EXHIBIT 3.1
STATEMENT OF DESIGNATIONS
OF THE SERIES A CONVERTIBLE PREFERRED STOCK OF
ZIX CORPORATION
The undersigned, Ronald A. Woessner, does hereby certify that:
(a) he is, and at all times mentioned herein was, the duly
elected Senior Vice President and General Counsel of Zix Corporation, a Texas
corporation (the "Corporation");
(b) the Restated Articles of Incorporation of the Corporation,
filed with the Secretary of State of the State of Texas on December 4, 2001, as
amended (the "Articles of Incorporation"), authorize the Board of Directors of
the Corporation to provide for the issuance of the Preferred Stock from time to
time in one or more series, to establish the number of shares to be included in
each series, and to fix the designations, powers, relative rights,
qualifications, preferences, limitations and restrictions of the shares of each
such series;
(c) the Board of Directors of the Corporation adopted the
following resolutions on September 9, 2002, at a special meeting of the Board of
Directors of the Corporation, and such resolutions have not been rescinded or
amended and are in full force and effect as of the date hereof:
WHEREAS, the Restated Articles of Incorporation of the
Corporation, filed with the Secretary of State of the State of Texas on December
4, 2001, as amended (the "Articles of Incorporation"), authorize the Corporation
to issue ten million (10,000,000) shares of Preferred Stock, par value $1.00 per
share ("Preferred Stock"); and
WHEREAS, the Articles of Incorporation authorize the Board of
Directors of the Corporation (the "Board"), within the limitations set forth in
the Texas Business Corporation Act (the "Corporation Act"), to provide for the
issuance of the Preferred Stock from time to time in one or more series, to
establish the number of shares to be included in each series, and to fix the
designations, powers, relative rights, qualifications, preferences, limitations
and restrictions of the shares of each such series not fixed by the Articles of
Incorporation; and
WHEREAS, the Articles of Incorporation do not fix the
designations, powers, relative rights, qualifications, preferences, limitations
and restrictions of any of the Preferred Stock; and
WHEREAS, there are no outstanding Statements of Designations
of Preferred Stock with respect to any shares of the Corporation's authorized
but unissued Preferred Stock, other than that certain Statement of Designations
of the Series B Convertible Preferred Stock of Zix Corporation, filed
contemporaneously herewith, providing for the designation of a series of one
million three hundred four thousand eight hundred fifteen (1,304,815) shares of
Preferred Stock; and
WHEREAS, based on the foregoing, there remains eight million
six hundred ninety-five thousand one hundred eighty-five (8,695,185) shares of
the Corporation's authorized but unissued Preferred Stock eligible for
designation by the Corporation with respect to new series thereof; and
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WHEREAS, it is the desire of the Board to designate a "Series
A Convertible Preferred Stock" consisting of eight hundred nineteen thousand
eight hundred eighty-six (819,886) shares of the Corporation's authorized but
unissued Preferred Stock, and to fix the powers, relative rights,
qualifications, preferences, limitations and restrictions thereof;
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
expressly granted to and vested in the Board by the provisions of the Articles
of Incorporation, there hereby is created, out of the ten million (10,000,000)
shares of Preferred Stock authorized in Article IV of the Articles of
Incorporation, a series of Preferred Stock of the Corporation consisting of
eight hundred nineteen thousand eight hundred eighty-six (819,886) shares,
having the following powers, relative rights, qualifications, preferences,
limitations and restrictions:
1. Designation; Number of Shares; Original Issue Price. The shares of
such series will be designated as "Series A Convertible Preferred Stock" (the
"Series A Preferred"). The number of shares of Series A Preferred will be
limited to eight hundred nineteen thousand eight hundred eighty-six (819,886).
The original issue price of the Series A Preferred is $3.92 per share (the
"Original Issue Price").
2. Rank. The Series A Preferred will rank, with respect to rights on
Liquidation (as defined in Section 4(c)), (a) senior to the common stock, par
value $0.01 per share, of the Corporation (the "Common Stock") and each other
class of capital stock or series of Preferred Stock established after the date
of this Statement of Designations that does not expressly provide that it ranks
senior to or on parity with the Series A Preferred as to rights on Liquidation
(collectively referred to as "Junior Securities"), (b) on a parity with the
Series B Convertible Preferred Stock, par value $1.00 per share, of the
Corporation (the "Series B Preferred") and each other class of capital stock or
series of Preferred Stock established after the date of this Statement of
Designations that expressly provides that such class or series will rank on a
parity with the Series A Preferred as to rights on Liquidation (collectively
referred to as "Parity Securities") and (c) junior to each other class of
capital stock or series of Preferred Stock established after the date of this
Statement of Designations that expressly provides that such class or series will
rank senior to the Series A Preferred as to rights on Liquidation (collectively
referred to as "Senior Securities").
3. Dividends. The holders of the Series A Preferred will be entitled to
receive, out of any funds at the time legally available therefor, a per annum
dividend equal to six and one-half percent (6.50%) of the Original Issue Price
(as adjusted for any recapitalizations, stock splits or combinations of the
Series A Preferred or stock dividends on the Series A Preferred to the extent
paid in shares of Series A Preferred) (the "Series A Preferred Dividends"). The
Series A Preferred Dividends will be payable when and as declared by the Board,
will be cumulative and will accrue on each share of Series A Preferred from day
to day, commencing on the date of issuance of such share, whether or not earned
or declared. The Corporation will not declare, pay or set aside for payment any
dividend or distribution (whether in cash, securities or other property, other
than dividends or distributions payable solely in shares of Common Stock) to the
holders of the Common Stock or any other Junior Securities until all Series A
Preferred Dividends have been paid at the rate specified above, including all
dividends that have accumulated but remain unpaid. All Series A Preferred
Dividends will be payable in the manner provided in Section 5 and Section 7.
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4. Liquidation Preference. Upon the occurrence of a Liquidation,
distributions to the holders of Series A Preferred will be made in the following
manner:
(a) Priority of Distributions to Series A Preferred on
Liquidation. After payment or provision for payment of the
Corporation's debts and other liabilities and any payments and
distributions payable to the holders of any Senior Securities has been
made, the holders of Series A Preferred then outstanding will be
entitled to receive, prior and in preference to any distribution of any
assets or surplus funds of the Corporation to the holders of shares of
Common Stock or other Junior Securities by reason of their ownership of
such stock, an amount equal to the Series A Liquidation Preference (as
defined in Section 4(c)). If, upon any Liquidation, the assets and
surplus funds of the Corporation are insufficient to make payment in
full of the Series A Liquidation Preference and any payments and
distributions payable to the holders of any Parity Securities
(including the Series B Preferred), then such assets and funds will be
distributed ratably among the holders of Series A Preferred and the
holders of Parity Securities then outstanding in proportion to the full
amounts to which they would otherwise be entitled.
(b) Valuation of Non-Cash Assets. If any of the assets
distributed by the Corporation upon a Liquidation is other than cash,
its value will be deemed to be its fair market value determined as
follows:
(i) Securities not subject to restrictions on free
marketability will be valued as follows: (A) if traded on a
securities exchange or through the Nasdaq Market, the value
will be deemed to be the average of the closing prices of the
securities on such exchange or market over the thirty (30) day
period ending on the business day immediately prior to date of
the Liquidation; (B) if actively traded over-the-counter, the
value will be deemed to be the average of the closing sale
price, or, if there is no sale on a particular date, the
closing bid price, over the thirty (30) day period ending on
the business day immediately prior to date of the Liquidation;
and (C) if there is no active public market, the value will be
the fair market value thereof, as determined in good faith by
the Board.
(ii) Securities subject to restrictions on free
marketability (other than restrictions arising solely by
virtue of a shareholder's status as an affiliate or former
affiliate) will be valued in such a manner as to make an
appropriate discount from the market value determined pursuant
to Section 4(b)(i) to reflect the approximate fair market
value thereof, as determined in good faith by the Board.
(iii) Any other asset will be valued at its fair
market value as determined in good faith by the Board.
(c) Certain Definitions.
(i) "Change of Control" means (1) the sale, transfer
or other disposition of all or substantially all of the assets
of the Corporation (other than a
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transfer by pledge or mortgage to a bona fide lender) or (2)
the merger or consolidation of the Corporation with or into
any other entity, or the consummation of any other transaction
or series of related transactions by the shareholders of the
Corporation, that results in the shareholders of the
Corporation immediately prior to such merger, consolidation,
transaction or series of related transactions owning less than
a majority of the voting securities of the Corporation (or the
surviving entity in any such merger or consolidation)
immediately following such merger, consolidation, transaction
or series of related transactions. The Corporation will give
each holder of Series A Preferred written notice of a Change
of Control not less than thirty (30) business days prior to
the consummation thereof.
(ii) "Liquidation" means the occurrence of any one of
the following events: (A) any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary
(other than a liquidation, dissolution or winding up effected
for the purpose of reincorporating the Corporation in another
jurisdiction wherein the rights of the Series A Preferred are
not adversely affected) or (B) a Change of Control, if and
only if the holders of a majority of the shares of Series A
Preferred then outstanding elect to treat such Change of
Control as a Liquidation by delivering a written notice of
such election, executed by such holders, to the Corporation
not less than twenty-three (23) business days prior to the
consummation thereof. The Corporation will promptly, but in no
event more than three (3) business days following the receipt
of such election, notify the holders of the Senior Convertible
Notes of such election by the holders of Series A Preferred.
(iii) "Senior Convertible Notes" means those certain
Convertible Notes, convertible into shares of Common Stock
under certain circumstances, issued on the First Issue Date.
(iv) "Series A Liquidation Preference" means, for
each share of Series A Preferred, 100% of the sum of (A) the
Original Issue Price (as adjusted for any recapitalizations,
stock splits or combinations of the Series A Preferred or
stock dividends on the Series A Preferred to the extent paid
in shares of Series A Preferred) and (B) the amount of all
Series A Preferred Dividends payable in respect of such share
that have accumulated through the date of Liquidation but
remain unpaid.
5. Conversion Rights. Subject to the limitations set forth in Section
8, the shares of Series A Preferred will be convertible into shares of Common
Stock as follows:
(a) Optional Conversion of Series A Preferred. Each share of
Series A Preferred will be convertible at the option of the holder
thereof, at any time, into fully paid and nonassessable shares of
Common Stock. Any holder of Series A Preferred may exercise the
conversion right pursuant to this Section 5(a) as to all of such
holder's shares of Series A Preferred, or any portion thereof. To
exercise its conversion rights pursuant to this Section 5(a), a holder
must deliver to the Corporation during regular business
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hours, at the Corporation's principal office or at the office of any
transfer agent of the Corporation for such Series A Preferred, as the
case may be, or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares of Series A
Preferred to be converted, duly endorsed for transfer to the
Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares. Notwithstanding the
foregoing, for so long as Section 8(a) is in effect, no holder will be
entitled to exercise conversion rights pursuant to this Section 5(a) to
the extent that the aggregate number of shares of Common Stock issued
to such holder upon conversion or redemption of shares of Series A
Preferred (whether pursuant to this Section 5(a) or otherwise) will be
greater than the product (the "Allocated Number") of the Maximum Number
(as defined in Section 8(a)) multiplied by a fraction, the numerator of
which is the number of shares of Series A Preferred originally issued
to such holder and the denominator of which is two million one hundred
twenty-four thousand seven hundred one (2,124,701). Upon any transfer
of shares of Series A Preferred, a proportionate amount of the
Allocated Number will be deemed transferred from the transferor of such
shares to the transferee of such shares.
(b) Mandatory Conversion of Series A Preferred. Each share of
Series A Preferred will be convertible at the option of the
Corporation, following the satisfaction of the Mandatory Conversion
Condition (as defined below), into fully paid and nonassessable shares
of Common Stock. The Corporation may exercise its conversion right
pursuant to this Section 5(b) as to all of the outstanding shares of
Series A Preferred, or any portion thereof. If the Corporation
exercises its conversion rights pursuant to this Section 5(b) as to
less than all of the outstanding shares of Series A Preferred, the
shares of Series A Preferred to be converted will be allocated pro rata
among the holders of the outstanding shares of the Series A Preferred
in proportion to the number of such shares then held by each such
holder. The Corporation may exercise its conversion rights pursuant to
this Section 5(b) only if the Corporation simultaneously exercises its
conversion rights pursuant to any substantially similar provision of
the Statement of Designations of the Series B Convertible Preferred
Stock of Zix Corporation with respect to a substantially similar
proportion of the outstanding shares of Series B Preferred. To exercise
its conversion rights pursuant to this Section 5(b), the Corporation
must deliver to each holder of record of Series A Preferred a written
notice setting forth the effective date of such conversion (which may
not be earlier than the date such notice is given), the aggregate
number of shares of Series A Preferred that the Corporation elects to
convert, the number of shares of Series A Preferred held by such holder
to be converted and the procedures to be followed by such holder to
surrender the certificates representing the shares of Series A
Preferred being converted. Upon receipt of such notice of mandatory
conversion, each holder of Series A Preferred must surrender the
certificates evidencing the shares of Series A Preferred to be
converted to the Corporation at the place designated in such notice and
will thereupon be entitled to receive certificates representing the
shares of Common Stock into which such shares of Series A Preferred
have been converted. The "Mandatory Conversion Condition" is that, at
any time following the effectiveness of a registration statement, filed
under the Securities Act of 1933, as amended, covering the resale of
the shares of Common Stock issuable upon the conversion of shares of
Series A Preferred, the closing price (last trade) of the Common Stock
on the Principal Market (as defined below) is above $6.18 per share (as
adjusted
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for any recapitalizations, stock splits or combinations of the Common
Stock or stock dividends on the Common Stock to the extent paid in
shares of Common Stock) for the ten (10) consecutive trading days
immediately preceding the date of the Corporation's written notice of
mandatory conversion. "Principal Market" means the Nasdaq National
Market or, if the Common Stock is not traded on the Nasdaq National
Market, then the principal securities exchange or trading market for
the Common Stock.
(c) Conversion Rate. The number of shares of Common Stock into
which each share of Series A Preferred will be converted pursuant to
this Section 5 will be determined by dividing (i) the sum of (A) the
Original Issue Price (as adjusted for any recapitalizations, stock
splits or combinations of the Series A Preferred or stock dividends on
the Series A Preferred to the extent paid in shares of Series A
Preferred) and (B) the amount of all Series A Preferred Dividends
payable in respect of such share that have accumulated through the date
of conversion but remain unpaid by (ii) the Conversion Price in effect
at the time of the conversion. The initial "Conversion Price" is $4.12
per share, subject to adjustment as provided in Section 6.
(d) Conversion Date. Conversion will be deemed to be effective
on the date when all required deliveries for optional conversion set
forth in Section 5(a) have been made or the effective date set forth in
the Corporation's notice of mandatory conversion pursuant to Section
5(b), and such date is referred to herein as the "Conversion Date." As
promptly as practicable after the Conversion Date (or such later date
on which certificates representing converted shares of Series A
Preferred have been surrendered by a holder to the Corporation in
accordance with the Corporation's notice of mandatory conversion), the
Corporation will issue and deliver to the holder a certificate or
certificates for the number of full shares of Common Stock to which
such holder is entitled and a check for cash with respect to any
fractional interest as provided in Section 5(e). The holder will be
deemed to have become a shareholder of record of Common Stock on the
applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event the holder will be deemed to
have become a shareholder of record of Common Stock on the next
succeeding date on which the transfer books are open, but the
Conversion Price will be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares of Series A
Preferred represented by a certificate surrendered for conversion, the
Corporation will issue and deliver to the holder a new certificate for
the number of shares of Series A Preferred represented by the
unconverted portion of the certificate surrendered.
(e) Fractional Shares. No fractional shares of Common Stock
will be issued upon conversion of shares of Series A Preferred and the
number of shares of Common Stock issued upon any conversion will be
rounded down to the nearest whole share. Instead of issuing any
fractional shares of Common Stock that would otherwise be issuable upon
conversion of any shares of Series A Preferred, the Corporation will
pay a cash amount in respect of such fractional interest equal to the
fractional interest multiplied by the Conversion Price. If the shares
of Series A Preferred being converted by a holder at one time are
represented by more than one certificate surrendered for conversion,
the number of whole shares of Common Stock issuable upon such
conversion
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will be computed on the basis of the aggregate number of shares of
Series A Preferred to be converted and represented by all such
surrendered certificates.
(f) Taxes. The Corporation will pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series A Preferred pursuant
hereto. The Corporation will not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in
which the shares of Series A Preferred so converted were registered,
and no such issue or delivery will be made unless and until the person
requesting such issue has paid to the Corporation the amount of any
such tax, or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(g) No Reissuance of Shares. All certificates of Series A
Preferred surrendered for conversion will be appropriately canceled on
the books of the Corporation, and the shares so converted will not
thereafter be issuable by the Corporation.
6. Adjustment of the Conversion Price. The Conversion Price in effect
from time to time will be subject to adjustment from time to time as follows:
(a) Subdivisions, Stock Dividends or Combinations. If the
Corporation, at any time after the effective date of this Statement of
Designations (the "Effective Date"), subdivides the outstanding shares
of Common Stock, or issues a dividend on its outstanding Common Stock
in shares of Common Stock or securities exchangeable or convertible
into shares of Common Stock, each of the Issue Date Market Price (as
defined in Section 6(d)(vii)) and the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend
will be proportionately decreased, and in case the Corporation at any
time combines the outstanding shares of Common Stock, each of the Issue
Date Market Price and the Conversion Price in effect immediately prior
to such combination will be proportionately increased, effective at the
close of business on the date of such subdivision, dividend or
combination, as the case may be.
(b) Other Distributions. If the Corporation, at any time after
the Effective Date, declares a distribution on its outstanding Common
Stock payable in securities (other than shares of Common Stock or
securities exchangeable or convertible into shares of Common Stock),
evidences of indebtedness issued by the Corporation or other persons or
other assets (other than cash dividends), then, in each such case, the
holders of Series A Preferred will be entitled to a proportionate share
of any such distribution as though they were the holders of the number
of shares of Common Stock of the Corporation into which their shares of
Series A Preferred are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.
(c) Reorganization or Reclassification. Upon the effectiveness
of any capital reorganization (other than a subdivision or combination
of outstanding shares of Common Stock or a Liquidation) or any
reclassification of the capital stock of the
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Corporation, each share of Series A Preferred will thereafter be
convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of
the Corporation deliverable upon conversion of such Series A Preferred
would have been entitled upon such reorganization or reclassification;
and, in any such case, appropriate adjustment (as determined in good
faith by the Board) will be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of
the holders of the Series A Preferred, to the end that the provisions
set forth herein (including provisions with respect to changes in and
other adjustments of the Conversion Price) will thereafter be
applicable, as nearly as reasonably may be, in relation to any share of
stock or other property thereafter deliverable upon the conversion of
the Series A Preferred.
(d) Discount Sale of Common Stock. The Conversion Price will
be adjusted in accordance with this Section 6(d) in the event that the
Corporation consummates any Discount Sale of Common Stock (as defined
in Section 6(d)(vii)). The provisions of this Section 6(d) will
similarly apply to successive Discount Sales of Common Stock.
(i) Weighted Average. Upon the consummation of any
Discount Sale of Common Stock, the Conversion Price
theretofore in effect will become the greater of the Minimum
Conversion Price or the price, calculated to the nearest cent,
obtained by dividing:
(A) an amount equal to the sum of (1) the
then-existing Conversion Price multiplied by the
number of shares of Common Stock outstanding
immediately prior to such Discount Sale of Common
Stock (assuming the full exercise of all options,
rights and warrants then exercisable for Equity
Securities and the full conversion or exchange of all
Equity Securities that are then convertible or
exchangeable for Common Stock, including all shares
of the Series A Preferred, at the rate of conversion
or exchange then in effect) and (2) an amount equal
to the aggregate consideration received by the
Corporation upon such Discount Sale of Common Stock;
by
(B) the number of shares of Common Stock
outstanding immediately after such Discount Sale of
Common Stock (assuming the full exercise of all
options, rights and warrants then exercisable for
Equity Securities and the full conversion or exchange
of all Equity Securities that are then convertible or
exchangeable for Common Stock, including all shares
of the Series A Preferred, at the rate of conversion
or exchange then in effect).
(ii) Valuation of Consideration. In the case of a
Discount Sale of Common Stock for cash, the "aggregate
consideration received" by the Corporation therefor will be
deemed to be the amount of cash received before deducting
therefrom any commissions or expenses paid by the Corporation.
In
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case of a Discount Sale of Common Stock for consideration
other than cash, or consideration partly other than cash, the
value of the "aggregate consideration received" other than
cash received by the Corporation for such shares will be the
fair market value of such property received by the Corporation
as determined in accordance with Section 4(b).
(iii) Issuance of Options to Purchase Common Stock.
If the Corporation issues any options, rights or warrants to
subscribe for or purchase shares of Common Stock, all shares
of Common Stock issuable upon the exercise of such options,
rights or warrants will be deemed issued as of the date such
options, rights or warrants are issued, and the amount of the
"aggregate consideration received" by the Corporation for such
deemed issuance of Common Stock will be deemed to be the total
of (A) the amount of consideration received by the
Corporation, if any, upon the issuance of such options, rights
or warrants, plus (B) the minimum aggregate consideration, if
any, other than the surrender of such options, rights or
warrants, to be received by the Corporation upon the exercise
of such options, rights or warrants for shares of Common
Stock.
(iv) Issuance of Convertible Securities. If the
Corporation issues any obligations or shares of stock that
are, or may be under specified circumstances, convertible into
or exchangeable for Common Stock, all shares of Common Stock
issuable upon the conversion or exchange of such obligations
or shares will be deemed issued as of the date such
obligations or shares are issued, and the amount of the
"aggregate consideration received" by the Corporation for such
deemed issuance of Common Stock will be deemed to be the total
of (A) the amount of consideration received by the
Corporation, if any, upon the issuance of such obligations or
shares, plus (B) the minimum aggregate consideration, if any,
other than the surrender of such obligations or shares, to be
received by the Corporation upon such conversion or exchange
for shares of Common Stock.
(v) Issuance of Options to Purchase Convertible
Securities. If the Corporation issues any options, rights or
warrants to subscribe for or purchase any obligations or
shares of stock that are, or may be under specified
circumstances, convertible into or exchangeable for Common
Stock, all shares of Common Stock issuable upon the exercise
of such options, rights or warrants for such obligations or
shares and the concurrent conversion or exchange or such
obligations or shares for shares of Common Stock will be
deemed issued as of the date such options, rights or warrants
are issued, and the amount of the "aggregate consideration
received" by the Corporation for such deemed issuance of
Common Stock will be deemed to be the total of (A) the amount
of consideration received by the Corporation, if any, upon the
issuance of such options, rights or warrants, plus (B) the
minimum aggregate consideration, if any, other than the
surrender of such options, rights or warrants, to be received
by the Corporation upon the exercise of such options, rights
or warrants for such obligations or shares, plus (C) the
minimum aggregate consideration, if any, other than the
surrender of such obligations or shares, to be received by the
Corporation upon such conversion or exchange of such
obligations or shares for shares of Common Stock.
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(vi) Recalculation Upon Expiration of Options. On the
expiration of any options, rights or warrants referred to in
Section 6(d)(iii) or Section 6(d)(v) or the termination of any
right of conversion or exchange referred to in Section
6(d)(iv) or Section 6(d)(v) or upon any change in the number
of shares of Common Stock deliverable or actually delivered
upon the exercise of such options, rights or warrants or upon
the conversion of or exchange of such convertible or
exchangeable securities, the Conversion Price then in effect
will forthwith be readjusted to the Conversion Price that
would have been obtained had the adjustments made upon the
issuance of such option, right or convertible or exchangeable
securities been made upon the basis of the delivery of only
the number of shares of Common Stock actually delivered or to
be delivered upon the exercise of such options, rights or
warrants or upon the conversion or exchange of such
securities. No readjustment pursuant to this Section 6(d)(vi)
will have the effect of increasing the Conversion Price to an
amount that exceeds the lower of (A) the Conversion Price on
the original adjustment date or (B) the Conversion Price that
would have resulted from other Discount Sales of Common Stock
occurring between the Effective Date and such adjustment date;
provided, however, that nothing in this Section 6(d)(vi) will
limit the application of Section 6(a) under the circumstances
described therein.
(vii) Certain Definitions.
(A) "Discount Sale of Common Stock" means
any issuance, other than an Exempt Issuance (as
defined below), by the Corporation of any Equity
Security after the First Issue Date for consideration
per share of Common Stock, or per share of Common
Stock into which such Equity Security is exercisable
and/or convertible, that is less than the Conversion
Price in effect immediately prior to the effective
time of such issuance or sale.
(B) "Equity Security" means (1) Common
Stock, (2) any right or option to purchase Common
Stock, (3) any obligation or security convertible
into or exchangeable for Common Stock and (4) any
right or option to purchase any obligation or
security convertible into or exchangeable for Common
Stock.
(C) "Exempt Issuance" means any issuance of
Equity Securities (1) pursuant to any employee
benefit plan of the Corporation in effect on the
First Issue Date; (2) to officers, directors,
employees or consultants of the Corporation pursuant
to the grant or exercise of options that are granted
pursuant to any employee benefit plan approved by the
shareholders of the Corporation after the First Issue
Date to the extent that such issuance, together will
all other issuances to which this clause (2) has been
applied, will not result in the issuance or potential
issuance of more than 4,000,000 shares of Common
Stock (as adjusted for any recapitalizations, stock
splits or combinations of the Common Stock or stock
dividends on the Common Stock to the extent paid in
shares of
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Common Stock); (3) upon the conversion, exchange or
exercise of any right, option, obligation or security
outstanding on the First Issue Date, provided that
the terms of any such right, option, obligation or
security are not amended or otherwise altered on or
after the First Issue Date; (4) in connection with
the sale and issuance of shares of Series A
Preferred, shares of Series B Preferred and Senior
Convertible Notes on the First Issue Date (including
(a) the issuance of warrants to the initial
purchasers of Series A Preferred, Series B Preferred
and Senior Convertible Notes and (b) the conversion,
redemption, exchange or exercise of such Series A
Preferred, Series B Preferred, Senior Convertible
Notes and warrants in accordance with their
respective terms), provided that the terms of any
such securities are not amended or otherwise altered
on or after the First Issue Date; (5) in connection
with any stock dividend, stock subdivision,
reorganization or recapitalization described in
Section 6(a) or Section 6(c); (6) (a) to suppliers,
customers or strategic partners of the Corporation
investing in connection with a commercial
relationship with the Corporation, the primary
purpose of which is not to raise capital, and (b) as
consideration for mergers or consolidations or
acquisitions of businesses or their tangible or
intangible assets, other than transactions in which
cash or cash equivalents represent a majority of the
assets acquired, provided that the aggregate number
of shares of Common Stock that may be issued or
potentially issued under this clause (6) may not
exceed 400,000 shares (as adjusted for any
recapitalizations, stock splits or combinations of
the Common Stock or stock dividends on the Common
Stock to the extent paid in shares of Common Stock);
(7) in connection with leases; and (8) to former
employees in satisfaction of severance obligations of
the Corporation.
(D) "First Issue Date" means the date on
which the first shares of Series A Preferred are
issued.
(E) "Issue Date Market Price" means $3.92
(as adjusted pursuant to Section 6(a) and, to the
extent permissible under the rules and regulations of
the Principal Market, pursuant to Section 6(c)).
(F) "Minimum Conversion Price" means (1) if
approved by the shareholders (and such approval is
sufficient, under the rules and regulations of the
Principal Market, to permit the conversion of Series
A Preferred at a conversion price not less than par
value), the par value of the Common Stock, or (2) if
otherwise, the Issue Date Market Price.
(e) Computation and Notice. Upon the occurrence of each
adjustment of any Conversion Price pursuant to this Section 6, the
Corporation will promptly compute such adjustment in accordance with
the terms hereof and furnish to each holder of Series A Preferred
affected thereby a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based.
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(f) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or this Statement of Designations or
through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Statement of Designations
and in the taking of all such action as may be necessary or appropriate
in order to protect the conversion rights of the holders of Series A
Preferred against impairment; provided, however, that this Section 6(f)
will not apply to the issuance by the Corporation of the Senior
Convertible Notes, shares of Series B Preferred or warrants issued to
the purchasers of the Senior Convertible Notes and Series B Preferred.
7. Redemption Rights. Subject to the limitations set forth in Section
8, the shares of Series A Preferred will be subject to redemption as follows:
(a) Interim Mandatory Redemption. On each of the eight (8)
month, ten (10) month, twelve (12) month, fourteen (14) month, sixteen
(16) month, eighteen (18) month, twenty (20) month and twenty-two (22)
month anniversaries of the First Issue Date (each, an "Interim
Redemption Date"), the Corporation will redeem a number of shares of
Series A Preferred that is the lesser of (i) ninety-one thousand
ninety-nine (91,099) shares of Series A Preferred and (ii) the number
of shares of Series A Preferred outstanding on such Interim Redemption
Date. All redemptions of less than all of the outstanding shares of
Series A Preferred will be allocated pro rata among the holders of the
outstanding shares of the Series A Preferred in proportion to the
number of such shares then held by each such holder.
(b) Final Mandatory Redemption. On the two (2) year
anniversary of the First Issue Date (the "Final Redemption Date"), the
Corporation will redeem all shares of Series A Preferred outstanding on
such date. The Interim Redemption Dates and the Final Redemption Date
are referred to collectively as the "Redemption Dates" and each, as a
"Redemption Date."
(c) Redemption Price. The redemption price to be paid by the
Corporation for each share of Series A Preferred redeemed pursuant to
this Section 7 (the "Redemption Price") will be the sum of (i) the
Original Issue Price (as adjusted for any recapitalizations, stock
splits or combinations of the Series A Preferred or stock dividends on
the Series A Preferred to the extent paid in shares of Series A
Preferred) and (ii) the amount of all Series A Preferred Dividends
payable in respect of such share that have accumulated through the date
of conversion but remain unpaid.
(d) Payment of the Redemption Price.
(i) Interim Redemption Dates.
(A) The Redemption Price payable with
respect to each Interim Redemption Date will be
payable by the issuance by the
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Corporation of shares of Common Stock. The number of
shares of Common Stock to be issued to each holder of
Series A Preferred upon the redemption of shares of
Series A Preferred will be determined by dividing (1)
the aggregate Redemption Price owing to such holder
by (2) the Issue Date Market Price.
(B) If the Corporation is prohibited by the
operation of Section 8 from issuing the full number
of shares of Common Stock to which holders of Series
A Preferred are entitled to receive upon a redemption
of Series A Preferred pursuant to Section 7(a), then
the Corporation will first issue the maximum number
of shares of Common Stock that it is permitted to
issue consistent with Section 8, and thereafter pay
the balance of the Redemption Price either, at the
Corporation's option, in cash or by the issuance of
an unsecured promissory note (the "Subordinated
Note") having a term of twelve (12) months, bearing a
rate of interest of six and one-half percent (6.50%)
and that is subordinated to the rights of the Senior
Convertible Notes; provided, however, that prior to
the payment in full of the Senior Convertible Notes,
the Corporation may issue only a Subordinated Note in
such circumstances.
(C) If the Corporation is prohibited by the
operation of Section 8 from issuing the full number
of shares of Common Stock to which holders of Series
A Preferred are entitled to receive upon a redemption
of Series A Preferred pursuant to Section 7(a), and
the Corporation does not have sufficient funds or is
not permitted under applicable law to redeem the
shares of Series A Preferred required to be redeemed
on such Redemption Date in cash or by issuance of a
Subordinated Note pursuant to Section 7(d)(i)(B), the
Corporation will use all legally available funds to
effect such redemption in cash or by issuance of a
Subordinated Note. The Corporation will allocate the
shares of Series A Preferred to be redeemed ratably
among the holders of the outstanding shares of the
Series A Preferred in proportion to the number of
such shares then held by each holder. The shares of
Series A Preferred not redeemed will remain
outstanding and entitled to all of the rights and
preferences provided herein. Subject to the other
provisions hereof, the Corporation will redeem the
balance of the shares of Series A Preferred not
redeemed, by the payment of cash or issuance of a
Subordinated Note, on the first date thereafter on
which the Corporation may legally do so.
(ii) Final Redemption Date.
(A) The Redemption Price payable with
respect to the Final Redemption Date will be payable,
at the option of the Corporation, by either (1) cash,
provided that the Corporation has sufficient funds
and is permitted under applicable law to redeem the
shares of Series A Preferred required to be redeemed
on the Final Redemption Date in cash, or (2) the
issuance by the Corporation of shares of Common
Stock. The
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number of shares of Common Stock to be issued to each
holder of Series A Preferred upon the redemption of
shares of Series A Preferred will be determined by
dividing (a) the aggregate Redemption Price owing to
such holder by (b) the lesser of the arithmetic mean
of the closing bid prices of the Common Stock on the
Principal Market on the five (5) trading days
immediately preceding the Final Redemption Date (the
"Final Redemption Market Price") or the Issue Date
Market Price; provided, however, that, unless the
Corporation has obtained the approval of its
shareholders of the issuance of shares of Common
Stock to the directors and officers of the
Corporation at a price less than the Issue Date
Market Price, if the Final Redemption Market Price is
less than the Issue Date Market Price, the Redemption
Price payable with respect to the Final Redemption
Date must be paid in cash.
(B) If the Corporation is prohibited by the
operation of Section 8 from issuing the full number
of shares of Common Stock to which holders of Series
A Preferred are entitled to receive upon a redemption
of Series A Preferred pursuant to Section 7(b), then
the Corporation will first issue the maximum number
of shares of Common Stock that it is permitted to
issue consistent with Section 8, and thereafter pay
the balance of the Redemption Price in cash.
(C) If the Corporation is prohibited by the
operation of Section 8 from issuing the full number
of shares of Common Stock to which holders of Series
A Preferred are entitled to receive upon a redemption
of Series A Preferred pursuant to Section 7(b), and
the Corporation does not have sufficient funds or is
not permitted under applicable law to redeem the
shares of Series A Preferred required to be redeemed
on such Redemption Date in cash pursuant to Section
7(d)(ii)(B), the Corporation will use all legally
available funds to effect such redemption in cash.
The Corporation will allocate the shares of Series A
Preferred to be redeemed ratably among the holders of
the outstanding shares of the Series A Preferred in
proportion to the number of such shares then held by
each holder. The shares of Series A Preferred not
redeemed will remain outstanding and entitled to all
of the rights and preferences provided herein.
Subject to the other provisions hereof, the
Corporation will redeem the balance of the shares of
Series A Preferred not redeemed, by the payment of
cash, on the first date thereafter on which the
Corporation may legally do so.
(e) Deferral of Interim Mandatory Redemptions. With respect to
any redemption on an Interim Redemption Date, if the Issue Date Market
Price is greater than the arithmetic mean of the closing bid prices of
the Common Stock on the Principal Market on the five (5) trading days
immediately preceding such Interim Redemption Date (the "Interim
Redemption Market Price"), each holder of Series A Preferred will have
the right, exercisable at such holder's option, to defer the redemption
of such holder's shares of Series A Preferred scheduled to take place
on such Interim Redemption Date until the
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next succeeding Redemption Date. Subject to further application of this
Section 7(e), on such next succeeding Redemption Date, the Corporation
will be required to redeem the shares of Series A Preferred subject to
such deferral of redemption in addition to any other shares of Series A
Preferred required to be redeemed on such date pursuant to Section 7(a)
or Section 7(b), as applicable. Each holder will be deemed to have
exercised such holder's rights under this Section 7(e) whenever such
rights are available unless such holder surrenders for redemption, as
provided in Section 7(g), the certificates representing the shares of
Series A Preferred within ten (10) days of the relevant Interim
Redemption Date.
(f) Notice of Redemption. Promptly following each Redemption
Date (but in no event later than three (3) business days following such
date), the Corporation must give written notice (a "Notice of
Redemption") to each holder of Series A Preferred. The Notice of
Redemption will set forth (i) the Redemption Date, (ii) the aggregate
number of shares of Series A Preferred to be redeemed on such date,
(iii) the number of shares of Series A Preferred held by such holder to
be redeemed on such date, (iv) the aggregate Redemption Price payable
to such holder on such date, (v) the Issue Date Market Price, (vi) the
Interim Redemption Market Price or the Final Redemption Market Price,
as applicable, and (vii) the procedures to be followed by such holder
to surrender for redemption the certificates representing the shares of
Series A Preferred being redeemed.
(g) Procedure for Redemption. Subject to Section 7(e), upon
receipt of such Notice of Redemption, each holder of Series A Preferred
must promptly surrender the certificates evidencing the shares of
Series A Preferred to be redeemed to the Corporation at the place
designated in such Notice of Redemption. As promptly as practicable
after certificates representing redeemed shares of Series A Preferred
have been surrendered by a holder to the Corporation in accordance with
the Notice of Redemption, the Corporation will issue and deliver to the
holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check for cash with
respect to any fractional interest as provided in Section 7(h). The
holder will be deemed to have become a shareholder of record of Common
Stock on the applicable Redemption Date unless the transfer books of
the Corporation are closed on that date, in which event the holder will
be deemed to have become a shareholder of record of Common Stock on the
next succeeding date on which the transfer books are open. If fewer
than the total number of shares of Series A Preferred represented by a
certificate are redeemed, the Corporation will issue and deliver to the
holder a new certificate representing the number of unredeemed shares
of Series A Preferred.
(h) Fractional Shares. No fractional shares of Common Stock
will be issued upon redemption of shares of Series A Preferred and the
number of shares of Common Stock issued upon any redemption will be
rounded down to the nearest whole share. Instead of issuing any
fractional shares of Common Stock that would otherwise be issuable upon
redemption of any shares of Series A Preferred, the Corporation will
pay a cash amount in respect of such fractional interest equal to the
fractional interest multiplied by the Issue Date Market Price. If the
shares of Series A Preferred being redeemed by a holder at one time are
represented by more than one certificate surrendered for redemption,
the number of whole shares of Common Stock issuable upon
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such redemption will be computed on the basis of the aggregate number
of shares of Series A Preferred to be redeemed and represented by all
such surrendered certificates.
(i) Rights in Preferred Stock Cease. From and after a
Redemption Date, unless the relevant Redemption Price has not been paid
or set aside for payment, all rights to undeclared dividends on the
Series A Preferred being redeemed will cease and all other rights of
the holders of such shares as holders of Series A Preferred (except the
right to receive the Redemption Price without interest upon surrender
of their certificate or certificates) will cease with respect to such
shares, and such shares will not thereafter be transferred on the books
of this Corporation or be deemed to be outstanding for any purpose
whatsoever.
(j) Taxes. The Corporation will pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on redemption of Series A Preferred pursuant
hereto. The Corporation will not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in
which the shares of Series A Preferred so redeemed were registered, and
no such issue or delivery will be made unless and until the person
requesting such issue has paid to the Corporation the amount of any
such tax, or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(k) No Reissuance of Shares. All certificates of Series A
Preferred surrendered for redemption will be appropriately canceled on
the books of the Corporation, and the shares so redeemed will not
thereafter be issuable by the Corporation.
8. Limitation on Issuance of Common Stock Upon Conversion or
Redemption.
(a) Limitation on Issuance of Common Stock. Notwithstanding
anything to the contrary set forth in Section 5 or Section 7, the
Corporation may not issue more than eight hundred seventy thousand six
hundred ninety-three (870,693) shares of Common Stock (as adjusted for
any recapitalizations, stock splits or combinations of the Common Stock
or stock dividends on the Common Stock to the extent paid in shares of
Common Stock) (as adjusted, the "Maximum Number") upon (i) the
conversion of shares of Series A Preferred pursuant to Section 5, (ii)
the redemption of shares of Series A Preferred pursuant to Section 7,
and (iii) the conversion or redemption of shares of Series B Preferred
pursuant to the Statement of Designations of the Series B Convertible
Preferred Stock of Zix Corporation.
(b) Shareholder Approval. The provisions of this Section 8
will be null and void and of no further force and effect from and after
the date on which the Corporation obtains the approval of its
stockholders as required by the applicable rules of the Principal
Market (or any successor rule or regulation) for issuances of shares of
Common Stock in excess of the number of shares of Common Stock that the
Corporation may issue without such approval upon Conversion Events (as
defined below) without breaching the Corporation's obligations under
the rules and regulations of the Principal Market.
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"Conversion Events" means (A) the conversion of shares of Series A
Preferred pursuant to Section 5, (B) the redemption of shares of Series
A Preferred pursuant to Section 7, (C) the conversion or redemption of
shares of Series B Preferred pursuant to the Statement of Designations
of the Series B Convertible Preferred Stock of Zix Corporation, (D) the
conversion of the Senior Convertible Notes and (E) the exercise of
warrants issued to the purchasers of the Senior Convertible Notes on
the First Issue Date.
9. Reservation of Shares. The Corporation will at all times reserve and
keep available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion and redemption of the Series A Preferred,
the number of shares of Common Stock that would be issuable upon the redemption
of all shares of Series A Preferred then outstanding at the Issue Date Market
Price. The Corporation will from time to time (subject to obtaining necessary
director and shareholder action), in accordance with the laws of the State of
Texas, increase the authorized amount of its Common Stock if at any time the
authorized number of shares of its Common Stock remaining unissued will not be
sufficient to permit the conversion of all of the shares of Series A Preferred
at the time outstanding or the redemption of all of the shares of Series A
Preferred to be redeemed on any Redemption Date (to the extent that the number
of shares of Common Stock issuable upon any such redemption has been fixed).
10. Voting Rights.
(a) Voting Together With Common Stock. The holder of each
share of Series A Preferred issued and outstanding will have the right
to one vote for each share of Common Stock into which such share of
Series A Preferred could be converted on the record date for the vote
or consent of shareholders (or, if no record date is established, at
the date such vote is taken or any written consent of shareholders is
first solicited). Each holder of shares of Series A Preferred will be
entitled to notice of any shareholders' meeting in accordance with the
Bylaws of the Corporation. The holders of Series A Preferred will vote
with the holders of the Common Stock (and the holders of shares of
Series A Preferred will have voting rights and powers equal to those of
the holders of the Common Stock) upon all matters upon which holders of
Common Stock have the right to vote, except those matters required by
law, the Articles of Incorporation or Section 10(b) to be submitted to
a class or series vote. Fractional votes will not be permitted and any
fractional voting rights available on an as-converted basis (after
aggregating all shares of Common Stock into which shares of Series A
Preferred held by each holder could then be converted) will be rounded
to the nearest whole number (with one-half being rounded upward).
Notwithstanding the foregoing, in no event will any share of Series A
Preferred entitle the holder thereof to a number of votes that is
greater than the number of votes that such holder would be entitled to
if such holder converted such share of Series A Preferred into shares
of Common Stock at a Conversion Price equal to the Original Issue Price
(as adjusted for any recapitalizations, stock splits or combinations of
the Series A Preferred or stock dividends on the Series A Preferred to
the extent paid in shares of Series A Preferred).
(b) Special Voting Rights of the Series A Preferred. The
Corporation will not take any of the following actions without first
obtaining the approval (by vote or written consent in the manner
provided by the Corporation Act) of the holders of at least a
17
majority of the total number of shares of Series A Preferred then
outstanding, voting separately as a class:
(i) any amendment or alteration of or addition to the
Articles of Incorporation or this Statement of Designations
that has a material and adverse effect on the rights,
preferences or privileges of the Series A Preferred;
(ii) the designation or issuance of any series of
Senior Securities;
(iii) the redemption, retirement or repurchase of any
shares of Junior Securities;
(iv) the declaration or payment of any dividend
(other than a dividend payable solely in shares of Common
Stock) to the holders of any Junior Securities; or
(v) a Liquidation.
11. Priority Upon Conversions and Redemptions. If, on any day, the
Corporation is unable to issue the full number of shares of Common Stock that
are issuable on such day upon any conversion or redemption of shares of Series A
Preferred and any Parity Securities, the Corporation will issue the number of
shares of Common Stock that it is able to issue ratably among the holders of the
Series A Preferred to be converted or redeemed and the holders of the Parity
Securities to be converted or redeemed in proportion to the full number of
shares of Common Stock to which each such holder would otherwise be entitled.
If, on any day, the Corporation is unable to pay the full amount of cash, or
issue the full original principal amount of Subordinated Notes, that is payable
or issuable on such day upon any conversion or redemption of shares of Series A
Preferred and any Parity Securities, the Corporation will pay the amount of
available cash, or issue Subordinated Notes with the maximum possible original
principal amount, ratably among the holders of the Series A Preferred to be
converted or redeemed and the holders of the Parity Securities to be converted
or redeemed in proportion to the full amount of cash or principal amount of
Subordinated Notes to which each such holder would otherwise be entitled.
12. Corporation Action. At any time that any shares of Series A
Preferred are held by any director or officer of the Corporation, the
Corporation may not exercise any right, remedy, option or election that it may
have pursuant to this Statement of Designations unless (a) the material facts as
to each such director or officer's ownership of shares of Series A Preferred and
interest in the exercise of such right, remedy, option or election are disclosed
or are known to the Board or any committee thereof, and (b) the Board or any
such committee in good faith authorizes the exercise of such right, remedy,
option or election by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors may be less than a quorum.
13. Notices. All notices, demands and other communications hereunder
must be in writing and will be deemed to have been duly given if delivered by
hand or express courier or when sent by facsimile transmission (with receipt
confirmed and a copy also sent by express courier), addressed (a) in the case of
a holder of the Series A Preferred, to such holder's address
18
of record and (b) in the case of the Corporation, to the Corporation's principal
executive offices to the attention of the Corporation's Secretary.
IN WITNESS WHEREOF, the Corporation has caused this Statement of
Designations of the Series A Convertible Preferred Stock of Zix Corporation to
be signed by its Senior Vice President and General Counsel on this 16th day of
September, 2002.
/s/ Ronald A. Woessner
--------------------------------------------
Ronald A. Woessner
Senior Vice President and General Counsel
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