from the [Company][Board] (or its authorized representative) stating that, in the good faith opinion of the [Company][Board] (or its authorized representative), Employee engaged in the conduct set forth
above in clause (1), (2), (4), (5), (6) or (7) of the preceding paragraph or an event specified in clause (3) of the preceding paragraph has occurred.
E. Change in Control of the Company will be deemed to have occurred if any of the following events occurs during
Employees employment:
(1) The Company is merged, consolidated or reorganized into or with another corporation
or other legal person, other than an Affiliate, and as a result of such merger, consolidation or reorganization, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as a result of
such transaction, equity securities of the surviving or acquiring person or such corporations parent entity (the Surviving Entity) possessing less than 51% of the voting power of the Surviving Entity;
7
(2) The Company sells all or substantially all of its assets to any other
corporation or other legal person, other than an Affiliate, and as a result of such sale, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as a result of such transaction,
equity securities of the Surviving Entity possessing less than 51% of the voting power of the Surviving Entity (provided that this paragraph will not apply to a registered public offering of securities of a subsidiary of the Company, which offering
is not part of a transaction otherwise a part of or related to a Change in Control);
(3) Any Acquiring Person has become
the beneficial owner (as the term beneficial owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities which, when added to any securities already owned by such person, would
represent in the aggregate 35% or more of the then outstanding securities of the Company which are entitled to vote to elect any class of directors;
(4) As measured over any 12 month period, Continuing Directors cease to constitute at least a majority of the Board;
(5) The occurrence of an event required to be reported under Item 6(e) of Schedule 14A of Regulation 14A or any successor
rule or regulation promulgated under the Exchange Act; or
(6) The Board in its sole discretion determines that any other
event is deemed to be a Change in Control.
F. Change In Control Good Reason means any of the following:
(i) a material diminution in Employees authority, duties or responsibilities, (ii) a material diminution in Employees base salary, (iii) a material change in the geographic location at which Employee must perform services,
(iv) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Employee is required to report, (v) a material diminution in the budget over which Employee retains authority, or (vi) any material
breach by the Company of this agreement or any other agreement under which Employee provides services to the Company or its Affiliates.
G. Code means the Internal Revenue Code of 1986 and applicable Internal Revenue Service guidance and Treasury Regulations.
H. Continuing Director means a director of the Company who (1) is not an Acquiring Person or an Affiliate
or Associate thereof, or a representative of an Acquiring Person or nominated for election by an Acquiring Person, and (2) was either (a) a member of the Board on the date of this agreement or (b) subsequently became a director of the
Company and whose initial election or initial nomination for election by the Companys shareholders was approved by a majority of the Continuing Directors then on the Board.
I. Company means Zix Corporation, a Texas corporation, or its successors in interest, as the context requires.
8
J. Competitive Services means the Email Encryption business or any
other material line of business being conducted by the Company or any Affiliate.
K. Exchange Act means
the Securities Exchange Act of 1934.
L. Person means any individual or any corporation, partnership,
joint venture, limited liability company, association or other entity or enterprise.
M. Principal or
Representative means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.
N. Protected Customer means any customer to whom the Company sold its products or services at any time during
Employees employment and with whom Employee had business dealings on behalf of the Company.
O.
Protected Employee means any employee of the Company who was employed by the Company at any time during Employees employment and (a) with whom Employee had a supervisory relationship or (b) with whom
Employee worked or communicated on a regular basis regarding the Companys business.
P. Restricted
Territory means the United States and Canada.
Q. Separation Payment means the sum of:
(1) An amount equal to Employees base salary for a period of 12 months. For the purpose of calculating the Separation
Payment, the Employees base salary will be deemed to be Employees highest base salary in any month during the term of Employees employment.
plus
(2) An amount equal to the payout level for the Employees performance-based compensation that would apply under the plan
under which it was granted as if there had been a Change in Control immediately prior to termination of Employees employment and the Companys obligation to pay such performance-based compensation was not assumed by the surviving entity,
except that equity compensation awards that have any performance-based vesting criteria will vest in the same manner as equity awards that have solely time-based vesting criteria and no proration will apply to those awards. For the avoidance of
doubt and in order to avoid duplication of benefits, in the event Employees performance-based compensation pays out or vests in connection with a Change in Control, Employee shall not also receive payment for such performance-based
compensation as part of Employees Separation Payment.
plus
(3) For an Employee residing in the United States, an amount equal to the excess of (i) the cost for Employee to continue
any group medical, dental, vision and/or prescription drug plan benefits to which Employee and/or Employees eligible dependents would be entitled under Section 4980B of the Code (COBRA) for the number
9
of months used to calculate the base salary Separation Payment pursuant to clause (1) above, over (ii) the amount that Employee would have had to pay for such coverage if had remained
employed during such period of time and paid the active employee rate for such coverage. For an Employee residing outside of the United States, USD $1,500 per month for the number of months used to calculate the base salary Separation Payment
pursuant to clause (1) above, payable in the currency of the Employees place of residence.
R. Surviving
Entity has the meaning set forth in subsection 5.E(1).
6. Mandatory Reduction of Payments in Certain Events.
A. Notwithstanding anything in this agreement to the contrary, in the event it shall be determined that any payment or distribution by
the Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this agreement or otherwise) (such benefits, payments or distributions are hereinafter referred to as
Payments) would, if paid, be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then, prior to the making of any Payments to Employee, a calculation shall be made comparing
(i) the net after-tax benefit to Employee of the Payments after payment by Employee of the Excise Tax, to (ii) the net after-tax benefit to Employee if the Payments had been limited to the extent necessary to avoid being subject to the
Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payments shall be limited to the extent necessary to avoid being subject to the Excise Tax (the Reduced
Amount). The reduction of the Payments due hereunder, if applicable, shall be made by first reducing cash Payments and then, to the extent necessary, reducing those Payments having the next highest ratio of Parachute Value to actual
present value of such Payments as of the date of the Change in Control, as determined by the Determination Firm (as defined in subsection 6.B. below). For purposes of this section 6, present value shall be determined in accordance with
Section 280G(d)(4) of the Code. For purposes of this section 6, the Parachute Value of a Payment means the present value as of the date of the Change in Control of the portion of such Payment that constitutes a
parachute payment under Section 280G(b)(2) of the Code, as determined by the Determination Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.
B. All determinations required to be made under this section 6, including whether an Excise Tax would otherwise be imposed, whether the
Payments shall be reduced, the amount of the Reduced Amount, and the assumptions to be utilized in arriving at such determinations, shall be made by an independent accounting firm or compensation consulting firm mutually acceptable to the Company
and Employee (the Determination Firm) which shall provide detailed supporting calculations both to the Company and Employee within 15 business days after the receipt of notice from the Company that a Payment is due to be made. All
fees and expenses of the Determination Firm shall be borne solely by the Company. Any determination by the Determination Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Determination Firm hereunder, it is possible that Payments which Employee was entitled to, but did not receive pursuant to subsection 6(A), could have been made without the imposition of the
Excise Tax (Underpayment), consistent with the calculations required to be made hereunder. In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Employee but no later than March 15 of the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment
arises.
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C. In the event that the provisions of Code Section 280G and 4999 or any successor
provisions are repealed without succession, this section 6 shall be of no further force or effect.
7. Miscellaneous.
A. Litigation Assistance. During Employees employment and following Employees separation from employment, Employee shall
cooperate reasonably with the Company and its Affiliates in the defense of litigation that pertains to (i) matters reasonably within the purview of Employees job responsibilities while employed with the Company or its Affiliate or
(ii) matters for which Employee has particular knowledge, thereof, including signing affidavits and making himself or herself available for interviews, deposition preparation, deposition, and trial. Employee shall not, without the
Companys prior consent, comment publicly on any such litigation or any of the issues in the litigation. Employee shall not, without the Companys prior consent, discuss any such litigation, or cooperate, with the Companys
opponent(s) in such litigation, their attorneys, or their representatives.
B. Reimbursement for Litigation Assistance. If Employee
assists the Company or its Affiliate with litigation activities following Employees separation from employment other than those litigation activities in which Employee would be required to participate as a named party, the Company shall pay
all reasonable documented out-of-pocket costs (subject to a maximum of $1,000 per day) that Employee incurs in connection with such activities and will pay Employee for his or her actual, demonstrated lost income (subject to a maximum of $10,000 in
any tax year) for the period in which Employee assists with such litigation activities. The Company shall pay the out-of-pocket reimbursement as soon as practicable after Employee provides documentation of such out-of-pocket costs but no later than
the end of the tax year following the tax year in which such expenses were incurred. The amount of expenses reimbursed to Employee pursuant to subsection 7.A during Employees tax year will not impact the amount of such expenses eligible
for reimbursement during any other tax year of Employee. Employees right to reimbursement of expenses will not be subject to liquidation or exchange for another benefit. Employee must provide documentation of the lost income on or before
January 15 of the year following the year in which the income is lost. The lost income will be paid in a lump sum within 60 days after Employee provides documentation of the same but in no event later than March 15 of the year following
the year in which the income is lost.
C. Indemnification. Employee and the Company acknowledge the indemnification provisions set
forth in the Companys bylaws.
D. No Deemed Waivers. The failure by a party to enforce any provision of this agreement does
not constitute a waiver of any subsequent breach of the same or any other provision. No waiver is effective unless made in a writing signed by the waiving party.
E. No Third Party Beneficiaries. Except as otherwise stated in this agreement, nothing in this agreement, is intended to confer any
rights or remedies on any persons other than the parties to it and their respective permitted successors and assigns and other legal representatives.
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F. Remedies. Employee hereby agrees that a violation of subsection 4.A would cause
irreparable injury to the Company for which it would have no adequate remedy at law. Accordingly, in the event of any such violation, the Company shall be entitled to preliminary and other injunctive relief without the necessity to post a bond or
other security. Any such injunctive relief shall be in addition to any other remedies to which the Company may be entitled at law or in equity, or otherwise.
G. Notice. Any consent, notice, demand, or other communication regarding any payment required or permitted hereby must be in writing to
be effective and shall be deemed to have been received on the date delivered, if delivered in person, or the date received, if delivered otherwise (including by U.S. mail, overnight delivery or e-mail), addressed to the applicable party at the
address for such party set forth below or at such other address as such party may designate by like notice:
The Company:
Zix Corporation
2711 North
Haskell Avenue
Suite 2200, LB 36
Dallas, Texas 75204-2960
Attn:
General Counsel
To Employee:
At the address on file in the Companys records.
H. Entire Agreement. This agreement, together with the Mutual Alternative Dispute Resolution Agreement and the Confidentiality and
Invention Agreement between the parties, and the Code of Ethics and Code of Conduct, as currently in effect or hereafter amended from time-to-time, embodies the entire agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to the subject matter hereof.
I. Successors and Assigns. This Agreement
will be binding upon and inure to the benefit of the parties to this agreement and any successors-in-interest to the Company. Employee cannot assign or transfer this agreement or any rights under this agreement, or delegate any obligations under
this agreement, and any attempted assignment, transfer or delegation is void ab initio.
J. Governing Law. This Agreement is
governed by and will be construed, interpreted and enforced in accordance with, the laws of the State of Texas (excluding its conflict of laws rules) and applicable federal law.
K. Arbitration. All claims, demands, causes of action, disputes, controversies, or other matters in question, whether sounding in
contract, tort, or otherwise and whether provided by statute or common law, arising under or related to this agreement or Employees employment (or its termination) are subject to resolution under the procedures descried in the parties
Mutual Alternative Dispute Resolution Agreement.
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L. Cumulative Remedies. No remedy in this agreement conferred upon any party is intended
to be exclusive of any other benefit or remedy, and each and every such remedy shall be cumulative and shall be in addition to every other benefit or remedy given under this agreement or now or hereafter existing at law or in equity or by statute or
otherwise. No single or partial exercise by any party of any right, power, or remedy under this agreement shall preclude any other or further exercise thereof.
M. Multiple Counterparts. This Agreement may be executed in a number of identical counterparts, each of which constitute collectively,
one agreement; but in making proof of this agreement, it is not necessary to produce or account for more than one counterpart.
N.
Descriptive Headings. The headings, captions, and arrangements used in this agreement are for convenience only and do not limit, amplify, or modify the terms of this agreement, nor affect the meaning hereof.
O. 409A Compliance.
(1) General. This Agreement will be interpreted and administered so that any amount or benefit paid or provided is
either exempt from or compliant with the requirements section 409A of the Code (and any applicable transition relief under section 409A of the Code). Nevertheless, the tax treatment of the amounts or benefits provided under the Agreement
is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers will be liable for any taxes, interest, penalties or other monetary amounts owed by Employee as a result of the application of section 409A
of the Code.
(2) Definitional Restrictions. Notwithstanding anything in this Agreement to the contrary, to the
extent that any amount or benefit that would constitute non-exempt deferred compensation for purposes of section 409A of the Code (Non-Exempt Deferred Compensation) would otherwise be payable or distributable
hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of a Change in Control or the Employees termination of employment, such Non-Exempt Deferred Compensation will not be payable or
distributable to Employee, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control or termination of employment, as the case may be, meet any
description or definition of change in control event or separation from service, as the case may be, in section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be
available under such definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon a Change in Control or termination of employment, however defined. If this provision prevents the payment or
distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a section 409A-compliant change in control event or separation
from service, as the case may be, or such later date as may be required by subsection 7.O(3) below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same
form as would have applied absent such designated event or circumstance.
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(3) Six-Month Delay in Certain Circumstances. Notwithstanding anything in
this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of Employees separation from service during a period in
which he or she is a Specified Employee (as defined in subsection 7.O(3)(iii)), then, subject to any permissible acceleration of payment by the Company under Treasury Regulations section 1.409A-3(j)(4)(ii) (domestic relations order),
(j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):
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(i) |
The amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following Employees separation from service will be accumulated through and paid or
provided on the first day of the seventh month following Employees separation from service (or, if Employee dies during such period, within 30 days after Employees death) (in either case, the Required Delay Period).
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The normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period. |
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(iii) |
For purposes of this Agreement, the term Specified Employee has the meaning given such term in section 409A of the Code and the final regulations thereunder; provided,
however, that the Companys Specified Employees and its application of the six-month delay rule of subsection 409A(a)(2)(B)(i) of the Code will be determined in accordance with rules adopted by the Board or a committee thereof,
which will be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Agreement. |
(4) Treatment of Installment Payments. Each payment of termination benefits under section 1.B, including, without
limitation, each installment Separation Payment, shall be considered a separate payment, as described in Treasury Regulations section 1.409A-2(b)(2), for purposes of section 409A of the Code.
(5) Timing of Release of Claims. Whenever in this agreement a payment or benefit is conditioned on Employees
execution and non-revocation of a separation agreement including a release of claims, such release must be executed and all revocation periods must have expired within 60 days after the date of termination of Employees employment; failing
which such payment or benefit is forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection 7.O(3), such payment or benefit (including any installment payments) that would have otherwise been
payable during such 60-day period shall be accumulated and paid on the 60th day after the date of termination provided such release shall have been executed and such revocation periods shall have
expired. If such payment or benefit is exempt from section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.
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Each party is signing this Employment Termination Benefits Agreement on the date indicated under its signature.
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Exhibit 10.3
ZIX CORPORATION
2711 N.
Haskell Avenue
Suite 2200
LB
36
Dallas, Texas 75204-2960
July 21,
2015
Mr. Richard D. Spurr
President and Chief
Executive Officer
Zix Corporation
2711 N. Haskell Avenue
Suite 2200
LB 36
Dallas, Texas 75204-2960
RE: Letter Agreement
Concerning Transition Matters
Dear Mr. Spurr:
This letter, when executed by you in the space provided below, will evidence the agreement that has been reached between Zix Corporation (the
Company) and you in order to facilitate the effective and efficient search for and transition to a new President and Chief Executive Officer of the Company.
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1. |
In your capacity as the President and Chief Executive Officer, and as a member of the board of directors of the Company (the Board), you agree to use your best efforts to cooperate with and assist the
Company, the Board and appropriate representatives or agents of each of the foregoing, in good faith, (a) to recruit, hire and appoint a qualified candidate to succeed you as President and Chief Executive Officer of the Company (the
New CEO) and (b) to effectuate the orderly and efficient transition of your duties and responsibilities to the New CEO. |
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a. |
You acknowledge and agree that the foregoing activities may require a period of 12 months or longer from the date hereof. During whatever period of time may be required to accomplish the foregoing, you agree to remain
in your current positions as President and Chief Executive Officer of the Company, and as a member of the Board, and to fulfill your duties and responsibilities in such capacities to the best of your ability and with a view toward the best interest
of the Company and its shareholders. |
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b. |
For a period of 90 days after the New CEO commences full-time employment as President and Chief Executive Officer of the Company, you agree to remain available during normal business hours to assist the New CEO and
provide such transition services as he or she may reasonably request, including but not limited to, answering questions, providing background information and advice concerning the Company and its operations, and making appropriate introductions to
Company shareholders, customers and others. |
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For a period of 180 days after the expiration of such 90-day period, you shall make yourself reasonably available during times to be mutually agreed upon by you and the New CEO to provide such transition services as the
New CEO and you shall mutually agree upon. |
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You agree to cooperate with and assist the Company, in good faith, in planning and executing a disclosure strategy concerning your planned departure from the Company after many years of valuable service, your assistance
in connection with the recruitment and retention of a qualified successor and in connection with the transition of your duties and responsibilities to that successor, such strategy to include appropriate internal and external communications.
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2. |
As partial consideration for the covenants and promises set forth in paragraph 1 above, the Company shall execute and deliver to you a counterpart of the Second Amended and Restated Employment Termination Benefits
Agreement, to be entered into between you and the Company, attached hereto as Exhibit A (the Amended and Restated ETBA). Within 10 days after the New CEO begins his or her employment with the Company, your employment with
the Company shall be terminated and such termination shall be, for purposes of the Amended and Restated ETBA, without Cause, subject to your compliance with your obligations under this letter agreement and under other agreements that are
in place between you and the Company (collectively with the Amended and Restated ETBA, the Other Agreements). |
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3. |
As additional consideration for the covenants and promises set forth in paragraph 1 above, the Company hereby agrees that (a) nothing in this letter agreement shall be construed to affect your current status as a
member of the Board, and (b) the Company shall use reasonable efforts to cause the Board to (i) nominate you to stand for re-election as a member of the Board and (ii) recommend in the proxy materials sent to Company shareholders that
such shareholders vote for your re-election as a member of the Board, at each of the Companys 2016 and 2017 annual meetings of shareholders; provided, however, that the Company shall have no further obligation pursuant to this paragraph
3 if at any time (x) the Board reasonably concludes that its preferred candidate or candidates as the New CEO will not accept such positions if you continue to serve as a member of the Board beyond your termination of employment or beyond some
later date, (y) the Board reasonably determines that you have engaged in any of the conduct set forth in clauses (1) through (7) of the definition of Cause set forth in the Amended and Restated ETBA, or (z) you
materially breach any provision of this letter agreement or of any of the Other Agreements. |
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4. |
This letter (a) shall be governed by and construed and interpreted in accordance with the laws of the State of Texas, without regard to the conflict of laws principles thereof that would require the application of
laws of any other jurisdiction, (b) may not be amended, waived, modified or terminated except by a written instrument executed by each of the parties hereto, (c) sets forth, together with the Amended and Restated ETBA, the entire agreement
and understanding of the parties hereto with respect to the subject matter set forth herein and therein and (d) may be executed in counterparts, each of which shall be considered an original and all of which, together, shall constitute one and
the same instrument. |
If this letter correctly sets forth our agreement regarding the foregoing matters, please execute same
in the place provided below, whereupon this letter shall become a valid and binding agreement between you and the Company.
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Very truly yours, |
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ZIX CORPORATION |
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By: |
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/s/ Robert C. Hausmann |
Name: |
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Robert C. Hausmann |
Title: |
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Chairman, Board of Directors |
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ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET
FORTH ABOVE: |
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/s/ Richard D. Spurr |
Richard D. Spurr |
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Exhibit A
Second Amended and Restated Employment Termination Benefits Agreement
[See attached.]
1
SECOND AMENDED AND RESTATED
EMPLOYMENT TERMINATION BENEFITS AGREEMENT
This Second Amended and Restated Employment Termination Benefits Agreement, dated effective as of July 21, 2015, is entered into
by and between Zix Corporation, a Texas corporation (the Company), and the undersigned individual (Employee). This agreement serves to amend and restate the existing Amended and Restated Employment Termination
Benefits Agreement between the Company and Employee, which was entered into effective as of June 9, 2015.
Employee is an
at will employee of an Affiliate of the Company and is based in Dallas, Texas.
The Company wishes to specify terms under
which Employee would leave employment in the circumstances described in this agreement.
The parties agree as follows:
Capitalized terms not otherwise defined in this agreement have the meanings ascribed to them in section 5.
1. Separation Payment. If the Company or its Affiliate terminates Employees employment other than for Cause, then the Company shall pay to
Employee the Separation Payment pursuant to and in accordance with subsection 1.B. If Employee resigns from employment (subject to the notice and cure provisions set forth below) with the Company and its Affiliates within 24 months after a
Change in Control and the resignation was for a Change In Control Good Reason, then the resignation will be deemed to be a termination of Employees employment other than for Cause and the Company shall pay to Employee the Separation Payment
pursuant to and in accordance with subsection 1.B. Neither Employees death nor Employees resignation (other than for a Change in Control Good Reason) or termination for Cause or on account of disability will give rise to any
Separation Payment. The Companys obligation to make the Separation Payment will not be mitigated or offset by virtue of Employee obtaining new employment or failing to seek new employment. The Separation Payment encompasses and includes any
applicable employment standards entitlements and payment in full for any unused, accrued vacation time.
A. Notice Required for Change
in Control Good Reason. Notwithstanding anything to the contrary in the preceding paragraph, Employee will not be deemed to have resigned employment for a Change In Control Good Reason unless and until: (i) Employee provided to the Company
notice of the existence of the Change In Control Good Reason condition within 90 days of its initial existence; (ii) the Company failed to remedy the Change In Control Good Reason condition within 30 days after the Company received the notice;
and (iii) Employee resigned employment within 180 days after the initial existence of the Change In Control Good Reason condition.
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B. Time of Payment. The Company shall pay the Separation Payment to Employee in equal
monthly payments over the number of months of base salary used to calculate the Separation Payment, beginning as soon as practicable after termination of Employees employment but no later than 60 days after such termination, subject to
subsection 7.O(5).
C. Liability Release as Condition to Payment. Notwithstanding anything to the contrary in this agreement, the
Companys obligation to pay the Separation Payment is subject to and conditioned upon the Companys receiving from Employee, within 60 days after Employees termination other than for Cause or resignation for a Change in Control Good
Reason, a duly executed separation agreement containing a release of claims in a form reasonably satisfactory to the Company. If Employee fails to execute and deliver such a separation agreement to the Company within that 60-day time period, or
Employee revokes such release pursuant to the terms of the separation agreement, then Employee is deemed to forfeit any entitlement to receive the Separation Payment and shall promptly return any portion of the Separation Payment which he or she
received before such failure to execute and deliver or revocation. The Company will provide the separation agreement to Employee promptly after Employees termination other than for Cause or resignation for a Change in Control Good Reason.
D. Withholding. Employee is responsible for all withholdings for taxes and other withholdings required by applicable law as to any
amounts owed by Employee to the Company, and Employee shall pay the same to the Company promptly upon demand if not otherwise withheld.
2. Accelerated
Vesting of Stock-Based Compensation. Notwithstanding anything to the contrary in any award agreement between Employee and the Company:
A. Change in Control.
(1) Awards not Assumed or Substituted by Surviving Entity. Upon the occurrence of a Change in Control, and except with
respect to any awards described in subsection 2.A(2) below: (i) any outstanding stock options or stock appreciation rights (SARs) held by Employee will immediately become fully exercisable; (ii) any time-based
restrictions on other outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and all such awards will become fully vested, disregarding any performance-based vesting criteria and any proration
requirements otherwise applicable thereto; and (iii) the payout level under any outstanding performance-based cash awards held by Employee will be determined and deemed to have been earned as of the effective date of the Change in Control based
upon (A) an assumed achievement of all relevant performance goals at the target level if the Change in Control occurs during the first half of the applicable performance period, or (B) the greater of (1) the assumed
achievement of all relevant performance goals at the target level and (2) the actual level of achievement of all relevant performance goals against target (measured as of the date of the Change in Control), if the Change in Control
occurs during the second half of the applicable performance period, and, in either such case, Employee will receive a pro rata payout within sixty (60) days following the Change in Control (unless a later date is required by subsection 7.O
hereof), based upon the length of time within the performance period that has elapsed prior to the Change in
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Control. Any options or SARs will thereafter continue or lapse in accordance with the other provisions of the applicable plan and the applicable award agreement. For the avoidance of doubt, any
equity or stock awards that have any performance-based vesting criteria, including any such awards with performance-based vesting criteria applicable to any performance period that has partially elapsed or has not yet begun as of the occurrence of a
Change in Control, are intended to and shall vest in full at the same time as equity or stock awards that have solely time-based vesting criteria, and no proration shall apply to such awards. To the extent that this provision causes incentive stock
options to exceed the dollar limitation set forth in section 422(d) of the Code, the excess stock options will be deemed to be nonstatutory stock options. In addition, the Company has the right to settle stock awards in accordance with
subsection 2.D below.
(2) Stock Awards Assumed or Substituted by Surviving Entity. With respect to stock
awards that are assumed by the Surviving Entity or are otherwise equitably converted or substituted in connection with a Change in Control in a manner approved by the Board, if, within two years after the effective date of the Change in Control,
either (a) the Company or its Affiliate or the Surviving Entity terminates Employees employment other than for Cause or (b) Employee resigns for a Change in Control Good Reason: then (i) any outstanding stock options or SARs
held by Employee will immediately become fully exercisable; (ii) any time-based restrictions on other outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and all such awards will become
fully vested, disregarding any performance-based vesting criteria and any proration requirements otherwise applicable thereto; and (iii) the payout level under any performance-based cash awards held by Employee that were outstanding immediately
prior to effective time of the Change in Control will be determined and deemed to have been earned as of the date of termination based upon (A) an assumed achievement of all relevant performance goals at the target level if the date
of termination occurs during the first half of the applicable performance period, or (B) the greater of (1) the assumed achievement of all relevant performance goals at the target level, and (2) the actual level of
achievement of all relevant performance goals against target (measured as of the end of the calendar quarter immediately preceding the date of termination), if the date of termination occurs during the second half of the applicable
performance period, and, in either such case, Employee will receive a prorata payout within sixty (60) days following the date of termination of employment (unless a later date is required by subsection 7.O hereof), based upon the length of
time within the performance period that has elapsed prior to the date of termination of employment. Any options or SARs will thereafter continue or lapse in accordance with the other provisions of the applicable plan and the applicable award
agreement. For the avoidance of doubt, any equity or stock awards that have any performance-based vesting criteria, including any such awards with performance-based vesting criteria applicable to any performance period that has partially elapsed or
has not yet begun as of the occurrence of a termination of employment or resignation for a Change in Control Good Reason, are intended to and shall vest in full at the same time as equity or stock awards that have solely time-based vesting criteria,
and no proration shall apply to such awards. To the extent that this provision causes incentive stock options to exceed the dollar limitation set forth in section 422(d) of the Code, the excess stock options will be deemed to be nonstatutory
stock options.
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B. Termination Other Than for Cause. If the Company or its Affiliate terminates
Employees employment other than for Cause absent a Change in Control, then (i) any outstanding stock options or SARs held by Employee will immediately become fully exercisable; and (ii) any time-based restrictions on other
outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and such awards will become fully vested, disregarding any performance-based vesting criteria and any proration requirements otherwise
applicable thereto. For the avoidance of doubt, any equity or stock awards that have any performance-based vesting criteria, including any such awards with performance-based vesting criteria applicable to any performance period that has partially
elapsed or has not yet begun as of the applicable date of termination, are intended to and shall vest in full at the same time as equity or stock awards that have solely time-based vesting criteria, and no proration shall apply to such awards.
C. Phrases referring to Employees termination not for Cause or other than for Cause in this agreement exclude any
termination or resignation as a result of Employees death or disability. Neither Employees death nor Employees resignation (other than for a Change in Control Good Reason) or termination on account of disability will give rise to
any accelerated vesting or right to settlement of any stock awards under this agreement.
D. Companys Election. In the
circumstances described in subsection 2.A, the Company has the right to choose to settle in cash, as described in subsection 2.E below, all or any portion of Employees stock awards. Employee shall surrender and transfer to the
Company all stock awards that the Company elects to settle in cash. Any stock awards that are not settled in cash shall thereafter continue or lapse in accordance with the other provisions of the plan and the award agreement under which they were
granted.
E. Settlement in Cash. If the Company chooses to settle some or all of the stock awards in cash, pursuant to
subsection 2.D above, it may do so
(1) in the case of stock options or SARs, by paying Employee either
(i) the difference (if any, including a deemed distribution of $0) between the price being paid for the Companys common stock in the Change in Control over the exercise or base price, as applicable, of the award (that difference, the
Spread Amount), multiplied by the number of such stock options or SARs; or (ii) the fair value of those stock options or SARs under Generally Accepted Accounting Principles (as determined as of the settlement date
through the Black-Scholes, binomial, or any other option pricing model permissible under FASB Accounting Standards Codification 718 or a successor standard), but only if that fair value would yield a greater payment to Employee than the Spread
Amount. The Company shall pay the settlement amount, net of any required withholding, to Employee within sixty (60) days after the Change in Control (unless a later date is required by subsection 7.O hereof); or
(2) in the case of stock awards other than stock options or SARs (such as restricted stock or restricted stock units), by
paying Employee the price being paid for the Companys common stock in the Change in Control multiplied by the number of such shares underlying the stock award. The Company shall pay the settlement amount, net of any required withholding, to
Employee within sixty (60) days after the Change in Control (unless a later date is required by subsection 7.O hereof).
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3. No Conflict of Interest. Without limiting Employees obligations to comply with the Companys
Code of Conduct and Code of Ethics, Employee agrees that during the term of Employees employment:
A. Employee shall not
engage, either directly or indirectly, in any activity that may involve a conflict of interest with the Company or its Affiliate, including without limitation ownership in any supplier, contractor, subcontractor, customer or other entity with which
the Company or its Affiliate does business (other than as a shareholder of less than one percent (1%) of a publicly-traded or privately-held class of equity ownership) (Conflict of Interest).
B. Employee shall promptly report to the Companys Chief Compliance Officer any information about which Employee becomes aware that might
involve or give rise to a Conflict of Interest or potential Conflict of Interest.
C. Employee shall not accept any material payment,
service, loan, gift, trip, entertainment or other favor from a supplier, contractor, subcontractor, customer or other entity with which the Company or its Affiliate does business.
D. Employee shall promptly report to the Companys Chief Compliance Officer each offer by any entity with which the Company or its
Affiliate does business for any material payment, service, loan, gift, trip, entertainment or other favor.
4. Ongoing Covenants. Employee
acknowledges that the Company has a legitimate interest in (i) maintaining the confidentiality of the Companys confidential information and (ii) restraining Employee from competing against the Company and its Affiliates during and
for a reasonable time after Employees employment by the Company or its Affiliate. Employee agrees to the restrictions in subsection 4.A: (i) in consideration of the benefits described in this agreement and the Companys
providing Employee with confidential information, and (ii) in order to enforce Employees agreement to maintain the confidentiality of the Companys confidential information.
A. Restrictive Covenants. Throughout the term of Employees employment by the Company or its Affiliate, and throughout the 24 month
period beginning upon Employees separation from employment with the Company for any reason, Employee shall not do any of the following:
(1) Non-Competition. Directly or indirectly engage in, sell or otherwise provide Competitive Services within the
Restricted Territory while serving in a position that is the same as or substantially similar to the Chief Executive Officer and President position that Employee held with the Company, whether on his own behalf or as a Principal or Representative of
any Person other than the Company; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Employee of not more than 1% of any class of securities of any corporation having a class of
securities registered pursuant to the Securities Exchange Act of 1934, as amended.
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(2) Non-Solicitation of Protected Customers. Directly or indirectly, on
Employees own behalf or on behalf of a competitor of the Companys Business, or as a Principal or Representative of any other Person, solicit, divert, take away or attempt to solicit, divert, or take away a Protected Customer for purposes
of providing or selling services or products that are the same as or substantially similar to the services and products that are provided or sold by the Company.
(3) Non-Solicitation of Protected Employees. Directly or indirectly, on Employees own behalf or as Principal or
Representative of any other Person, solicit or induce or attempt to solicit or induce any Protected Employee to terminate his or her employment with the Company or to enter into employment with any other Person.
B. Restrictions Are Reasonable. The Company and Employee have, in good faith, used their best efforts to make the restrictions in
subsection 4.A reasonable in all pertinent respects, and it is not anticipated, nor is it intended, by either party that any arbitrator or court will find it necessary to reform any restriction to make it reasonable. Employee has carefully read
and considered the restrictions in subsection 4.A and agrees that the restrictions, including, but not limited to, the time period of restriction, the geographic areas of restriction, and the scope of the restriction are fair and reasonable,
are supported by sufficient and valid consideration, and these restrictions do not impose any greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company. Employee acknowledges that these
restrictions will not prevent Employee from obtaining gainful employment in Employees occupation or field of expertise or cause Employee undue hardship and that there are numerous other employment and business opportunities available to
Employee that are not affected by these restrictions.
C. Modification of Covenants. It is the desire and intent of each of the
parties that the provisions of section 4.A be enforced to the fullest extent legally permissible. If an arbitrator or court determines it is necessary to reform any restriction to make it reasonable in all pertinent respects, then any damages
due to a breach of the restriction, as so reformed, will be deemed to accrue to the Company as and from the date of such a breach only, and only so far as the damages for such breach related to an action that accrued within the scope of the
restriction as so reformed. The covenants set forth in this Agreement shall be construed as separate and independent covenants. Should any part or provision of any covenant be held invalid, void or unenforceable, such invalidity, voidness, or
unenforceability shall not render invalid, void or unenforceable any other part or provision of this Agreement. If any portion of subsection 4.A is adjudicated to be invalid or unenforceable, this section 4 will be deemed amended
(i) to reform the particular portion to provide for such maximum restrictions as will be valid and enforceable or, if that is not possible, then (ii) to delete therefrom only the portion thus adjudicated to be invalid or unenforceable
D. Successors. Subsection 4.A will inure to the benefit of and be enforceable by any successor to the Company and/or any successor
to any Affiliate of the Company that is then conducting the Email Encryption business or any Other Material Business.
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E. Notification of Future Employer. Employee shall, and the Company has the right to,
notify any person or entity employing Employee or evidencing an intention to employ Employee about the existence and terms of subsection 4.A.
F. Remedies. If Employee violates any of the obligations set forth in subsection 4.A, the period of restriction applicable to each
obligation violated shall cease to run during the pendency of any litigation over such violation, provided that such litigation was initiated during the period of restriction. Employee acknowledges that the violation of any of the covenants or
agreements contained in subsection 4.A would cause irreparable injury to the Company, that the remedy at law for any such violation or threatened violation thereof would be inadequate, and Employee agrees that the Company will be entitled, in
addition to any other remedy, to temporary and permanent injunctive or other equitable relief from a court of competent jurisdiction without the necessity of proving actual damages or posting a bond as well as to the recovery of its reasonable
attorneys fees.
5. Definitions.
A. Acquiring Person means any person (including any person as such term is used in subsections 13(d)(3)
or 14(d)(2) of the Exchange Act) that, together with all Affiliates and Associates of such person, is the beneficial owner (as the term beneficial owner is defined under rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act)) of 10% or more of the Companys outstanding common stock. The term Acquiring Person does not include the Company, any majority-owned subsidiary of the Company, any employee benefit plan of the Company or a
majority-owned subsidiary of the Company, or any person to the extent such person is holding the Companys common stock for or pursuant to the terms of any such plan. For the purposes of this agreement, a person who becomes an Acquiring Person
by acquiring beneficial ownership of 10% or more of the Companys common stock at any time after the date of this agreement will continue to be an Acquiring Person whether or not such person continues to be the beneficial owner of 10% or more
of the Companys outstanding common stock.
B. Affiliate and Associate have the
respective meanings ascribed to such terms in rule 12b-2 under the Exchange Act.
C. Board means the
Companys board of directors or the compensation committee thereof.
D. Cause means any of the following shall have
occurred: (1) the intentional and continued failure by Employee to substantially perform Employees employment duties, such intentional failure involving willful and deliberate malfeasance or gross negligence in the performance of
Employees duties (other than any such failure resulting from Employees incapacity due to physical or mental illness), after (i) written demand for substantial performance is delivered by or on behalf of the Company, which demand
reasonably identifies the manner in which the Company believes Employee has not substantially performed Employees duties, and (ii) Employees failure to cure such performance failure within five business days after receipt of such
written demand; (2) the intentional engaging by Employee in misconduct that is materially injurious to the Company; (3) the conviction of Employee or a plea of nolo contendere, or the
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substantial equivalent to either of the foregoing, of or with respect to, any felony; (4) the commission by Employee of acts of moral turpitude that are injurious to the Company; (5) a
breach by Employee of the Confidentiality and Invention Agreement between the Company (or its affiliate) and Employee; (6) a breach by Employee of Employees obligations under this agreement or the Arbitration Agreement (as hereinafter
defined); or (7) a breach by Employee of the Companys Code of Ethics and Code of Conduct as then in effect. For purposes of this definition, no act, or failure to act, on Employees part shall be considered intentional
unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in, or not opposed to, the best interest of the Company.
Notwithstanding the foregoing, Employee will not be deemed to have been terminated for Cause without (1) reasonable written notice to
Employee, setting forth the reasons for the Companys intention to terminate for Cause; (2) an opportunity for Employee to be heard by the Board (or an authorized representative thereof); and (3) delivery to Employee of a written
notice of termination from the Board (or its authorized representative) stating that, in the good faith opinion of the Board (or its authorized representative), Employee engaged in the conduct set forth above in clause (1), (2), (4), (5),
(6) or (7) of the preceding paragraph or an event specified in clause (3) of the preceding paragraph has occurred.
E. Change in Control of the Company will be deemed to have occurred if any of the following events occurs during
Employees employment:
(1) The Company is merged, consolidated or reorganized into or with another corporation
or other legal person, other than an Affiliate, and as a result of such merger, consolidation or reorganization, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as a result of
such transaction, equity securities of the surviving or acquiring person or such corporations parent entity (the Surviving Entity) possessing less than 51% of the voting power of the Surviving Entity;
(2) The Company sells all or substantially all of its assets to any other corporation or other legal person, other than an
Affiliate, and as a result of such sale, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as a result of such transaction, equity securities of the Surviving Entity possessing
less than 51% of the voting power of the Surviving Entity (provided that this paragraph will not apply to a registered public offering of securities of a subsidiary of the Company, which offering is not part of a transaction otherwise a part of or
related to a Change in Control);
(3) Any Acquiring Person has become the beneficial owner (as the term beneficial
owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities which, when added to any securities already owned by such person, would represent in the aggregate 35% or more of the then
outstanding securities of the Company which are entitled to vote to elect any class of directors;
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(4) As measured over any 12 month period, Continuing Directors cease to
constitute at least a majority of the Board;
(5) The occurrence of an event required to be reported under Item 6(e)
of Schedule 14A of Regulation 14A or any successor rule or regulation promulgated under the Exchange Act; or
(6) The Board
in its sole discretion determines that any other event is deemed to be a Change in Control.
F. Change In Control Good
Reason means any of the following: (i) a material diminution in Employees authority, duties or responsibilities, (ii) a material diminution in Employees base salary, (iii) a material change in the geographic
location at which Employee must perform services, (iv) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Employee is required to report, (v) a material diminution in the budget over which
Employee retains authority, or (vi) any material breach by the Company of this agreement or any other agreement under which Employee provides services to the Company or its Affiliates.
G. Code means the Internal Revenue Code of 1986, as amended, and applicable Internal Revenue Service guidance and Treasury
Regulations.
H. Continuing Director means a director of the Company who (1) is not an Acquiring Person or
an Affiliate or Associate thereof, or a representative of an Acquiring Person or nominated for election by an Acquiring Person, and (2) was either (a) a member of the Board on the date of this agreement or (b) subsequently became a
director of the Company and whose initial election or initial nomination for election by the Companys shareholders was approved by a majority of the Continuing Directors then on the Board.
I. Company means Zix Corporation, a Texas corporation, or its successors in interest, as the context requires.
J. Competitive Services means the Email Encryption business or any other material line of business being
conducted by the Company or any Affiliate.
K. Exchange Act means the Securities Exchange Act of 1934.
L. Person means any individual or any corporation, partnership, joint venture, limited liability company,
association or other entity or enterprise.
M. Principal or Representative means a
principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.
N. Protected Customer means any customer to whom the Company sold its products or services at any time during
Employees employment and with whom Employee had business dealings on behalf of the Company.
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O. Protected Employee means any employee of the Company who was
employed by the Company at any time during Employees employment and (a) with whom Employee had a supervisory relationship or (b) with whom Employee worked or communicated on a regular basis regarding the Companys
business.
P. Restricted Territory means the United States and Canada.
Q. Separation Payment means the sum of:
(1) An amount equal to Employees base salary for a period of 24 months. For the purpose of calculating the Separation
Payment, Employees base salary will be deemed to be Employees highest base salary in any month during the term of Employees employment.
plus
(2) An amount equal to the product of two times the payout level for Employees performance-based cash compensation that
would apply hereunder as if there had been a Change in Control immediately prior to the termination of Employees employment (calculated without any proration otherwise required under this Agreement) and the Companys obligation to pay
such performance-based cash compensation was not assumed by the surviving entity. For the avoidance of doubt and in order to avoid duplication of benefits, in the event Employees performance-based cash compensation pays out or vests in
connection with a Change in Control, Employee shall not also receive payment for such performance-based cash compensation as part of Employees Separation Payment.
plus
(3) If Employee resides in the United States, an amount equal to the excess of (i) the cost for Employee to continue any
group medical, dental, vision and/or prescription drug plan benefits to which Employee and/or Employees eligible dependents would be entitled under Section 4980B of the Code (COBRA) for the number of months used to calculate the base
salary Separation Payment pursuant to clause (1) above, over (ii) the amount that Employee would have had to pay for such coverage if Employee had remained employed during such period of time and paid the active employee rate for such
coverage. If Employee resides outside of the United States, USD $1,500 per month for the number of months used to calculate the base salary Separation Payment pursuant to clause (1) above, payable in the currency of Employees place of
residence.
R. Surviving Entity has the meaning set forth in subsection 5.E(1).
6. Mandatory Reduction of Payments in Certain Events.
A. Notwithstanding anything in this agreement to the contrary, in the event it shall be determined that any payment or distribution by
the Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this agreement or
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otherwise) (such benefits, payments or distributions are hereinafter referred to as Payments) would, if paid, be subject to the excise tax imposed by Section 4999 of
the Code (the Excise Tax), then, prior to the making of any Payments to Employee, a calculation shall be made comparing (i) the net after-tax benefit to Employee of the Payments after payment by Employee of the Excise Tax, to
(ii) the net after-tax benefit to Employee if the Payments had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under
(ii) above, then the Payments shall be limited to the extent necessary to avoid being subject to the Excise Tax (the Reduced Amount). The reduction of the Payments due hereunder, if applicable, shall be made by first reducing
cash Payments and then, to the extent necessary, reducing those Payments having the next highest ratio of Parachute Value (as hereinafter defined) to actual present value of such Payments as of the date of the Change in Control, as determined by the
Determination Firm (as defined in subsection 6.B. below). For purposes of this section 6, present value shall be determined in accordance with Section 280G(d)(4) of the Code. For purposes of this section 6, the Parachute
Value of a Payment means the present value as of the date of the Change in Control of the portion of such Payment that constitutes a parachute payment under Section 280G(b)(2) of the Code, as determined by the
Determination Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.
B. All
determinations required to be made under this section 6, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the amount of the Reduced Amount, and the assumptions to be utilized in arriving at such
determinations, shall be made by an independent accounting firm or compensation consulting firm mutually acceptable to the Company and Employee (the Determination Firm) which shall provide detailed supporting calculations both to
the Company and Employee within 15 business days after the receipt of notice from the Company that a Payment is due to be made. All fees and expenses of the Determination Firm shall be borne solely by the Company. Any determination by the
Determination Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Determination Firm hereunder, it is possible that
Payments which Employee was entitled to, but did not receive pursuant to subsection 6(A), could have been made without the imposition of the Excise Tax (Underpayment), consistent with the calculations required to be made
hereunder. In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee but no later than March 15 of
the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment arises.
C. In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this
section 6 shall be of no further force or effect.
7. Miscellaneous.
A. Litigation Assistance. During Employees employment and following Employees separation from employment, Employee shall
cooperate reasonably with the Company and its Affiliates in the defense of litigation that pertains to (i) matters reasonably within the purview of Employees job responsibilities while employed with the Company or its Affiliate or
(ii) matters
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for which Employee has particular knowledge, thereof, including signing affidavits and making himself or herself available for interviews, deposition preparation, deposition, and trial. Employee
shall not, without the Companys prior consent, comment publicly on any such litigation or any of the issues in the litigation. Employee shall not, without the Companys prior consent, discuss any such litigation, or cooperate, with the
Companys opponent(s) in such litigation, their attorneys, or their representatives.
B. Reimbursement for Litigation
Assistance. If Employee assists the Company or its Affiliate with litigation activities following Employees separation from employment other than those litigation activities in which Employee would be required to participate as a named
party, the Company shall pay all reasonable documented out-of-pocket costs (subject to a maximum of $1,000 per day) that Employee incurs in connection with such activities and will pay Employee for his or her actual, demonstrated lost income
(subject to a maximum of $10,000 in any tax year) for the period in which Employee assists with such litigation activities. The Company shall pay the out-of-pocket reimbursement as soon as practicable after Employee provides documentation of such
out-of-pocket costs but no later than the end of the tax year following the tax year in which such expenses were incurred. The amount of expenses reimbursed to Employee pursuant to subsection 7.A during Employees tax year will not impact
the amount of such expenses eligible for reimbursement during any other tax year of Employee. Employees right to reimbursement of expenses will not be subject to liquidation or exchange for another benefit. Employee must provide documentation
of the lost income on or before January 15 of the year following the year in which the income is lost. The lost income will be paid in a lump sum within 60 days after Employee provides documentation of the same but in no event later than
March 15 of the year following the year in which the income is lost.
C. Indemnification. Employee and the Company acknowledge
the indemnification provisions set forth in the Companys bylaws and articles of incorporation.
D. No Deemed Waivers. The
failure by a party to enforce any provision of this agreement does not constitute a waiver of any subsequent breach of the same or any other provision. No waiver is effective unless made in a writing signed by the waiving party.
E. No Third Party Beneficiaries. Except as otherwise stated in this agreement, nothing in this agreement, is intended to confer any
rights or remedies on any persons other than the parties to it and their respective permitted successors and assigns and other legal representatives.
F. Remedies. Employee hereby agrees that a violation of subsection 4.A would cause irreparable injury to the Company for which it
would have no adequate remedy at law. Accordingly, in the event of any such violation, the Company shall be entitled to preliminary and other injunctive relief without the necessity to post a bond or other security. Any such injunctive relief shall
be in addition to any other remedies to which the Company may be entitled at law or in equity, or otherwise.
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G. Notice. Any consent, notice, demand, or other communication regarding any payment
required or permitted hereby must be in writing to be effective and shall be deemed to have been received on the date delivered, if delivered in person, or the date received, if delivered otherwise (including by U.S. mail, overnight delivery or
e-mail), addressed to the applicable party at the address for such party set forth below or at such other address as such party may designate by like notice:
The Company:
Zix Corporation
2711 North Haskell Avenue
Suite 2200, LB 36
Dallas,
Texas 75204-2960
Attn: General Counsel
To Employee:
At the address on
file in the Companys records.
H. Entire Agreement. This agreement, together with the Mutual Alternative Dispute Resolution
Agreement and the Confidentiality and Invention Agreement between the parties, and the Code of Ethics and Code of Conduct, as currently in effect or hereafter amended from time-to-time, embodies the entire agreement between the parties with respect
to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof.
I.
Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the parties to this agreement and any successors-in-interest to the Company. Employee cannot assign or transfer this agreement or any rights under this
agreement, or delegate any obligations under this agreement, and any attempted assignment, transfer or delegation is void ab initio.
J. Governing Law. This Agreement is governed by and will be construed, interpreted and enforced in accordance with, the laws of the
State of Texas (excluding its conflict of laws rules) and applicable federal law.
K. Arbitration. All claims, demands, causes of
action, disputes, controversies, or other matters in question, whether sounding in contract, tort, or otherwise and whether provided by statute or common law, arising under or related to this agreement or Employees employment (or its
termination) are subject to resolution under the procedures descried in the parties Mutual Alternative Dispute Resolution Agreement.
L. Cumulative Remedies. No remedy in this agreement conferred upon any party is intended to be exclusive of any other benefit or remedy,
and each and every such remedy shall be cumulative and shall be in addition to every other benefit or remedy given under this agreement or now or hereafter existing at law or in equity or by statute or otherwise. No single or partial exercise by any
party of any right, power, or remedy under this agreement shall preclude any other or further exercise thereof.
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M. Multiple Counterparts. This Agreement may be executed in a number of identical
counterparts, each of which constitute collectively, one agreement; but in making proof of this agreement, it is not necessary to produce or account for more than one counterpart.
N. Descriptive Headings. The headings, captions, and arrangements used in this agreement are for convenience only and do not limit,
amplify, or modify the terms of this agreement, nor affect the meaning hereof.
O. 409A Compliance.
(1) General. This Agreement will be interpreted and administered so that any amount or benefit paid or provided is
either exempt from or compliant with the requirements of section 409A of the Code (and any applicable transition relief under section 409A of the Code). Nevertheless, the tax treatment of the amounts or benefits provided under the
Agreement is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers will be liable for any taxes, interest, penalties or other monetary amounts owed by Employee as a result of the application of
section 409A of the Code.
(2) Definitional Restrictions. Notwithstanding anything in this Agreement to the
contrary, to the extent that any amount or benefit that would constitute non-exempt deferred compensation for purposes of section 409A of the Code (Non-Exempt Deferred Compensation) would otherwise be payable or
distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of a Change in Control or Employees termination of employment, such Non-Exempt Deferred Compensation will not be
payable or distributable to Employee, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control or termination of employment, as the case may be, meet
any description or definition of change in control event or separation from service, as the case may be, in section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may
be available under such definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon a Change in Control or termination of employment, however defined. If this provision prevents the payment or
distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a section 409A-compliant change in control event or separation
from service, as the case may be, or such later date as may be required by subsection 7.O(3) below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same
form as would have applied absent such designated event or circumstance.
(3) Six-Month Delay in Certain
Circumstances. Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of
Employees separation from service during a period in which he or she is a Specified Employee (as defined in subsection 7.O(3)(iii)), then, subject to any permissible acceleration of payment by the Company under Treasury Regulations
section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):
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|
(i) |
The amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following Employees separation from service will be accumulated through and paid or
provided on the first day of the seventh month following Employees separation from service (or, if Employee dies during such period, within 30 days after Employees death) (in either case, the Required Delay Period).
|
|
(ii) |
The normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period. |
|
(iii) |
For purposes of this Agreement, the term Specified Employee has the meaning given such term in section 409A of the Code and the final regulations thereunder; provided,
however, that the Companys Specified Employees and its application of the six-month delay rule of subsection 409A(a)(2)(B)(i) of the Code will be determined in accordance with rules adopted by the Board or a committee thereof,
which will be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Agreement. |
(4) Treatment of Installment Payments. Each payment of termination benefits under section 1.B, including, without
limitation, each installment Separation Payment, shall be considered a separate payment, as described in Treasury Regulations section 1.409A-2(b)(2), for purposes of section 409A of the Code.
(5) Timing of Release of Claims. Whenever in this agreement a payment or benefit is conditioned on Employees
execution and non-revocation of a separation agreement including a release of claims, such release must be executed and all revocation periods must have expired within 60 days after the date of termination of Employees employment; failing
which such payment or benefit is forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection 7.O(3), such payment or benefit (including any installment payments) that would have otherwise been
payable during such 60-day period shall be accumulated and paid on the 60th day after the date of termination provided such release shall have been executed and such revocation periods shall have
expired. If such payment or benefit is exempt from section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.
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Exhibit 10.4
SECOND AMENDED AND RESTATED
EMPLOYMENT TERMINATION BENEFITS AGREEMENT
This Second Amended and Restated Employment Termination Benefits Agreement, dated effective as of July 21, 2015, is entered into by and
between Zix Corporation, a Texas corporation (the Company), and the undersigned individual (Employee). This agreement serves to amend and restate the existing Amended and Restated Employment Termination Benefits
Agreement between the Company and Employee, which was entered into effective as of June 9, 2015.
Employee is an at will
employee of an Affiliate of the Company and is based in Dallas, Texas.
The Company wishes to specify terms under which Employee would
leave employment in the circumstances described in this agreement.
The parties agree as follows:
Capitalized terms not otherwise defined in this agreement have the meanings ascribed to them in section 5.
1. Separation Payment. If the Company or its Affiliate terminates Employees employment other than for Cause, then the Company shall pay to
Employee the Separation Payment pursuant to and in accordance with subsection 1.B. If Employee resigns from employment (subject to the notice and cure provisions set forth below) with the Company and its Affiliates within 24 months after a
Change in Control and the resignation was for a Change In Control Good Reason, then the resignation will be deemed to be a termination of Employees employment other than for Cause and the Company shall pay to Employee the Separation Payment
pursuant to and in accordance with subsection 1.B. Neither Employees death nor Employees resignation (other than for a Change in Control Good Reason) or termination for Cause or on account of disability will give rise to any
Separation Payment. The Companys obligation to make the Separation Payment will not be mitigated or offset by virtue of Employee obtaining new employment or failing to seek new employment. The Separation Payment encompasses and includes any
applicable employment standards entitlements and payment in full for any unused, accrued vacation time.
A. Notice Required for Change
in Control Good Reason. Notwithstanding anything to the contrary in the preceding paragraph, Employee will not be deemed to have resigned employment for a Change In Control Good Reason unless and until: (i) Employee provided to the Company
notice of the existence of the Change In Control Good Reason condition within 90 days of its initial existence; (ii) the Company failed to remedy the Change In Control Good Reason condition within 30 days after the Company received the notice;
and (iii) Employee resigned employment within 180 days after the initial existence of the Change In Control Good Reason condition.
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B. Time of Payment. The Company shall pay the Separation Payment to Employee in equal
monthly payments over the number of months of base salary used to calculate the Separation Payment, beginning as soon as practicable after termination of Employees employment but no later than 60 days after such termination, subject to
subsection 7.O(5).
C. Liability Release as Condition to Payment. Notwithstanding anything to the contrary in this agreement, the
Companys obligation to pay the Separation Payment is subject to and conditioned upon the Companys receiving from Employee, within 60 days after Employees termination other than for Cause or resignation for a Change in Control Good
Reason, a duly executed separation agreement containing a release of claims in a form reasonably satisfactory to the Company. If Employee fails to execute and deliver such a separation agreement to the Company within that 60-day time period, or
Employee revokes such release pursuant to the terms of the separation agreement, then Employee is deemed to forfeit any entitlement to receive the Separation Payment and shall promptly return any portion of the Separation Payment which he or she
received before such failure to execute and deliver or revocation. The Company will provide the separation agreement to Employee promptly after Employees termination other than for Cause or resignation for a Change in Control Good Reason.
D. Withholding. Employee is responsible for all withholdings for taxes and other withholdings required by applicable law as to any
amounts owed by Employee to the Company, and Employee shall pay the same to the Company promptly upon demand if not otherwise withheld.
2. Accelerated
Vesting of Stock-Based Compensation. Notwithstanding anything to the contrary in any award agreement between Employee and the Company:
A. Change in Control.
(1) Awards not Assumed or Substituted by Surviving Entity. Upon the occurrence of a Change in Control, and except with
respect to any awards described in subsection 2.A(2) below: (i) any outstanding stock options or stock appreciation rights (SARs) held by Employee will immediately become fully exercisable; (ii) any time-based
restrictions on other outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and all such awards will become fully vested, disregarding any performance-based vesting criteria and any proration
requirements otherwise applicable thereto; and (iii) the payout level under any outstanding performance-based cash awards held by Employee will be determined and deemed to have been earned as of the effective date of the Change in Control based
upon (A) an assumed achievement of all relevant performance goals at the target level if the Change in Control occurs during the first half of the applicable performance period, or (B) the greater of (1) the assumed
achievement of all relevant performance goals at the target level and (2) the actual level of achievement of all relevant performance goals against target (measured as of the date of the Change in Control), if the Change in Control
occurs during the second half of the applicable performance period, and, in either such case, Employee will receive a pro rata payout within sixty (60) days following the Change in Control (unless a later date is required by subsection 7.O
hereof), based upon the length of time within the performance period that has elapsed prior to the Change in
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Control. Any options or SARs will thereafter continue or lapse in accordance with the other provisions of the applicable plan and the applicable award agreement. For the avoidance of doubt, any
equity or stock awards that have any performance-based vesting criteria, including any such awards with performance-based vesting criteria applicable to any performance period that has partially elapsed or has not yet begun as of the occurrence of a
Change in Control, are intended to and shall vest in full at the same time as equity or stock awards that have solely time-based vesting criteria, and no proration shall apply to such awards. To the extent that this provision causes incentive stock
options to exceed the dollar limitation set forth in section 422(d) of the Code, the excess stock options will be deemed to be nonstatutory stock options. In addition, the Company has the right to settle stock awards in accordance with
subsection 2.D below.
(2) Stock Awards Assumed or Substituted by Surviving Entity. With respect to stock
awards that are assumed by the Surviving Entity or are otherwise equitably converted or substituted in connection with a Change in Control in a manner approved by the Board, if, within two years after the effective date of the Change in Control,
either (a) the Company or its Affiliate or the Surviving Entity terminates Employees employment other than for Cause or (b) Employee resigns for a Change in Control Good Reason: then (i) any outstanding stock options or SARs
held by Employee will immediately become fully exercisable; (ii) any time-based restrictions on other outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and all such awards will become
fully vested, disregarding any performance-based vesting criteria and any proration requirements otherwise applicable thereto; and (iii) the payout level under any performance-based cash awards held by Employee that were outstanding immediately
prior to effective time of the Change in Control will be determined and deemed to have been earned as of the date of termination based upon (A) an assumed achievement of all relevant performance goals at the target level if the date
of termination occurs during the first half of the applicable performance period, or (B) the greater of (1) the assumed achievement of all relevant performance goals at the target level, and (2) the actual level of
achievement of all relevant performance goals against target (measured as of the end of the calendar quarter immediately preceding the date of termination), if the date of termination occurs during the second half of the applicable
performance period, and, in either such case, Employee will receive a prorata payout within sixty (60) days following the date of termination of employment (unless a later date is required by subsection 7.O hereof), based upon the length of
time within the performance period that has elapsed prior to the date of termination of employment. Any options or SARs will thereafter continue or lapse in accordance with the other provisions of the applicable plan and the applicable award
agreement. For the avoidance of doubt, any equity or stock awards that have any performance-based vesting criteria, including any such awards with performance-based vesting criteria applicable to any performance period that has partially elapsed or
has not yet begun as of the occurrence of a termination of employment or resignation for a Change in Control Good Reason, are intended to and shall vest in full at the same time as equity or stock awards that have solely time-based vesting criteria,
and no proration shall apply to such awards. To the extent that this provision causes incentive stock options to exceed the dollar limitation set forth in section 422(d) of the Code, the excess stock options will be deemed to be nonstatutory
stock options.
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B. Termination Other Than for Cause. If the Company or its Affiliate terminates
Employees employment other than for Cause absent a Change in Control, then (i) any outstanding stock options or SARs held by Employee will immediately become fully exercisable; and (ii) any time-based restrictions on other
outstanding stock awards (such as restricted stock and restricted stock units) held by Employee will lapse and such awards will become fully vested, disregarding any performance-based vesting criteria and any proration requirements otherwise
applicable thereto. For the avoidance of doubt, any equity or stock awards that have any performance-based vesting criteria, including any such awards with performance-based vesting criteria applicable to any performance period that has partially
elapsed or has not yet begun as of the applicable date of termination, are intended to and shall vest in full at the same time as equity or stock awards that have solely time-based vesting criteria, and no proration shall apply to such awards.
C. Phrases referring to Employees termination not for Cause or other than for Cause in this agreement exclude any
termination or resignation as a result of Employees death or disability. Neither Employees death nor Employees resignation (other than for a Change in Control Good Reason) or termination on account of disability will give rise to
any accelerated vesting or right to settlement of any stock awards under this agreement.
D. Companys Election. In the
circumstances described in subsection 2.A, the Company has the right to choose to settle in cash, as described in subsection 2.E below, all or any portion of Employees stock awards. Employee shall surrender and transfer to the
Company all stock awards that the Company elects to settle in cash. Any stock awards that are not settled in cash shall thereafter continue or lapse in accordance with the other provisions of the plan and the award agreement under which they were
granted.
E. Settlement in Cash. If the Company chooses to settle some or all of the stock awards in cash, pursuant to
subsection 2.D above, it may do so
(1) in the case of stock options or SARs, by paying Employee either
(i) the difference (if any, including a deemed distribution of $0) between the price being paid for the Companys common stock in the Change in Control over the exercise or base price, as applicable, of the award (that difference, the
Spread Amount), multiplied by the number of such stock options or SARs; or (ii) the fair value of those stock options or SARs under Generally Accepted Accounting Principles (as determined as of the settlement date
through the Black-Scholes, binomial, or any other option pricing model permissible under FASB Accounting Standards Codification 718 or a successor standard), but only if that fair value would yield a greater payment to Employee than the Spread
Amount. The Company shall pay the settlement amount, net of any required withholding, to Employee within sixty (60) days after the Change in Control (unless a later date is required by subsection 7.O hereof); or
(2) in the case of stock awards other than stock options or SARs (such as restricted stock or restricted stock units), by
paying Employee the price being paid for the Companys common stock in the Change in Control multiplied by the number of such shares underlying the stock award. The Company shall pay the settlement amount, net of any required withholding, to
Employee within sixty (60) days after the Change in Control (unless a later date is required by subsection 7.O hereof).
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3. No Conflict of Interest. Without limiting Employees obligations to comply with the Companys
Code of Conduct and Code of Ethics, Employee agrees that during the term of Employees employment:
A. Employee shall not
engage, either directly or indirectly, in any activity that may involve a conflict of interest with the Company or its Affiliate, including without limitation ownership in any supplier, contractor, subcontractor, customer or other entity with which
the Company or its Affiliate does business (other than as a shareholder of less than one percent (1%) of a publicly-traded or privately-held class of equity ownership) (Conflict of Interest).
B. Employee shall promptly report to the Companys Chief Compliance Officer any information about which Employee becomes aware that might
involve or give rise to a Conflict of Interest or potential Conflict of Interest.
C. Employee shall not accept any material payment,
service, loan, gift, trip, entertainment or other favor from a supplier, contractor, subcontractor, customer or other entity with which the Company or its Affiliate does business.
D. Employee shall promptly report to the Companys Chief Compliance Officer each offer by any entity with which the Company or its
Affiliate does business for any material payment, service, loan, gift, trip, entertainment or other favor.
4. Ongoing Covenants. Employee
acknowledges that the Company has a legitimate interest in (i) maintaining the confidentiality of the Companys confidential information and (ii) restraining Employee from competing against the Company and its Affiliates during and
for a reasonable time after Employees employment by the Company or its Affiliate. Employee agrees to the restrictions in subsection 4.A: (i) in consideration of the benefits described in this agreement and the Companys
providing Employee with confidential information, and (ii) in order to enforce Employees agreement to maintain the confidentiality of the Companys confidential information.
A. Restrictive Covenants. Throughout the term of Employees employment by the Company or its Affiliate, and throughout the 24 month
period beginning upon Employees separation from employment with the Company for any reason, Employee shall not do any of the following:
(1) Non-Competition. Directly or indirectly engage in, sell or otherwise provide Competitive Services within the
Restricted Territory while serving in a position that is the same as or substantially similar to the Chief Executive Officer and President position that Employee held with the Company, whether on his own behalf or as a Principal or Representative of
any Person other than the Company; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Employee of not more than 1% of any class of securities of any corporation having a class of
securities registered pursuant to the Securities Exchange Act of 1934, as amended.
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(2) Non-Solicitation of Protected Customers. Directly or indirectly, on
Employees own behalf or on behalf of a competitor of the Companys Business, or as a Principal or Representative of any other Person, solicit, divert, take away or attempt to solicit, divert, or take away a Protected Customer for purposes
of providing or selling services or products that are the same as or substantially similar to the services and products that are provided or sold by the Company.
(3) Non-Solicitation of Protected Employees. Directly or indirectly, on Employees own behalf or as Principal or
Representative of any other Person, solicit or induce or attempt to solicit or induce any Protected Employee to terminate his or her employment with the Company or to enter into employment with any other Person.
B. Restrictions Are Reasonable. The Company and Employee have, in good faith, used their best efforts to make the restrictions in
subsection 4.A reasonable in all pertinent respects, and it is not anticipated, nor is it intended, by either party that any arbitrator or court will find it necessary to reform any restriction to make it reasonable. Employee has carefully read
and considered the restrictions in subsection 4.A and agrees that the restrictions, including, but not limited to, the time period of restriction, the geographic areas of restriction, and the scope of the restriction are fair and reasonable,
are supported by sufficient and valid consideration, and these restrictions do not impose any greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company. Employee acknowledges that these
restrictions will not prevent Employee from obtaining gainful employment in Employees occupation or field of expertise or cause Employee undue hardship and that there are numerous other employment and business opportunities available to
Employee that are not affected by these restrictions.
C. Modification of Covenants. It is the desire and intent of each of the
parties that the provisions of section 4.A be enforced to the fullest extent legally permissible. If an arbitrator or court determines it is necessary to reform any restriction to make it reasonable in all pertinent respects, then any damages
due to a breach of the restriction, as so reformed, will be deemed to accrue to the Company as and from the date of such a breach only, and only so far as the damages for such breach related to an action that accrued within the scope of the
restriction as so reformed. The covenants set forth in this Agreement shall be construed as separate and independent covenants. Should any part or provision of any covenant be held invalid, void or unenforceable, such invalidity, voidness, or
unenforceability shall not render invalid, void or unenforceable any other part or provision of this Agreement. If any portion of subsection 4.A is adjudicated to be invalid or unenforceable, this section 4 will be deemed amended
(i) to reform the particular portion to provide for such maximum restrictions as will be valid and enforceable or, if that is not possible, then (ii) to delete therefrom only the portion thus adjudicated to be invalid or unenforceable
D. Successors. Subsection 4.A will inure to the benefit of and be enforceable by any successor to the Company and/or any successor
to any Affiliate of the Company that is then conducting the Email Encryption business or any Other Material Business.
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E. Notification of Future Employer. Employee shall, and the Company has the right to,
notify any person or entity employing Employee or evidencing an intention to employ Employee about the existence and terms of subsection 4.A.
F. Remedies. If Employee violates any of the obligations set forth in subsection 4.A, the period of restriction applicable to each
obligation violated shall cease to run during the pendency of any litigation over such violation, provided that such litigation was initiated during the period of restriction. Employee acknowledges that the violation of any of the covenants or
agreements contained in subsection 4.A would cause irreparable injury to the Company, that the remedy at law for any such violation or threatened violation thereof would be inadequate, and Employee agrees that the Company will be entitled, in
addition to any other remedy, to temporary and permanent injunctive or other equitable relief from a court of competent jurisdiction without the necessity of proving actual damages or posting a bond as well as to the recovery of its reasonable
attorneys fees.
5. Definitions.
A. Acquiring Person means any person (including any person as such term is used in subsections 13(d)(3)
or 14(d)(2) of the Exchange Act) that, together with all Affiliates and Associates of such person, is the beneficial owner (as the term beneficial owner is defined under rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act)) of 10% or more of the Companys outstanding common stock. The term Acquiring Person does not include the Company, any majority-owned subsidiary of the Company, any employee benefit plan of the Company or a
majority-owned subsidiary of the Company, or any person to the extent such person is holding the Companys common stock for or pursuant to the terms of any such plan. For the purposes of this agreement, a person who becomes an Acquiring Person
by acquiring beneficial ownership of 10% or more of the Companys common stock at any time after the date of this agreement will continue to be an Acquiring Person whether or not such person continues to be the beneficial owner of 10% or more
of the Companys outstanding common stock.
B. Affiliate and Associate have the
respective meanings ascribed to such terms in rule 12b-2 under the Exchange Act.
C. Board means the
Companys board of directors or the compensation committee thereof.
D. Cause means any of the following shall have
occurred: (1) the intentional and continued failure by Employee to substantially perform Employees employment duties, such intentional failure involving willful and deliberate malfeasance or gross negligence in the performance of
Employees duties (other than any such failure resulting from Employees incapacity due to physical or mental illness), after (i) written demand for substantial performance is delivered by or on behalf of the Company, which demand
reasonably identifies the manner in which the Company believes Employee has not substantially performed Employees duties, and (ii) Employees failure to cure such performance failure within five business days after receipt of such
written demand; (2) the intentional engaging by Employee in misconduct that is materially injurious to the Company; (3) the conviction of Employee or a plea of nolo contendere, or the
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substantial equivalent to either of the foregoing, of or with respect to, any felony; (4) the commission by Employee of acts of moral turpitude that are injurious to the Company; (5) a
breach by Employee of the Confidentiality and Invention Agreement between the Company (or its affiliate) and Employee; (6) a breach by Employee of Employees obligations under this agreement or the Arbitration Agreement (as hereinafter
defined); or (7) a breach by Employee of the Companys Code of Ethics and Code of Conduct as then in effect. For purposes of this definition, no act, or failure to act, on Employees part shall be considered intentional
unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in, or not opposed to, the best interest of the Company.
Notwithstanding the foregoing, Employee will not be deemed to have been terminated for Cause without (1) reasonable written notice to
Employee, setting forth the reasons for the Companys intention to terminate for Cause; (2) an opportunity for Employee to be heard by the Board (or an authorized representative thereof); and (3) delivery to Employee of a written
notice of termination from the Board (or its authorized representative) stating that, in the good faith opinion of the Board (or its authorized representative), Employee engaged in the conduct set forth above in clause (1), (2), (4), (5),
(6) or (7) of the preceding paragraph or an event specified in clause (3) of the preceding paragraph has occurred.
E. Change in Control of the Company will be deemed to have occurred if any of the following events occurs during
Employees employment:
(1) The Company is merged, consolidated or reorganized into or with another
corporation or other legal person, other than an Affiliate, and as a result of such merger, consolidation or reorganization, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as
a result of such transaction, equity securities of the surviving or acquiring person or such corporations parent entity (the Surviving Entity) possessing less than 51% of the voting power of the Surviving Entity;
(2) The Company sells all or substantially all of its assets to any other corporation or other legal person, other than an
Affiliate, and as a result of such sale, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as a result of such transaction, equity securities of the Surviving Entity possessing
less than 51% of the voting power of the Surviving Entity (provided that this paragraph will not apply to a registered public offering of securities of a subsidiary of the Company, which offering is not part of a transaction otherwise a part of or
related to a Change in Control);
(3) Any Acquiring Person has become the beneficial owner (as the term beneficial
owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities which, when added to any securities already owned by such person, would represent in the aggregate 35% or more of the then
outstanding securities of the Company which are entitled to vote to elect any class of directors;
8
(4) As measured over any 12 month period, Continuing Directors cease to
constitute at least a majority of the Board;
(5) The occurrence of an event required to be reported under Item 6(e)
of Schedule 14A of Regulation 14A or any successor rule or regulation promulgated under the Exchange Act; or
(6) The Board
in its sole discretion determines that any other event is deemed to be a Change in Control.
F. Change In Control Good
Reason means any of the following: (i) a material diminution in Employees authority, duties or responsibilities, (ii) a material diminution in Employees base salary, (iii) a material change in the geographic
location at which Employee must perform services, (iv) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Employee is required to report, (v) a material diminution in the budget over which
Employee retains authority, or (vi) any material breach by the Company of this agreement or any other agreement under which Employee provides services to the Company or its Affiliates.
G. Code means the Internal Revenue Code of 1986, as amended, and applicable Internal Revenue Service guidance and Treasury
Regulations.
H. Continuing Director means a director of the Company who (1) is not an Acquiring Person or
an Affiliate or Associate thereof, or a representative of an Acquiring Person or nominated for election by an Acquiring Person, and (2) was either (a) a member of the Board on the date of this agreement or (b) subsequently became a
director of the Company and whose initial election or initial nomination for election by the Companys shareholders was approved by a majority of the Continuing Directors then on the Board.
I. Company means Zix Corporation, a Texas corporation, or its successors in interest, as the context requires.
J. Competitive Services means the Email Encryption business or any other material line of business being
conducted by the Company or any Affiliate.
K. Exchange Act means the Securities Exchange Act of 1934.
L. Person means any individual or any corporation, partnership, joint venture, limited liability company,
association or other entity or enterprise.
M. Principal or Representative means a
principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.
N. Protected Customer means any customer to whom the Company sold its products or services at any time during
Employees employment and with whom Employee had business dealings on behalf of the Company.
9
O. Protected Employee means any employee of the Company who was
employed by the Company at any time during Employees employment and (a) with whom Employee had a supervisory relationship or (b) with whom Employee worked or communicated on a regular basis regarding the Companys
business.
P. Restricted Territory means the United States and Canada.
Q. Separation Payment means the sum of:
(1) An amount equal to Employees base salary for a period of 24 months. For the purpose of calculating the Separation
Payment, Employees base salary will be deemed to be Employees highest base salary in any month during the term of Employees employment.
plus
(2) An amount equal to the product of two times the payout level for Employees performance-based cash compensation that
would apply hereunder as if there had been a Change in Control immediately prior to the termination of Employees employment (calculated without any proration otherwise required under this Agreement) and the Companys obligation to pay
such performance-based cash compensation was not assumed by the surviving entity. For the avoidance of doubt and in order to avoid duplication of benefits, in the event Employees performance-based cash compensation pays out or vests in
connection with a Change in Control, Employee shall not also receive payment for such performance-based cash compensation as part of Employees Separation Payment.
plus
(3) If Employee resides in the United States, an amount equal to the excess of (i) the cost for Employee to continue any
group medical, dental, vision and/or prescription drug plan benefits to which Employee and/or Employees eligible dependents would be entitled under Section 4980B of the Code (COBRA) for the number of months used to calculate the base
salary Separation Payment pursuant to clause (1) above, over (ii) the amount that Employee would have had to pay for such coverage if Employee had remained employed during such period of time and paid the active employee rate for such
coverage. If Employee resides outside of the United States, USD $1,500 per month for the number of months used to calculate the base salary Separation Payment pursuant to clause (1) above, payable in the currency of Employees place of
residence.
R. Surviving Entity has the meaning set forth in subsection 5.E(1).
6. Mandatory Reduction of Payments in Certain Events.
A. Notwithstanding anything in this agreement to the contrary, in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this agreement or
10
otherwise) (such benefits, payments or distributions are hereinafter referred to as Payments) would, if paid, be subject to the excise tax imposed by Section 4999 of the
Code (the Excise Tax), then, prior to the making of any Payments to Employee, a calculation shall be made comparing (i) the net after-tax benefit to Employee of the Payments after payment by Employee of the Excise Tax, to
(ii) the net after-tax benefit to Employee if the Payments had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under
(ii) above, then the Payments shall be limited to the extent necessary to avoid being subject to the Excise Tax (the Reduced Amount). The reduction of the Payments due hereunder, if applicable, shall be made by first reducing
cash Payments and then, to the extent necessary, reducing those Payments having the next highest ratio of Parachute Value (as hereinafter defined) to actual present value of such Payments as of the date of the Change in Control, as determined by the
Determination Firm (as defined in subsection 6.B. below). For purposes of this section 6, present value shall be determined in accordance with Section 280G(d)(4) of the Code. For purposes of this section 6, the Parachute
Value of a Payment means the present value as of the date of the Change in Control of the portion of such Payment that constitutes a parachute payment under Section 280G(b)(2) of the Code, as determined by the
Determination Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.
B. All
determinations required to be made under this section 6, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the amount of the Reduced Amount, and the assumptions to be utilized in arriving at such
determinations, shall be made by an independent accounting firm or compensation consulting firm mutually acceptable to the Company and Employee (the Determination Firm) which shall provide detailed supporting calculations both to
the Company and Employee within 15 business days after the receipt of notice from the Company that a Payment is due to be made. All fees and expenses of the Determination Firm shall be borne solely by the Company. Any determination by the
Determination Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Determination Firm hereunder, it is possible that
Payments which Employee was entitled to, but did not receive pursuant to subsection 6(A), could have been made without the imposition of the Excise Tax (Underpayment), consistent with the calculations required to be made
hereunder. In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee but no later than March 15 of
the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment arises.
C. In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this
section 6 shall be of no further force or effect.
7. Miscellaneous.
A. Litigation Assistance. During Employees employment and following Employees separation from employment, Employee shall
cooperate reasonably with the Company and its Affiliates in the defense of litigation that pertains to (i) matters reasonably within the purview of Employees job responsibilities while employed with the Company or its Affiliate or
(ii) matters
11
for which Employee has particular knowledge, thereof, including signing affidavits and making himself or herself available for interviews, deposition preparation, deposition, and trial. Employee
shall not, without the Companys prior consent, comment publicly on any such litigation or any of the issues in the litigation. Employee shall not, without the Companys prior consent, discuss any such litigation, or cooperate, with the
Companys opponent(s) in such litigation, their attorneys, or their representatives.
B. Reimbursement for Litigation
Assistance. If Employee assists the Company or its Affiliate with litigation activities following Employees separation from employment other than those litigation activities in which Employee would be required to participate as a named
party, the Company shall pay all reasonable documented out-of-pocket costs (subject to a maximum of $1,000 per day) that Employee incurs in connection with such activities and will pay Employee for his or her actual, demonstrated lost income
(subject to a maximum of $10,000 in any tax year) for the period in which Employee assists with such litigation activities. The Company shall pay the out-of-pocket reimbursement as soon as practicable after Employee provides documentation of such
out-of-pocket costs but no later than the end of the tax year following the tax year in which such expenses were incurred. The amount of expenses reimbursed to Employee pursuant to subsection 7.A during Employees tax year will not impact
the amount of such expenses eligible for reimbursement during any other tax year of Employee. Employees right to reimbursement of expenses will not be subject to liquidation or exchange for another benefit. Employee must provide documentation
of the lost income on or before January 15 of the year following the year in which the income is lost. The lost income will be paid in a lump sum within 60 days after Employee provides documentation of the same but in no event later than
March 15 of the year following the year in which the income is lost.
C. Indemnification. Employee and the Company acknowledge
the indemnification provisions set forth in the Companys bylaws and articles of incorporation.
D. No Deemed Waivers. The
failure by a party to enforce any provision of this agreement does not constitute a waiver of any subsequent breach of the same or any other provision. No waiver is effective unless made in a writing signed by the waiving party.
E. No Third Party Beneficiaries. Except as otherwise stated in this agreement, nothing in this agreement, is intended to confer any
rights or remedies on any persons other than the parties to it and their respective permitted successors and assigns and other legal representatives.
F. Remedies. Employee hereby agrees that a violation of subsection 4.A would cause irreparable injury to the Company for which it
would have no adequate remedy at law. Accordingly, in the event of any such violation, the Company shall be entitled to preliminary and other injunctive relief without the necessity to post a bond or other security. Any such injunctive relief shall
be in addition to any other remedies to which the Company may be entitled at law or in equity, or otherwise.
12
G. Notice. Any consent, notice, demand, or other communication regarding any payment
required or permitted hereby must be in writing to be effective and shall be deemed to have been received on the date delivered, if delivered in person, or the date received, if delivered otherwise (including by U.S. mail, overnight delivery or
e-mail), addressed to the applicable party at the address for such party set forth below or at such other address as such party may designate by like notice:
The Company:
Zix Corporation
2711 North Haskell Avenue
Suite 2200, LB 36
Dallas, Texas 75204-2960
Attn: General Counsel
To Employee:
At the address on file in the Companys records.
H. Entire Agreement. This agreement, together with the Mutual Alternative Dispute Resolution Agreement and the Confidentiality and
Invention Agreement between the parties, and the Code of Ethics and Code of Conduct, as currently in effect or hereafter amended from time-to-time, embodies the entire agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to the subject matter hereof.
I. Successors and Assigns. This Agreement
will be binding upon and inure to the benefit of the parties to this agreement and any successors-in-interest to the Company. Employee cannot assign or transfer this agreement or any rights under this agreement, or delegate any obligations under
this agreement, and any attempted assignment, transfer or delegation is void ab initio.
J. Governing Law. This Agreement is
governed by and will be construed, interpreted and enforced in accordance with, the laws of the State of Texas (excluding its conflict of laws rules) and applicable federal law.
K. Arbitration. All claims, demands, causes of action, disputes, controversies, or other matters in question, whether sounding in
contract, tort, or otherwise and whether provided by statute or common law, arising under or related to this agreement or Employees employment (or its termination) are subject to resolution under the procedures descried in the parties
Mutual Alternative Dispute Resolution Agreement.
L. Cumulative Remedies. No remedy in this agreement conferred upon any party is
intended to be exclusive of any other benefit or remedy, and each and every such remedy shall be cumulative and shall be in addition to every other benefit or remedy given under this agreement or now or hereafter existing at law or in equity or by
statute or otherwise. No single or partial exercise by any party of any right, power, or remedy under this agreement shall preclude any other or further exercise thereof.
13
M. Multiple Counterparts. This Agreement may be executed in a number of identical
counterparts, each of which constitute collectively, one agreement; but in making proof of this agreement, it is not necessary to produce or account for more than one counterpart.
N. Descriptive Headings. The headings, captions, and arrangements used in this agreement are for convenience only and do not limit,
amplify, or modify the terms of this agreement, nor affect the meaning hereof.
O. 409A Compliance.
(1) General. This Agreement will be interpreted and administered so that any amount or benefit paid or provided is
either exempt from or compliant with the requirements of section 409A of the Code (and any applicable transition relief under section 409A of the Code). Nevertheless, the tax treatment of the amounts or benefits provided under the
Agreement is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers will be liable for any taxes, interest, penalties or other monetary amounts owed by Employee as a result of the application of
section 409A of the Code.
(2) Definitional Restrictions. Notwithstanding anything in this Agreement to the
contrary, to the extent that any amount or benefit that would constitute non-exempt deferred compensation for purposes of section 409A of the Code (Non-Exempt Deferred Compensation) would otherwise be payable or
distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of a Change in Control or Employees termination of employment, such Non-Exempt Deferred Compensation will not be
payable or distributable to Employee, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control or termination of employment, as the case may be, meet
any description or definition of change in control event or separation from service, as the case may be, in section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may
be available under such definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon a Change in Control or termination of employment, however defined. If this provision prevents the payment or
distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a section 409A-compliant change in control event or separation
from service, as the case may be, or such later date as may be required by subsection 7.O(3) below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same
form as would have applied absent such designated event or circumstance.
(3) Six-Month Delay in Certain
Circumstances. Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of
Employees separation from service during a period in which he or she is a Specified Employee (as defined in subsection 7.O(3)(iii)), then, subject to any permissible acceleration of payment by the Company under Treasury Regulations
section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):
14
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(i) |
The amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following Employees separation from service will be accumulated through and paid or
provided on the first day of the seventh month following Employees separation from service (or, if Employee dies during such period, within 30 days after Employees death) (in either case, the Required Delay Period).
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(ii) |
The normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period. |
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(iii) |
For purposes of this Agreement, the term Specified Employee has the meaning given such term in section 409A of the Code and the final regulations thereunder; provided, however, that the
Companys Specified Employees and its application of the six-month delay rule of subsection 409A(a)(2)(B)(i) of the Code will be determined in accordance with rules adopted by the Board or a committee thereof, which will be applied
consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Agreement. |
(4) Treatment of Installment Payments. Each payment of termination benefits under section 1.B, including, without
limitation, each installment Separation Payment, shall be considered a separate payment, as described in Treasury Regulations section 1.409A-2(b)(2), for purposes of section 409A of the Code.
(5) Timing of Release of Claims. Whenever in this agreement a payment or benefit is conditioned on Employees
execution and non-revocation of a separation agreement including a release of claims, such release must be executed and all revocation periods must have expired within 60 days after the date of termination of Employees employment; failing
which such payment or benefit is forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection 7.O(3), such payment or benefit (including any installment payments) that would have otherwise been
payable during such 60-day period shall be accumulated and paid on the 60th day after the date of termination provided such release shall have been executed and such revocation periods shall have
expired. If such payment or benefit is exempt from section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.
15
Each party is signing this Second Amended and Restated Employment Termination Benefits Agreement as of the date
first set forth above.
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Zix Corporation |
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Employee |
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By: |
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/s/ Robert C. Hausmann |
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/s/ Richard D. Spurr |
Name: |
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Robert C. Hausmann |
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Name: |
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Richard D. Spurr |
Title: |
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Chairman, Board of Directors |
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[Signature Page to Second Amended and Restated Employment Termination Benefits Agreement]
EXHIBIT 31.1
CERTIFICATION
I, Richard D. Spurr,
certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Zix Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Date: August 5, 2015 |
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/s/ RICHARD D. SPURR |
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Richard D. Spurr |
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President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Michael W. English,
certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Zix Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Date: August 5, 2015 |
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/s/ MICHAEL W. ENGLISH |
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Michael. W. English |
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Chief Financial Officer (Principal Financial Officer |
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and Principal Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
August 5, 2015
Securities and Exchange
Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
The certifications
set forth below are being submitted in connection with the Quarterly Report on Form 10-Q (the Report) of Zix Corporation for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Richard D. Spurr, the chief
executive officer, and Michael W. English, the chief financial officer of Zix Corporation, each certifies that to the best of his knowledge and in the respective capacities as an officer of Zix Corporation:
1. |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zix Corporation. |
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/s/ RICHARD D. SPURR |
Name: Richard D. Spurr |
Title: President and Chief Executive Officer |
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/s/ MICHAEL W. ENGLISH |
Name: Michael W. English |
Title: Chief Financial Officer |
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