exv4w1



 






Exhibit
4.1




SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”) is made and entered into as of August 9,
2005 (the “Execution Date”), by and among Zix Corporation, a Texas corporation (the “Company”), and
each of the purchasers listed on Schedule A attached hereto (collectively, the “Purchasers”
and individually, a “Purchaser”).



RECITALS




     WHEREAS, the Company desires to sell to the Purchasers, and the Purchasers desire to purchase
from the Company, up to an aggregate of 10,503,862 units (each a “Unit”), each Unit consisting of
one share of common stock, par value $.01 per share, of the Company (“Common Stock”) and a five
year warrant (a “Warrant”) to purchase one-third of one share of Common Stock, on the terms and
conditions set forth in this Agreement; and



     WHEREAS, the Company and each Purchaser are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by Regulation D (“Regulation D”)
as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of
1933, as amended (the “Securities Act”).



     NOW, THEREFORE, in consideration of the foregoing, the mutual promises hereinafter set forth,
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:



     1. AGREEMENT TO PURCHASE AND SELL STOCK.



         (a) Company Authorization. The Company’s Board of Directors has authorized the
issuance and sale, pursuant to the terms and conditions of this Agreement, of up to 10,503,862
shares of Common Stock (the “Purchased Shares”) and up to 3,466,274 Warrants, substantially in the
form attached hereto as Exhibit A. Each Warrant shall be exercisable to purchase the
number of shares of Common Stock set forth thereon at a price of $3.04 per share of Common Stock
(the “Purchased Warrants” and together with the Purchased Shares, the “Purchased Securities”).
Subject to their terms and conditions, the Purchased Warrants shall be exercisable at any time and
from time to time from and after the six-month anniversary of the Closing Date through and
including August 9, 2010.



         (b) Agreement to Purchase and Sell Securities.



               (i) Subject to the terms and conditions of this Agreement, each Purchaser, severally and not
jointly, agrees to purchase, and the Company agrees to sell to each Purchaser, at the Closing (as
defined below), that number of Units (including the Firm Units and Excess Units, each as defined
below) set forth opposite such Purchaser’s name on Schedule A attached hereto. The
purchase price of each Unit shall be $2.50 (the “Per Unit Price”), except in the case of each Unit
purchased by a director or officer of the Company which shall be $2.99 (the “Insider Per Unit
Price”) and each shall be payable as hereafter set forth.



 









 





               (ii) Notwithstanding anything to the contrary in this Agreement, on the Closing Date, no more
than 6,302,318 Units representing 6,302,318 shares of Common Stock (the “Firm Shares”) and
associated Warrants (the “Firm Warrants”, and together with the Firm Shares, the “Firm Units”)
shall be issued to the Purchasers prior to the Company obtaining shareholder approval to issue to
the Purchasers the shares of Common Stock in excess of the Firm Units in accordance with the
requirements of NASDAQ Rule 4350(i) and Section 5(d) hereto (the “Shareholder Approval”). Prior to
obtaining the Shareholder Approval, the Units to be purchased by the Purchasers (including the
Warrants thereto) representing Purchased Shares in excess of the Firm Units (the “Excess Units”)
shall not be issued to the Purchasers and instead the proceeds in respect of such Excess Units (the
“Excess Funds”) shall be deposited into escrow, in accordance with the terms of an escrow
agreement, substantially in the form of Exhibit D hereto (the “Escrow Agreement”). The
Excess Funds shall accrue interest from and including the day following the Closing Date to and
excluding the date of release in accordance with the terms of the Escrow Agreement at a rate of
7.0% per annum (computed on the basis of a 365-day year). If the Company obtains the Shareholder
Approval prior to the Shareholder Approval Date (as defined below), the Excess Funds shall be
released to the Company in accordance with the Escrow Agreement, and the Excess Units shall be
issued to each of the Purchasers in the amounts set forth on Schedule A hereto, along with
such Purchaser’s pro rata share of accrued interest on the Excess Funds to such date, which shall
be payable in cash. If the Company does not obtain the Shareholder Approval prior to the
Shareholder Approval Date (as defined below), the Excess Funds shall be returned to each of the
Purchasers in accordance with the terms of the Escrow Agreement, along with such Purchaser’s pro
rata share of accrued interest on the Excess Funds to such date. If the Excess Funds accrue
earnings or interest in escrow at a rate less than the rate required by this Section
1(b)(ii), the Company shall promptly pay to the Purchasers any shortfall amount.



         (c) Use of Proceeds. The Company intends to use the net proceeds from the sale of the
Purchased Securities for working capital and general corporate purposes as determined by the
Company from time to time.



         (d) Obligations Several, Not Joint. The obligations of each Purchaser under this
Agreement are several and not joint with respect to the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. The decision of each of the Purchasers to purchase the Purchased
Securities pursuant to this Agreement has been made by such Purchaser independently of any other
Purchaser. Nothing contained herein, and no action taken by any Purchaser pursuant hereto, shall
be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Purchasers are in any way acting in concert
or as a group with respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to independently protect and enforce such Purchaser’s rights,
including, without limitation, the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any proceeding for such
purpose.



     2. CLOSING. The purchase and sale of the Purchased Securities shall take place at the
offices of Baker Botts L.L.P., 2001 Ross Avenue, Dallas, Texas 75201, at 2:00 p.m. Dallas, Texas
time, on August 9, 2005, or at such other time and place as the Company and Purchasers



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representing a majority of the Purchased Securities to be purchased, mutually agree upon
(which time and place are referred to in this Agreement as the “Closing”). At the Closing, against
delivery of full payment for the Purchased Securities sold hereunder by wire transfer of
immediately available funds in accordance with the Company’s instructions; the Company shall issue
and deliver to each Purchaser (i) one or more stock certificates registered in the name of each
Purchaser (or in such nominee name(s) as designated by such Purchaser in the Stock Certificate and
Warrant Questionnaire, attached hereto as Appendix I (the “Stock Certificate
Questionnaire”), representing the number of Firm Shares set forth opposite the appropriate
Purchaser’s name on Schedule A hereto, and bearing the legend set forth in Section
4(k)(i) herein and (ii) the number of Firm Warrants set forth opposite the appropriate
Purchaser’s name on Schedule A hereto, and bearing the legend set forth in Section
4(k)(ii) ; provided, however, that the Company may furnish to each Purchaser a facsimile copy
of the warrant representing the Firm Warrant and of the stock certificate(s) representing the Firm
Shares purchased by such Purchaser no later than the next Business Day following the Closing Date,
with the original warrant and original stock certificate(s) to be delivered to such Purchaser by
overnight courier no later than the third (3rd) Business Day following the Closing Date. Closing
documents, other than the warrants representing the Firm Warrants and the stock certificates
representing the Firm Shares, may be delivered by facsimile on the Closing Date, with original
signature pages subsequently sent by overnight courier.



     For purposes of this Agreement, “Closing Date” means the date of the Closing, and “Business
Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a
day on which banking institutions in the State of New York are authorized or required by law or
other governmental action to close.



     3. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE COMPANY. The Company
hereby represents and warrants to each Purchaser that, except as set forth in the SEC Documents (as
defined below) and in the Disclosure Letter attached hereto as Exhibit B (the “Disclosure
Letter”):



         (a) Organization Good Standing and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of Texas and has all
corporate power and authority required to (i) own, operate and occupy its properties and to carry
on its business as presently conducted and (ii) enter into this Agreement and the other agreements,
instruments and documents contemplated hereby, and to consummate the transactions contemplated
hereby and thereby. The Company is qualified to do business and is in good standing in each
jurisdiction in which the failure to so qualify would have a Material Adverse Effect. As used in
this Agreement, “Material Adverse Effect” means a material adverse effect on, or a material adverse
change in, the business, operations, financial condition, results of operations, assets or
liabilities of the Company and the Subsidiaries (as defined below), taken as a whole.



         (b) Capitalization. The capitalization of the Company is as follows:



               (i) The authorized capital stock of the Company consists of 175,000,000 shares of Common
Stock, $.01 par value per share, and 10,000,000 shares of preferred stock, par value $1.00 per
share (“Preferred Stock”).



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               (ii) As of June 30, 2005, the issued and outstanding capital stock of the Company consisted of
32,424,929 shares of Common Stock and no shares of Preferred Stock. The shares of issued and
outstanding capital stock of the Company have been duly authorized and validly issued, are fully
paid and nonassessable and have not been issued in violation of or are not otherwise subject to any
preemptive or other similar rights.



               (iii) As of June 30, 2005, the Company had 10,110,617 shares of Common Stock reserved for
issuance upon exercise of options granted under the Company’s stock option plans.



               (iv) As of June 30, 2005, the Company had outstanding options for 8,211,325 shares of Common
Stock.



               (v) As of June 30, 2005, the Company had 3,755,370 issued and outstanding warrants for the
purchase of shares of Common Stock.



         With the exception of the foregoing in this Section 3(b), there are no outstanding
subscriptions, options, warrants, convertible or exchangeable securities or other rights to
purchase shares of Common Stock or other securities of the Company, or rights that would trigger
any anti-dilution or similar adjustments to any securities of the Company, granted to or by the
Company, and there are no commitments, plans or arrangements to issue any shares of Common Stock or
any security convertible into or exchangeable for Common Stock.



         (c) Subsidiaries. Except for the Company’s subsidiaries listed in the SEC documents
(the “Subsidiaries”), the Company does not own any capital stock of, assets comprising the business
of, obligations of, or any other interest (including any equity or partnership interest) in, any
person or entity. The Company owns, directly or indirectly, all of the issued and outstanding
shares of stock in each of the Subsidiaries. Each of the Subsidiaries is duly organized and
validly existing in good standing under the laws of its respective state of incorporation. Each of
the Subsidiaries has full power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and is registered or qualified to do business and in
good standing in each jurisdiction in which it owns or leases property or transacts business and
where the failure to be so qualified would have a Material Adverse Effect.



         (d) Due Authorization. All corporate actions on the part of the Company necessary for
the authorization, execution, delivery and performance of all obligations of the Company under this
Agreement, including the authorization, issuance, reservation for issuance and delivery of all the
Purchased Securities being sold under this Agreement and the Common Stock issuable upon exercise of
the Purchased Warrants (the “Warrant Shares”), have been taken and no further consent or
authorization of the Company, the Company’s board of directors (the “Board of Directors”) or the
Company’s stockholders is required (other than the Shareholder Approval), and this Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except (i) as may be limited by (1) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or affecting the
enforcement of creditors’ rights generally and (2) the effect of rules of law governing the
availability of equitable remedies and (ii) as rights to indemnity or contribution may be limited under federal or state securities laws or by principles of public
policy thereunder.



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         (e) Valid Issuance of the Purchased Securities.



               (i) Purchased Shares. The Purchased Shares have been duly authorized and, when issued
and delivered to each Purchaser against payment therefor in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable and will be free and clear from
all liens, claims and encumbrances with respect to the issuance of such Purchased Shares and will
not be subject to any pre-emptive rights or similar rights.



               (ii) Purchased Warrants. The Purchased Warrants to be issued pursuant to this
Agreement have been duly authorized and, when issued and delivered to each Purchaser against
payment therefor in accordance with the terms of this Agreement, will be validly issued and will be
free and clear from all liens, claims and encumbrances with respect to the issuance of such
Purchased Warrants and will not be subject to any pre-emptive rights or similar rights.



               (iii) Warrant Shares. The issuance of the Warrant Shares issued or issuable from time
to time upon the exercise of the Purchased Warrants have been, and at all times prior to such
exercise, will be, duly authorized and duly reserved for issuance upon such exercise and payment of
the exercise price of the Purchased Warrants and, when issued and delivered to each Purchaser upon
exercise against payment therefor in accordance with the terms of the Warrant, will be validly
issued, fully paid and non-assessable and will be free and clear from all liens, claims and
encumbrances with respect to the issuance of such Warrant Shares and will not be subject to any
pre-emptive rights or similar rights.



         (f) Compliance with Securities Laws. Subject to the accuracy of the representations
made by the Purchasers in Section 4 hereof, the Purchased Securities will be issued and
sold to the Purchasers in compliance with (i) the exemption in Rule 506 of Regulation D promulgated
under the Securities Act from the registration and prospectus delivery requirements of the
Securities Act and (ii) applicable exemptions from the registration and qualification requirements
of all applicable securities laws of the states of the United States.



         (g) Governmental Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, or notice to, any federal,
state or local governmental authority or self regulatory agency on the part of the Company is
required in connection with the issuance and sale of the Purchased Securities to the Purchasers by
the Company or the consummation of the other transactions contemplated by this Agreement, except
(i) such filings as have been made prior to the date hereof, (ii) the filings under applicable
securities laws required to comply with the Company’s registration obligations under Section
5(a) of this Agreement and (iii) such additional post-Closing filings as may be required to
comply with applicable state and federal securities laws, including, but not limited to, the filing
of a Form D relating to the sale of the Purchased Securities pursuant to Regulation D.



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         (h) Non-Contravention. Assuming the accuracy of the representations and warranties
made by the Purchasers in Section 4 hereof, the execution, delivery and performance of this
Agreement by the Company, and the consummation by the Company of the transactions contemplated
hereby (including the issuance of the Purchased Securities and the Warrant Shares), do not: (i)
contravene or conflict with the articles of incorporation, as amended (the “Articles of
Incorporation”), or bylaws, as amended (the “Bylaws”), of the Company or of any Subsidiary; (ii)
constitute a violation of any provision of any federal, state, local or foreign law, rule,
regulation, order or decree applicable to the Company or any Subsidiary; or (iii) constitute a
default (with or without the passage of time or giving of notice or both) or require any consent
under, give rise to any right of termination, cancellation or acceleration of, or result in the
creation or imposition of any lien, claim or encumbrance on any asset of the Company or the
Subsidiaries under, any material contract to which the Company or the Subsidiaries is a party or
any permit, license or similar right relating to the Company or the Subsidiaries or by which the
Company or the Subsidiaries may be bound or affected, except in the case of clauses (ii) and (iii),
for such violations, breaches or defaults as would not be reasonably likely to have a Material
Adverse Effect.



         (i) Litigation. Except as set forth in the SEC Documents, there is no action, suit,
proceeding, claim, arbitration or investigation (“Action”) pending or, to the Company’s knowledge,
threatened: (i) against the Company or any Subsidiary, their properties or assets, or any officer,
director or employee of the Company or any Subsidiary in connection with such officer’s, director’s
or employee’s relationship with, or actions taken on behalf of, the Company or any Subsidiary, that
would be reasonably likely to have a Material Adverse Effect, or (ii) that seeks to prevent,
enjoin, alter, challenge or delay the transactions contemplated by this Agreement. The Company is
not a party to, nor subject to the provisions of, any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality that would reasonably be expected to prevent,
enjoin, alter, challenge or delay the consummation of the transactions contemplated by this
Agreement or would be reasonably likely to have a Material Adverse Effect. The SEC has not issued
any stop order or other order suspending the effectiveness of any registration statement filed by
the Company under the Securities Act or the Securities Exchange Act of 1934, as amended ( the
“Exchange Act”).



         (j) Compliance with Law and Charter Documents. The Company is not in violation or
default of any provisions of the Articles of Incorporation or the Bylaws. The Company is currently
in compliance with all applicable statutes, laws, rules, regulations and orders of the United
States of America and all states thereof, foreign countries and other governmental bodies and
agencies having jurisdiction over the Company’s business or properties, except for any instance of
non-compliance that has not had, and would not reasonably be expected to have, a Material Adverse
Effect. Neither the Company nor any Subsidiary is in default (and there exists no condition which,
with or without the passage of time or giving of notice or both, would constitute a default) in any
material respect in the performance of any bond, debenture, note or any other evidence of
indebtedness in any indenture, mortgage, deed of trust or any other material agreement or
instrument to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or by which the properties of the Company or any Subsidiary is bound, which
default would be reasonably likely to have a Material Adverse Effect or which would be reasonably
likely to have a Material Adverse Effect on the transactions contemplated by this Agreement.



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         (k) Material Non-Public Information. The Company has not provided, and will not
provide, to the Purchasers any material non-public information other than information related to
the transactions contemplated by this Agreement, all of which information shall be disclosed by the
Company pursuant to Section 9(m) hereof.



         (l) SEC Documents.



               (1) Reports. The Company has filed in a timely manner all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities and Exchange
Commission (the “SEC”) pursuant to the reporting requirements of the Exchange Act and the rules and
regulations promulgated thereunder. The Company has made available to the Purchasers prior to the
date hereof copies of its Annual Report on Form 10-K for the fiscal year ended December 31, 2004,
as amended (the “Form 10-K”), its quarterly report on Form 10-Q for the fiscal quarter ended March
31, 2005 (the “Form 10-Q”), and any Current Report on Form 8-K for events occurring since December
31, 2004 (“Form 8-Ks”) filed or furnished by the Company with the SEC (the Form 10-K, the Form 10-Q
and the Form 8-Ks are collectively referred to herein as the “SEC Documents”). Each of the SEC
Documents, as of the respective dates thereof (or, if amended or superseded by a filing or
submission, as the case may be, prior to the Closing Date, then on the date of such filing or
submission, as the case may be), (1) did not contain any untrue statement of a material fact nor
omit to state a material fact necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading and (2) complied in all material
respects with the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Document.



               (2) Sarbanes-Oxley. The Chief Executive Officer and the Chief Financial Officer of
the Company have signed, and the Company has furnished to the SEC, all certifications required by
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Such certifications contain no
qualifications or exceptions to the matters certified therein (other than such qualifications or
exceptions that are permitted under the Exchange Act and the rules promulgated thereunder) and have
not been modified or withdrawn; and neither the Company nor any of its officers has received notice
from any governmental entity questioning or challenging the accuracy, completeness, form or manner
of filing or submission of such certifications. Without limiting the foregoing, the Company is in
compliance with any applicable requirements of the Sarbanes-Oxley Act of 2002 and the rules and
regulations promulgated thereunder, as amended, that are currently in effect.



               (3) Financial Statements. The consolidated financial statements of the Company
included in the SEC Documents (1) comply as to form in all material respects with the rules and
regulations of the SEC with respect thereto as were in effect at the time of filing and (2) present
fairly, in all material respects, in accordance with United States generally accepted accounting
principles (“GAAP”), consistently applied, the consolidated financial position of the Company as of
the dates indicated therein, and the consolidated results of its operations and cash flows for the
periods therein specified, subject, in the case of unaudited consolidated financial statements for
interim periods, to normal, immaterial year-end audit adjustments.



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         (m) Absence of Certain Changes Since the Balance Sheet Date. Except as disclosed in
the SEC Documents, since the filing of the Company’s most recent Form 10-K with the SEC, the
business and operations of the Company and the Subsidiaries have been conducted in the ordinary
course consistent with past practice, and there has not been:



               (i) any declaration, setting aside or payment of any dividend or other distribution of the
assets of the Company with respect to any shares of capital stock of the Company or any repurchase,
redemption or other acquisition by the Company or any Subsidiary of the Company of any outstanding
shares of the Company’s capital stock;



               (ii) any damage, destruction or loss to the Company’s or any Subsidiary’s business or assets,
whether or not covered by insurance, except for such occurrences, individually and collectively,
that have not had, and would not reasonably be expected to have, a Material Adverse Effect;



               (iii) any waiver by the Company or any Subsidiary of a valuable right or of a material debt
owed to it, except for such waivers, individually and collectively, that have not had, and would
not reasonably be expected to have, a Material Adverse Effect;



               (iv) any material change or amendment to, or any waiver of any material right under a material
contract or arrangement by which the Company, any Subsidiary or any of their assets or properties
is bound or subject;



               (v) any transaction between the Company or any Subsidiary, on the one hand, and any of its
officers or directors, on the other hand, that would be required to be disclosed pursuant to Item
404(a), (b) or (c) of Regulation S-K of the SEC;



               (vi) any change by the Company in its accounting principles, methods or practices or in the
manner in which it keeps its accounting books and records, except any such change required by a
change in GAAP or by the SEC; or



               (vii) any other event or condition, either individually or collectively, that has had, or
would be reasonably likely to have, a Material Adverse Effect.



         (n) Intellectual Property. The Company and its Subsidiaries own or possess sufficient
rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names, licenses, copyrights or other information (collectively, “Intellectual
Property”) which are used to conduct their businesses as currently conducted, except where the
failure to own or possess such sufficient rights would not reasonably be expected to result, either
individually or in the aggregate, in a Material Adverse Effect. Neither the Company nor any
Subsidiary has received any written notice of, and has no actual knowledge of, any infringement of
or conflict with asserted rights of others with respect to any Intellectual Property which, either
individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would reasonably be expected to have a Material Adverse Effect, and to the Company’s and each of
the Subsidiaries’ knowledge, none of the patent rights owned or licensed by the Company or the
Subsidiaries are unenforceable or invalid.



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         (o) Registration Rights. Except as provided in Section 5 herein, effective
upon the Closing, the Company is not currently subject to any agreement providing any person or
entity any rights (including piggyback registration rights) to have any securities of the Company
registered with the SEC or registered or qualified with any other governmental authority that have
not previously been satisfied.



         (p) Title to Property and Assets. The properties and assets of the Company and the
Subsidiaries are owned by the Company or the Subsidiaries free and clear of all mortgages, deeds of
trust, liens, charges, encumbrances and security interests, except for (i) statutory liens for the
payment of current taxes that are not yet delinquent and (ii) liens, encumbrances and security
interests that arise in the ordinary course of business and do not in any material respect affect
the business of the Company and the Subsidiaries as currently conducted. With respect to the
property and assets it leases, each of the Company and the Subsidiaries is in compliance with such
leases in all material respects.



         (q) Taxes. The Company and the Subsidiaries have filed or have valid extensions of
the time to file all necessary federal, state, and foreign income and franchise tax returns due
prior to the date hereof or have requested extensions thereof (except in any case in which the
failure to so file would not reasonably be expected to have a Material Adverse Effect) and has paid
or accrued all taxes due.



         (r) Internal Accounting Controls. The Company and each of the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in conformity
with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.



         (s) Market. The Company has not taken and will not take, directly or indirectly, any
action designed to, or that might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock of the Company to facilitate the sale or resale of
the Purchased Securities.



         (t) Investment Company. The Company is not an “investment company” within the meaning
of such term under the Investment Company Act of 1940, as amended.



         (u) Application of Anti-Takeover Provisions. There is no control share acquisition,
business combination, poison pill or other similar anti-takeover provision under the Company’s
Articles of Incorporation (or similar charter documents) that would become applicable to the
Purchasers as a result of the issuance of the Company Shares and Warrant Shares.



         (v) General Solicitation. Neither the Company nor any other Person (as defined below)
authorized by the Company to act on its behalf has engaged in a general solicitation or general
advertising (within the meaning of Regulation D) of investors with respect



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to offers or sales of the Purchased Securities. For purposes of this Agreement, “Person”
means an individual or corporation, trust, incorporated or unincorporated association, joint
venture, limited liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.




         (w) Registration Statement Matters. The Company currently meets the eligibility
requirements for use of a Form S-3 Registration Statement for the resale of the Registrable Shares
(as defined below) by the Purchasers. Assuming the completion and timely delivery of the
Registration Statement/Suitability Questionnaire, attached hereto as Appendix II (the
“Registration Statement Questionnaire”), by each Purchaser to the Company, the Company is not aware
of any facts or circumstances that would prohibit or delay the preparation and filing of a
registration statement with respect to the Registrable Shares.



         (x) No Integrated Offering. Neither the Company, nor any Affiliate (as hereafter
defined) of the Company, nor any person acting on its behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Purchased Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act, any applicable state securities laws or any
applicable stockholder approval provisions, nor will the Company take any action or steps that
would cause the offering of the Purchased Securities to be integrated with other offerings.



         For purposes of this Agreement, an “Affiliate” of any specified Person means any other Person
directly or indirectly controlling, controlled by or under direct or indirect common control with
such specified Person. For purposes of this definition, “control” means the power to direct the
management and policies of such person or firm, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.



         (y) Trading and Registration Matters. The Common Stock of the Company is eligible for
trading on The NASDAQ National Market under the ticker symbol “ZIXI”. The Company has taken no
action designed to terminate, or likely to have the effect of terminating, the listing of the
Common Stock on the NASDAQ National Market.



     4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE PURCHASERS. Each
Purchaser, severally and not jointly, hereby represents and warrants to the Company, and agrees
that:



         (a) Organization. Such Purchaser has all corporate, limited liability company,
partnership, trust or individual, as the case may be, power and authority required to enter into
this Agreement and the other agreements, instruments and documents contemplated hereby, and to
consummate the transactions contemplated hereby and thereby.



         (b) Due Authorization. All corporate, limited liability company, partnership, trust
or individual, as the case may be, action on the part of such Purchaser necessary for the
authorization, execution, delivery of and the performance of all obligations of such Purchaser
under this Agreement have been taken and no further consent or authorization of such Purchaser is
necessary, and this Agreement constitutes such Purchaser’s legal, valid and binding obligation,



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enforceable in accordance with its terms, except (i) as may be limited by (1) applicable
bankruptcy, insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally and (2) the effect of rules of law
governing the availability of equitable remedies and (ii) as rights to indemnity or contribution
may be limited under federal or state securities laws or by principles of public policy thereunder.




         (c) Non-Contravention. The execution, delivery and performance of this Agreement by
such Purchaser, and the consummation by such Purchaser of the transactions contemplated hereby, do
not: (i) contravene or conflict with the organizational documents of such Purchaser; or (ii)
constitute a violation of any provision of any federal, state, local or foreign law, rule,
regulation, order or decree applicable to such Purchaser, except in the case of clause (ii), for
such violations, breaches or defaults as would not be reasonably likely to have a material adverse
effect on such Purchaser.



         (d) Litigation. There is no Action pending to which such Purchaser is a party that is
reasonably likely to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement.



         (e) Purchase for Own Account. The Purchased Securities are being acquired for
investment for such Purchaser’s own account, not as a nominee or agent, in the ordinary course of
business, and not with a view to the public resale or distribution thereof within the meaning of
the Securities Act. Such Purchaser also represents that it has not been formed for the specific
purpose of acquiring the Purchased Securities. Such Purchaser does not have any agreement or
understanding, direct or indirect, with any other Person to sell or otherwise distribute the
Purchased Securities. Notwithstanding the foregoing, the parties hereto acknowledge such
Purchaser’s right at all times to sell or otherwise dispose of all or any part of such securities
in compliance with applicable federal and state securities laws and as otherwise contemplated by
this Agreement.



         (f) Investment Experience. Such Purchaser understands that the purchase of the
Purchased Securities involves substantial risk. Such Purchaser has experience as an investor in
securities of companies and acknowledges that it can bear the economic risk of its investment in
the Purchased Securities and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of this investment in the Purchased
Securities and protecting its own interests in connection with this investment.



         (g) Accredited Purchaser Status. Such Purchaser is an “accredited investor” within
the meaning of Regulation D promulgated under the Securities Act.



         (h) Reliance Upon Purchaser’s Representations. Such Purchaser understands that the
sale of the Purchased Securities to it will not be registered under the Securities Act on the
ground that such issuance and sale will be exempt from registration under the Securities Act, and
that the Company’s reliance on such exemption is based on each Purchaser’s representations set
forth herein.



         (i) Receipt of Information. Such Purchaser has (i) had access to the Company’s SEC
Documents and (ii) has had an opportunity to ask questions and receive answers



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from the Company regarding the terms and conditions of the sale of the Purchased Securities
and the business, properties, prospects and financial condition of the Company and to obtain any
additional information requested and has received and considered all information it deems relevant
to make an informed decision to purchase the Purchased Securities.




         (j) Restricted Securities and Restrictions on Transfer.



               (i) Such Purchaser understands that the Purchased Securities and the Warrant Shares have not
been registered under the Securities Act and will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Purchased Securities or the Warrant Shares (except as
permitted in Section 4(k) below) unless (A) pursuant to an effective registration statement
under the Securities Act, (B) such Purchaser provides a reasonably acceptable legal opinion to the
Company, to the effect that a sale, assignment, pledge, hypothecation or other transfer of the
Purchased Securities or the Warrant Shares, as the case may be, may be made without registration
under the Securities Act and the transferee agrees to be bound by the terms and conditions of this
Agreement, (C) such Purchaser provides the Company a “no action” letter from the SEC to the effect
that the transfer of the Purchased Securities or the Warrant Shares, as the case may be, without
registration will not result in a recommendation by the Staff of the SEC that enforcement action by
taken with respect thereto, (D) such Purchaser provides the Company with reasonable assurances (in
the form of seller and broker representation letters) that the Purchased Securities or the Warrant
Shares, as the case may be, can be sold pursuant to Rule 144 promulgated under the Securities Act
(“Rule 144”), (E) such Purchaser provides the Company with reasonable assurances (in the form of
seller representation letters) that the Purchased Securities or the Warrant Shares, as the case may
be, can be sold pursuant to Rule 144(k) promulgated under the Securities Act following the
applicable holding period or (F) pursuant to any other exception contained in the Securities Act
provided that the Purchaser provides a reasonably acceptable legal opinion to the Company.
Notwithstanding anything to the contrary contained in this Agreement, including but not limited to
in Section 5(c)(i) below, such Purchaser may transfer the Purchased Securities or the
Warrant Shares to its Affiliates provided that (X) such Purchaser provides the Company with a
reasonably acceptable legal opinion, (Y) such Affiliate is an “accredited investor” within the
meaning of Regulation D and (Z) each such Affiliate agrees to be bound by the terms and conditions
of this Agreement, and in particular, confirms to the Company that all of the representations set
forth in Section 4 of this Agreement are true and correct as to such Affiliate as of the
date of the transfer to such Affiliate.



               (ii) Prior to any proposed transfer pursuant to clause (B), (C), (D), (E) or (F) in
Section 4(j)(i) above, such Purchaser shall give written notice to the Company of such
Purchaser’s intention to effect such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall be accompanied by the
applicable legal opinion, “no action” letter or seller and broker representation letters.



               (iii) Notwithstanding the foregoing provisions of this Section 4(j), no registration
statement, legal opinion or “no action” letter shall be necessary for a transfer of the Purchased
Securities or the Warrant Shares (A) by a Purchaser that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date of this Agreement,
(B) by a Purchaser that is a limited liability company to a member of such limited



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liability company, (C) by a Purchaser that is a partnership or limited liability company to
the estate of any partner, retired partner, or member thereof or (D) by any partner or member of a
Purchaser that is a partnership or limited liability company by gift, will or intestate succession
to such partner or member’s spouse or to the siblings, lineal descendants, ancestors of such
partner or member or his or her spouse.




         (k) Legends.



               (i) Such Purchaser agrees that, to the extent necessary, the certificates for the Purchased
Shares and the Warrant Shares shall bear the following legend:




“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SECURITIES IS
EFFECTIVE UNDER THE SECURITIES ACT OR (II) THE TRANSACTION IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND, IF THE COMPANY REQUESTS, AN
OPINION SATISFACTORY TO THE COMPANY TO SUCH EFFECT HAS BEEN RENDERED BY
COUNSEL.”



     Certificates evidencing the Purchased Shares and the Warrant Shares shall not contain any
legend, (i) while a registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, (ii) following any sale of such
Purchased Shares or the Warrant Shares pursuant to Rule 144, (iii) if such Purchased Shares or the
Warrant Shares are eligible for sale under Rule 144(k) or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the SEC). The Company shall cause its counsel to issue a
legal opinion to the Company’s transfer agent promptly after the date on which the Registration
Statement is declared effective (the “Effective Date”) if such legal opinion is required by the
Company’s transfer agent to effect the removal of the legend hereunder. If all or any portion of a
Purchased Warrant is exercised at a time when there is an effective registration statement to cover
the resale of the Warrant Shares, such Warrant Shares shall be issued free of all legends. The
Company agrees that following the Effective Date or at such time as such legend is no longer
required under this Section 4(k), it will, no later than five (5) Business Days following
the delivery by a Purchaser to the Company or to the Company’s transfer agent of a certificate
representing Purchased Shares or the Warrant Shares, as the case may be, issued with a restrictive
legend, deliver or cause to be delivered to such Purchaser a certificate representing such
Purchased Shares or the Warrant Shares, as the case may be, that is free from all restrictive and
other legends. The Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set forth in Section
4(j) or this Section 4(k).



     Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal
of the restrictive legend from certificates representing the Purchased Shares or the



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Warrant Shares as set forth in this Section 4(k) is predicated upon such Purchaser’s
covenant that such Purchaser only will sell any Purchased Shares or Warrant Shares pursuant to
either the registration requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.



     In addition, such Purchaser agrees that the Company may place stop transfer orders with its
transfer agent with respect to such certificates in order to implement the restrictions on transfer
set forth in this Agreement. The appropriate portion of the legend and the stop transfer orders
will be removed promptly upon delivery to the Company of such satisfactory evidence as reasonably
may be required by the Company that such legend or stop transfer orders are not required to ensure
compliance with the Securities Act.



               (ii) Such Purchaser agrees that the Purchased Warrants shall bear the following legend:




“THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SECURITIES IS
EFFECTIVE UNDER THE SECURITIES ACT OR (II) THE TRANSACTION IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND, IF THE COMPANY REQUESTS, AN
OPINION SATISFACTORY TO THE COMPANY TO SUCH EFFECT HAS BEEN RENDERED BY
COUNSEL.”



         (l) Questionnaires. Such Purchaser has completed or caused to be completed the Stock
Certificate Questionnaire and the Registration Statement Questionnaire for use in preparation of
the Registration Statement (as defined in Section 5(a) below), and the answers to such
questionnaires are true and correct as of the date of this Agreement; provided, that such Purchaser
shall be entitled to update such information by providing written notice thereof to the Company
before the effective date of the Registration Statement.



         (m) Restrictions on Short Sales. Neither such Purchaser nor any Affiliate of such
Purchaser which (i) had knowledge of the transactions contemplated hereby, (ii) has or shares
discretion relating to such Purchaser’s investments or trading or information concerning such
Purchaser’s investments, including in respect of the Purchased Securities, or (iii) is subject to
such Purchaser’s review or input concerning such Affiliate’s investments or trading, has or will,
directly or indirectly, during the period beginning on the date on which C.E. Unterberg, Towbin,
financial advisor to the Company, first contacted such Purchaser regarding the transactions
contemplated by this Agreement until the time of the filing of the Current Report of Form 8-K
required by Section 9(m), engage in (1) any “short sales” (as such term is defined in Rule
3b-3 promulgated under the Exchange Act) of the Common Stock, including, without limitation, the
maintaining of any short position with respect to, establishing or maintaining a “put equivalent
position” (within the meaning of Rule 16a-1(h) under the Exchange Act) with respect to, entering
into any swap, derivative transaction or other arrangement (whether any such



-14-









 





transaction is to be settled by delivery of Common Stock, other securities, cash or other
consideration) that transfers to another, in whole or in part, any economic consequences or
ownership, or otherwise dispose of, any of the Purchased Securities or the Warrant Shares by such
Purchaser or (2) any hedging transaction which establishes a net short position with respect to the
Purchased Securities (clauses (1) and (2) together, a “Short Sale”); except for (A) Short Sales by
such Purchaser or Affiliate of such Purchaser which was, prior to the date on which such Purchaser
was first contacted by C.E. Unterberg, Towbin regarding the transactions contemplated by this
Agreement, a market maker for the Common Stock, provided that such Short Sales are in the ordinary
course of business of such Purchaser or Affiliate of such Purchaser and are in compliance with the
Securities Act, the rules and regulations of the Securities Act and such other securities laws as
may be applicable, (B) Short Sales by such Purchaser or an Affiliate of such Purchaser which by
virtue of the procedures of such Purchaser are made without knowledge of the transactions
contemplated by this Agreement or (C) Short Sales by the Purchaser or an Affiliate of such
Purchaser to the extent that such Purchaser or Affiliate of such Purchaser is acting in the
capacity of a broker-dealer executing unsolicited third-party transactions.




         (n) Independent Investment. Such Purchaser has not agreed to act with any other
Purchaser for the purpose of acquiring, holding or disposing of any of the Purchased Securities or
the Warrant Shares for purposes of Section 13(d) of the Exchange Act, and such Purchaser is acting
independently with respect to its investment in the Purchased Securities.



         (o) Confidentiality. Such Purchaser agrees to use any information it receives in the
course of and in connection with the transactions contemplated under this Agreement for the sole
purpose of evaluating a possible investment in the Purchased Securities and such Purchaser hereby
acknowledges that it is prohibited from reproducing or distributing any such information, this
Agreement, or any other offering materials provided by the Company or any of its Affiliates in
connection with such Purchaser’s consideration of its investment in the Company, in whole or in
part, or divulging or discussing any of their contents except to its advisors and representatives
for the purpose of evaluating such investment. The foregoing agreements shall not apply to any
information that (i) is or becomes publicly available through no fault of such Purchaser, (ii) was
already known to such Purchaser prior to its disclosure by the Company or any of its Affiliates to
the Purchaser, as evidenced by documentation or other evidence reasonably satisfactory to the
Company, (iii) is or becomes available to such Purchaser on a non-confidential basis from a source
other than the Company or any of its Affiliates (so long as such Purchaser is not aware such
disclosure is in breach of a confidentiality obligation to the Company), (iv) is independently
developed by such Purchaser’s personnel without access to or use of the confidential information
received from the Company or any of its Affiliates, as evidenced by documentation or other evidence
reasonably satisfactory to the Company or (v) is legally required to be disclosed by such Purchaser
under operation of law or judicial or other governmental order; provided, however, that if the
Purchaser is requested or ordered to disclose any such information pursuant to any court or other
governmental order or any other applicable legal procedure, it shall provide the Company with
reasonably prompt notice of any such request or order to enable the Company to seek an appropriate
protective order and shall provide the Company with reasonable assistance in obtaining such
protective order at the Company’s sole expense.



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     5. FORM D FILING; REGISTRATION; COMPLIANCE WITH THE SECURITIES ACT; NO NASDAQ
REQUIREMENTS.



         (a) Form D Filing; Registration of the Purchased Securities and Warrant Shares. The
Company hereby agrees that it shall:



               (i) file in a timely manner a Form D relating to the sale of the Purchased Securities under
this Agreement, pursuant to Regulation D;



               (ii) prepare and file with the SEC as soon as practicable and in no event later than thirty
(30) days following the Closing Date the (“Required Filing Date”), a registration statement on Form
S-3 or such other form that is available to the Company under the Securities Act (the “Registration
Statement”), to enable the resale of the Purchased Shares and the Warrant Shares (together with any
shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange
for, or in replacement of, the Purchased Shares or the Warrant Shares, the “Registrable Shares”) by
the Purchasers from time to time. The Company shall use its commercially reasonable efforts to
cause the Registration Statement (x) to be declared effective as promptly as possible after filing,
but in any event, no later than the 120th day following the Closing Date (the “Required Effective
Date”), and (y) to remain continuously effective until the earlier of (1) the second anniversary of
the effective date of the Registration Statement, (2) the date on which all Registrable Shares
purchased by the Purchasers pursuant to this Agreement have been sold thereunder or (3) the date on
which the Registrable Shares become eligible for resale pursuant to Rule 144(k) promulgated under
the Securities Act (the “Registration Period”); provided, however, that if any Purchaser is an
“affiliate” of the Company (as defined in Rule 144(a)(1) of the Securities Act) on the second
anniversary of the effective date of the Registration Statement, the applicable time period for
purposes of clause (1) above shall be the third anniversary of the effective date of the
Registration Statement. If the Company receives notification from the SEC that the Registration
Statement will receive no action or review from the SEC, then the Company will use its commercially
reasonable efforts to cause the Registration Statement to become effective within five (5) Business
Days after such SEC notification;



               (iii) prepare and file with the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statement and the Prospectus (as defined below) used in connection
therewith as may be necessary to keep the Registration Statement effective at all times until the
end of the Registration Period;



               (iv) furnish to the Purchasers, with respect to the Registrable Shares registered under the
Registration Statement, such reasonable number of copies of any prospectus in conformity with the
requirements of the Securities Act and such other documents as the Purchasers may reasonably
request in writing, in order to facilitate the public sale or other disposition of all or any of
the Registrable Shares by the Purchasers;



               (v) use its commercially reasonable efforts to file documents required of the Company for
normal blue sky clearance in states specified in writing by the Purchasers; provided, however, that
the Company shall not be required to qualify to do business or consent to service of process in any
jurisdiction in which it is not now so qualified or has not so consented;



-16-









 





               (vi) promptly notify the Purchasers in writing of the effectiveness of the Registration
Statement on the same day the Registration Statement has been declared effective;



               (vii) promptly notify the Purchasers in writing of the existence of any fact or the happening
of any event, during the Registration Period (but not as to the substance of any such fact or
event), that makes any statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in the Registration Statement or
the Prospectus in order to make such statements not misleading; provided, however, that no notice
by the Company shall be required pursuant to this subsection (vii) in the event that the Company
either contemporaneously files a prospectus supplement to update the Prospectus or, if applicable,
a Current Report on Form 8-K or other appropriate Exchange Act report that is incorporated by
reference into the Registration Statement, which, in either case, contains the requisite
information with respect to such material event that results in such Registration Statement no
longer containing any such untrue or misleading statements;



               (viii) furnish to each Purchaser upon written request, from the date of this Agreement until
the end of the Registration Period, one copy of its periodic reports filed with the SEC pursuant to
the Exchange Act and the rules and regulations promulgated thereunder; and



               (ix) bear all expenses in connection with the procedures described in paragraphs (i) through
(viii) of this Section 5(a) and the registration of the Registrable Shares pursuant to the
Registration Statement, other than fees and expenses, if any, of legal counsel or other advisers to
the Purchasers or underwriting discounts, brokerage fees and commissions incurred by the
Purchasers, if any.



     It shall be a condition precedent to the obligations of the Company to take any action
pursuant to this Section 5(a) with respect to Registrable Shares held by a Purchaser that
such Purchaser shall timely furnish to the Company a completed Registration Statement Questionnaire
on or before the Closing Date and such other written information regarding such Purchaser, the
Registrable Shares to be sold by such Purchaser and the intended method of disposition of the
Registrable Shares as the Company may deem necessary or advisable to effect the registration of the
Registrable Shares. The Purchasers shall update such information as and when necessary by written
notice to the Company.



         (b) Liquidated Damages.



               (i) Delay in Filing or Effectiveness of Registration Statement. In the event that the
Registration Statement is not (A) filed by the Required Filing Date or (B) declared effective by
the Required Effective Date, the Company shall pay to each Purchaser (except for any Purchaser
whose failure to provide information as required hereunder causes a delay in filing or obtaining
effectiveness) liquidated damages (in addition to the rights and remedies available to each
Purchaser under applicable law and this Agreement), at a rate equal to one percent (1%) per month
(pro rata on a 30-day basis) of the total purchase price of the Purchased Securities purchased by
such Purchaser pursuant to this Agreement for the period from and including the





-17-










 








first day following the Required Filing Date or Required Effective Date, as the case
may be, until, but excluding, the actual filing date or the date the SEC declares the Registration
Statement effective, as the case may be. Such liquidated damages shall be payable in cash within
ten (10) days of the end of each one (1) month anniversary of the Required Filing Date or Required
Effective Date, as the case may be.




               (ii) Lapse in Effectiveness of Registration Statement. In the event that the
Registration Statement is filed and declared effective but, during the Registration Period, the
Registration Statement ceases to be effective or useable or the prospectus included in the
Registration Statement (the “Prospectus”, as amended or supplemented by any prospectus supplement
and by all other amendments thereto and all material incorporated by reference in such Prospectus)
ceases to be usable, in either case, in connection with resales of Registrable Shares, without such
lapse being cured within fifteen (15) Business Days (the “Cure Period”) by a post-effective
amendment to the Registration Statement, a supplement to the Prospectus or a report filed with the
SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such lapse, then
the Company shall pay to each Purchaser liquidated damages (in addition to the rights and remedies
available to each Purchaser under applicable law and this Agreement), for the period from and
including the first day following the expiration of the Cure Period until, but excluding, the
earlier of (1) the date on which such failure is cured and (2) the date on which the Registration
Period expires, at a rate equal to one percent (1%) per month (pro rata on a 30-day basis) of the
total purchase price of the Purchased Securities purchased and still held by such Purchaser
pursuant to this Agreement. Such liquidated damages shall be payable in cash within ten (10) days
of the end of each one (1) month anniversary of the expiration of the Cure Period.



         (c) Transfer of Registrable Shares After Registration; Suspension.



               (i) The Purchasers agree that they will not offer to sell or make any sale, assignment,
pledge, hypothecation or other transfer with respect to the Registrable Shares that would
constitute a sale within the meaning of the Securities Act except pursuant to either (1) the
Registration Statement in the manner described in the “Plan of Distribution” therein, (2) Rule 144
of the Securities Act or (3) any other exemption from registration under the Securities Act, and
that they will promptly notify the Company of any changes in the information set forth in the
Registration Statement after it is prepared regarding the Purchaser or its plan of distribution to
the extent required by applicable law.



               (ii) In addition to any suspension rights under paragraph (iii) below, upon the happening of
any pending corporate development, public filing with the SEC or similar event that, in the good
faith judgment of the Board of Directors, renders it advisable to suspend the use of the Prospectus
or upon the reasonable request by an underwriter in connection with an underwritten public offering
of the Company’s securities, the Company may suspend use of the Prospectus on written notice to
each Purchaser (which notice will not disclose the content of any material non-public information
and will indicate the date of the beginning and end of the intended period of suspension, if
known), in which case each Purchaser shall discontinue any disposition of Registrable Shares
covered by the Registration Statement or Prospectus until copies of a supplemented or amended
Prospectus are distributed to the Purchasers or until the Purchasers are advised in writing by the
Company that sales of Registrable Shares under the applicable Prospectus may be resumed and have
received copies of any additional or



-18-









 




supplemental filings that are incorporated or deemed incorporated by reference in any such
Prospectus. Any such suspension under this paragraph (ii) shall not exceed sixty (60) days in any
one hundred-eighty (180) day period or ninety (90) days in any twelve-month period. The suspension
and notice thereof described in this Section 5(c)(ii) shall be held by each Purchaser in
strictest confidence and shall not be disclosed by such Purchaser.




               (iii) Subject to paragraph (iv) below, in the event of: (1) any request by the SEC or any
other federal or state governmental authority during the Registration Period for amendments or
supplements to a Registration Statement or related prospectus or for additional information; (2)
the issuance by the SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of any proceedings for
that purpose; (3) the receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable Shares for sale in any
jurisdiction or the initiation of any proceeding for such purpose; or (4) any event or circumstance
which necessitates the making of any changes in the Registration Statement or Prospectus, or any
document incorporated or deemed to be incorporated therein by reference, so that, in the case of
the Registration Statement, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or any omission to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading, then the Company shall deliver a certificate in writing to the
Purchasers (the “Suspension Notice”) to the effect of the foregoing (which notice will not disclose
the content of any material non-public information and will indicate the date of the beginning and
end of the intended period of suspension, if known), and, upon receipt of such Suspension Notice,
the Purchasers will discontinue disposition of Registrable Shares covered by to the Registration
Statement or Prospectus (a “Suspension”) until the Purchasers’ receipt of copies of a supplemented
or amended Prospectus prepared and filed by the Company, or until the Purchasers are advised in
writing by the Company that the current Prospectus may be used and have received copies of any
additional or supplemental filings that are incorporated or deemed incorporated by reference in any
such prospectus. In the event of any Suspension, the Company will use its commercially reasonable
efforts to cause the use of the Prospectus so suspended to be resumed as soon as possible after
delivery of a Suspension Notice to the Purchasers. The Suspension and Suspension Notice described
in this Section 5(c)(iii) shall be held in strictest confidence by each Purchaser and shall
not be disclosed by such Purchaser.



               (iv) Provided that a Suspension is not then in effect, the Purchasers may sell Registrable
Shares under the Registration Statement, provided that the selling Purchaser arranges for delivery
of a current Prospectus to the transferee of such Registrable Shares to the extent such delivery is
required by applicable law.



               (v) In the event of a sale of Registrable Shares by a Purchaser, such Purchaser must also
deliver to the Company’s transfer agent, with a copy to the Company, a certificate of subsequent
sale reasonably satisfactory to the Company, so that ownership of the Registrable Shares may be
properly transferred. The Company will cooperate to facilitate the timely preparation and delivery
of certificates (unless otherwise required by applicable law) representing Registrable Shares sold.



-19-









 





         (d) Shareholder Vote; Filing of Proxy Statement. The Company shall seek, and use its
best efforts to obtain, the Shareholder Approval on or before the 105th day following the Closing
Date (the “Shareholder Approval Date”). The Company shall call a special meeting of its
shareholders (the “Shareholder Meeting”), shall prepare and file with the SEC as soon as practical,
but in no event later than thirty (30) days after the Closing Date, preliminary proxy materials
that meet the requirements of Section 14 of the Exchange Act and the SEC’s rules and regulations
thereunder and which shall set forth a proposal to seek the Shareholder Approval. The Board of
Directors shall recommend approval thereof by the Company’s shareholders. The Purchasers may not
vote any of the Firm Shares on the proposal to obtain the Shareholder Approval. The Company shall
mail and distribute its proxy materials for the Shareholder Meeting to its stockholders at least 30
days prior to the date of the Shareholder Meeting, shall actively solicit proxies to vote for the
Shareholder Approval and, prior to mailing such proxy materials to its stockholders, shall retain a
proxy solicitation firm of recognized national standing to assist in the solicitation. The Company
shall furnish (which may be by e-mail) to the Purchasers and its legal counsel a copy of its
definitive proxy materials for the Shareholder Meeting and any amendments or supplements thereto
promptly after the same are first used, mailed to shareholders or filed with the SEC, shall inform
the Purchasers of the progress of solicitation of proxies for such meeting, shall inform the
Purchasers of any adjournment of the Shareholder Meeting and shall report the result of the vote of
stockholders on such proposition at the conclusion of the Shareholder Meeting.



         (e) Indemnification. For the purpose of this Section 5(e), the term
“Registration Statement” shall include any preliminary or final Prospectus, exhibit, supplement or
amendment included in or relating to the Registration Statement referred to in Section
5(a).



               (i) Indemnification by the Company. The Company agrees to indemnify and hold harmless
each of the Purchasers, their respective officers, directors, agents and employees, and each
person, if any, who controls any Purchaser within the meaning of the Securities Act, against any
losses, claims, damages, liabilities or expenses, joint or several, to which such Purchasers, such
officers, directors, agents or employees, or such controlling persons may become subject, under the
Securities Act, the Exchange Act or any other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such settlement is effected
with the written consent of the Company, which consent shall not be unreasonably withheld), insofar
as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or any amendment or
supplement to the Registration Statement or Prospectus, or arise out of or are based upon the
omission or alleged omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them, in light of the circumstances under which they
were made, not misleading, and will reimburse each Purchaser, each of its respective directors,
officers, agents and employees, and each such controlling person for any reasonable out-of-pocket
legal and other expenses incurred by such Purchaser, such directors, officers, agents or employees,
or such controlling persons in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided, however, that the
Company will not be liable for any such case to the extent that any such loss, claim, damage,
liability, expense or action arises out of or is based upon (1) an untrue statement or alleged
untrue statement or omission or alleged



-20-









 




omission in the Registration Statement, the Prospectus or any amendment to or supplement of
the Registration Statement or the Prospectus made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Purchaser demanding such
indemnification expressly for use in the Registration Statement or the Prospectus, (2) the failure
of such Purchaser to comply with the covenants and agreements contained in this Agreement
respecting resale of the Purchased Securities or the Warrant Shares or (3) any untrue statement or
omission of a material fact required to make such statement not misleading in any Prospectus that
is corrected in any subsequent Prospectus that was delivered to such Purchaser before the pertinent
sale or sales by such Purchaser.




               (ii) Indemnification by each Purchaser. Each Purchaser agrees, severally and not
jointly, to indemnify and hold harmless the Company, each of the Company’s directors, officers,
agents and employees, and each person, if any, who controls the Company within the meaning of the
Securities Act, against any losses, claims, damages, liabilities or expenses to which the Company,
the Company’s directors, officers, agents or employees, or any controlling persons may become
subject, under the Securities Act, the Exchange Act, or any other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Purchaser, which consent shall not be
unreasonably withheld) insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof as contemplated below) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Purchaser expressly for use
therein, and such Purchaser will reimburse the Company, each of its directors, officers, agents and
employees, and any controlling persons for any reasonable legal and other expenses incurred by the
Company, its directors, officers, agents or employees, or any controlling persons in connection
with investigating, defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that such Purchaser shall not be liable for any
such untrue or alleged untrue statement or omission or alleged omission with respect to which such
Purchaser has delivered to the Company in writing a correction of such untrue or alleged untrue
statement or omission or alleged omission, before the occurrence of the event from which such loss,
claim, damage, liability or expense was incurred. Notwithstanding the provisions of this
Section 5(e), such Purchaser shall not be liable for any indemnification obligation under
this Agreement in excess of the aggregate amount of net proceeds received by such Purchaser from
the sale of the Registrable Shares pursuant to the Registration Statement.



               (iii) Indemnification Procedure.



                      (1) Promptly after receipt by an indemnified party under this Section 5(e) of notice
of the threat or commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 5(e), promptly
notify the indemnifying party in writing of the claim and provide to the indemnifying



-21-









 




party copies of all written documents relating to such threatened or commenced action; but the
omission so to notify the indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise under the indemnity agreement contained
in this Section 5(e) or otherwise, to the extent it is not prejudiced as a result of such
failure.




                      (2) In case any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and counsel to the indemnified
party shall have reasonably concluded that there may be a conflict between the positions of the
indemnifying party and the indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it or other indemnified parties that are different from or
additional to those available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this Section 5(e) for
any legal or other expenses subsequently incurred by such indemnified party in connection with the
defense thereof unless:



                           a) the indemnified party shall have employed such counsel in connection with the assumption of
legal defenses in accordance with the proviso to the preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of more than one separate
counsel, reasonably approved by such indemnifying party, representing all of the indemnified
parties who are parties to such action); or



                           b) the indemnifying party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time after notice of
commencement of the action against the indemnified party,



     in each of which cases the reasonable out-of-pocket fees and expenses of counsel for the
indemnified party shall be at the expense of the indemnifying party.



               (iv) Contribution. If the indemnification provided for in this Section 5(e)
is required by its terms but is for any reason held to be unavailable to, or is otherwise
insufficient to hold harmless, an indemnified party under this Section 5(e) with respect to
any losses, claims, damages, liabilities or expenses referred to in this Agreement, then each
indemnifying party shall contribute to the amount paid or payable by such indemnified party as a
result of any losses, claims, damages, liabilities or expenses referred to in this Agreement:



                      (1) in such proportion as is appropriate to reflect the relative faults of the Company and the
Purchasers in connection with the statements or omissions or



-22-









 




inaccuracies in the representations and warranties in this Agreement that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant equitable
considerations, or




                      (2) if the allocation provided by clause (1) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative faults referred to in clause (1)
above but also the relative benefits received by the Company and the Purchasers from the sale of
the Purchased Securities.



     The respective relative benefits received by the Company on the one hand and each Purchaser on
the other shall be deemed to be in the same proportion as the amount to which the consideration
paid by such Purchaser to the Company pursuant to this Agreement for the Registrable Shares
purchased by such Purchaser that were sold pursuant to the Registration Statement bears to the
difference (the “Difference”) between the amount such Purchaser paid for the Registrable Shares
that were sold pursuant to the Registration Statement and the amount received by such Purchaser
from such sale. The relative fault of the Company and each Purchaser shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to information supplied by the
Company or by such Purchaser and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in Section 5(e)(iii), any
reasonable legal or other fees or expenses incurred by such party in connection with investigating
or defending any such action or claim. The provisions set forth in Section 5(e)(iii) with
respect to the notice of the threat or commencement of any threat or action shall apply if a claim
for contribution is to be made under this Section 5(e)(iv); provided, however, that no
additional notice shall be required with respect to any threat or action for which notice has been
given under Section 5(e)(iii) for purposes of indemnification. The Company and each
Purchaser agree that it would not be just and equitable if contribution pursuant to this
Section 5(e)(iv) were determined solely by pro rata allocation (even if the Purchasers were
treated as one entity for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this paragraph. Notwithstanding the
provisions of this Section 5(e)(iv), no Purchaser shall be required to contribute any
amount in excess of the amount by which the Difference exceeds the amount of any damages that such
Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation. The Purchasers’ obligations to contribute
pursuant to this Section 5(e)(iv) are several and not joint..



         (f) Rule 144 Information. For two years after the date of this Agreement, the Company
shall file in a timely manner all reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder and shall take such further
action to the extent required to enable the Purchasers to sell the Purchased Securities pursuant to
Rule 144 under the Securities Act (as such rule may be amended from time to time).



         (g) Substitution of Escrow Agent. If the Company (i) gives notice of removal to the
Escrow Agent (as defined in the Escrow Agreement) or (ii) receives a notice of resignation



-23-









 





from the Escrow Agent, the Company will promptly provide notice of such removal or resignation to
the Purchasers. If the Escrow Agent is removed or resigns as Escrow Agent under the Escrow
Agreement, the Company agrees to appoint a nationally recognized banking or financial institution,
having a trust office in Houston, Texas or New York, New York, as the successor escrow agent under
the Escrow Agreement.




     6. ADVISORY FEE. The Purchasers acknowledge that the Company intends to pay to C.E.
Unterberg, Towbin, as financial advisor, a fee in respect of the sale of the Purchased Securities.
Each of the parties to this Agreement hereby represents that, on the basis of any actions and
agreements by it, there are no other brokers or finders entitled to compensation in connection with
the sale of the Purchased Securities to the Purchasers. The Company shall indemnify and hold
harmless the Purchasers from and against all fees, commission or other payments owing by the
Company to C.E. Unterberg, Towbin or any other Person acting on behalf of the Company hereunder.
Each Purchaser shall, severally and not jointly, indemnify and hold harmless the Company from and
against all fees, commission or other payments owing by such Purchasers to any Person, other than
C.E. Unterberg, Towbin, acting on behalf of the Purchasers hereunder.



     7. CONDITIONS TO THE PURCHASERS’ OBLIGATIONS AT CLOSING. The obligations of the
Purchasers to consummate the transactions contemplated herein are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions:



         (a) Representations and Warranties True. Each of the representations and warranties
of the Company contained in Section 3 shall be true and correct in all material respects on
and as of the date hereof (provided, however, that such qualification shall only apply to
representation or warranties not otherwise qualified by materiality) and on and as of the Closing
Date with the same effect as though such representations and warranties had been made as of the
Closing (except for representations and warranties that speak as of a specific date).



         (b) Performance. The Company shall have performed and complied in all material
respects with all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and shall have obtained
all approvals, consents and qualifications necessary to complete the purchase and sale described
herein; provided, however, as provided in Section 2 hereof, the Company may furnish to each
Purchaser a facsimile copy of the warrant representing the Purchased Warrant and of the stock
certificate(s) representing the Purchased Shares purchased by such Purchaser no later than the next
Business Day following the Closing Date, with the original stock certificate(s) to be delivered to
such Purchaser by overnight courier no later than the third (3rd) Business Day following the
Closing Date.



         (c) Company Compliance Certificate. The Company will have delivered to the Purchasers
a certificate signed on its behalf by its Chief Executive Officer or Chief Financial Officer, dated
as of the Closing Date, certifying that the conditions specified in Sections 7(a) and
7(b) hereof have been fulfilled.



         (d) Agreements. The Company shall have executed and delivered to the Purchasers this
Agreement and the Escrow Agreement.



-24-









 





         (e) Securities Exemptions. The offer and sale of the Purchased Securities to the
Purchasers pursuant to this Agreement shall be exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all applicable state
securities laws.



         (f) Good Standing Certificate. The Company shall have delivered to the Purchasers a
certificate of the Secretary of State of the State of Texas, dated as of a date within five days of
the date of the Closing, with respect to the good standing of the Company.



         (g) Secretary’s Certificate. The Company shall have delivered to the Purchasers a
certificate of the Company executed by the Company’s Secretary, dated as of the Closing Date,
attaching and certifying to the truth and correctness of (1) the Articles of Incorporation, (2) the
Bylaws and (3) the resolutions adopted by the Company’s Board of Directors in connection with the
transactions contemplated by this Agreement.



         (h) Opinion of Company Counsel. The Purchasers will have received opinions, on behalf
of the Company, substantially in the form attached hereto as Exhibit C and dated as of the
Closing Date, from (i) Baker Botts L.L.P., counsel to the Company, and (ii) Ron Woessner, the
Company’s General Counsel.



         (i) No Statute or Rule Challenging Transaction. No statute, rule, regulation,
executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been
enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of
competent jurisdiction or any self-regulatory organization or the staff of any of the foregoing,
having authority over the matters contemplated hereby which questions the validity of, or
challenges or prohibits the consummation of, any of the transactions contemplated by this
Agreement.



         (j) Other Actions. The Company shall have executed such certificates, agreements,
instruments and other documents, and taken such other actions as shall be customary or reasonably
requested by the Purchasers in writing in connection with the transactions contemplated hereby.



     8. CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING. The obligations of the Company
to consummate the transactions contemplated herein are subject to the fulfillment or waiver, on or
before the Closing, of each of the following conditions:



         (a) Representations and Warranties True. Each of the representations and warranties
of the Purchasers contained in Section 4 shall be true and correct in all material respects
on and as of the date hereof and on and as of the Closing Date with the same effect as though such
representations and warranties had been made as of the Closing (except for representations and
warranties that speak as of a specific date).



         (b) Performance. The Purchasers shall have performed and complied in all material
respects with all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by them on or before the Closing and shall have obtained
all approvals, consents and qualifications necessary to complete the purchase and sale described
herein.



-25-









 





         (c) Agreements. Each Purchaser shall have executed and delivered to the Company this
Agreement and Appendix I and II hereto.



         (d) Securities Exemptions. The offer and sale of the Purchased Securities to the
Purchasers pursuant to this Agreement shall be exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all applicable state
securities laws.



         (e) Payment of Purchase Price. The Purchasers shall have delivered to the Company by
wire transfer of immediately available funds, full payment of the purchase price for the Purchased
Securities as specified in Section 1(b).



         (f) No Statute or Rule Challenging Transaction. No statute, rule, regulation,
executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been
enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of
competent jurisdiction or any self-regulatory organization or the staff of any of the foregoing,
having authority over the matters contemplated hereby which questions the validity of, or
challenges or prohibits the consummation of, any of the transactions contemplated by this
Agreement.



         (g) Other Actions. The Purchasers shall have executed such certificates, agreements,
instruments and other documents, and taken such other actions as shall be customary or reasonably
requested by the Company in connection with the transactions contemplated hereby.



     9. MISCELLANEOUS.



         (a) Successors and Assigns. The terms and conditions of this Agreement will inure to
the benefit of and be binding upon the respective successors and permitted assigns of the parties.
The Company shall not assign this Agreement or any rights or obligations hereunder without the
prior written consent of each Purchaser holding Purchased Shares and Warrant Shares (excluding any
Purchased Shares or Warrant Shares sold to the public pursuant to Rule 144 or otherwise). Any
Purchaser may assign its rights under this Agreement to any person to whom such Purchaser assigns
or transfers any of the Purchased Securities, provided that such transferee agrees in writing to be
bound by the terms and provisions of this Agreement, and such transfer is in compliance with the
terms and provisions of this Agreement and permitted by federal and state securities laws.



         (b) Governing Law. This Agreement will be governed by and construed and enforced
under the internal laws of the State of New York, without reference to principles of conflict of
laws or choice of laws. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT
TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.



-26-









 





         (c) Survival. The representations and warranties of the Company contained in
Section 3 of this Agreement and of the Purchasers contained in Section 4 of this
Agreement shall survive until the second (2nd) anniversary of the Closing Date.



         (d) Counterparts. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original, but all of which together will constitute one and the same
instrument.



         (e) Headings. The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this Agreement. All
references in this Agreement to sections, paragraphs, exhibits and schedules will, unless otherwise
provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by reference.



         (f) Notices. Any notices and other communications required or permitted under this
Agreement shall be in writing and shall be delivered (i) personally by hand or by courier, (ii)
mailed by United States first-class mail, postage prepaid or (iii) sent by facsimile directed (A)
if to any Purchaser, at such Purchaser’s address or facsimile number set forth on Schedule
A to this Agreement, or at such address or facsimile number as such Purchaser may designate by
giving at least ten (10) days’ advance written notice to the Company or (b) if to the Company, to
its address or facsimile number set forth below, or at such other address or facsimile number as
the Company may designate by giving at least ten (10) days’ advance written notice to the
Purchasers. All such notices and other communications shall be deemed given upon (i) receipt or
refusal of receipt, if delivered personally, (ii) three days after being placed in the mail, if
mailed, or (iii) confirmation of facsimile transfer, if faxed.


If to the Company:



Zix Corporation

2711 N. Haskell Avenue

Suite 2300, LB36

Dallas, Texas 75204-2960

Attn: Ronald A. Woessner, General Counsel

Facsimile: 214.515.7385



with a copy to:



Baker Botts L.L.P.

2001 Ross Avenue

Dallas, Texas 75201

Attn: Sarah Rechter

Facsimile: 214.661.4419




         (g) Amendments and Waivers. This Agreement may be amended and the observance of any
term of this Agreement may be waived only with the written consent of the Company and the
Purchasers holding at least a majority of the total aggregate number of the Purchased Shares and
Warrant Shares then outstanding (excluding any shares then already sold



-27-









 




to the public pursuant to Rule 144 or otherwise); provided, however, that if the amendment or
waiver would materially change or adversely affect the rights or obligations of any Purchaser under
this Agreement, the written consent of the Company and each Purchaser holding Purchased Shares and
Warrant Shares (excluding any Purchased Shares or Warrant Shares sold to the public pursuant to
Rule 144 or otherwise) shall be required to effect such amendment or waiver. Any amendment
effected in accordance with this Section 9(g) will be binding upon the Purchasers, the
Company and their respective successors and assigns.




         (h) Severability. If any provision of this Agreement is held to be unenforceable
under applicable law, such provision will be excluded from this Agreement and the balance of the
Agreement will be interpreted as if such provision were so excluded and will be enforceable in
accordance with its terms.



         (i) Entire Agreement. This Agreement, together with all exhibits and schedules
hereto, constitute the entire agreement and understanding of the parties with respect to the
subject matter hereof and supersede any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties with respect to the subject matter
hereof.



         (j) Further Assurances. From and after the date of this Agreement, upon the request
of the Company or the Purchasers, the Company and the Purchasers will execute and deliver such
instruments, documents or other writings, and take such other actions, as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of
this Agreement.



         (k) Meaning of Include and Including. Whenever in this Agreement the word “include”
or “including” is used, it shall be deemed to mean “include, without limitation” or “including,
without limitation,” as the case may be, and the language following “include” or “including” shall
not be deemed to set forth an exhaustive list.



         (l) Fees, Costs and Expenses. Except as otherwise provided for in this Agreement, all
fees, costs and expenses (including attorneys’ fees and expenses) incurred by any party hereto in
connection with the preparation, negotiation and execution of this Agreement and the exhibits and
schedules hereto and the consummation of the transactions contemplated hereby and thereby
(including the costs associated with any filings with, or compliance with any of the requirements
of any governmental authorities), shall be the sole and exclusive responsibility of such party.



         (m) 8-K Filing and Publicity. As soon as practicable following the execution of this
Agreement, but in no event later than 8:30 a.m., eastern time, on the day following the Execution
Date, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the
transactions contemplated by this Agreement and attaching this Agreement and the press release
referred to below as exhibits to such filing (the “8-K Filing” including all attachments). Neither
the Company nor any Purchaser shall issue any press releases or any other public statements (other
than any filings required pursuant to applicable securities laws) with respect to the transactions
contemplated by this Agreement; provided, however, that the Company shall be entitled, without the
prior approval of any Purchaser, to issue any press release



-28-









 




or make any other public disclosure (including a press release (concerning the offering of the
Purchased Securities) pursuant to Rule 135(c) under the Securities Act) with respect to such
transactions (i) in substantial conformity with the 8-K Filing and (ii) as is required by
applicable laws and regulations; and, provided further, that no such release may identify a
Purchaser unless such Purchaser has consented thereto in writing, or as required by law.




         (n) Waivers. No waiver by any party to this Agreement of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver
in the future or a waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.



         (o) Stock Splits, Dividends and other Similar Events. The provisions of this
Agreement shall be appropriately adjusted to reflect any stock split, stock dividend,
reorganization or other similar event that may occur with respect to the Company after the date
hereof.



         (p) Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each Purchaser and the Company will be entitled to
specific performance under this Agreement. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.



[Remainder of page intentionally left blank.]




-29-









 








     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.



	 	 	 	 	 
	 	ZIX CORPORATION

 	 
	 	By:  	/s/ Brad Almond
 	 
	 	 	Name:  	Brad Almond 	 
	 	 	Title:  	Chief Financial Officer 	 
	 



[PURCHASER SIGNATURE PAGES TO FOLLOW]




Signature Page to Securities Purchase Agreement





 









 








SIGNATURE PAGE TO




SECURITIES PURCHASE AGREEMENT




DATED AS OF AUGUST 9, 2005




BY AND AMONG




ZIX CORPORATION




AND EACH PURCHASER NAMED THEREIN





     The undersigned hereby executes and delivers to Zix Corporation, the Securities Purchase
Agreement (the “Agreement”) to which this signature page is attached effective as of the date of
the Agreement, which Agreement and signature page, together with all counterparts of such Agreement
and signature pages of the other Purchasers named in such Agreement, shall constitute one and the
same document in accordance with the terms of such Agreement.




			
	Number of Purchased Shares Purchased:	 	
 








			
	Number of Purchased Warrants Purchased :	 	
 








			
	Total Number of Units Purchased:	 	
 








			
	“Purchaser”	 	
 








			
	Signature:	 	
 








			
	Name:	 	
 








			
	Title:	 	
 








			
	Address:	 	
 







 





 






			
	Telephone:	 	
 








			
	Facsimile:	 	
 








			
	E-mail:	 	
 








			
	Tax ID Number:	 	
 







Signature Page to Securities Purchase Agreement





 









 





Schedule A




SCHEDULE OF PURCHASERS†




	 
	Name
	Schottenfeld Qualified Associates, L.P.

	Cranshire Capital, L.P.

	Nite Capital LP

	Bluegrass Growth Fund, LP

	Alpha Capital AG

	Gryphon Master Fund, L.P.

	GSSF Master Fund, LP

	Precept Capital Master Fund, G.P.

	JMG Capital Partners, LP

	JMG Triton Offshore Fund, Ltd.

	Heartland Value Plus Fund c/o Brown Brothers

	Harriman & Co.

	Diamond Opportunity Fund, LLC

	Andrew J. Hoff

	George W. Haywood

	Superius Securities GP Profit Sharing Plan

	Capra Global Managed Assets, Ltd.

	CGMA Special Accounts, LLC

	Antonio R. Sanchez, Jr.

	Con Egan

	Conor O’Driscoll

	Fulvio Dobrich

	John M. Craig

	Anthony J. Pannella

	Stephen D. Baksa

	Antonio R. Sanchez, III*

	Robert P. Janke and Debbie Hansman

	Richard D. Spurr*

	Bradley Christian Almond*

	Charles N. Kahn, III*

	Anthony V. Milone

	Goldman Sachs for the benefit of Sapphire Capital Partners, L.P.

	Reuben Taub

	C.E. Unterberg, Towbin Capital Partners I, L.P.

	SRB Greenway Capital, L.P.

	SRB Greenway Capital (QP), L.P.

	SRB Greenway Offshore Operating Fund, L.P.

	Shea Ventures, LLC

	Amulet Limited

	Omicron Master Trust

	Arthur R. Puglia

	Manickam Ganesh

	William McCauley

	Alapatt P. Thomas, MD

	Hersey Norris

	Howard Raphaelson

	Ronald S. Carvalho

	William R. Leggio










			
	 	 	†Certain information has been redacted from this schedule.

	 	 	*Denotes Purchaser purchasing at Insider Per Unit Price.





 









 










APPENDIX I — STOCK CERTIFICATE AND WARRANT QUESTIONNAIRE




APPENDIX II — REGISTRATION STATEMENT/SUITABILITY QUESTIONNAIRE




EXHIBIT A — FORM OF WARRANT




EXHIBIT B — DISCLOSURE LETTER




EXHIBIT C — FORM OF OPINION




EXHIBIT D — FORM OF ESCROW AGREEMENT