Security Agreement

EX-4.6 7 d19685exv4w6.txt SECURITY AGREEMENT Exhibit 4.6 SECURITY AGREEMENT THIS SECURITY AGREEMENT, dated as of November 2, 2004 (this "Agreement"), made by ZIX CORPORATION, a Texas corporation (the "Grantor"), to LAW OFFICES OF BRIAN W PUSCH, as collateral agent (in such capacity, the "Collateral Agent") on behalf of the Holders (such capitalized term and all other capitalized terms used in this Agreement having the respective meanings provided in this Agreement). W I T N E S S E T H: WHEREAS, the Grantor and the several Buyers are parties to the several Purchase Agreements, pursuant to which, among other things, the Buyers have agreed to purchase $20,000,000 aggregate principal amount of Notes of the Grantor; WHEREAS, in connection with the transactions contemplated by the Purchase Agreements, the Grantor has agreed to grant to the Collateral Agent a security interest in certain of its property, assets and rights; and WHEREAS, it is a condition precedent to the several obligations of the Buyers to purchase their respective Notes and Warrants pursuant to the Purchase Agreements that the Grantor shall have executed and delivered this Security Agreement to the Collateral Agent for the ratable benefit of the Holders and deposited $10,000,000.00 with the Collateral Agent as Collateral; NOW, THEREFORE, in consideration of the premises and to induce the Buyers to purchase their respective Notes and Warrants, the Grantor hereby agrees with the Collateral Agent, for the ratable benefit of the Holders, as follows: 1. DEFINITIONS. (a) As used in this Agreement, the terms "Agreement", "Grantor" and "Collateral Agent" shall have the respective meanings assigned to such terms in the introductory paragraph of and the recitals to this Agreement. (b) All the agreements or instruments herein defined shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms thereof and of this Agreement. (c) Capitalized terms used herein without definition shall have the respective meanings assigned to such terms in the Notes. (d) The following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the subject Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Business Day" means any day other than a Saturday, Sunday or a day on which commercial banks in The City of New York or Dallas, Texas are authorized or required by law or executive order to remain closed. "Buyer" means any of the several buyers party to a Purchase Agreement. "Code" means the Uniform Commercial Code as from time to time in effect in the State of Texas. "Collateral" means each of the following, whether now existing or hereafter arising: (1) the funds deposited with the Collateral Agent pursuant to Section 3; (2) the Collateral Account and each and every General Intangible relating thereto; (3) all cash, securities and other property at any time held in the Collateral Account; (4) all cash, securities, rights and other property at any time or from time to time received, receivable or otherwise distribute in respect of the cash and other property held in the Collateral Account; (5) all cash, securities, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of the Collateral; -2- (6) all insurance policies, surety bonds or indemnities to the extent they relate to items (1) through (5) above; (7) all books, ledgers, books of account, records, writings, databases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating, or referring to any of the foregoing; and (8) to the extent not otherwise included, all Proceeds, products, rents, issues, profits and returns of and from any and all of the foregoing. "Collateral Account" means the account maintained at Citibank, N.A. for the ratable benefit of the Holders which is identified in Section 3 and entitled "Zix Noteholder Collateral Account" and any successor or replacement account. "Earnings Release Condition" means that the Grantor shall have had consolidated net income in each of two consecutive fiscal quarters, the earlier of which shall begin after the Issuance Date, determined from the Grantor's consolidated financial statements filed with the SEC, prepared in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the Grantor's annual financial statements for 2003, but excluding any extraordinary item, including, without limitation, any item of extraordinary income or gain. "Event of Default" means: (1) the failure by the Grantor to perform in any material respect any obligation of the Grantor under this Agreement as and when required by this Agreement; or (2) any representation or warranty made by the Grantor pursuant to this Agreement shall have been untrue in any material respect when made or deemed to have been made; or (3) any Event of Default, as that term is defined in any of the Notes. "General Intangibles" shall have the meaning assigned to such term under the Code. "Holder" means any Buyer or any holder from time to time of any Note. "Indemnified Person" shall have the meaning provided in Section 5(l). -3- "Issuance Date" means the date on which the Notes are initially issued. "Lien" shall mean any lien, mortgage, security interest, chattel mortgage, pledge or other encumbrance (statutory or otherwise) of any kind securing satisfaction or performance of an obligation, including any agreement to give any of the foregoing, any conditional sales or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Code of any jurisdiction or similar evidence of any encumbrance, whether within or outside the United States. "Majority Holders" means at any time such of the holders of the Notes who hold Notes which, based on the outstanding principal amounts thereof, represent two-thirds of the aggregate outstanding principal amount of the Notes at such time. "Notes" means the Grantor's Convertible Notes due 2005-2008 issued pursuant to the Purchase Agreements. "Obligations" means: (1) the full and prompt payment when due of all obligations and liabilities to the Holders, whether now existing or hereafter arising, under the Transaction Documents and the due performance and compliance with the terms of the Transaction Documents; (2) any and all sums advanced by the Collateral Agent or any Holder in order to preserve the Collateral or to preserve the Security Interest; (3) in the event of any proceeding for the collection or enforcement of any obligations or liabilities of the Grantor referred to in the immediately preceding clauses (1) and (2) in accordance with the terms of the Transaction Documents, the reasonable expenses of re-taking, holding, preparing for sale, selling or otherwise disposing of or realizing on the Collateral, or of any other exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs; and (4) any amounts for which the Collateral Agent or any Holder is entitled to indemnification under Section 5(f). -4- "Person" means any natural person, corporation, partnership, limited liability company, trust, incorporated organization, unincorporated association or similar entity or any government, governmental agency or political subdivision. "Proceeds" shall have the meaning assigned to such term under the Code. "Purchase Agreements" means the several Purchase Agreements, dated as of November 1, 2004, by and between the Grantor and the respective Buyer party thereto pursuant to which the Grantor issued the Notes. "Release Certificate" means a certificate, signed by the Grantor's Chief Financial Officer, stating (1) that such certificate is being furnished pursuant to Section 15(b) of this Agreement; (2) that the signer has reviewed the consolidated quarterly financial statements of the Grantor identified in, and copies of which are attached to, such, certificate; (3) that the person signing such certificate has reviewed the requirements of Section 15(b) of this Agreement; and (4) that the Earnings Release Condition has been satisfied and setting forth the amount for each such quarter on which the satisfaction of the Earnings Release Condition is based. "Security Interest" means the security interest granted in the Collateral pursuant to this Agreement. "Subsidiary" means any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by the Grantor. "Transaction Documents" means the Notes, the Purchase Agreements, the Registration Rights Agreements, this Agreement, the Warrants, the Redemption Warrants, the Other Redemption Warrants and the other agreements, instruments and documents contemplated hereby and thereby. 2. GRANT OF SECURITY INTEREST. As collateral security for the prompt and complete payment and performance of the Obligations and for the other purposes provided in this Agreement, the Grantor hereby grants to the Collateral -5- Agent for the ratable benefit of the Holders a first priority security interest in all of the Collateral. 3. DEPOSIT OF COLLATERAL WITH COLLATERAL AGENT; COLLATERAL ACCOUNT. (a) On the Issuance Date, the Grantor shall transfer or arrange the transfer of $10,000,000 of the Grantor's funds to the Collateral Agent as Collateral hereunder. Such transfer shall be made in immediately available funds to the following account: Citibank, N.A. 153 East 53rd Street New York, New York ABA No.: 021000089 For credit to Account No. 3717 9446 Brian W. Pusch Attorney Trust Account (b) The Collateral Agent shall promptly, but in no event later than five Business Days, after the Issuance Date establish a separate account at Citibank, N.A. as the Collateral Account entitled "Zix Noteholder Collateral Account" and deposit and hold therein all funds transferred by the Grantor to the Collateral Agent pursuant to Section 3(a) until such funds are disbursed by the Collateral Agent as provided in this Agreement. The Collateral Account shall be established for the benefit of the Grantor, but subject at all times to this Agreement and the Security Interest. The Collateral Account shall be an interest-bearing account. All interest earned on the Collateral Account shall be added to, and held in, the Collateral Account and shall be Collateral and held by the Collateral Agent until released as provided in this Agreement. (c) The Collateral Account shall at all times be under the sole dominion and control of, and shall at all times be segregated from any other custodial, collateral, or other accounts maintained by, or under the dominion and control of, the Collateral Agent. It shall be a term and condition of the Collateral Account that, notwithstanding any term or condition to the contrary in the Transaction Documents or in any other agreement relating to the Collateral Account, and except as otherwise provided in Section 15 of this Agreement, no Collateral (including proceeds thereof) shall be paid or released from the Collateral Account to or for the account of, or withdrawn by or for the account of, and no entitlement orders with respect to any of the Collateral shall be given to the bank at which the Collateral Account is maintained by, the Grantor or any other Person other than the Collateral Agent as provided herein. -6- (d) Subject to the provisions of this Agreement, the Collateral Account shall be registered in the name of the Collateral Agent on the books and records of the bank at which the Collateral Account is maintained, the Collateral Agent shall be identified on such books and records as the holder of all financial assets from time to time held in or credited to the Collateral Account, and the Collateral Agent shall have the sole right to make withdrawals from the Collateral Account or otherwise exercise any other rights with respect to any Collateral from time to time credited thereto or on deposit therein. (e) The Collateral Account shall be subject to such applicable laws, and such applicable regulations of any appropriate banking or governmental authority, as may now or hereafter be in effect, including, without limitation, any applicable regulations of the Board of Governors of the Federal Reserve System. 4. REPRESENTATIONS AND WARRANTIES. The Grantor hereby represents and warrants that: (a) TITLE; NO OTHER LIENS. Except for the Lien granted to the Collateral Agent for the ratable benefit of the Holders pursuant to this Agreement, the Grantor owns and has good and marketable title to each item of the Collateral free and clear of any and all Liens or claims of others. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as may have been filed in favor of the Collateral Agent, for the ratable benefit of the Holders, pursuant to this Agreement. (b) PERFECTED FIRST PRIORITY LIENS. The Liens granted pursuant to this Agreement will constitute upon the completion of all the filings or notices listed in SCHEDULE I hereto, perfected Liens on all Collateral in favor of the Collateral Agent for the benefit of the Holders, which are prior to all other Liens on such Collateral and which are enforceable as such against all Persons. (c) CHIEF EXECUTIVE OFFICE. The Grantor's chief executive office and chief place of business is located at 2711 N. Haskell Avenue, Suite 2300, LB 36, Dallas, Texas 75204. (d) POWER AND AUTHORITY. The Grantor has full power, authority and legal right to grant the Collateral Agent the Lien on the Collateral pursuant to this Agreement. (e) APPROVALS, FILINGS, ETC. No authorization, approval or consent of, or filing, registration, recording or other action with, any United States or foreign court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market, the stockholders of the Grantor or any -7- other Person, is required to be obtained or made by the Grantor or any Subsidiary (x) for the grant by the Grantor of the Security Interest in the Collateral pursuant to this Agreement, (y) to perfect the Security Interest purported to be created by this Agreement, or (z) for the exercise of the Collateral Agent's rights and remedies provided herein or at law, in each case except as has been obtained or made. 5. COVENANTS. The Grantor covenants and agrees with the Collateral Agent that from and after the date of this Agreement until the payment or performance in full by the Grantor of all of the Obligations: (a) LIMITATION ON LIENS ON COLLATERAL. The Grantor (x) will not create, incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Security Interest created hereby, and (y) will defend the right, title and interest of the Collateral Agent in and to any of the Collateral against the claims and demands of all Persons. (b) LIMITATIONS ON DISPOSITIONS OF COLLATERAL. The Grantor will not sell, transfer, lease, assign, grant any participation or interest in, or otherwise dispose of, any of the Collateral to any Person, including, without limitation, any Subsidiary or Affiliate of the Grantor, or attempt, offer or contract to do so. (c) NOTICES. The Grantor will advise the Collateral Agent within two Business Days of the occurrence thereof, in reasonable detail, at its address in accordance with Section 16, (i) of any Lien (other than Liens permitted hereunder) on, or claim asserted against, any of the Collateral, (ii) of any Event of Default or any event which, with notice or the lapse of time, or both, would become an Event of Default and (iii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the Collateral, the Security Interest or the rights of the Collateral Agent hereunder. (d) CHANGES IN LOCATIONS, NAME, ETC. The Grantor will not (1) change the location of its chief executive office/chief place of business from that specified in Section 4(c), or (2) change its name, identity or corporate structure to such an extent that any financing statement filed in connection with this Agreement and naming the Collateral Agent as secured party would become misleading or invalid, unless in any such case it shall have given the Collateral Agent at least 30 days prior written notice thereof and, prior to such action or event, shall have taken -8- appropriate action satisfactory to the Collateral Agent to preserve and protect the Collateral Agent's security interest under this Agreement. (e) SUBSIDIARIES. This Agreement is entered into on behalf of and for the benefit of the Grantor. The Subsidiaries and the Affiliates of the Grantor have no ownership or other rights in the Collateral. The Grantor will not permit any Subsidiary or any Affiliate of the Grantor to have any ownership or other rights in or to exercise any control over the Collateral. (f) INDEMNIFICATION. The Grantor agrees to indemnify and hold harmless the Collateral Agent and each Holder and their respective officers, directors, Affiliates, agents, members, shareholders and investment advisors (each, an "Indemnified Person") from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, and to reimburse the Collateral Agent and each Holder for all costs and expenses, including reasonable attorneys' fees and expenses, arising out of or resulting from this Agreement, including any breach hereof or Event of Default hereunder, or the exercise by the Collateral Agent or any Holder, as the case may be, of any right or remedy granted to it hereunder or under the other Transaction Documents under applicable law; provided, however, that the Grantor shall not be required to indemnify a particular Indemnified Person to the extent any claim, demand, loss, judgment, liability, cost or expense is determined by final judgment (not subject to further appeal) of a court of competent jurisdiction to have arisen primarily from the gross negligence or willful misconduct of such Indemnified Person. In no event shall any Indemnified Person other than the Collateral Agent have any liability or obligation to the Grantor under this Agreement or applicable law (liability under which the Grantor hereby waives) for any matter or thing in connection with this Agreement, and in no event shall the Collateral Agent be liable, in the absence of a determination of gross negligence or willful misconduct on its part by final judgment (not subject to further appeal) of a court of competent jurisdiction, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Grantor under this Section 5(f) are unenforceable for any reason, the Grantor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 6. COLLATERAL AGENT'S POWERS. (a) POWERS. The Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof or investment advisor thereto, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Grantor and in the name of the Grantor or in its own name, from time to time in the Collateral Agent's discretion, during any period in which an Event of Default is continuing, for -9- the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, the Grantor hereby gives the Collateral Agent and each such officer, agent and investment advisor the power and right, on behalf of the Grantor, without notice to or assent by the Grantor, except any notice required by law, to do the following: (i) to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under or with respect to any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under or with respect to any such Collateral whenever payable, in each case in the name of the Grantor or its own name, or otherwise; (ii) to pay or discharge taxes and liens levied or placed on or threatened against the Collateral and to pay all or any part of the premiums therefor and the costs thereof; and (iii) (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against the Grantor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as the Collateral Agent may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and to do, at the Collateral Agent's option and the Grantor's expense, at any time, or from time to time, all acts and things which the Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and the Collateral Agent's Liens thereon and to effect the intent of this Agreement, all as fully and effectively as the Grantor might do. -10- The Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable until the Grantor shall have paid and performed in full all of the Obligations. (b) OTHER POWERS. The Grantor also authorizes the Collateral Agent, from time to time during any period in which an Event of Default is continuing, to execute, in connection with the sale provided for herein, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. (c) NO DUTY ON COLLATERAL AGENT'S PART. The powers conferred on the Collateral Agent hereunder are solely to protect the Collateral Agent's interests in the Collateral for the pro rata benefit of the Holders and shall not impose any duty upon the Collateral Agent to exercise any such powers. The Collateral Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7. PERFORMANCE BY COLLATERAL AGENT OF GRANTOR'S OBLIGATIONS. If the Grantor fails to perform or comply with any of its agreements contained herein and the Collateral Agent, as provided for by the terms of this Agreement and following reasonable notice to the Grantor, may itself perform or comply, or otherwise cause performance or compliance, with such agreement, and the expenses of the Collateral Agent incurred in connection with such performance or compliance shall be payable by the Grantor to the Collateral Agent on demand and shall constitute Obligations secured hereby. 8. REMEDIES IN GENERAL. If an Event of Default has occurred and is continuing, the Collateral Agent may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, if an Event of Default has occurred and is continuing, the Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below or expressly provided for) to or upon the Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are, to the extent permitted by applicable law, hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, license, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral (other than funds held in the Collateral Account) or any part thereof (or contract to do any of the foregoing), at public or -11- private sale or sales, at any exchange, broker's board or office of the Collateral Agent or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Collateral Agent shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Grantor, which right or equity is hereby waived, to the extent permitted by applicable law, or released. The Grantor further agrees that, if an Event of Default has occurred and is continuing, at the Collateral Agent's request, to assemble the Collateral (other than funds held in the Collateral Account) and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at the Grantor's premises or elsewhere. The Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Collateral Agent hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Collateral Agent may elect, and only after such application and after the payment by the Collateral Agent of any other amount required by any provision of law, need the Collateral Agent account for the surplus, if any, to the Grantor. To the extent permitted by applicable law, the Grantor waives all claims, damages and demands it may acquire against the Collateral Agent arising out of the exercise by it of any rights hereunder, provided, that nothing contained in this Section 8 shall relieve the Collateral Agent from liability arising solely from its gross negligence or willful misconduct. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten days before such sale or other disposition. The Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Collateral Agent to collect such deficiency. 9. LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL. The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under the Code or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar property for its own account. Neither the Collateral Agent nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Grantor or otherwise. -12- 10. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest until the Grantor has paid and performed in full all of its obligations under the Transaction Documents. 11. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. PARAGRAPH HEADINGS, CAPTIONS, ETC. The paragraph headings, the captions and the footers used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 13. NO WAIVER; CUMULATIVE REMEDIES. The Collateral Agent shall not by any act, delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Collateral Agent, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Collateral Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Collateral Agent would otherwise have on any future occasion. The rights and remedies herein and in the Notes and the other Transaction Documents are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law or in equity or by statute. 14. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the party to be charged with enforcement; provided, however, that any provision of this Agreement may be waived, amended, supplemented or otherwise modified by the Collateral Agent only with the prior written approval of the Majority Holders. This Agreement shall be binding upon the successors and permitted assigns of the Grantor and shall inure to the benefit of the Collateral Agent and its successors and assigns. The Grantor may not assign its rights or obligations under this Agreement without the prior written consent of the Collateral Agent, which the Collateral Agent may withhold in the sole discretion of the Majority Holders. The requirements for resignation, and appointment of a successor to, the Collateral Agent are established by SCHEDULE II hereto and not by this Agreement. -13- 15. TERMINATION OF SECURITY INTEREST; RELEASE OF COLLATERAL. (a) Upon the payment in full of all principal of and premium, if any, and interest on the Notes and the payment in full of all other amounts for Obligations that are due and payable at such time, and if no claims for payment by the Company of any Obligations are at the time pending, the Security Interest shall terminate and all rights to the Collateral shall revert to the Grantor. (b) The Security Interest shall terminate and the Collateral Agent shall release funds from the Collateral Account upon the request of the Grantor if all the following conditions precedent are satisfied: (1) no Event of Default and no event, which, with notice or passage of time, or both, would become an Event of Default has occurred and is continuing; (2) no Repurchase Event has occurred with respect to which any Holder has the right to exercise repurchase rights pursuant to Section 5 of its Note or with respect to which any Holder has exercised such repurchase rights and the Repurchase Price has not been paid to such Holder or deposited in accordance with Section 7(k) of such Holder's Note and no event which, with notice or passage of time, or both, would become a Repurchase Event has occurred and is continuing; (3) the Registration Statement shall be effective and available for use by the Holders for the resale of the shares of Common Stock issued and issuable upon conversion of the Notes and issued or issuable upon exercise of the Warrants, the Redemption Warrants and the Other Redemption Warrants, as the case may be, and is reasonably expected to remain effective and available for such use for at least 30 days thereafter, and the Grantor shall be in compliance in all material respects with its obligations under the Registration Rights Agreements; (4) all amounts due and payable by the Grantor pursuant to Section 17 have been paid; (5) No Maximum Share Amount Deficiency Exists under any Purchase Agreement; (6) the Earnings Release Condition shall have been satisfied and the Holders and the Grantor shall have given the Collateral Agent and the Holders the Release Certificate relating thereto; and -14- (7) during the ten Business Days after the Grantor shall have given the Release Certificate to the Collateral Agent and the Holders, no Holder shall have notified the Collateral Agent that it objects to such release based on a failure to comply with this Section 15(b), which notice shall set forth a brief statement of the basis for such objection. (c) In case at any time the amount in the Collateral Account that has not previously been released pursuant to this Section 15 shall exceed 50 percent of the aggregate outstanding principal amount of the Notes at such time, the Grantor shall be entitled to request release of funds held in the Collateral Account if all of the following conditions precedent are satisfied: (1) no Event of Default and no event, which, with notice or passage of time, or both, would become an Event of Default has occurred and is continuing; (2) no Repurchase Event has occurred with respect to which any Holder has the right to exercise repurchase rights pursuant to Section 5 of its Note or with respect to which any Holder has exercised such repurchase rights and the Repurchase Price has not been paid to such Holder or deposited in accordance with Section 7(k) of such Holder's Note and no event which, with notice or passage of time, or both, would become a Repurchase Event has occurred and is continuing; (3) the Registration Statement shall be effective and available for use by the Holders for the resale of the shares of Common Stock issued and issuable upon conversion of the Notes and issued or issuable upon exercise of the Warrants, the Redemption Warrants and the Other Redemption Warrants, as the case may be, and is reasonably expected to remain effective and available for such use for at least 30 days thereafter, and the Grantor shall be in compliance in all material respects with its obligations under the Registration Rights Agreements; (4) all amounts due and payable by the Grantor pursuant to Section 17 have been paid; (5) the Grantor shall have furnished a request to the Collateral Agent, with copies to each Holder, stating: (A) the aggregate outstanding principal amount of the Notes; (B) the amount by which the funds held in the Collateral Account exceed 50 percent of the aggregate outstanding principal amount of the Notes; -15- (C) that the Grantor is requesting release of the amount stated in such request pursuant to the immediately preceding clause (B); and (D) that all of the requirements of this Section 15(c) for release of such Collateral, other than the requirements of Section 15(c)(7), have been satisfied; (6) no Maximum Share Amount Deficiency exists under any Purchase Agreement; and (7) during the ten Business Days after the Grantor shall have given the request specified in the immediately preceding clause (5) of this Section 15(c) to the Holder and the Collateral Agent, no Holder shall have notified the Collateral Agent that it objects to such release based on a failure to comply with this Section 15(c), which notice shall set forth a brief statement of the basis for such objection. (d) If an Event of Default shall have occurred and be continuing, the Collateral Agent shall disburse the funds held by it pursuant to this Agreement as follows: (i) First, to pay any amounts payable to the Collateral Agent pursuant to Section 17 that have not been paid by the Grantor; (ii) Second, to pay each Holder on a pro rata basis the amount of all accrued and unpaid interest (and interest, if any, thereon at the Default Rate) then due each Holder in accordance with the terms of their respective Notes through the most recent Interest Payment Date; (iii) Third, to pay each Holder on a pro rata basis the amount, if any, of unpaid principal then due on the Installment Maturity Date or Final Maturity Date, as the case may be, of any installment of principal of such Holder's Notes; (iv) Fourth, to pay each Holder, on a pro rata basis, the amount then due upon acceleration, if any, pursuant to Section 4 of such Holder's Note(s); and then (v) Fifth, to pay each Holder who has exercised its repurchase rights under Section 5 of the Notes, on a pro rata basis, all of the applicable unpaid Repurchase Price for each of the Notes or portions thereof required to be repurchased; and then -16- (vi) Sixth, to pay each Holder any other amount due and payable to such Holder under the Transaction Documents; and then (vii) Seventh, the remaining amount, if any, to the Grantor. provided, however, that if the amount of funds held by the Collateral Agent is insufficient to pay all amounts due to the Holders pursuant to clauses (ii) and (iv) above, then the amount paid to the Holders pursuant to this Section 15(d) shall be prorated among the Holders in proportion to the respective amounts due each Holder pursuant to the particular such clause or clauses for which such funds are insufficient. (e) At any time and from time to time prior to termination of the Security Interest pursuant to Section 15(a) or 15(b) or release of all Collateral pursuant to Section 15(c), the Collateral Agent shall release any of the Collateral only with the prior written consent of the Majority Holders. (f) Upon any such termination of the Security Interest or release of all the Collateral, the Collateral Agent will, at the expense of the Grantor, execute and deliver to the Grantor such documents and take such other actions as the Grantor shall reasonably request to evidence the termination of the Security Interest and deliver to the Grantor all Collateral so released then in its possession. 16. NOTICES. Any notices required or permitted to be given under the terms of this Agreement shall be in writing and shall be sent by mail, personal delivery, telephone line facsimile transmission or courier and shall be effective five days after being placed in the mail, if mailed, or upon receipt, if delivered personally, by telephone line facsimile transmission or by courier, in each case addressed to a party at such party's address (or telephone line facsimile transmission number) shown below or such other address (or telephone line facsimile transmission number) as a party shall have provided by notice to the other party in accordance with this provision. In the case of any notice to the Grantor, such notice shall be addressed to the Grantor at 2711 N. Haskell Avenue, Suite 2300, LB 36, Dallas, Texas 75204, Attention: Chief Financial Officer (telephone line facsimile transmission number ###-###-####), and in the case of any notice to the Collateral Agent, such notice shall be addressed to the Collateral Agent at Law Offices of Brian W Pusch, as Collateral Agent, Penthouse Suite, 29 West 57th Street, New York, New York (telephone line facsimile number ###-###-####). 17. FEES AND EXPENSES. The Grantor agrees to pay the fees of the Collateral Agent in performing its services under this Agreement ($10,000 per year, payable annually in advance, in the case of the initial Collateral Agent) and all expenses (including but not limited to reasonable attorneys' fees and costs for legal services, costs of insurance and payments of taxes or other charges) of, or incidental -17- to, the custody, care, sale or realization on any of the Collateral or in any way relating to the performance of the obligations or the enforcement or protection of the rights of the Collateral Agent hereunder. 18. CONCERNING COLLATERAL AGENT. The Grantor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or nonexercise by the Collateral Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the Holders, be governed by SCHEDULE II hereto and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and the Grantor, except as expressly provided in Sections 14 and 15, the Collateral Agent shall be conclusively presumed to be acting as agent for the Holders with full and valid authority so to act or refrain from acting, and the Grantor shall not be under any obligation to make any inquiry respecting such authority. The Collateral Agent hereby waives for the benefit of the Holders any claim, right or lien of the Collateral Agent against the Collateral arising under applicable law or arising from any business or transaction between the Collateral Agent and the Grantor other than pursuant to this Agreement or any of the other Transaction Documents. 19. SURVIVAL. All representations, warranties, covenants and agreements of the Grantor and of the Collateral Agent contained herein will survive the execution and delivery hereof and the release of any Collateral pursuant hereto and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Collateral Agent or the Grantor or any person who controls the Collateral Agent or the Grantor. 20. GRANTOR'S OBLIGATIONS ABSOLUTE, ETC. The obligations of the Grantor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (a) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any of the Transaction Documents or any other agreement or instrument referred to therein, or any assignment or transfer of any thereof; (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such Transaction Document or other agreement or instrument; (c) any furnishing of any additional security to the Collateral Agent or its assignees or any acceptance thereof or any release of any security by the Collateral Agent or its assignees; (d) any limitation on any party's liability or obligations under any such Transaction Document or other agreement or instrument or any invalidity or unenforceability, in whole or in part, of any such Transaction Document or other agreement or instrument or any term thereof; or (e) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to -18- the Grantor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not the Grantor shall have notice or knowledge of any of the foregoing. 21. INTEGRATION. This Agreement represents the entire agreement of the Grantor and the Collateral Agent with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the parties relative to the subject matter hereof not expressly set forth or referred to herein or therein. 22. GOVERNING LAW. This Agreement and the rights and obligations of the Grantor under this Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York, except to the extent that under the New York Uniform Commercial Code the laws of another jurisdiction govern matters of perfection and the effect of perfection or non-perfection of any security interest granted hereunder. 23. COUNTERPARTS; EXECUTION. This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts, but all the counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, once executed by a party, may be delivered to the other party hereto by telephone line facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. 24. ALTERNATIVE OR SUBSTITUTE ARRANGEMENTS. The Grantor may make a proposal to the Holders to implement within six months after the date of this Agreement the following: (a) As a substitute for this Agreement, establishment of an irrevocable standby letter of credit issued by a financial institution, acceptable to the Holders in their sole discretion, for the benefit of the Holders or their agent in an amount equal to $10,000,000.00 and providing for drawings thereunder in the circumstances in which the Collateral Agent is entitled by this Agreement to apply amounts in the Collateral Account to pay Obligations and otherwise on terms acceptable to the Holders in their sole discretion; or (b) Arrangements for the Collateral Agent to hold the amounts otherwise required by this Agreement to be held in the Collateral Account established hereunder in a collateral account maintained by the Collateral Agent at an institution, acceptable to the Holders in their sole discretion, other than Citibank, N.A., but nonetheless in the form of cash or cash equivalents. -19- The Holders shall be under no obligation to accept any such proposal from the Grantor. The Holders shall, in good faith, consider any such proposal, but may accept it or reject it in their sole discretion. [Signature page follows] -20- IN WITNESS WHEREOF, the Grantor and the Collateral Agent have caused this Agreement to be duly executed and delivered by their respective officers or other representatives thereunto duly authorized as of the date first above written. ZIX CORPORATION By: /s/ Brad Almond ----------------------------------- Name: Brad Almond Title: CFO LAW OFFICES OF BRIAN W PUSCH, AS COLLATERAL AGENT By: /s/ Brian W. Pusch ------------------------------------- Brian W. Pusch -21- SCHEDULE I FILINGS REQUIRED TO PERFECT SECURITY INTEREST 1. Secretary of State of the State of Texas 2. Department of State of the State of New York I-1 SCHEDULE II THE COLLATERAL AGENT 1. APPOINTMENT. The Holders (all capitalized terms used in this SCHEDULE II and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this SCHEDULE II is attached (the "Agreement")), by their acceptance of the benefits of the Agreement, hereby irrevocably designate Law Offices of Brian W Pusch, as Collateral Agent, to act as specified herein and in the Agreement. Each Buyer hereby irrevocably authorizes, and each other Holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Collateral Agent to take such action on its behalf under the provisions of the Agreement and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Collateral Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder by or through its agents or employees. 2. NATURE OF DUTIES. The Collateral Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Collateral Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Collateral Agent shall be mechanical and administrative in nature; the Collateral Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Holder; and nothing in the Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Collateral Agent any obligations in respect of the Agreement except as expressly set forth herein. The Collateral Agent shall not take any material action or exercise any material right or power pursuant to Section 6, 7 or 8 of this Agreement without the authorization or direction of the Majority Holders; provided, however, that if the Collateral Agent determines that it is unable to contact the Majority Holders for purposes of seeking such authorization or direction or time will not permit the Collateral Agent to so contact the Majority Holders prior to such time as detriment may occur to the rights of the Collateral Agent or the Holders from any failure of the Collateral Agent to act or exercise such right, then in any such case the Collateral Agent may take such action or exercise such right without specific authorization or direction from the Majority Holders. The Collateral Agent shall not be liable for any act it may do or omit to do while acting in good faith and in the exercise of its own best judgment. Any act done or omitted by the Collateral Agent on the advice of its own attorneys shall be deemed conclusively to have been done or omitted in good faith. The Collateral Agent shall have the right at any time to consult with counsel on any question II-1 arising under the Agreement. The Collateral Agent shall incur no liability for any delay reasonably required to obtain the advice of counsel. 3. LACK OF RELIANCE ON THE COLLATERAL AGENT. Independently and without reliance upon the Collateral Agent, each Holder, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Grantor and its subsidiaries in connection with the making and the continuance of the Obligations and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Grantor and its subsidiaries, and the Collateral Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Holder with any credit or other information with respect thereto, whether coming into its possession before any Obligation arises or the purchase of any Note, or at any time or times thereafter. The Collateral Agent shall not be responsible to any Holder for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or the financial condition of the Grantor or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement, or the financial condition of the Grantor, or the existence or possible existence of any Event of Default. 4. CERTAIN RIGHTS OF THE COLLATERAL AGENT. No Holder shall have the right to cause the Collateral Agent to take any action with respect to the Collateral, with only the Majority Holders having the right to direct the Collateral Agent to take any such action. If the Collateral Agent shall request instructions from the Majority Holders with respect to any act or action (including failure to act) in connection with the Agreement, the Collateral Agent shall be entitled to refrain from such act or taking such action unless and until it shall have received instructions from the Majority Holders, and to the extent requested, appropriate indemnification in respect of actions to be taken by the Collateral Agent; and the Collateral Agent shall not incur liability to any person by reason of so refraining. Without limiting the foregoing, no Holder shall have any right of action whatsoever against the Collateral Agent as a result of the Collateral Agent acting or refraining from acting hereunder in accordance with the instructions of the Majority Holders or as otherwise specifically provided in the Agreement. 5. RELIANCE. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and its duties thereunder, upon advice of counsel selected by it. II-2 6. LIMITATION OF HOLDER LIABILITY. The Holders shall not be liable for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in performing its duties hereunder or under the Agreement, or in any way relating to or arising out of the Agreement. 7. THE COLLATERAL AGENT IN ITS INDIVIDUAL CAPACITY. The Collateral Agent and its affiliates may lend money to, purchase, sell and trade in securities of and generally engage in any kind of business with the Grantor or any affiliate or subsidiary of the Grantor as if it were not performing the duties specified herein, otherwise without having to account for the same to the Holders; provided, however, that the Collateral Agent on behalf of itself and such affiliates, hereby waives any claim, right or lien against the Collateral in any way arising from or relating to any such loan, securities transaction or business with the Grantor. The Collateral Agent is legal counsel to one of the initial Holders and may act as legal counsel for one or more other Holders in the future. By its acceptance of a Note, each Holder waives any conflict of interest that may arise from such representation. 8. HOLDERS. The Collateral Agent may deem and treat the holder of record of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof, as the case may be, shall have been filed with the Collateral Agent. Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the holder of record of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee, as the case may be, of such Note or of any Note(s) issued in exchange therefor. 9. RESIGNATION BY THE COLLATERAL AGENT. (a) The Collateral Agent may resign from the performance of all its functions and duties under the Agreement at any time by giving 60 days' prior written notice (as provided in the Agreement) to the Grantor and the Holders. Such resignation shall take effect upon the appointment of a successor Collateral Agent pursuant to clauses (b) and (c) below. (b) Upon any such notice of resignation, the Majority Holders shall appoint a successor Collateral Agent hereunder. (c) If a successor Collateral Agent shall not have been so appointed within said 60-day period, the Collateral Agent shall then appoint a successor Collateral Agent who shall serve as Collateral Agent hereunder or thereunder until such time, if any, as the Majority Holders appoint a successor Collateral Agent as provided above. If a successor Collateral Agent has not been appointed within such II-3 60-day period, the Collateral Agent may petition any court of competent jurisdiction or may interplead the Grantor and Holders in a proceeding for the appointment of a successor Collateral Agent, and all fees, including but not limited to extraordinary fees associated with the filing of interpleader, and expenses associated therewith shall be payable by the Grantor. (d) The fees of any successor Collateral Agent for its services as such shall be payable by the Grantor. II-4