Exhibit 10.40
Execution Version
SEPARATION PAY AGREEMENT
     THIS SEPARATION PAY AGREEMENT (this “Agreement”), dated as of February 8,
2010, is entered into by and between Zix Corporation, a Texas corporation (the
“Company”), and James F. Brashear (“Employee”).
     WHEREAS, Employee has been made an offer to become an employee and officer
of the Company; and
     WHEREAS, Employee desires to accept such offer and to become an employee
and officer of the Company on an “at will” basis and otherwise subject to the
terms and conditions of this Agreement;
     NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereby
agree as follows:
1. Definitions.
     A. Acquiring Person. An “Acquiring Person” shall mean any person (including
any “person” as such term is used in Sections 13(d)(3) or 14(d)(2) of the
Exchange Act that, together with all Affiliates and Associates of such person,
is the beneficial owner (as the term “beneficial owner” is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act)) of 10% or more of the outstanding Common Stock. The term “Acquiring
Person” shall not include the Company, any majority-owned subsidiary of the
Company, any employee benefit plan of the Company or a majority—owned subsidiary
of the Company, or any person to the extent such person is holding Common Stock
for or pursuant to the terms of any such plan. For the purposes of this
Agreement, a person who becomes an Acquiring Person by acquiring beneficial
ownership of 10% or more of the Common Stock at any time after the date of this
Agreement shall continue to be an Acquiring Person whether or not such person
continues to be the beneficial owner of 10% or more of the outstanding Common
Stock.
     B. Affiliate and Associate. “Affiliate” and “Associate” shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act in effect on the date of this Agreement.
     C. Cause. “Cause” shall mean any of the following shall have occurred:
(1) the intentional and continued failure by Employee to substantially perform
Employee’s employment duties, such intentional failure involving willful and
deliberate malfeasance or gross negligence in the performance of Employee’s
duties (other than any such failure resulting from Employee’s incapacity due to
physical or mental illness), after (i) written demand for substantial
performance is delivered by or on behalf of the Company’s Board of Directors
(the “Board”), which demand reasonably identifies the manner in which the Board
believes Employee has not substantially performed Employee’s duties, and
(ii) Employee’s failure to cure such performance failure

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within five business days after receipt of such written demand; (2) the
intentional engaging by Employee in misconduct that is materially injurious to
the Company; (3) the conviction of Employee or a plea of nolo contendere, or the
substantial equivalent to either of the foregoing, of or with respect to, any
felony; (4) the commission by Employee of acts of moral turpitude that are
injurious to the Company; (5) a breach by Employee of the Confidentiality and
Invention Agreement dated of even date herewith between the Company and
Employee; (6) a breach by Employee of Employee’s obligations under this
Agreement or the Arbitration Agreement (as hereinafter defined); or (7) a breach
by Employee of the Company’s Code of Ethics and Code of Conduct, as currently in
effect or as hereafter amended from time-to-time. For purposes of this
definition, no act, or failure to act, on Employee’s part shall be considered
“intentional” unless done, or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in, or not opposed to,
the best interest of the Company.
     Notwithstanding the foregoing, Employee shall not be deemed to have been
terminated for Cause without (1) reasonable written notice to Employee, setting
forth the reasons for the Company’s intention to terminate for Cause; (2) an
opportunity for Employee to be heard before the Board (or an authorized
representative thereof); and (3) delivery to Employee of a written notice of
termination from the Board (or its authorized representative) stating that, in
the good faith opinion of the Board (or its authorized representative), Employee
engaged in the conduct set forth above in clause (1), (2), (4), (5), (6) or
(7) of the preceding paragraph or an event specified in clause (3) of the
preceding paragraph has occurred.
     D. Change in Control. A “Change in Control” of the Company shall have
occurred if any of the following events shall occur during the term of
Employee’s employment:
     (1) The Company is merged, consolidated or reorganized into or with another
corporation or other legal person, other than an Affiliate, and as a result of
such merger, consolidation or reorganization, the Company or its shareholders or
Affiliates immediately before such transaction beneficially own, immediately
after or as a result of such transaction, equity securities of the surviving or
acquiring corporation or such corporation’s parent corporation possessing less
than 51% of the voting power of the surviving or acquiring person or such
person’s parent corporation;
     (2) The Company sells all or substantially all of its assets to any other
corporation or other legal person, other than an Affiliate, and as a result of
such sale, the Company or its shareholders or Affiliates immediately before such
transaction beneficially own, immediately after or as a result of such
transaction, equity securities of the surviving or acquiring corporation or such
corporation’s parent corporation possessing less than 51% of the voting power of
the surviving or acquiring person or such person’s parent corporation (provided
that this provision shall not apply to a registered public offering of
securities of a subsidiary of the Company, which offering is not part of a
transaction otherwise a part of or related to a Change in Control);
     (3) Any Acquiring Person has become the beneficial owner (as the term
“beneficial owner” is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities which, when added
to any securities already owned by such person, would represent in the aggregate
35% or more of the then

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outstanding securities of the Company which are entitled to vote to elect any
class of directors;
     (4) If, at any time, the Continuing Directors then serving on the Board
cease for any reason to constitute at least a majority thereof;
     (5) Any occurrence that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A or any successor rule or regulation
promulgated under the Exchange Act; or
     (6) Such other events that are deemed to cause a Change in Control of the
Company, as determined by the Board in its sole discretion.
     E. Continuing Director. A “Continuing Director” shall mean a director of
the Company who (1) is not an Acquiring Person or an Affiliate or Associate
thereof, or a representative of an Acquiring Person or nominated for election by
an Acquiring Person, and (2) was either (a) a member of the Board on the date of
this Agreement or (b) subsequently became a director of the Company and whose
initial election or initial nomination for election by the Company’s
shareholders was approved by a majority of the Continuing Directors then on the
Board.
     F. Company. The “Company” shall mean Zix Corporation, a Texas corporation,
or its successors in interest, as the context requires.
     G. Exchange Act. “Exchange Act” shall mean the Securities Exchange Act of
1934, as amended.
2. Termination Without Cause Payment. If the Company terminates Employee’s
employment other than for Cause, the Company shall pay to Employee an amount
equal to six (6) months of Employee’s base salary, using Employee’s highest
monthly base salary during the term of Employee’s employment (the “Termination
Without Cause Payment”) pursuant to and in accordance with Section 4.
3. Change In Control Payment. If Employee resigns from employment (subject to
the notice and cure provisions set forth below) with the Company and its
Affiliates following a Change in Control for a “Change In Control Good Reason,”
as such term is defined below, the Company shall pay to Employee an amount equal
to six (6) months of Employee’s base salary, using Employee’s highest monthly
base salary during the term of Employee’s employment (the “Change In Control
Payment”) pursuant to and in accordance with Section 4.
     A “Change In Control Good Reason” shall mean (i) a material diminution in
Employee’s authority, duties or responsibilities, (ii) a material diminution in
Employee’s base salary, (iii) a material change in the geographic location at
which Employee must perform services, (iv) a material diminution in the
authority, duties, or responsibilities of the supervisor to whom Employee is
required to report, (v) a material diminution in the budget over which Employee
retains authority, or (vi) any material breach by the Company of this Agreement
or any other agreement under which Employee provides services to the Company or
its Affiliates.

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     Notwithstanding the preceding provisions, Employee shall not be permitted
to resign employment for a Change In Control Good Reason until (a) Employee has
provided to the Company notice of the existence of the Change In Control Good
Reason condition within 90 days of its initial existence and (b) the Company has
not remedied the Change In Control Good Reason condition within a period of
30 days from the Company’s receipt of such notice. Following the satisfaction of
(a) and (b), Employee must exercise his right to resign for a Change in Control
Good Reason within 60 days (i.e., such Change in Control Good Reason resignation
must occur within 180 days of the occurrence of the Change In Control Good
Reason condition), with the day immediately following the initial existence of
the Change In Control Good Reason condition being day “1”.
4. Mode of Payment; Acceptance; No Overlapping Payments. The Termination Without
Cause Payment or Change In Control Payment, as applicable, shall be paid to
Employee in nine (9) equal monthly cash payments beginning as soon as
practicable following his termination of employment but no later than 60 days
following such termination, subject to the Company’s receipt within that 60-day
period of a duly executed release from Employee in a form reasonably
satisfactory to the Company. The Company will provide the form release to
Employee within five days of the date of the event giving rise to the payment.
In the event that Employee fails to execute and deliver such release to the
Company within such 60-day time period, he shall forfeit the Termination Without
Cause Payment or Change in Control Payment, as applicable. Employee shall be
responsible for all applicable withholdings for taxes and other withholdings
required by applicable law and any amounts owed by Employee to Company, and
Employee shall pay the same to the Company promptly upon demand if not otherwise
withheld. The Company’s obligation to make the payments provided for in
Sections 2 and 3 is absolute, and such payments shall not be mitigated or offset
by virtue of Employee obtaining new employment or failing to seek new
employment. Acceptance by Employee of the Termination Without Cause Payment
(Section 2) or Change In Control Payment (Section 3), as applicable, shall
constitute a release by Employee of the Company and its Affiliates,
shareholders, officers, employees, directors and other agents from all claims
arising out of, relating to, or in connection with, Employee’s employment with,
or separation from employment with, the Company and its Affiliates. Employee
shall be entitled to receive pursuant to this Agreement only one of the
following payments (a) the Termination Without Cause Payment (Section 2), or
(b) the Change In Control Payment (Section 3) (i.e., not more than one of any
such payments shall ever be payable pursuant to this Agreement).
5. Conflict of Interest. Without limiting Employee’s obligations to comply with
the Company’s Code of Conduct and Code of Ethics, Employee agrees that during
the term of Employee’s employment, Employee shall not:
     A. Engage, either directly or indirectly, in any activity that may involve
a conflict of interest with the Company or its Affiliates (a “Conflict of
Interest”), including ownership in any supplier, contractor, subcontractor,
customer or other entity with which the Company does business (other than as a
shareholder of less than one percent (1%) of a publicly-traded or privately-held
class of equity ownership); and
     B. Employee shall not accept any material payment, service, loan, gift,
trip, entertainment or other favor from a supplier, contractor, subcontractor,
customer or other entity

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with which the Company does business, and Employee shall promptly inform the
Chief Executive Officer as to each offer received by Employee to engage in any
such activity.
     C. Employee agrees to disclose to the Company any other facts of which
Employee becomes aware that might involve or give rise to a Conflict of Interest
or potential Conflict of Interest.
6. Restrictive Covenants. Pursuant to the Confidentiality and Invention
Agreement executed and delivered contemporaneously with the Company’s and
Employee’s execution and delivery of this Agreement, Employee agrees and
acknowledges that the Company’s agreement to provide Employee with confidential
information in exchange for Employee’s agreement to maintain the confidentiality
of its confidential information gives rise to the Company’s interest in
restraining Employee from competing against the Company during Employee’s
employment and as set forth below, and that Employee’s agreement below is
designed to enforce Employee’s agreement to maintain the confidentiality of the
Company’s confidential information.
     A. Non-Competition; Non-Solicitation of Customers and Employees. Beginning
the date that Employee separates from employment with the Company and through
the six (6) month anniversary of such separation from employment date, Employee
shall not:
     (1) Directly or indirectly, compete (as defined below) with the Company’s
Email Encryption business or any other material line of business being conducted
by the Company (“Other Material Business’), in each case, as the Email
Encryption line of business or Other Material Business line of business is
comprised and conducted as of the date of Employee’s separation from employment.
For purposes of this Agreement, “compete” shall include, without limitation,
engaging, directly or indirectly, in any business, whether as proprietor,
partner, joint venturer, employee, agent, officer, director, consultant,
advisor, or holder of more than one percent (1%) of any publicly traded or
privately held class of equity ownership of any business enterprise that is
competitive with the Company’s Email Encryption business or Other Material
Business;
     (2) Directly or indirectly, on behalf of a competing Email Encryption or
Other Material Business line of business, solicit to do or do business with
(i) any person that is a customer of the Company’s Email Encryption business or
Other Material Business as of the date of Employee’s separation from employment,
or (ii) any person that has been a customer of the Company’s Email Encryption
business or Other Material Business within the six months preceding such date;
or
     (3) Directly or indirectly, solicit to hire or hire any person that is an
employee of the Company (including its affiliated companies) as of the date of
Employee’s separation from employment, or was an employee within the six month
period preceding such date, except by way of bona-fide general advertising.
Although the Company and Employee have, in good faith, used their best efforts
to make the covenants of this Section reasonable in all pertinent respects, and
it is not anticipated, nor is it intended, by either party to this Agreement
that any arbitrator or court will find it necessary to reform any of such
covenants to make it reasonable in all pertinent respects, the Company and

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Employee understand and agree that if an arbitrator or court determines it
necessary to reform any of such covenants to make it reasonable in all pertinent
respects, damages, if any, for a breach of the non-competition covenant, as so
reformed, shall be deemed to accrue to the Company as and from the date of such
a breach only and so far as the damages for such breach related to an action
that accrued within the scope of the covenant as so reformed.
     B. Restrictions Are Reasonable. Employee has carefully read and considered
the provisions of this Section 6 and, having done so, agrees that the
restrictions set forth herein including, but not limited to, the time period of
restriction, the geographic areas of restriction, and the scope of the
restriction are fair and reasonable, are supported by sufficient and valid
consideration, and these restrictions do not impose any greater restraint than
is necessary to protect the goodwill and other legitimate business interests of
the Company. Employee acknowledges that these restrictions will not prevent
Employee from obtaining gainful employment in Employee’s occupation or field of
expertise or cause Employee undue hardship and that there are numerous other
employment and business opportunities available to Employee that are not
affected by these restrictions.
     C. Modification of Covenants. It is the desire and intent of each of the
parties that the provisions of this Section 6 shall be enforced to the fullest
extent permissible. Accordingly, if any particular portion of this Section 6
shall be adjudicated to be invalid or unenforceable, this Section 6 shall be
deemed amended (i) to reform the particular portion to provide for such maximum
restrictions as will be valid and enforceable or, if that is not possible, then
(ii) to delete therefrom only the portion thus adjudicated to be invalid or
unenforceable. This Section 6 shall inure to the benefit of any successor to the
Company.
     D. Notification. Employee agrees that the Company may notify any person or
entity employing Employee or evidencing an intention to employ Employee of the
existence and provisions of this Agreement.
7. Miscellaneous.
     A. Pending Litigation Indemnification. During Employee’s employment and
following Employee’s separation from employment, with respect to any lawsuits
currently pending or hereafter asserted against the Company that pertain to
(i) matters reasonably within the purview of Employee’s job responsibilities
while employed with the Company or (ii) matters for which Employee has
particular knowledge, Employee agrees to cooperate reasonably in the defense of
the litigation thereof, including signing affidavits and making himself
available for interviews, deposition preparation, deposition, and trial. If
Employee is requested to assist with litigation activities following Employee’s
separation from employment other than those litigation activities in which
Employee would be required to participate as a named party, the Company agrees
to pay all reasonable documented out-of-pocket costs up to a maximum of $1,000
per day incurred in connection with such activities and lost income incurred
during the period in which Employee assists with such litigation activities (not
to exceed the lesser of the amount of lost income or $10,000 in any one tax
year). Such out-of-pocket reimbursement payments shall be made as soon as
practicable after Employee provides documentation of such out-of-pocket costs
but no later than the end of the tax year following the tax year in which such
expenses were incurred. The amount of expenses reimbursed to Employee pursuant
to this Section 7.A. during

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Employee’s tax year shall not impact the amount of such expenses eligible for
reimbursement during any other tax year of Employee. Employee’s right to
reimbursement of such expenses shall not be subject to liquidation or exchange
for another benefit. The lost income reimbursement will be paid in a lump sum
within 60 days after Employee provides documentation of the same and such
payment will be subject to the six month delay applicable to specified employees
under section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”). Without the Company’s prior consent, Employee agrees not to comment
publicly on any such litigation or any of the issues in the litigation. Without
the Company’s prior consent, Employee also agrees not to discuss any such
litigation, or cooperate, with the Company’s opponent(s) in such litigation,
their attorneys, or their representatives. The Company acknowledges that
Employee has certain rights to indemnification as an officer of the Company as
set forth in the Company’s Restated Bylaws.
     B. Waiver. No waiver of any provision of this Agreement shall be deemed, or
shall constitute, a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a waiver of any continuing or succeeding breach of
such provision, a waiver of the provision itself, or a waiver of any right under
this Agreement. No waiver shall be binding unless executed in writing by the
party making the waiver.
     C. Limitation of Rights. Nothing in this Agreement, except as specifically
stated in this Agreement, is intended to confer any rights or remedies under or
by reason of this Agreement on any persons other than the parties to it and
their respective permitted successors and assigns and other legal
representatives.
     D. Remedies. Employee hereby agrees that a violation of the provisions of
Section 5, Section 6, or Section 7.A. would cause irreparable injury to the
Company for which it would have no adequate remedy at law. Accordingly, in the
event of any such violation, the Company shall be entitled to preliminary and
other injunctive relief without the necessity to post a bond or other security.
Any such injunctive relief shall be in addition to any other remedies to which
the Company may be entitled at law or in equity, or otherwise.
     E. Notice. Any consent, notice, demand, or other communication regarding
any payment required or permitted hereby must be in writing to be effective and
shall be deemed to have been received on the date delivered, if delivered in
person, or the date received, if delivered otherwise (including by U.S. mail,
overnight delivery or e-mail), addressed to the applicable party at the address
for such party set forth below or at such other address as such party may
designate by like notice:

The Company:

Zix Corporation
2711 North Haskell Avenue
Suite 2200, LB 36
Dallas, Texas 75204-2960
Attn: Chief Executive Officer

If to Employee, to the address on file in the Company’s records.

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     F. Entirety and Amendments. Together with Arbitration Agreement, the
Confidentiality and Invention Agreement, and the Code of Ethics and Code of
Conduct, as currently in effect or hereafter amended from time-to-time, this
Agreement embodies the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to the subject matter hereof. This Agreement is the separation pay
agreement referred to in that certain employment offer letter addressed to
Employee and dated February 3, 2010.
     G. Successors and Assigns. This Agreement will be binding upon and inure to
the benefit of the parties to this Agreement and any successors-in-interest to
the Company, but otherwise, neither this Agreement nor any rights or obligations
under this Agreement may be assigned by the Company or Employee.
     H. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas (excluding its
conflict of laws rules) and applicable federal law.
     I. Cumulative Remedies. No remedy in this Agreement conferred upon any
party is intended to be exclusive of any other benefit or remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
benefit or remedy given under this Agreement or now or hereafter existing at law
or in equity or by statute or otherwise. No single or partial exercise by any
party of any right, power, or remedy under this Agreement shall preclude any
other or further exercise thereof.
     J. Multiple Counterparts. This Agreement may be executed in a number of
identical counterparts, each of which constitute collectively, one agreement;
but in making proof of this Agreement, it shall not be necessary to produce or
account for more than one counterpart.
     K. Descriptive Headings. The headings, captions, and arrangements used in
this Agreement are for convenience only and shall not be deemed to limit,
amplify, or modify the terms of this Agreement, nor affect the meaning hereof.
     L. Arbitration. The Company and Employee acknowledge that they have
executed that certain mutual alternate dispute resolution agreement, dated
February 8, 2010 (the “Arbitration Agreement”). The Company and Employee agree
that, except as otherwise provided in the Arbitration Agreement, all claims,
demands, causes of action, disputes, controversies, or other matters in
question, whether sounding in contract, tort, or otherwise and whether provided
by statute or common law, arising under this Agreement or Employee’s employment
(or its termination) shall be governed by the Arbitration Agreement.
     M. 409A Compliance. This Agreement is intended to be exempt from and/or
comply with the requirements (and not otherwise be subject to the interest and
penalty taxes of) section 409A of the Code and the regulations and other
guidance issued thereunder, and shall be interpreted in a manner consistent with
that intent. Notwithstanding the foregoing, in the event there is a failure
under this Agreement to comply with section 409A of the Code, the Company shall
have the discretion to accelerate any payment hereunder of “nonqualified
deferred

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compensation” (within the meaning of section 409A of the Code), but only to the
extent of the amount required to be included in income as a result of such
failure.
     IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.

            ZIX CORPORATION
      By:   /s/ Richard D. Spurr         Richard D. Spurr        Chief Executive
Officer        EMPLOYEE
      /s/ James F. Brashear       James F. Brashear           

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