SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
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ZIX CORPORATION
(Name of Registrant as Specified In Its Charter)
-----------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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------------
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(ZIXCORP LOGO)
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ZIX CORPORATION
2711 NORTH HASKELL AVENUE
SUITE 2300, LB 36
DALLAS, TEXAS 75204-2960
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, MAY 6, 2003
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We will hold this year's annual stockholders' meeting on Tuesday, May 6,
2003, at 9:00 a.m. (registration to begin at 8:30 a.m.), Central Time. We will
hold the meeting at the Cityplace Conference Center, Houston Room, 2711 North
Haskell Avenue, Second Floor, Dallas, Texas 75204. At the meeting, we will ask
you to consider and vote on the following proposals:
- a proposal to elect Michael E. Keane, James S. Marston, John A. Ryan,
Antonio R. Sanchez III and Dr. Ben G. Streetman as members of our Board
of Directors; and
- a proposal to increase the number of shares of our common stock available
for grant under our 2001 Stock Option Plan from 1,500,000 to 2,525,000
shares.
We will also discuss and take action on any other business that is properly
brought before the meeting or any adjournment thereof. If you were a stockholder
at the close of business on March 12, 2003, you are entitled to notice of, and
to vote at, the meeting or any adjournment thereof. The stock transfer books
will not be closed.
We would like you to attend the meeting, but understand that you may not be
able to do so. For your convenience, and to ensure that your shares are
represented and voted according to your wishes, we have enclosed a proxy card
for you to use. Please vote, sign and date the proxy card and return it to us as
soon as possible. We have provided you with a postage-paid envelope to return
your proxy card. If you attend the meeting, you may revoke your proxy and vote
in person. We look forward to hearing from you.
By Order of the Board of Directors,
Ronald A. Woessner
Senior Vice President, General Counsel
& Secretary
Dallas, Texas
March 25, 2003
YOUR VOTE IS IMPORTANT.
PLEASE VOTE EARLY EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS:
Why did I receive this proxy statement?..................... 1
I may have received more than one proxy statement. Why?..... 1
What will occur at the annual meeting?...................... 1
How many votes are necessary to elect the nominees for
director?................................................. 1
How many votes are necessary to approve the adoption of the
amendment to the Zix Corporation 2001 Stock Option
Plan?..................................................... 2
What if a nominee is unwilling or unable to stand for
election?................................................. 2
How do I vote if I am not planning to attend the annual
meeting?.................................................. 2
What if I want to change my vote?........................... 2
How do I raise an issue for discussion or vote at the annual
meeting?.................................................. 2
What if my shares are in a brokerage account and I do not
vote?..................................................... 3
How are abstentions treated?................................ 3
How much will this solicitation cost, and who will pay for
it?....................................................... 3
Where can I find the voting results of the annual
meeting?.................................................. 3
MORE ABOUT THE PROPOSALS:
Proposal 1: Election of Directors........................... 4
Proposal 2: Amendment to Zix Corporation's 2001 Stock Option
Plan...................................................... 4
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION:
Who are our directors, director nominees, executive officers
and significant employees?................................ 7
How much stock do our principal stockholders, directors,
director nominees and executive officers own?............. 9
Section 16(a) Beneficial Ownership Reporting Compliance..... 13
How do our Board and its committees work?................... 13
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS:
Summary Compensation Table.................................. 15
Option Grants in 2002 to Named Executive Officers........... 16
Aggregated Option Exercises in 2002 and Year-end Option
Values.................................................... 16
Non-Stockholder Approved Equity Compensation Arrangements... 17
Employment and Severance Agreements with Certain Executive
Officers.................................................. 18
How are our Board members paid?............................. 18
Certain Relationships and Related Transactions.............. 19
Compensation Committee Interlocks and Insider
Participation............................................. 19
REPORT OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION...... 19
STOCK PRICE PERFORMANCE GRAPH............................... 21
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS..... 22
QUESTIONS AND ANSWERS
WHY DID I RECEIVE THIS PROXY STATEMENT?
On or about March 25, 2003, we will begin mailing this proxy statement and
accompanying proxy card to everyone who was a holder of our shares of common
stock or of our shares of Class A convertible preferred stock at the close of
business on March 12, 2003. We prepare a proxy statement each year to let our
stockholders know when and where we will hold our annual stockholders' meeting.
This proxy statement:
- includes information about the matters that will be discussed and voted
on at the meeting, and
- provides you with updated information about our company.
I MAY HAVE RECEIVED MORE THAN ONE PROXY STATEMENT. WHY?
If you received more than one proxy statement, your shares are probably
registered differently or are in more than one account. Please vote each proxy
card that you received.
WHAT WILL OCCUR AT THE ANNUAL MEETING?
First, we will determine whether enough stockholders are present at the
meeting to conduct business. A stockholder will be deemed to be "present" at the
meeting if the stockholder:
- is present in person, or
- is not present in person but has voted by proxy card prior to the
meeting.
All common shareholders and Class A convertible preferred stock
shareholders of record at the close of business on March 12, 2003 will be
entitled to vote on matters presented at the meeting or any adjournment thereof.
As of the record date, there were 20,582,980 shares of our common stock
outstanding and 693,750 shares of our Class A convertible preferred stock
outstanding. The shares of our Class A convertible preferred stock are entitled
to vote on all matters submitted to our shareholders for a vote. Each share of
our common stock is entitled to one vote on all matters brought before the
meeting or any adjournment thereof. Each share of our Class A convertible
preferred stock is entitled to a number of votes equal to the number of shares
of our common stock each such share was convertible into on the record date. Our
common stock shareholders are entitled to cast an aggregate of 20,582,980 votes
at the meeting, and our Class A convertible preferred stock shareholders are
entitled to cast an aggregate of 680,634 votes at the meeting. The holders of a
majority, or 10,631,808, of the shares of our common stock and Class A
convertible preferred stock "equivalent" common shares who are entitled to vote
at the meeting must be represented at the meeting in person or by proxy to have
a quorum for the transaction of business at the meeting and to act on the
matters specified in the Notice. If holders of fewer than 10,631,808 shares are
present at the meeting, we will adjourn or reschedule the meeting.
After each proposal has been voted on at the meeting, we will discuss and
take action on any other matter that is properly brought before the meeting. Our
transfer agent, Computershare Investor Services, LLC, will count the votes and
act as inspector of election.
A representative of Ernst & Young LLP (we refer to it as "Ernst & Young"),
our independent auditors, is expected to be present at the annual meeting and
will be afforded an opportunity to make a statement, if such representative so
desires, and to respond to appropriate questions.
If enough stockholders are present at the meeting to conduct business, then
we will vote on the proposals outlined in this proxy statement and any other
business that is properly brought before the meeting and any adjournments
thereof.
We know of no other matters that will be presented for consideration at the
annual meeting. If, however, other matters or proposals are presented and
properly come before the meeting, the proxy holders intend to vote all proxies
in accordance with their best judgment in the interest of Zix Corporation and
our stockholders.
HOW MANY VOTES ARE NECESSARY TO ELECT THE NOMINEES FOR DIRECTOR?
At the close of business on March 12, 2003, there were 20,582,980 common
stock shares issued and outstanding and 693,750 Class A convertible preferred
stock shares representing 680,634 votes were issued
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and outstanding. The five nominees receiving the highest number of "yes" votes
will be elected as directors. This number is called a "plurality."
Votes that are withheld from any director nominee will be counted in
determining whether a quorum has been reached but will not affect the outcome of
the vote. Assuming a quorum is present, the affirmative vote of a "plurality" of
the shares of common stock voted and entitled to vote for the election of
directors is required for the election of directors. Votes may be cast in favor
of, or withheld from, a director nominee.
In the election of directors, stockholders are not entitled to cumulate
their votes or to vote for a greater number of persons than the number of
nominees named in this proxy statement.
HOW MANY VOTES ARE NECESSARY TO APPROVE THE ADOPTION OF THE AMENDMENT TO THE ZIX
CORPORATION 2001 STOCK OPTION PLAN?
At the close of business on March 12, 2003, there were 20,582,980 common
stock shares issued and outstanding and 693,750 Class A convertible preferred
stock shares representing 680,634 votes were issued and outstanding. The
affirmative vote of a majority of the shares of our common stock and Class A
convertible preferred stock "equivalent" shares represented at the annual
meeting and entitled to vote, if a quorum is present, is required to approve the
adoption of the proposed amendment to our 2001 Stock Option Plan. The same vote
is generally required for action on any other matters that properly come before
the meeting.
WHAT IF A NOMINEE IS UNWILLING OR UNABLE TO STAND FOR ELECTION?
Each of the persons nominated for election to our Board of Directors has
agreed to stand for election. However, should any nominee become unable or
unwilling to accept nomination or election, no person will be substituted in his
stead. The Board of Directors, in accordance with our Restated Bylaws, will by
resolution reduce the number of members of our Board accordingly. Our Board of
Directors has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected, and to the knowledge of the Board, each of the
nominees intends to serve the entire term for which election is sought.
HOW DO I VOTE IF I AM NOT PLANNING TO ATTEND THE ANNUAL MEETING?
In addition to voting in person at the meeting, you may mark your
selections on the enclosed proxy card, date and sign the card and return the
card in the enclosed postage-paid envelope.
Please understand that voting by any means other than voting in person at
the meeting has the effect of appointing John A. Ryan, our Chairman, President
and Chief Executive Officer, and Steve M. York, our Senior Vice President, Chief
Financial Officer and Treasurer, as your proxies. They will be required to vote
on the proposals described in this proxy statement exactly as you have voted.
However, if any other matter requiring a stockholder vote is properly raised at
the meeting, then Messrs. Ryan and York will be authorized to use their
discretion to vote on such issues on your behalf.
We encourage you to vote now even if you plan to attend the annual meeting
in person. If your shares are in a brokerage account, you may receive different
voting instructions from your broker.
WHAT IF I WANT TO CHANGE MY VOTE?
You may revoke your vote on a proposal at any time before the annual
meeting for any reason. To revoke your proxy before the meeting, write to our
Secretary, Ronald A. Woessner, at 2711 North Haskell Avenue, Suite 2300, LB 36,
Dallas, Texas 75204-2960. You may also come to the meeting and change your vote
in writing.
HOW DO I RAISE AN ISSUE FOR DISCUSSION OR VOTE AT THE ANNUAL MEETING?
If you would like to submit a proposal to be included in next year's proxy
statement, you must submit your proposal in writing so that we receive it no
later than November 25, 2003. We will include your proposal in our next annual
proxy statement if it is a proposal that we would be required to include in our
proxy statement pursuant to the rules of the Securities and Exchange Commission
(we refer to it as the "SEC"). Under Rule 14a-8 of the Securities Exchange Act
of 1934, as amended, proposals of stockholders must conform to certain
requirements as to form and may be omitted from the proxy materials under
certain
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circumstances. To avoid unnecessary expenditures of time and money, you are
urged to review this rule and, if questions arise, consult legal counsel prior
to submitting a proposal to us. Proposals should be directed to our Secretary,
Ronald A. Woessner, at our principal executive offices at 2711 North Haskell
Avenue, Suite 2300, LB 36, Dallas, Texas 75204-2960.
Where a stockholder has appropriately specified how a proxy is to be voted,
it will be voted accordingly, and where no specific direction is given on a
properly executed proxy card, it will be voted FOR adoption of the proposals set
forth in this proxy statement. The proxy holders will have discretion to vote on
any matter properly proposed to come before the meeting that was not brought to
our attention by February 10, 2003.
WHAT IF MY SHARES ARE IN A BROKERAGE ACCOUNT AND I DO NOT VOTE?
If your shares are in a brokerage account and you do not vote, your
brokerage firm could:
- vote your shares, if it is permitted by the rules of NASDAQ, or
- leave your shares unvoted.
Under applicable rules, brokers who hold shares in street name have the
authority to vote in favor of all matters specified in the Notice, if they do
not receive contrary voting instructions from beneficial owners. Under
applicable law, if a broker has not received voting instructions with respect to
certain shares and gives a proxy for those shares, but does not vote the shares
on a particular matter, those shares will not affect the outcome of the vote
with respect to that matter. Such broker non-votes will be counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but will not be counted for purposes of determining the number of
votes cast with respect to a proposal. A broker non-vote will not affect the
outcome of the voting on any of the proposals being considered at the meeting.
HOW ARE ABSTENTIONS TREATED?
Any stockholder that is present at the meeting, either in person or by
proxy, but who abstains from voting, will still be counted for purposes of
determining whether a quorum exists. An abstention will not be counted as an
affirmative or negative vote in the election of the directors. With respect to
all other matters, an abstention would have the same effect as a vote against
the proposal. Our stockholders have no appraisal rights under Texas law with
respect to the proposals specified in the Notice. If you sign your proxy card
but do not specify how you want to vote on a proposal, then your shares will be
voted FOR that proposal.
HOW MUCH WILL THIS SOLICITATION COST, AND WHO WILL PAY FOR IT?
We will bear the cost of solicitation of proxies, including the cost of
preparing, printing and mailing proxy materials, and the cost of reimbursing
brokers for forwarding proxy solicitation materials to their principals. We have
engaged Georgeson Shareholder to assist in the solicitation of proxy materials
from stockholders at a fee of approximately $5,500 plus reimbursement of
reasonable out-of-pocket expenses. Proxies may also be solicited without extra
compensation by our officers and employees by telephone or otherwise.
Arrangements may also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of proxy solicitation material to
beneficial owners of shares of our common stock, and we may reimburse them for
reasonable out-of-pocket expenses incurred by them.
WHERE CAN I FIND THE VOTING RESULTS OF THE ANNUAL MEETING?
We will announce the voting results at the meeting and will publish the
results in our quarterly report on Form 10-Q for the second quarter of 2003
ending on June 30, 2003. We will file that report with the SEC by mid-August of
this year, and you can get a copy by contacting either our Investor Relations
office at (214) 515-7357 or the SEC at (800) SEC-0330 or http://www.sec.gov.
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MORE ABOUT THE PROPOSALS
PROPOSAL 1
ELECTION OF DIRECTORS
We will vote on the election of five members of our Board of Directors at
the annual meeting. Each director serves until the next annual meeting of
stockholders and until the director's successor is duly elected and qualified,
unless earlier removed in accordance with our Restated Bylaws. Officers serve at
the discretion of our Board of Directors.
The nominees for election to our Board are Michael E. Keane, James S.
Marston, John A. Ryan, Antonio R. Sanchez III and Dr. Ben G. Streetman.
NAME(1) PRINCIPAL OCCUPATION DIRECTOR SINCE
------- -------------------- --------------
Michael E. Keane..................... Senior Vice President and Chief 1997
Financial Officer, UNOVA, Inc.
James S. Marston..................... Private Investor 1991
John A. Ryan......................... Chairman, President and Chief Executive 2001
Officer, Zix Corporation
Antonio R. Sanchez III............... Vice President, Sanchez Oil & Gas --
Corporation
Dr. Ben G. Streetman................. Dean, College of Engineering at The 1998
University of Texas at Austin
---------------
(1) For biographical and other information regarding the nominees for director,
please see "WHO ARE OUR DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES?" below.
OUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR SET FORTH ABOVE.
PROPOSAL 2
AMENDMENT TO ZIX CORPORATION'S 2001 STOCK OPTION PLAN
We have adopted an amendment to our 2001 Stock Option Plan (we refer to it
as the "2001 Plan"), subject to approval by our stockholders. The amendment
increases the maximum number of shares of our common stock with respect to which
options may be granted under the 2001 Plan from 1,500,000 to 2,525,000. As of
March 10, 2003, the aggregate market value of the shares covered by the
amendment was $4,315,250.
A copy of the 2001 Plan, as amended and restated after giving effect to the
amendment, is attached to this proxy statement as APPENDIX A. From inception of
the 2001 Plan through March 10, 2003, (i) all current executive officers, as a
group, were granted 233,791 options; (ii) all current directors who are not
executive officers were not eligible to receive options and (iii) all employees,
including all current officers who are not executive officers, as a group, were
granted 1,243,709 options under the 2001 Plan. No option grants have been made
under the 2001 Plan out of the 1,025,000 additional shares reserved under the
2001 Plan that stockholders are being asked to approve. The number of option
grants to be made in the future to the foregoing individuals or groups of
individuals, and the prices at which such grants will be made, are not
determinable. The following summary of certain provisions of the 2001 Plan is
qualified in its entirety by reference to the full text of the 2001 Plan.
Summary
Our Board of Directors believes that the proposed amendment to the 2001
Plan is in the best interest of Zix Corporation and its stockholders and is
necessary to enable us to attract and retain highly qualified personnel. The
affirmative vote of a majority of the shares of our common stock represented at
the annual
4
meeting and entitled to vote, if a quorum is present, is required to approve the
adoption of the proposed amendment to the 2001 Plan.
Administration
The 2001 Plan is administered by our Board of Directors and the Board's
Compensation and Stock Option Committee (either, the "committee"). The committee
is authorized to grant awards in the form of stock options and to determine the
terms and conditions relating to such options. The committee has complete
authority to construe, interpret and administer the provisions of the 2001 Plan
and the provisions of the agreements governing options granted thereunder. The
committee has the authority to prescribe, amend and rescind rules and
regulations pertaining to the 2001 Plan and to make all other determinations
necessary or deemed advisable in the administration of the 2001 Plan. The
determinations and interpretations made by the committee are final and
conclusive.
Eligibility
Eligibility to participate in the 2001 Plan is limited to our employees and
non-employee consultants and advisors and our subsidiaries' employees and
non-employee consultants and advisors, as selected by the committee. No
participant in the 2001 Plan may be currently granted stock options for more
than 600,000 shares of our common stock in the aggregate during the term of the
2001 Plan. The amended and restated 2001 Plan will provide that no participant
may be granted options for more than 1,000,000 shares. As of March 10, 2003,
approximately 148 persons were eligible to participate in the 2001 Plan.
Number of Shares Subject to the 2001 Plan
Subject to adjustment as described below, assuming adoption of the
amendment to the 2001 Plan, the maximum number of shares of our common stock for
which options may be granted under the 2001 Plan is 2,525,000 shares. Currently,
the maximum number of shares of our common stock for which options may be
granted under the 2001 Plan is 1,500,000 shares. In the event of a stock split,
stock dividend or other relevant change affecting our common stock, the
committee has the authority to make appropriate adjustments to the number of
shares available for grants and to the number of shares under outstanding grants
and, if applicable, the exercise price under outstanding grants made before the
event in question.
Type of Awards Under the 2001 Plan
The committee may grant options under the 2001 Plan to purchase shares of
our common stock. Assuming adoption of the proposed amendment to the 2001 Plan,
the maximum number of shares of our common stock for which stock options may be
granted under the 2001 Plan is 2,525,000 shares, compared to the current maximum
of 1,500,000 shares. As of March 10, 2003, there were 22,500 shares available
for option grants under the 2001 Plan. The committee will determine the number
of shares subject to the option, the manner and time of the exercise of the
option, the exercise price per share of stock subject to the option and other
applicable conditions. The committee may grant either "nonqualified stock
options" (we refer to these as "NQSOs") or "incentive stock options" (we refer
to these as "ISOs") pursuant to Section 422 of the Internal Revenue Code, as
amended, or both. The exercise price of ISOs may not be less than the fair
market value of our common stock on the date of grant (and not less than 110% of
the fair market value in the case of options granted to an optionee owning 10%
or more of our outstanding common stock). The exercise price for NQSOs may not
be less than 100% of the fair market value of our common stock on the date of
grant. The exercise price may, at the discretion of the committee, be paid in
cash, shares of our common stock or a combination thereof. We may make financing
available to the optionee on such terms as the committee shall specify. The
effect of an optionee's termination of employment by reason of death,
retirement, disability or otherwise and other conditions that will apply to the
exercise of the option will be specified in the option agreement evidencing the
grant of the option. ISOs granted to an optionee who owns 10% or more of our
outstanding common stock may not be exercisable more than five years after the
date of grant (or such other time period as the Internal Revenue Code may
require). ISOs may not be exercisable more than ten years
5
after the date of grant, and NQSOs may not be exercisable more than ten years
after the date of grant unless permitted by the committee.
Amendment and Termination
Our Board of Directors may amend, abandon, suspend or terminate the 2001
Plan or any portion thereof at any time. No amendment shall, however, be made
without stockholder approval if such approval is required to comply with any tax
or regulatory requirement. No options may be granted under the 2001 Plan after
May 14, 2011.
Change in Control
In order to preserve the rights of participants in the event of a change in
control of Zix Corporation, the committee in its discretion may, at the time a
grant is made or any time thereafter, take one or more of the following actions:
(i) provide for the acceleration of any time period relating to the exercise of
an option, (ii) provide for the purchase of the option upon the participant's
request for an amount of cash or other property that could have been received
upon the exercise or realization of the option had the option been currently
exercisable or payable, (iii) adjust the terms of the option in a manner
determined by the committee to reflect the change in control, (iv) cause an
option to be assumed, or new rights substituted therefor, by another entity or
(v) make such other provisions as the committee may consider equitable and in
the best interest of Zix Corporation.
Federal Income Tax Consequences
Under current United States ("U.S.") federal tax law, the following are the
U.S. federal income tax consequences generally arising with respect to stock
option awards under the 2001 Plan:
An employee receiving NQSOs will not realize any taxable income, and we
will not be entitled to any federal income tax deduction, at the time the NQSO
is granted. At the time the NQSO is exercised, however, the employee generally
will realize ordinary income in an amount equal to the excess of the fair market
value of our common stock on the date of exercise over the option price paid,
and we will generally be entitled to a corresponding federal income tax
deduction. Upon the sale of our common stock acquired upon exercise of a NQSO,
the employee generally will recognize capital gain or loss.
Any employee receiving ISOs generally will not realize taxable income, and
we will not be entitled to a federal income tax deduction, at the time an ISO is
granted or at the time the ISO is exercised. However, there may be certain
alternative minimum tax consequences to the employee resulting from the exercise
of an ISO. Upon a sale of our common stock acquired upon exercise of an ISO, the
employee generally will realize a capital gain or capital loss, and we will
receive no deduction, so long as the sale does not occur within two years of the
date of the grant of the ISO or within one year from the date the shares were
transferred to the employee upon the exercise of the ISO. If a sale does occur
within two years of the date of grant or one year of the transfer date, however,
part or all of the income recognized by the employee may be treated as ordinary
income. Under such circumstances, we could be entitled to a federal income tax
deduction equal to the ordinary income recognized by the employee.
OUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE ADOPTION OF THE PROPOSED
AMENDMENT TO ZIX CORPORATION'S 2001 STOCK OPTION PLAN.
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OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
WHO ARE OUR DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS AND SIGNIFICANT
EMPLOYEES?
The following table sets forth, as of February 20, 2003, the names of our
directors, director nominees, executive officers and other significant employees
and their respective ages and positions:
NAME AGE POSITION
---- --- --------
Dennis F. Heathcote.................... 46 Vice President, North American Sales and Services
Michael E. Keane(2)(4)................. 47 Director
James S. Marston(2)(4)................. 69 Director
Wael Mohamed........................... 35 Vice President, Global Distribution
Russell J. Morgan...................... 42 Vice President, Client Services
Daniel S. Nutkis....................... 37 Vice President, Strategy and Products
David J. Robertson..................... 44 Vice President, Engineering
John A. Ryan(1)(3)..................... 46 Director, Chairman, President and Chief Executive
Officer
Antonio R. Sanchez III................. 28 Director Nominee
Antonio R. Sanchez, Jr.(1)(3).......... 60 Director
Dr. Ben G. Streetman(2)(3)(4).......... 63 Director
Ronald A. Woessner..................... 45 Senior Vice President, General Counsel and Secretary
Steve M. York.......................... 52 Senior Vice President, Chief Financial Officer and
Treasurer
---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
(4) Member of the Compensation and Stock Option Committee.
Dennis F. Heathcote joined our company in December 2001 as Vice President,
North American Sales and Services. From May 1998 until June 2001, Mr. Heathcote
worked at Entrust, Inc., where he held a variety of senior sales and management
positions, including Vice President and General Manager of Entrust.net, Inc.,
Entrust, Inc.'s business unit focused on providing e-business trust solutions
for wired and wireless networks, from October 1999 until June 2001. In addition,
Mr. Heathcote, a Canadian Chartered Accountant, has more than 20 years of
experience in senior sales, finance and business administration roles in the
software and technology industry, including more than ten years with IBM and IBM
Global Services.
Michael E. Keane was elected to our Board in November 1997. Mr. Keane has
been Senior Vice President and Chief Financial Officer of UNOVA, Inc. since
November 1997. UNOVA, Inc. comprises the former industrial technology businesses
spun off from Western Atlas, Inc. in October 1997, where Mr. Keane was also
Senior Vice President and Chief Financial Officer from October 1996 until
October 1997 and Vice President and Treasurer from March 1994 until October
1996. Prior to that, he held various management positions with Litton
Industries, Inc. from June 1981 until March 1994. Prior to that Mr. Keane was
employed in the Chicago office of PriceWaterhouse. He received his Certified
Public Accountant certification in 1977.
James S. Marston was elected to our Board in September 1991. From September
1987 through February 1998, Mr. Marston served as a Senior, or Executive, Vice
President and the Chief Information Officer of APL Limited, a U.S.-based
intermodal shipping company. Between 1986 and 1987, Mr. Marston served as
President of AMR Technical Training Division, AMR Corporation. From 1982 until
1986, he was Vice President of Data Processing and Communications for American
Airlines, in which position he was in charge of the Sabre reservations system
and related technologies.
Wael Mohamed joined our company in February 2002 and serves as Vice
President, Global Distribution. Mr. Mohamed brings over 14 years of high-tech
sales and management experience, most recently serving as Senior Vice President,
Global Sales and Marketing of KLOCwork Solutions Inc. since July 2001. From
October 1997 until July 2001, he worked for Entrust, Inc., where he held several
sales management positions, including Vice President of Sales, Entrust Global
Services and Vice President, Worldwide Sales of
7
Entrust.net, Inc. As a Vice President of Worldwide Sales, he was responsible for
building an extensive network of Entrust.net affiliate partners operating in 32
countries around the world. Before joining Entrust, Mr. Mohamed held several key
executive and management positions at IBM Global Services from July 1996 until
October 1997. While at IBM Global Services, Mr. Mohamed managed a staff of over
100 employees and over $200,000,000 in service revenue.
Russell J. Morgan joined ZixCorp in September 2002. From February 1997
until August 2002, he worked at Entrust, Inc. where he held a variety of senior
management positions, including director, professional services and senior
director, Entrust.net. At Entrust, Mr. Morgan was responsible for founding and
building the Professional Services organization and building and operating a
WebTrust certified secure data center for issuing digital certificates to
business customers. Prior to joining Entrust, Mr. Morgan held a number of key
management positions at Lockheed Martin, where he specialized in secure
messaging and military command and control systems. Mr. Morgan is a professional
engineer with over 20 years experience in delivering customer-focused technology
solutions.
Daniel S. Nutkis joined our company in February 2002 as Vice President,
Strategy and Products. Prior to that, he was a consultant to
PricewaterhouseCoopers LLP in 2001, serving as head of health care for the
firm's subsidiary, beTRUSTed. Before working for PricewaterhouseCoopers, in
January 2000 he founded (and served as Chief Executive Officer of) Medtegrity
Inc., a provider of health care industry-accepted identification,
authentication, security and privacy services. Prior to founding Medtegrity,
during 1999 Mr. Nutkis was Chairman of the Odin Group, a health care information
technology research firm. Prior to that, Mr. Nutkis worked at Ernst & Young for
over ten years where he held many positions, including National Director of the
firm's Health Care Emerging Technology practice, and Chief Executive Officer of
ConnectedHealth.Net, one of the firm's knowledge management subsidiaries.
David J. Robertson joined our company in March 2002 as Vice President,
Engineering. Mr. Robertson has over 20 years of experience in the
telecommunications and Internet industries, with specific expertise in network
architecture, security and protocols, PBX and Key System design in circuit and
packet environments and broadband and cellular access systems. He has also
worked extensively in product areas involving 802.11, DECT and other unlicensed
wireless access standards. Mr. Robertson has contributed to the early stages of
Telecommunications Standards' definition for the Unlicensed Wireless Industry in
the U.S. and Canada and to the finalization of the ADSI standard for enhanced
telecommunications carrier service deployment. He participated in pioneering
efforts toward end-to-end voice quality standards for Quality of Service in many
wireline and wireless domains. He is a member of multiple company advisory
boards and serves with the City of Richardson Chamber of Commerce.
John A. Ryan joined our company as President and Chief Executive Officer
and was elected director and Chairman of our Board in November 2001. From
January 1997 through January 2001, he served as President, Chief Executive
Officer and director of Entrust, Inc., a company for which he led the private
placement in 1996 and took public in August 1998. Prior to that, Mr. Ryan held a
number of senior management positions in general management, marketing and
sales, and finance with Nortel Networks, with his most recent position being
Vice President and General Manager of Nortel's global multimedia and Internet
projects unit. Before joining Nortel, Mr. Ryan worked for Deloitte Touche LLP
and was awarded his Canadian Chartered Accountant designation in 1981. He has
also served as an advisory board member to Scopus Technologies. Prior to joining
Zix Corporation, Mr. Ryan formed ARM Technologies, a privately-held Internet
consulting and services company that he founded in February 2001. He is on the
Board of Trustees for the Hart eCenter at Southern Methodist University.
Antonio "Tony" R. Sanchez III, is a Vice President of Sanchez Oil & Gas
Corporation. He is a 1997 graduate of Georgetown University, where he received a
Bachelor of Science Degree in Business Administration with a concentration on
Accounting and Finance and a minor in Economics. From 1997 through 1999, he
8
was employed as an analyst in the mergers and acquisitions group in the New York
City office of JP Morgan. From 1999 through 2001, he worked at Zix Corporation
in a variety of positions, including sales and marketing, product development,
and investor relations. He is currently involved in the day-to-day operations of
Sanchez Oil & Gas. Mr. Sanchez is the son of Antonio R. Sanchez, Jr.
Antonio R. Sanchez, Jr. was one of our early investors and was elected to
our Board in February 1993. Mr. Sanchez is Chairman and Chief Executive Officer
of Sanchez Oil & Gas Corporation. He also holds interests in banking, real
estate development, venture capital and various other investments. Mr. Sanchez
serves as a director of International Bank of Commerce ("IBC") and as a director
and stockholder of IBC's publicly-traded holding company, International
Bancshares Corporation. Mr. Sanchez is the father of Antonio R. Sanchez III.
Dr. Ben G. Streetman became a director in July 1998. Dr. Streetman is Dean
of the College of Engineering at The University of Texas at Austin and holds the
Dula D. Cockrell Centennial Chair in Engineering. He is a Professor of
Electrical and Computer Engineering and was the founding director of the
Microelectronics Research Center, The University of Texas at Austin, from 1984
until 1996. Dr. Streetman also serves as a director of National Instruments
Corporation.
Ronald A. Woessner joined our company in April 1992 as General Counsel and
was subsequently appointed Secretary and Senior Vice President. He was
previously a corporate and securities attorney with the Dallas-based law firm of
Johnson & Gibbs, P.C.
Steve M. York joined our company in April 1990 as Vice President, Chief
Financial Officer and Treasurer and was subsequently appointed Senior Vice
President. Mr. York, a Certified Public Accountant, previously held various
financial management positions with commercial operating companies and was
employed by Arthur Young & Co. (now Ernst & Young).
Following the meeting, our Board of Directors will adopt a resolution
fixing the number of seats on our Board at five. This resolution will supercede
all prior resolutions regarding the number of seats on our Board.
HOW MUCH STOCK DO OUR PRINCIPAL STOCKHOLDERS, DIRECTORS, DIRECTOR NOMINEES AND
EXECUTIVE OFFICERS OWN?
Set forth below is information as of February 20, 2003 concerning:
- each stockholder known by us to beneficially own more than 5% of our
outstanding shares of common stock;
- the shareholdings of each of our directors, director nominees and named
executive officers with respect to our common stock; and
- the shareholdings of all directors and executive officers as a group with
respect to our common stock.
9
COMMON STOCK SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT TABLE
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP(1)(2)
------------------------------------------
NUMBER OF COMMON PERCENTAGE OF TOTAL
STOCK SHARES COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED SHARES OUTSTANDING(3)
---------------- ------------------ ---------------------
George W. Haywood(4)..................................... 5,569,880 25.53%
c/o Cronin & Vris, LLP
380 Madison Avenue, 24th Floor
New York, New York 10017
Dennis F. Heathcote(5)................................... 69,147 *
Michael E. Keane(6)...................................... 148,583 *
James S. Marston(6)...................................... 158,583 *
Wael Mohamed(7).......................................... 61,057 *
Daniel S. Nutkis(6)...................................... 33,336 *
John A. Ryan(8).......................................... 1,099,464 5.11%
Antonio R. Sanchez, Jr.(9)............................... 2,694,666 12.69%
Antonio R. Sanchez III(10)............................... 267,000 1.29%
Dr. Ben G. Streetman(6).................................. 98,275 *
Steve M. York(11)........................................ 202,274 *
All directors and executive officers as a group (12
persons)............................................... 4,848,604 20.95%
---------------
* Denotes ownership of less than 1%.
(1) Reported in accordance with the beneficial ownership rules of the SEC.
Unless otherwise noted, each stockholder listed in the table has both sole
voting and sole investment power over the common stock shown as
beneficially owned, subject to community property laws where applicable.
(2) Unless otherwise noted, the address for each beneficial owner is c/o Zix
Corporation, 2711 North Haskell Avenue, Suite 2300, LB 36, Dallas, Texas
75204-2960.
(3) Percentages are based on the total number of shares of our common stock
outstanding at February 20, 2003. Shares of our common stock that were not
outstanding but could be acquired upon exercise of an option or other
convertible security within 60 days of February 20, 2003 are deemed
outstanding for the purpose of computing the percentage of outstanding
shares beneficially owned by a particular person. However, such shares are
not deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person.
(4) Includes (i) 41,500 shares that are owned by family members of Mr. Haywood,
(ii) 115,000 shares owned jointly by Mr. Haywood and a family member, (iii)
928,921 shares of common stock that are currently issuable upon conversion
of his shares of Series B Convertible Preferred Stock, and (iv) 305,986
shares of common stock currently issuable upon exercise of certain
warrants.
(5) Includes 62,500 shares that Mr. Heathcote has the right to acquire under
outstanding stock options that are currently exercisable or become
exercisable within 60 days of February 20, 2003.
(6) This individual has the right to acquire these shares under outstanding
stock options that are currently exercisable or that become exercisable
within 60 days of February 20, 2003.
(7) Includes 56,250 shares that Mr. Mohamed has the right to acquire under
outstanding stock options that are currently exercisable or become
exercisable within 60 days of February 20, 2003.
(8) Includes (i) 675,000 shares that Mr. Ryan has the right to acquire under
outstanding options and stock options that are currently exercisable or
that become exercisable within 60 days of February 20, 2003; (ii) 185,274
shares of common stock currently issuable upon conversion of his shares of
Series A Convertible Preferred Stock; and (iii) 66,518 shares of common
stock that may be acquired within 60 days of February 20, 2003 upon
exercise of certain warrants.
10
(9) Includes (i) 1,633,025 shares held by Mr. Sanchez directly, (ii) 9,375
shares held by family members of Mr. Sanchez, (iii) 130,499 shares held by
trusts for which Mr. Sanchez serves as trustee or co-trustee, (iv) 262,100
shares held by SANTIG, Ltd., a family limited partnership for which Mr.
Sanchez serves as managing general partner, (v) 156,083 shares that may be
acquired by Mr. Sanchez within 60 days of February 20, 2003, upon exercise
of outstanding options, (vi) 370,548 shares of common stock that may be
acquired by Mr. Sanchez and SANTIG, Ltd. within 60 days of February 20,
2003 upon conversion of outstanding shares of Series A Convertible
Preferred Stock, and (vii) 133,036 shares of common stock that may be
acquired by Mr. Sanchez and SANTIG, Ltd. within 60 days of February 20,
2003 upon exercise of certain warrants.
(10) Includes 100,000 shares that Mr. Sanchez has the right to acquire under
outstanding options and stock options that are currently exercisable or
that become exercisable within 60 days of February 20, 2003.
(11) Includes 171,500 shares that Mr. York has the right to acquire under
outstanding stock options that are currently exercisable or that become
exercisable within 60 days of February 20, 2003.
11
Also, set forth below is information as of February 20, 2003 concerning:
- each stockholder known by us to beneficially own more than 5% of our
Series A Convertible Preferred Stock;
- the shareholdings of each of our directors, director nominees and named
executive officers with respect to our Series A Convertible Preferred
Stock; and
- the shareholdings of all directors and executive officers as a group with
respect to our Series A Convertible Preferred Stock.
SERIES A CONVERTIBLE PREFERRED STOCK SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT TABLE
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP(1)(2)
----------------------------------------
NUMBER OF PERCENTAGE OF TOTAL
SERIES A SHARES SERIES A SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING(3)
---------------- ------------------ -------------------
Dennis F. Heathcote................................. -0- -0-
Michael E. Keane.................................... -0- -0-
James S. Marston.................................... -0- -0-
Wael Mohamed........................................ -0- -0-
Daniel S. Nutkis.................................... -0- -0-
John A. Ryan........................................ 189,205 27.3%
SANTIG, Ltd.(4)..................................... 252,273 36.4%
1988 Spendthrift Trust(5)........................... 126,136 18.2%
Antonio R. Sanchez, Jr.(6).......................... 378,409 54.5%
Antonio R. Sanchez III.............................. -0- -0-
Dr. Ben G. Streetman................................ -0- -0-
Steve M. York....................................... -0- -0-
All directors and executive officers as a group (12 81.8%
persons)..........................................
---------------
(1) Reported in accordance with the beneficial ownership rules of the SEC.
Unless otherwise noted, each stockholder listed in the table has both sole
voting and sole investment power over the common stock shown as beneficially
owned, subject to community property laws where applicable. No information
is presented with respect to our Series B Convertible Preferred Stock
because it generally has no voting rights and none of our directors or
executive officers own any shares of our Series B Convertible Preferred
Stock.
(2) Unless otherwise noted, the address for each beneficial owner is c/o Zix
Corporation, 2711 North Haskell Avenue, Suite 2300, LB 36, Dallas, Texas
75204-2960.
(3) Percentages are based on the total number of shares of our Series A
Convertible Preferred Stock outstanding at February 20, 2003.
(4) SANTIG, Ltd. is a family limited partnership for which Antonio R. Sanchez,
Jr. was appointed managing general partner in June 2002. Mr. Sanchez has
been a general partner of SANTIG, Ltd. since April 1996.
(5) The 1988 Spendthrift Trust is a family trust of which Antonio R. Sanchez,
Jr. is a beneficiary. Mr. Sanchez has no voting and/or dispositive power
over the shares held by the 1988 Spendthrift Trust and disclaims beneficial
ownership of such shares.
(6) Pursuant to Rule 13d-3 under the Exchange Act of 1934, as amended (we refer
to it as the "Exchange Act"), Antonio R. Sanchez, Jr. may be deemed to be
the beneficial owner of the shares held by SANTIG, Ltd.
12
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the U.S., our directors, officers and any
beneficial owner of more than 10% of our outstanding common stock (collectively,
"insiders") are required to report their initial ownership of our common stock
and any subsequent changes in their ownership to the SEC. The SEC's rules
require insiders to provide us with copies of all Section 16(a) reports that the
insiders file with the SEC. Specific due dates have been established by the SEC,
and we are required to disclose any failure to file by those dates. Based solely
upon our review of copies of Section 16(a) reports that we received from
insiders for their 2002 transactions and written representations that no such
additional reports were required to be filed with the SEC, we believe that our
insiders have complied with all Section 16(a) filing requirements applicable to
them during 2002.
HOW DO OUR BOARD AND ITS COMMITTEES WORK?
Board Committees and Meetings
Our business is managed under the direction of our Board of Directors. Our
Board meets during the year to review significant developments and to act on
matters requiring Board approval. Our Board met on 11 occasions during the year
ended December 31, 2002. Each of the current directors, except Antonio R.
Sanchez, Jr., attended at least 75% of all meetings of our Board called during
the time he served as a director. Each of the current directors, except Antonio
R. Sanchez, Jr., attended at least 75% of all meetings of each committee of our
Board on which he served.
Our Board has established an Audit Committee, Compensation and Stock Option
Committee, Executive Committee and Nominating Committee to devote attention to
specific subjects and to assist our Board in discharging its responsibilities.
The functions of these committees are described below.
Audit Committee
Our Audit Committee is currently comprised of Michael E. Keane, James S.
Marston and Dr. Ben G. Streetman, all of whom are non-employee directors. The
Audit Committee operates under a written charter adopted by our Board of
Directors and oversees our financial reporting process on behalf of our Board,
pursuant to the charter. This includes reviewing the scope and results of audits
made by the independent auditors. The Audit Committee met on six occasions
during the year ended December 31, 2002.
Our Board has, in accordance with the recommendation of the Audit
Committee, chosen the firm of Ernst & Young as our independent auditors for
2003. Following is a summary of Ernst & Young's fees for the years ended
December 31, 2002 and 2001:
2002 2001
-------- --------
Audit services(1)........................................... $154,110 $109,500
Audit-related services(2)................................... 19,396 27,200
Tax services(3)............................................. 29,953 15,606
All other services.......................................... 1,500 --
-------- --------
Total fees.................................................. $204,959 $152,306
======== ========
Ernst & Young LLP did not render professional services relating to
financial information systems design and implementation for the years ended
December 31, 2001 and 2002.
---------------
(1) Audit services consist of the annual audits of the Company's consolidated
financial statements included in Form 10-K and the quarterly reviews of the
Company's consolidated financial statements included in Form 10-Q, as well
as services related to filings made with the Securities and Exchange
Commission and the Company's private placement of convertible equity
securities in 2002.
(2) Audit-related services consist of the required audits of the Company's
employee benefit plan, as well as accounting advisory services related to
financial accounting matters.
(3) Tax services include assistance with certain tax compliance matters and
various tax planning consultations.
The Audit Committee has determined that the services provided to the
Company are compatible with maintaining Ernst & Young's independence.
13
Compensation and Stock Option Committee
Our Compensation and Stock Option Committee is currently comprised of
Michael E. Keane, James S. Marston and Dr. Ben G. Streetman. The Compensation
and Stock Option Committee or the entire Board of Directors administers our
stock option plans and executive compensation. The Compensation and Stock Option
Committee met on five occasions during the year ended December 31, 2002.
Executive Committee
Our Executive Committee is currently comprised of John A. Ryan and Antonio
R. Sanchez, Jr. The Executive Committee has authority to exercise the full
powers of our Board of Directors, subject to certain exceptions. The Executive
Committee did not meet during the year ended December 31, 2002.
Nominating Committee
Our Nominating Committee is currently comprised of John A. Ryan, Antonio R.
Sanchez, Jr. and Dr. Ben G. Streetman. The Nominating Committee did not meet
during the year ended December 31, 2002.
The Nominating Committee will consider nominees for director recommended by
our stockholders. Stockholders desiring to submit nominations for Board members
to be included in next year's proxy statement should forward them no later than
November 25, 2003 to Ronald A. Woessner, Secretary, at our principal executive
offices at 2711 North Haskell Avenue, Suite 2300, LB 36, Dallas, Texas
75204-2960.
14
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to our named executive
officers for services rendered to Zix Corporation for the periods indicated:
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ----------------------- -------
BASE NUMBER OF
SALARY BONUS RESTRICTED SECURITIES
(CASH AND (CASH AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR NON-CASH) NON-CASH) COMPENSATION AWARD OPTIONS PAYOUTS COMPENSATION
--------------------------- ---- --------- ---------- ------------ ---------- ---------- ------- ------------
DENNIS F. HEATHCOTE......... 2002 $172,900 $ 75,000 $-- $-- 25,000 -- $58,930(1)
Vice President, North 2001 9,000 -- -- -- 100,000 -- --
American Sales and 2000 -- -- -- -- -- -- --
Services
WAEL MOHAMED(2)............. 2002 160,000 75,000 -- -- 125,000 -- 3,959(3)
Vice President, 2001 -- -- -- -- -- -- --
Global Distribution 2000 -- -- -- -- -- -- --
DANIEL S. NUTKIS............ 2002 183,337 70,833 -- -- 100,000 -- 108,291(4)
Vice President, 2001 -- -- -- -- -- -- --
Strategy and Products 2000 -- -- -- -- -- -- --
JOHN A. RYAN................ 2002 300,000 200,000 -- -- -- -- --
Chairman, President and 2001 37,500 1,000,000(5) -- -- 1,050,000 -- --
Chief Executive Officer 2000 -- -- -- -- -- -- --
STEVE M. YORK............... 2002 216,000 25,000 -- -- 125,000 -- 3,500(3)
Senior Vice President, 2001 216,000 -- -- -- 50,000 -- 2,975(3)
Chief Financial Officer
and..................... 2000 193,000 -- -- -- -- -- 2,975(3)
Treasurer
---------------
(1) Includes $8,641 for contributions to our 401(k) Retirement Plan and Employee
Stock Purchase Plan and $50,289 for move-related costs paid to Mr.
Heathcote.
(2) Annual compensation is paid in Canadian dollars and has been translated to
U.S. dollars at an average rate for the year.
(3) Represents our contributions to our 401(k) Retirement Plan or Employee Stock
Purchase Plan.
(4) Mr. Nutkis was engaged by the Company as a consultant in 2002 when acting as
an executive officer of the Company. The amounts represent housing costs and
living expenses paid to or on behalf of Mr. Nutkis.
(5) Appointed Chairman, President and Chief Executive Officer in November 2001.
The 2001 bonus to Mr. Ryan consisted of 152,672 shares of our common stock
valued at $1,000,000. In the event Mr. Ryan is terminated for "cause" or he
resigns other than for "good reason," as such terms are defined in his
employment agreement, prior to the second year anniversary of employment, he
must return to us 76,336 shares of our common stock, or cash in the amount
of $500,000. Notwithstanding the foregoing, upon the occurrence of an
"accelerated vesting event" (as defined in his stock option agreement), any
obligation of Mr. Ryan to return such shares to us shall no longer be in
force.
15
OPTION GRANTS IN 2002 TO NAMED EXECUTIVE OFFICERS
We made the following stock option grants to our named executive officers
during the year ended December 31, 2002:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED IN 2002 SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- ---------
Dennis F.
Heathcote.......... 25,000(1) 1.33 $4.96 01/29/2012 $ 78,000 $197,500
Wael Mohamed......... 100,000(1) 5.33 4.96 01/29/2012 312,000 790,000
25,000(1) 1.33 2.50 08/06/2012 39,250 99,500
Daniel S. Nutkis..... 100,000(1) 5.33 4.96 01/29/2012 312,000 790,000
John A. Ryan......... -- -- -- -- -- --
Steve M. York........ 125,000(2) 6.67 4.25 02/20/2012 333,750 846,250
---------------
(1) The options were 25% vested on the date of grant, and an additional 25% vest
on the first year anniversary of the grant and the balance vests pro-rata
every three months over the following two years of employment. In the event
of a "change in control" (as defined) of Zix Corporation or the occurrence
of other specified events, the options become immediately exercisable.
(2) The options were 68% vested on the date of grant, and an additional 11% vest
on the first anniversary of the grant and the balance vests pro-rata every
three months over the following two years of employment. In the event of
termination under certain circumstances or a "change in control" (as
defined) of Zix Corporation or a material subsidiary of Zix Corporation
under specified circumstances, the options become immediately exercisable.
AGGREGATED OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
The following table sets forth information relating to the exercises of
stock options during the year ended December 31, 2002, and the value of
unexercised stock options held as of December 31, 2002, by each of our named
executive officers:
OPTION EXERCISES NUMBER OF SECURITIES
DURING 2002 UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
-------------------------- OPTIONS AT IN-THE-MONEY OPTIONS AT
NUMBER OF DECEMBER 31, 2002 DECEMBER 31, 2002
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
Dennis F. Heathcote.. -- -- 56,250 68,750 $ -- $ --
Wael Mohamed......... -- -- 31,250 93,750 11,938 35,813
Daniel S. Nutkis..... -- -- 16,668 83,332 -- --
John A. Ryan......... -- -- 550,000 500,000 -- --
Steve M. York........ -- -- 158,167 73,333 13,600 6,400
16
NON-STOCKHOLDER APPROVED EQUITY COMPENSATION ARRANGEMENTS
The following table provides information about our equity compensation
arrangements that have been approved by our stockholders, as well as equity
compensation arrangements that have not been approved by our stockholders, as of
December 31, 2002:
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF NUMBER OF SECURITIES
SECURITIES TO BE REMAINING AVAILABLE FOR
ISSUED UPON FUTURE ISSUANCE UNDER
EXERCISE OF WEIGHTED-AVERAGE EQUITY COMPENSATION
OUTSTANDING EXERCISE PRICE OF PLANS (EXCLUDING
OPTIONS, WARRANTS OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
------------- ----------------- -------------------- -----------------------
(A) (B) (C)
Equity compensation plans approved
by stockholders(1).............. 3,242,107 $10.86 1,004,879
Equity compensation plans not
approved by stockholders........ 3,202,910 $ 6.36 182,500
--------- ---------
Total........................ 6,445,017 $ 8.62 1,187,379
========= =========
Zix Corporation 2001 Stock Option
Plan............................ 1,132,500 $ 4.05 367,500
---------------
(1) Includes the Zix Corporation 2001 Stock Option Plan.
A description of the material terms of our equity arrangements that have
not been approved by our stockholders follows:
John A. Ryan
Mr. Ryan, our Chairman, President and Chief Executive Officer, received a
signing bonus of 152,672 shares of our common stock (valued at $1,000,000) in
connection with his employment, which began November 16, 2001. If Mr. Ryan's
employment with us is terminated for "cause" or he resigns other than for "good
reason," as such terms are defined in his employment agreement, prior to the
second year anniversary of employment, he must return to us shares of our common
stock equal to 50% of the 152,672 signing bonus shares or cash in the amount of
$500,000. Notwithstanding the foregoing, upon the occurrence of an "accelerated
vesting event" (as defined in his stock option agreement), any obligation of Mr.
Ryan to return such shares to us shall no longer be in force. In addition, Mr.
Ryan received options to acquire 1,000,000 shares of our common stock at an
exercise price of $5.24 per share. The options became 50% vested in November
2002 and the balance vests pro-rata every three months through November 2003.
The options will automatically vest 100% in the event of a "change in control"
(as defined) of Zix Corporation or the occurrence of other specified events.
David P. Cook
Mr. Cook, a former director and former executive officer of the Company,
received an option in 1998 to acquire 4,254,627 shares of our common stock at an
exercise price of $7.00 per share. All of the options are currently vested, and
they expire in April 2004. Of this original option grant, Mr. Cook still holds
options to acquire 1,056,910 shares as of March 10, 2003, after giving effect to
Mr. Cook's option exercises and his reallocation of 2,138,890 of his option
shares to the members of the investment group that, in 2000, invested
$44,000,000 in our company, and 807,127 of his option shares (we refer to them
as the "Cook Employee Transferred Options") to our employees and a director.
17
Cook Employee Transferred Options
The 807,127 Cook Employee Transferred Options are governed by plan
arrangements that are substantially the same as (if not identical to) the
provisions of the 2001 Plan, which is described above under "PROPOSAL 2" and set
forth in its entirety in APPENDIX A. The exercise prices of the Cook Employee
Transferred Options range from $7.00 to $13.75, and they are all currently
vested.
Other Option Grants
As of December 31, 2002, Messrs. Heathcote, Nutkis, Mohamed, Robertson and
certain other of our current employees hold an aggregate of 567,500 options that
were issued under plans or arrangements not approved by our stockholders. These
options are governed by plan arrangements that are substantially the same as (if
not identical) to the provisions of the 2001 Plan, which is described above
under "PROPOSAL 2" and set forth in its entirety in APPENDIX A. The exercise
price of all of these options is the fair market value of our common stock on
the date of grant, and the vesting periods range from immediately vested to
vesting annually and pro-rata over three years.
EMPLOYMENT AND SEVERANCE AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
We entered into a two-year employment agreement with Mr. Ryan, effective
November 16, 2001, which provides for a $300,000 annual salary, plus $200,000
cash bonus paid at the end of 2002, and a cash bonus opportunity of at least
$200,000 payable at the end of 2003 that is tied to the achievement of defined
objectives. As previously stated, Mr. Ryan also received a signing bonus of
152,672 shares of our common stock (valued at $1,000,000). If Mr. Ryan's
employment with us is terminated for "cause" or he resigns other than for "good
reason," as such terms are defined in his employment agreement, prior to the
second year anniversary of employment, he must return to us shares of our common
stock equal to 50% of the 152,672 signing bonus shares or cash in the amount of
$500,000. Notwithstanding the foregoing, upon the occurrence of an "accelerated
vesting event" (as defined in his stock option agreement), any obligation of Mr.
Ryan to return such shares to us shall no longer be in force.
We are a party to severance agreements with Messrs. Heathcote, Mohamed,
Robertson, Woessner and York which provide for the payment to each of them of
six months, six months, six months, 18 months and 18 months, respectively, of
each of their base salaries in the event each has "good reason" (as defined) to
resign his employment or if his employment is terminated other than for "cause"
(as defined). The severance agreements also provide for the payment to Messrs.
Heathcote, Mohamed, Robertson, Woessner and York of six months, six months, six
months, two times and three times, respectively, each of their annual base
salaries in the event his employment terminates after a "change in control" (as
defined) of Zix Corporation. The severance agreements of Messrs. Woessner and
York also contain confidentiality and stock option acceleration provisions.
HOW ARE OUR BOARD MEMBERS PAID?
On the day an outside director is first appointed or elected to our Board
of Directors, such director is granted nonqualified options to purchase 25,000
shares of our common stock, which vest six months from the grant date with an
exercise price equal to 100% of our common stock price on the grant date. Also,
in January of each year, each director that has served on our Board at least 12
consecutive months will receive a further grant of options determined according
to a specified formula, which provides that the eligible directors collectively
receive options for 1% of our outstanding common stock. The exercise price for
these options will be 120% of our common stock price on the grant date. These
annual options vest over three years. In 2002, the eligible directors received
an aggregate of options to acquire 140,464 shares of our common stock. The
exercise price of these options was $6.59 per share. We pay a $15,000 retainer
fee to outside directors until they are eligible to receive the annual option
grants. We reimburse our directors for expenses they incur attending our Board
or committee meetings.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 18, 2002, we closed two financing transactions pursuant to
which we received $16,000,000 in gross cash proceeds. In the first transaction,
we issued 819,886 shares of Series A Convertible Preferred Stock, par value
$1.00 per share; and 1,304,815 shares of Series B Convertible Preferred Stock,
par value $1.00 per share; and warrants to purchase 709,528 shares of our common
stock. Purchasers of the Series A Convertible Preferred Stock and associated
warrants included John A. Ryan, our Chairman, President and Chief Executive
Officer; Antonio R. Sanchez, Jr., a director and substantial shareholder of our
company; SANTIG, Ltd., a family limited partnership for which Mr. Sanchez serves
as managing general partner; and the 1988 Spendthrift Trust, a family trust of
which Mr. Sanchez is a beneficiary. Mr. Ryan purchased 189,205 shares of Series
A Convertible Preferred Stock and associated warrants to purchase an aggregate
of 66,518 shares of our common stock. Mr. Sanchez purchased 126,136 shares of
Series A Convertible Preferred Stock and associated warrants to purchase an
aggregate of 44,345 shares of our common stock. SANTIG, Ltd. purchased 252,273
shares of Series A Convertible Preferred Stock and associated warrants to
purchase an aggregate of 88,691 shares of our common stock. The 1988 Spendthrift
Trust purchased 126,136 shares of Series A Convertible Preferred Stock and
associated warrants to purchase an aggregate of 44,345 shares of our common
stock. Messrs. Ryan and Sanchez and the Sanchez limited partnership and family
trust invested an aggregate of $2,750,000 in our company. More details
pertaining to the terms and conditions of the Series A Convertible Preferred
Stock financing transaction are contained in a filing on Form 8-K filed with the
SEC on September 20, 2002.
Purchasers of the Series B Convertible Preferred Stock and associated
warrants include George W. Haywood, a 25.5% beneficial shareholder of our
company, and an IRA for the benefit of Mr. Haywood. Mr. Haywood and the IRA for
the benefit of Mr. Haywood purchased an aggregate of 947,708 shares of Series B
Convertible Preferred Stock and associated warrants to purchase an aggregate of
305,986 shares of common stock. Mr. Haywood and the IRA for the benefit of Mr.
Haywood invested an aggregate of $3,500,000 in our company. More details
pertaining to the terms and conditions of the Series B Convertible Preferred
Stock financing transaction are contained in a filing on Form 8-K filed with the
SEC on September 20, 2002.
Finally, for the year 2002, we received payments of $1,000,000 in
connection with certain technology and marketing agreements with Entrust, Inc.
Mr. Ryan, our Chairman, President and Chief Executive Officer, was Chief
Executive Officer of Entrust, Inc. when such agreements were executed and held a
minority equity interest in Entrust, Inc. until September 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee is comprised of three
directors. Michael E. Keane, James S. Marston, and Dr. Ben G. Streetman served
on our Compensation and Stock Option Committee during the year ended December
31, 2002. None of Messrs. Keane, Marston or Dr. Streetman is or was a current
officer or employee of Zix Corporation. The committee met on five occasions
during the year ended December 31, 2002. We have no executive officers who serve
as a member of a board of directors or compensation committee of any other
entity that has one or more executive officers serving as a member of our Board
or Compensation and Stock Option Committee.
REPORT OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Our Compensation and Stock Option Committee or our entire Board of
Directors approves salaries and annual bonuses for executive officers and
administers our stock option plans.
Compensation Philosophy
Our compensation philosophy is to offer the Company's executive officers
compensation packages that are competitive with those being paid for comparable
positions. Compensation consists mainly of salary and
19
stock options. Also, the compensation packages of our chairman, president and
chief executive officer and our senior sales executives have substantial cash
bonus opportunities.
Chief Executive Officer Compensation
At December 31, 2002, our Chairman, President and Chief Executive Officer
was John A. Ryan. Mr. Ryan has an employment agreement through November 2003
which provides for an annual base salary of $300,000, a cash bonus of $200,000
paid at the end of the 2002 and a cash bonus opportunity of at least $200,000
payable at the end of the 2003 that is tied to the achievement of defined
objectives. Mr. Ryan also received a signing bonus in November 2001 of 152,672
shares of our common stock (valued at $1,000,000). If Mr. Ryan's employment with
us is terminated for "cause" or he resigns other than for "good reason," as such
terms are defined in his employment agreement, prior to the second year
anniversary of employment, he must return to us shares of our common stock equal
to 50% of the 152,672 signing bonus shares, or cash in the amount of $500,000.
Notwithstanding the foregoing, upon the occurrence of an "accelerated vesting
event" (as defined in his stock option agreement), any obligation of Mr. Ryan to
return such shares to us shall no longer be in force. In addition, Mr. Ryan
received options to acquire 1,000,000 shares of our common stock at an exercise
price of $5.24 per share. The options became 50% vested in November 2002 and the
balance vests pro-rata every three months during the second year of employment.
The options will automatically vest 100% in the event of a "change in control"
(as defined) of the Company or the occurrence of other specified events. The
Company paid Mr. Ryan a $200,000 cash bonus for the year 2002, as required by
his employment contract.
Inasmuch as a substantial portion of Mr. Ryan's compensation is stock based
and Mr. Ryan's 2003 cash bonus opportunity is tied to the achievement of defined
objectives, his interests are aligned precisely with those of our stockholders.
We believe that Mr. Ryan's employment arrangement is appropriate in light of his
demonstrated prior success at Entrust in building its customer base and
achieving significant revenue growth.
Other Executive Officer Compensation
At December 31, 2002, the Company's other executive officers were Dennis F.
Heathcote, Vice President, North American Sales and Services; Wael Mohamed, Vice
President, Global Distribution; Russell J. Morgan, Vice President, Client
Services; Daniel S. Nutkis, Vice President, Strategy and Products; David J.
Robertson, Vice President, Engineering; Steve M. York, Senior Vice President,
Chief Financial Officer and Treasurer; and Ronald A. Woessner, Senior Vice
President, General Counsel and Secretary. Messrs. York and Woessner received no
salary increase in 2002, and Mr. Heathcote's base salary was increased to
$175,000 in 2002. Messrs. Mohamed, Morgan, Nutkis and Robertson commenced
employment with the Company in 2002.
All of the executive officers received stock option grants in 2003.
Furthermore, the Company's senior sales executives, Messrs. Heathcote and
Mohamed, received a cash sales performance bonus of $50,000 each based on the
progress made in building the Company's customer base. Additionally, each of
Messrs. Heathcote, Mohamed, Nutkis, Robertson and York received a cash
performance bonus of $25,000 and Mr. Morgan received a cash performance bonus of
$8,332.
Internal Revenue Code sec.162(m) Compliance
Compensation in excess of $1,000,000 per year realized by any of the
Company's five most highly compensated executive officers is not deductible by
the Company for federal income tax purposes unless the compensation arrangement
complies with the requirements of Section 162(m) of the Internal Revenue Code of
1986, as amended.
The options granted to Mr. Ryan in 2001 do not comply with the requirements
of Section 162(m), which, among other things, would have required the Company to
obtain stockholder approval of the option grants. Time was of the essence when
we were discussing Mr. Ryan's potential employment. Seeking stockholder approval
of the option grants would have, in our opinion, imposed an unwarranted and
harmful delay in completing the employment arrangements and Mr. Ryan commencing
his employment duties. These options
20
will, during the year of exercise, likely result in Mr. Ryan realizing
compensation in excess of $1,000,000, depending on the number of options
exercised and the price of the Company's common stock at the time. Furthermore,
Messrs. Heathcote, Nutkis and Mohamed were granted certain options in 2001 and
2002 that do not comply with the requirements of Section 162(m). These options,
in the amounts of 125,000, 100,000 and 100,000, respectively, might result in
one or more of them realizing compensation in excess of $1,000,000 in a given
year, depending on the number of options exercised and the price of the
Company's common stock at the time.
Submitted by the Board of Directors:
Michael E. Keane
James S. Marston
John A. Ryan
Antonio R. Sanchez, Jr.
Dr. Ben G. Streetman
This Report will not be deemed to be incorporated by reference in any
filing by us under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that we specifically incorporate this Report by
reference.
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total return of an investment
in our common stock over the five-year period ended December 31, 2002, as
compared with the cumulative total return of an investment in (i) the Center for
Research in Securities Prices ("CRSP") Total Return Index for The NASDAQ Stock
Market (U.S. companies) and (ii) the CRSP Total Return Index for NASDAQ Computer
and Data Processing Stocks. The comparison assumes $100 was invested on December
31, 1997 in our common stock and in each of the two indices and assumes
reinvestment of dividends, if any.
A listing of the companies comprising each of the CRSP-NASDAQ indices used
in the following graph is available, without charge, upon written request. The
stock price performance depicted on the graph below is not necessarily
indicative of future stock price performance. The graph will not be deemed
incorporated by reference in any filing by us under the Securities Act of 1933
or the Securities Exchange Act of 1934, except to the extent that we
specifically incorporate the graph by reference.
21
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
AMONG ZIX CORPORATION,
CRSP-NASDAQ STOCK MARKET (U.S.) AND
CRSP-NASDAQ COMPUTER AND DATA PROCESSING STOCKS
(PERFORMANCE GRAPH)
MEASUREMENT PERIOD CRSP-NASDAQ STOCK MARKET CRSP-NASDAQ COMPUTER AND
(YEAR ENDING) ZIX CORPORATION (U.S.) DATA PROCESSING STOCKS
------------------- --------------- ------------------------ ------------------------
12/31/97 $100.00 $100.00 $100.00
12/31/98 267.19 140.99 178.39
12/31/99 990.63 261.48 392.44
12/31/00 218.75 157.42 180.62
12/31/01 126.50 124.89 145.44
12/31/02 110.25 86.34 100.29
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee is comprised of three non-employee directors. The
Company believes that each member of the Audit Committee is an "independent
director," as defined in the Marketplace Rules of The Nasdaq Stock Market. The
Audit Committee oversees the Company's financial reporting process on behalf of
the Board of Directors, pursuant to its charter adopted by the Board of
Directors. The Audit Committee held six meetings in 2002.
Management has the primary responsibility for the financial statements and
the reporting process including the systems of internal controls. In fulfilling
its oversight responsibilities, the Audit Committee reviewed the audited
financial statements in the Annual Report on Form 10-K with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
Ernst & Young LLP, the Company's independent auditors, is responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles. The Audit Committee discussed
with the Company's independent auditors the overall scope and plans for their
respective audits. The Audit Committee meets with the independent auditors, with
and without management present, to discuss the results of their examinations,
their evaluations of the Company's internal controls, and the overall quality of
the Company's financial reporting. The Audit Committee reviewed with the
independent auditors their judgments as to the quality, not just the
acceptability, of the Company's accounting principles and discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, as amended (Communications with Audit
22
Committees). In addition, the Audit Committee has discussed with the independent
auditors the auditors' independence from management and the Company, including
the matters in the written disclosures required by the Independence Standards
Board Standard No. 1, and considered the compatibility of non-audit services
with the auditors' independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board of Directors has
approved, that the audited financial statements be included in the Annual Report
on Form 10-K for the year ended December 31, 2002 for filing with the Securities
and Exchange Commission. The Audit Committee recommended, and the Board of
Directors has selected, Ernst & Young LLP as the Company's independent auditors
for 2003.
Michael E. Keane, Audit Committee Chair
James S. Marston, Audit Committee Member
Dr. Ben G. Streetman, Audit Committee Member
March 25, 2003
This Report will not be deemed to be incorporated by reference in any
filing by us under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that we specifically incorporate this Report by
reference.
Our 2002 Annual Report to stockholders, including our Annual Report on Form
10-K (excluding exhibits), will be mailed together with this proxy statement.
The Annual Report does not constitute any part of the proxy solicitation
material.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.
WE WOULD APPRECIATE THE PROMPT RETURN OF YOUR PROXY CARD, AS IT WILL SAVE THE
EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors,
Ronald A. Woessner
Senior Vice President, General Counsel
& Secretary
Dallas, Texas
March 25, 2003
23
APPENDIX A
ZIX CORPORATION 2001 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF MAY 6, 2003)
SECTION 1. Purpose. The purpose of the Zix Corporation 2001 Stock Option
Plan (hereinafter called the "2001 Plan") is to advance the interests of Zix
Corporation (hereinafter called the "Company") by strengthening the ability of
the Company to attract, on its behalf and on behalf of its Subsidiaries (as
hereinafter defined), and retain personnel of high caliber through encouraging a
sense of proprietorship by means of stock ownership.
SECTION 2. Definitions.
"Board of Directors" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time-to-time.
"Committee" shall mean a committee of the Board of Directors comprised of
at least two directors or the entire Board of Directors, as the case may be.
Members of the Committee shall be selected by the Board of Directors. To the
extent necessary to comply with the requirements of Rule 16b-3, the Committee
shall consist of two or more Non-employee Directors. Also, if the requirements
of sec.162(m) of the Code are intended to be met, the Committee shall consist of
two or more "outside directors" within the meaning of sec.162(m) of the Code.
"Common Stock" shall mean the Common Stock of the Company, par value $.01
per share.
"Date of Grant" shall mean the date on which an Option is granted pursuant
to this 2001 Plan.
"Designated Beneficiary" shall mean the beneficiary designated by the
Optionee, in a manner determined by the Committee, to receive amounts due the
Optionee in the event of the Optionee's death. In the absence of an effective
designation by the Optionee, Designated Beneficiary shall mean the Optionee's
estate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the closing sale price (or average of the
quoted closing bid and asked prices if there is no closing sale price reported)
of the Common Stock on the date specified as reported by The Nasdaq Stock
Market, or by the principal national stock exchange on which the Common Stock is
then listed. If there is no reported price information for such date, the Fair
Market Value will be determined by the reported price information for Common
Stock on the day nearest preceding such date.
"Incentive Stock Option" shall mean a stock option granted under Section 6
that is intended to meet the requirements of Section 422 of the Code (or any
successor provision).
"Non-employee Director" shall have the meaning given such term in Rule
16b-3.
"Nonqualified Stock Option" shall mean a stock option granted under Section
6 that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Optionee" shall mean the person to whom an option is granted under the
2001 Plan or who has obtained the right to exercise an option in accordance with
the provisions of the 2001 Plan.
"Rule 16b-3" shall mean Rule 16b-3 of the rules and regulations under the
Exchange Act as it may be amended from time-to-time and any successor provision
to Rule 16b-3 under the Exchange Act.
"Subsidiary" shall mean any now existing or hereafter organized or acquired
corporation or other entity of which fifty percent (50%) or more of the issued
and outstanding voting stock or other economic interest is owned or controlled
directly or indirectly by the Company or through one or more Subsidiaries of the
Company.
A-1
SECTION 3. Administration. The 2001 Plan shall be administered by the
Committee. The Committee shall have sole and complete authority to adopt, alter
and repeal such administrative rules, guidelines and practices governing the
operation of the 2001 Plan as it shall from time-to-time deem advisable, and to
construe, interpret and administer the terms and provisions of the 2001 Plan and
the agreements thereunder. The determinations and interpretations made by the
Committee are final and conclusive.
SECTION 4. Eligibility. All employees and non-employee consultants and
advisors (other than Non-employee Directors) who, in the opinion of the
Committee, have the capacity for contributing in a substantial measure to the
successful performance of the Company are eligible to receive Options under the
2001 Plan.
SECTION 5. Maximum Amount Available for Options.
(a) The maximum number of shares of Common Stock in respect of which
Options may be made under the 2001 Plan shall be a total of 2,525,000 shares of
Common Stock. Of that amount, no participant may be granted Options for more
than 1,000,000 shares of Common Stock in the aggregate during the term of the
2001 Plan. Options that expire, lapse or are cancelled or forfeited do not count
against theses share limits. Shares of Common Stock may be made available from
the authorized but unissued shares of the Company or from shares reacquired by
the Company, including shares purchased in the open market. In the event that an
Option is terminated unexercised as to any shares of Common Stock covered
thereby, such shares shall thereafter be again available for award pursuant to
the 2001 Plan.
(b) In the event that the Committee shall determine that any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or other
similar corporate event affects the Common Stock such that an adjustment is
required in order to preserve the benefits or potential benefits intended to be
made available under the 2001 Plan, then the Committee shall adjust
appropriately any or all of (1) the number and kind of shares which thereafter
may be optioned under the 2001 Plan and (2) the grant, exercise or conversion
price and/or number of shares with respect to the Options and/or, if deemed
appropriate, make provision for cash payment to an Optionee; provided, however,
that the number of shares subject to any Option shall always be a whole number.
SECTION 6. Stock Options.
(a) Subject to the provisions of the 2001 Plan, the Committee shall have
sole and complete authority to determine the persons to whom Options shall be
granted, the number of shares to be covered by each Option, the option price
therefor and the conditions and limitations applicable to the exercise of the
Option.
(b) The Committee shall have the authority to grant Incentive Stock
Options, or to grant Nonqualified Stock Options, or to grant both types of
options. In the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with the Code and relevant
regulations. Incentive Stock Options to purchase Common Stock may be granted to
such employees of the Company or its Subsidiaries (including any director who is
also an employee of the Company or one of its Subsidiaries) as shall be
determined by the Committee. Nonqualified Stock Options to purchase Common Stock
may be granted to such eligible participants as shall be determined by the
Committee. Neither the Company nor any of its Subsidiaries or any of their
respective directors, officers or employees, shall be liable to any Optionee or
other person if it is determined for any reason by the Internal Revenue Service
or any court having jurisdiction that any Incentive Stock Option granted
hereunder does not qualify for tax treatment as an Incentive Stock Option under
the then-applicable provisions of the Code.
(c) The Committee shall, in its discretion, establish the exercise price at
the time each Option is granted, which in the case of Nonqualified Stock
Options, shall not be less than 100% of the Fair Market Value of the Common
Stock on the Date of Grant, or in the case of grants of Incentive Stock Options,
shall not be less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant or such greater amount as may be prescribed by the Code.
A-2
(d) Exercise
(1) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may, in its sole discretion, specify
in the applicable grant or thereafter; provided, however, that in no event
may any Option granted hereunder be exercisable after the expiration of ten
years from the Date of Grant. The Committee may impose such conditions with
respect to the exercise of Options, including without limitation, any
relating to the application of federal or state securities laws, as it may
deem necessary or advisable.
(2) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefore is received by the
Company. Such payment may be made in cash, or its equivalent, or, if and to
the extent permitted by the Committee or under the terms of the applicable
agreement, by exchanging shares of Common Stock owned by the Optionee
(which are not the subject of any pledge or other security interest), or by
a combination of the foregoing, provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such Common
Stock so tendered to the Company, valued as of the date of such tender, is
at least equal to such option price.
If the shares to be purchased are covered by an effective registration
statement under the Securities Act of 1933, as amended, any Option may be
exercised by a broker-dealer acting on behalf of an Optionee if (a) the
broker-dealer has received from the Optionee instructions signed by the
Optionee requesting the Company to deliver the shares of Common Stock
subject to such Option to the broker-dealer on behalf of the Optionee and
specifying the account into which such shares should be deposited, (b)
adequate provision has been made with respect to the payment of any
withholding taxes due upon such exercise, and (c) the broker-dealer and the
Optionee have otherwise complied with Section 220.3(e)(4) of Regulation T,
12 CFR Part 220, or any successor provision.
(3) The Company, in its sole discretion, may lend money to an
Optionee, guarantee a loan to an Optionee or otherwise assist an Optionee
to obtain the cash necessary to exercise all or any portion of an Option
granted under the 2001 Plan.
(4) The Company shall not be required to issue any fractional shares
upon the exercise of any Options granted under this 2001 Plan. No Optionee
nor an Optionee's legal representatives, legatees or distributees, as the
case may be, will be, or will be deemed to be, a holder of any shares
subject to an Option unless and until said Option has been exercised and
the purchase price of the shares in respect of which the Option has been
exercised has been paid. Unless otherwise provided in the agreement
applicable thereto, an Option shall not be exercisable except by the
Optionee or by a person who has obtained the Optionee's rights under the
Option by will or under the laws of descent and distribution or pursuant to
a "qualified domestic relations order" as defined in the Code.
(e) No Incentive Stock Options shall be exercisable (a) more than five
years (or such other period of time as from time-to-time provided in the
then-applicable provisions of the Code governing Incentive Stock Options) after
the Date of Grant with respect to an Optionee who owns ten percent or more of
the outstanding Common Stock (within the meaning of the Code), and (b) more than
ten years after the Date of Grant with respect to all other Optionees. No
Nonqualified Stock Options shall be exercisable more than ten years after the
Date of Grant.
(f) In no event shall any Option granted to any employee who is classified
as "non-exempt" under the Fair Labor Standards Act of 1938 be exercisable less
than six months after the Date of Grant, except in the case of death,
disability, retirement, a change in control or other circumstances permitted by
regulations under the Worker Economic Opportunity Act ("WEOA"). Grants to such
non-exempt employees shall not be based on pre-established performance criteria,
except as specifically permitted under the WEOA. Non-exempt employees shall be
notified of the terms of their Options in accordance with the WEOA, and exercise
of such Options must be voluntary.
A-3
SECTION 7. General Provisions.
(a) The Company and its Subsidiaries shall have the right to deduct from
all amounts paid to an Optionee in cash (whether under the 2001 Plan or
otherwise) any taxes required by law to be withheld in respect of Option
exercises under the 2001 Plan. However, if permitted by the Committee or under
the terms of the applicable agreement, the Optionee may pay all or any portion
of the taxes required to be withheld by the Company or its Subsidiaries or paid
by the Optionee with respect to such Common Stock by electing to have the
Company or its Subsidiaries withhold shares of Common Stock, or by delivering
previously owned shares of Common Stock, having a Fair Market Value equal to the
amount required to be withheld or paid. The Optionee must make the foregoing
election on or before the date that the amount of tax to be withheld is
determined. Any such election is irrevocable and subject to disapproval by the
Committee. If the Optionee is subject to the provisions of Section 16(b) of the
Exchange Act, then any such election shall be subject to the restrictions
imposed by Rule 16b-3.
(b) Each Option hereunder shall be evidenced in writing, delivered to the
Optionee, and shall specify the terms and conditions thereof and any rules
applicable thereto, including, but not limited to, the effect on such Option of
the death, retirement, disability or other termination of employment of the
Optionee and the effect thereon, if any, of a change in control of the Company.
(c) Unless otherwise provided in the agreement applicable thereto, no
Option shall be assignable or transferable except by will or under the laws of
descent and distribution or pursuant to a "qualified domestic relations order"
as defined in the Code, and no right or interest of any Optionee shall be
subject to any lien, obligation or liability of the Optionee.
(d) No person shall have any claim or right to be granted an Option.
Further, the Company and its Subsidiaries expressly reserve the right at any
time to terminate the employment of an Optionee free from any liability, or any
claim under the 2001 Plan, except as provided in any agreement entered into with
respect to an Option. Neither the 2001 Plan nor any Option granted hereunder is
intended to confer upon any Optionee any rights with respect to continuance of
employment or other utilization of his or her services by the Company or by a
Subsidiary, nor to interfere in any way with his or her right or that of his or
her employer to terminate his or her employment or other services at any time
(subject to the terms of any applicable contract). The conditions to apply to
the exercise of an Option in the event an Optionee ceases to be employed by the
Company or a Subsidiary for any reason shall be determined by the Committee or
specified in the written agreement evidencing the Option.
(e) Subject to the provisions of the applicable Option, no Optionee or
Designated Beneficiary shall have any rights as a stockholder with respect to
any shares of Common Stock to be distributed under the 2001 Plan until he or she
has become the holder thereof.
(f) The validity, construction, interpretation, administration and effect
of the 2001 Plan and of its rules and regulations, and rights relating to the
2001 Plan, shall be determined solely in accordance with the laws of the State
of Texas (without giving effect to its conflicts of laws rules) and, to the
extent applicable, federal law.
(g) The 2001 Plan was originally effective on May 15, 2001. No Options may
be granted under the 2001 Plan after May 14, 2011; however, all previous Options
issued that have not expired under their original terms or will not then expire
at the time the 2001 Plan expires will remain outstanding.
(h) Restrictions on Issuance of Shares
(1) The Company shall not be obligated to sell or issue any Shares
upon the exercise of any Option granted under the 2001 Plan unless: (i) the
shares pertaining to such Option have been registered under applicable
federal and state securities laws or are exempt from such registration;
(ii) the prior approval of such sale or issuance has been obtained from any
state regulatory body having jurisdiction; and (iii) in the event the
Common Stock has been listed on any exchange, the shares pertaining to such
Option have been duly listed on such exchange in accordance with the
procedure specified therefor. The Company shall be under no obligation to
effect or obtain any listing, registration, qualification, consent or
approval
A-4
with respect to shares pertaining to any Option granted under the 2001
Plan. If the shares to be issued upon the exercise of any Option granted
under the 2001 Plan are intended to be issued by the Company in reliance
upon the exemptions from the registration requirements of applicable
federal and state securities laws, the recipient of the Option, if so
requested by the Company, shall furnish to the Company such evidence and
representations, including an opinion of counsel, satisfactory to it, as
the Company may reasonably request.
(2) The Company shall not be liable for damages due to a delay in the
delivery or issuance of any stock certificates for any reason whatsoever,
including, but not limited to, a delay caused by listing, registration or
qualification of the shares of Common Stock pertaining to any Option
granted under the 2001 Plan upon any securities exchange or under any
federal or state law or the effecting or obtaining of any consent or
approval of any governmental body.
(i) The Board of Directors or Committee may impose such other restrictions
on the ownership and transfer of shares issued pursuant to the 2001 Plan as it
deems desirable; any such restrictions shall be set forth in the applicable
agreement.
(j) The Board of Directors may amend, abandon, suspend or terminate the
2001 Plan or any portion thereof at any time in such respects as it may deem
advisable in its sole discretion, provided that no amendment shall be made
without stockholder approval (including an increase in the maximum number of
shares of Common Stock in respect of which Options may be made under the 2001
Plan) if such stockholder approval is necessary to comply with any tax or
regulatory requirement or exchange listing rules, including for these purposes
any approval requirement that is a prerequisite for exemptive relief under
Section 16(b) of the Exchange Act.
(k) To preserve an Optionee's rights under an Option in the event of a
change in control of the Company or an Optionee's separation from employment,
the Committee in its discretion may, at the time an Option is made or any time
thereafter, take one or more of the following actions: (i) provide for the
acceleration of any time period relating to the exercise of the Option, (ii)
provide for the purchase of the Option, upon the Optionee's request, for an
amount of cash or other property that could have been received upon the exercise
or realization of the Option had the Option been currently exercisable or
payable, (iii) adjust the terms of the Option in a manner determined by the
Committee to reflect the change in control or to prevent the imposition of an
excise tax under section 280G(b) of the Code, (iv) cause the Option to be
assumed, or new rights substituted therefor, by another entity, or (v) make such
other provision as the Committee may consider equitable and in the best
interests of the Company.
AMENDED AND RESTATED as of May 6, 2003.
ZIX CORPORATION
By: /s/ RONALD A. WOESSNER
------------------------------------
Title: S.V.P.
A-5
PROXY - ZIX CORPORATION
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
AT THE CITYPLACE CONFERENCE CENTER, HOUSTON ROOM
2711 NORTH HASKELL AVENUE, SECOND FLOOR, DALLAS, TEXAS 75204
9:00 A.M. (REGISTRATION AT 8:30 A.M.), CENTRAL TIME, TUESDAY, MAY 6, 2003
The undersigned stockholder of Zix Corporation hereby appoints John A. Ryan and
Steve M. York, or either of them, as proxies, each with full power of
substitution, to vote the shares of the undersigned at the above-stated annual
meeting and at any postponement(s) or adjournment(s) thereof.
THIS PROXY IS SOLICITED ON BEHALF OF OUR BOARD OF DIRECTORS AND WILL BE VOTED
ACCORDING TO YOUR DIRECTIONS MADE ON THE REVERSE SIDE. IF YOU DO NOT VOTE ON
PROPOSALS 1 OR 2, THIS PROXY WILL BE VOTED "FOR" THOSE PROPOSALS. THE PROXY
HOLDERS WILL USE THEIR DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT PROPERLY
COMES BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. THIS PROXY IS REVOCABLE AT
ANY TIME BEFORE IT IS EXERCISED.
PLEASE VOTE, SIGN AND DATE ON THE REVERSE SIDE OF THIS PROXY CARD
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
ZIX CORPORATION
-------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
-------------------------------------------------------------------------------
A. ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees:
FOR WITHHOLD
------ --------
01 Michael E. Keane / / / /
02 James S. Marston / / / /
03 John A. Ryan / / / /
04 Antonio R. Sanchez III / / / /
05 Dr. Ben G. Streetman / / / /
B. ISSUE
The Board of Directors recommends a vote FOR the following resolution:
FOR AGAINST ABSTAIN
------ ------- -------
2. Amendment to Zix Corporation's 2001 Stock Option Plan. / / / / / /
C. AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR
YOUR INSTRUCTIONS TO BE EXECUTED.
NOTE: This proxy will be voted in the discretion of the proxy holders on any
other business that properly comes before the meeting or any adjournment
thereof, hereby revoking any proxy or proxies given by the undersigned prior to
the date hereof.
By executing this proxy, you acknowledge receipt of Zix Corporation's 2002
Annual Report, Notice of 2003 Annual Meeting of Stockholders and Proxy Statement
and revoke any proxy or proxies given by you prior to the date hereof.
Please sign EXACTLY as your name(s) appear(s) on this proxy card. Joint owners
must EACH sign personally. When signing as attorney, trustee, executor,
administrator, guardian or corporate officer, please give your FULL title as
such. If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature 1 Signature 2 Date (dd/mm/yyyy)
/ /
------------------------------------ ------------------------------------ ------ ---- ---------------------
PROXY SERIES A PREFERRED STOCK SHARES - ZIX CORPORATION
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
AT THE CITYPLACE CONFERENCE CENTER, HOUSTON ROOM
2711 NORTH HASKELL AVENUE, SECOND FLOOR, DALLAS, TEXAS 75204
9:00 A.M. (REGISTRATION AT 8:30 A.M.), CENTRAL TIME, TUESDAY, MAY 6, 2003
The undersigned stockholder of Zix Corporation hereby appoints John A. Ryan and
Steve M. York, or either of them, as proxies, each with full power of
substitution, to vote the Series A Convertible Preferred Stock shares of the
undersigned at the above-stated annual meeting and at any postponement(s) or
adjournment(s) thereof.
THIS PROXY IS SOLICITED ON BEHALF OF OUR BOARD OF DIRECTORS AND WILL BE VOTED
ACCORDING TO YOUR DIRECTIONS MADE ON THE REVERSE SIDE. IF YOU DO NOT VOTE ON
PROPOSALS 1 OR 2, THIS PROXY WILL BE VOTED "FOR" THOSE PROPOSALS. THE PROXY
HOLDERS WILL USE THEIR DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT PROPERLY
COMES BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. THIS PROXY IS REVOCABLE AT
ANY TIME BEFORE IT IS EXERCISED.
PLEASE VOTE, SIGN AND DATE ON THE REVERSE SIDE OF THIS PROXY CARD
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
ZIX CORPORATION
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
--------------------------------------------------------------------------------
A. ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees:
FOR WITHHOLD
----- --------
01 Michael E. Keane / / / /
02 James S. Marston / / / /
03 John A. Ryan / / / /
04 Antonio R. Sanchez III / / / /
05 Dr. Ben G. Streetman / / / /
B. ISSUE
The Board of Directors recommends a vote FOR the following resolution:
FOR AGAINST ABSTAIN
----- ------- -------
2. Amendment to Zix Corporation's 2001 Stock Option Plan. / / / / / /
C. AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED
FOR YOUR INSTRUCTIONS TO BE EXECUTED.
NOTE: This proxy will be voted in the discretion of the proxy holders on any
other business that properly comes before the meeting or any adjournment
thereof, hereby revoking any proxy or proxies given by the undersigned prior to
the date hereof.
By executing this proxy, you acknowledge receipt of Zix Corporation's 2002
Annual Report, Notice of 2003 Annual Meeting of Stockholders and Proxy Statement
and revoke any proxy or proxies given by you prior to the date hereof.
Please sign EXACTLY as your name(s) appear(s) on this proxy card. Joint owners
must EACH sign personally. When signing as attorney, trustee, executor,
administrator, guardian or corporate officer, please give your FULL title as
such. If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature 1 Signature 2 Date (dd/mm/yyyy)
/ /
------------------------------------ ------------------------------------ ------ ------ ---------------------