zixi-def14a_20200610.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.           )

Filed by the Registrant

Filed by a Party other than the Registrant

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

ZIX CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

1)

Title of each class of securities to which transaction applies:

 

 

2)

Aggregate number of securities to which transaction applies:

 

 

3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

4)

Proposed maximum aggregate value of transaction:

 

 

5)

Total fee paid:

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

1)

Amount Previously Paid:

 

 

2)

Form, Schedule or Registration Statement No.:

 

 

3)

Filing Party:

 

 

4)

Date Filed:

 

 

 


 


 

 

 

 

 

 

ZIX CORPORATION

2711 North Haskell Avenue

Suite 2200, LB 36, Dallas, Texas 75204-2960

 

 

To our Shareholders,

 

You are cordially invited to attend the Annual Meeting of Shareholders of Zix Corporation, which will take place Wednesday, June 10, 2020, at 10:00 a.m. Central Time. Due to the emerging public health concerns related to the novel coronavirus (COVID-19) pandemic, the Annual Meeting will be a virtual meeting held over the Internet. You will be able to attend the virtual Annual Meeting, vote your shares electronically, and submit your questions during the live audio-only webcast of the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/ZIXI2020 and entering your control number contained on your proxy card. Details of the business to be conducted at the Annual Meeting are given in the Official Notice of the Meeting, Proxy Statement and form of proxy that accompany this letter.

 

Regardless of whether you plan to attend the virtual Annual Meeting, we encourage you to vote in advance so that we will know that we have a quorum of shareholders entitled to vote at the meeting. When you vote in advance, please indicate your intention to attend the virtual Annual Meeting. Please see the Question and Answer section of the enclosed Proxy Statement for instructions if you plan to attend the virtual Annual Meeting.

 

Whether or not you are able to attend the virtual Annual Meeting, it is important that your shares be represented and voted. Your prompt vote over the Internet, by telephone via toll-free number, or by written proxy will save us the expense and extra work of additional proxy solicitation. Voting by any of these methods at your earliest convenience will ensure your representation at the Annual Meeting if you choose not to attend the virtual Annual Meeting. If you decide to attend the virtual Annual Meeting, you will be able to vote electronically, even if you have personally submitted your proxy. Please review the instructions on the proxy card or the information forwarded by your bank, broker, or other holder of record concerning each of these voting options.

 

Finally, on behalf of our entire board and management team, I would like to say a profound word of thanks to Rick Spurr, who will be retiring from our board upon conclusion of our 2020 annual meeting of shareholders.  Rick has been with Zix for 16 years, having served as our CEO and Chairman from 2006 to 2014, and as a member of our board from 2005 to the present. Rick made meaningful contributions to Zix at a critical time in its development.  We value his dedicated service and will miss him.  As we say farewell to Rick, we are also delighted to welcome new board member Marcy Campbell, who brings her experience fostering rapid growth in technology companies.  We are very excited about the highly relevant experience, talent, and skills that Ms. Campbell brings to Zix.

 

We appreciate your continued interest in Zix Corporation.

 

 

On behalf of the Board of Directors,

 

 

 

 

 

 

Dallas, Texas

Robert C. Hausmann

April 24, 2020

Chairman of the Board

 

 


 

 

 

ZIX CORPORATION

2711 North Haskell Avenue

Suite 2200, LB 36

Dallas, Texas 75204-2960

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

The Annual Meeting of Shareholders of Zix Corporation will take place on Wednesday, June 10, 2020, at 10:00 a.m. Central Time. The Annual Meeting will be a virtual meeting held entirely online, due to the emerging public health concerns related to the COVID-19 pandemic. You will be able to attend the virtual Annual Meeting, vote your shares electronically, and submit your questions during the live audio-only webcast of the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/ZIXI2020 and entering your control number contained on your proxy card.

 

At the virtual Annual Meeting, we will ask shareholders entitled to vote to consider and vote on the following proposals:

 

 

1.

Elect eight members of our Board of Directors for a one-year term;

 

 

2.

Ratify the appointment of Whitley Penn LLP as our independent registered public accountants for the fiscal year ending December 31, 2020;

 

 

3.

Approve, on an advisory basis, the compensation of our named executive officers; and

 

 

4.

Any other business properly brought before the meeting or any adjournment or postponement thereof.

 

Only shareholders of record of our common stock and our Series A Preferred Stock at the close of business on
April 13, 2020 will be entitled to vote at the meeting. Our stock transfer books will not be closed.

 

 

By Order of the Board of Directors,

 

 

 

Dallas, Texas

Noah F. Webster

April 24, 2020

General Counsel and Corporate Secretary

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE SHAREHOLDER MEETING TO BE HELD ON JUNE 10, 2020

 

This Proxy Statement, accompanying proxy card and our Annual Report are available at investor.zixcorp.com in a searchable, readable, and printable format and in a cookie-free environment.

 

YOUR VOTE IS IMPORTANT.

 


 


 

Whether or not you expect to attend the virtual meeting, we urge you to vote your shares at your earliest convenience to ensure the presence of a quorum at the meeting. Promptly voting your shares via the Internet, by telephone via toll-free number, or if you received a paper copy of the proxy card, by signing, dating, and returning the proxy card in the enclosed postage-paid envelope will save us the expense and extra work of additional solicitation. Because your proxy is revocable at your option, submitting your proxy now will not prevent you from voting your shares at the virtual meeting if you desire to do so. Please refer to the voting instructions included on your proxy card or the voting instructions forwarded by your bank, broker, or other holder of record.


 


 

TABLE OF CONTENTS

 

Questions and Answers About the Annual Meeting and Voting

 

i

PROXY STATEMENT

 

1

Information Concerning Solicitation And Voting

 

1

General

 

1

Solicitation of Proxies

 

1

Purpose of Annual Meeting

 

2

Record Date and Shares Outstanding

 

2

Quorum

 

2

Revocability of Proxies

 

2

How Your Proxy Will Be Voted

 

2

Dissenters’ Rights

 

3

Tabulation of Votes

 

3

Vote Required to Approve Proposals

 

3

Proposal 1

 

3

Proposal 2

 

3

Proposal 3

 

3

Other Matters

 

3

Effect of Broker Non-Votes

 

3

Shareholders’ Proposals

 

4

Reducing the Costs of Proxy Solicitation

 

4

Proposals

 

5

Proposal 1 – Election of Directors

 

5

Proposal 2 – Ratification of Appointment of Accountants

 

6

Proposal 3 – Approve, on an Advisory Basis, the Compensation of our Named Executive Officers

 

7

OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION

 

8

Directors

 

8

Executive Officers

 

12

SECURITY OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

 

13

Corporate Governance

 

15

Board of Directors

 

15

Corporate Governance

 

15

Director Independence

 

15

Board Leadership Structure

 

15

Risk Oversight by the Board

 

16

Political Activities and Contributions

 

16

Attendance at Board Meetings and Annual Meeting

 

16

Committees of the Board of Directors

 

16

Nominating and Corporate Governance Committee

 

16

Shareholder Nomination of Director Candidates

 

17

Diversity of Directors

 

17

Director Qualification Criteria

 

17

Director Election Procedures

 

18

Audit Committee

 

18

Compensation Committee

 

19

Policies, Procedures, and Practices

 

20

Compensation Committee Interlocks and Insider Participation

 

20

Communications with Directors

 

20

Code of Ethics

 

21

Independent Registered Public Accountants

 

21

General

 

21

Fees Paid to Independent Public Accountants

 

21

Audit Committee Pre-Approval Policies and Procedures

 

22

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

23

INFORMATION ON THE COMPENSATION OF DIRECTORS

 

24

General

 

24

 


 

 

Retainer/Fees

 

24

Option Awards Upon Initial Election or Appointment

 

24

2019 Director Compensation Paid

 

25

COMPENSATION DISCUSSION AND ANALYSIS

 

26

Executive Summary

 

26

Our Business

 

26

2019 Financial Performance Highlights

 

26

Non-Binding Advisory Vote on Executive Compensation (“Say-on-Pay”) and Frequency of Say-on-Pay

 

26

Governance and Evolving Compensation Practices

 

26

Executive Compensation Overview

 

27

General

 

28

Approval Authority for Certain Compensation Related Matters

 

28

Role of Executive Officers in Compensation Decisions

 

28

Independent Compensation Consultant

 

28

Compensation Philosophy and Objectives

 

29

Risk Considerations

 

29

Competitive Market Information

 

29

Executive Officer Base Salaries and Compensation Comparisons

 

30

Executive Officer Short-Term Incentive Program Variable Compensation

 

30

Variable Compensation for Named Executive Officers

 

31

Equity-based Long-Term Incentive Awards

 

32

General

 

32

Policies and Practices

 

32

2019 Performance-Based Equity Awards

 

33

Performance Shares for Names Executive Officers

 

33

Impact of Accounting and Tax Treatments of Compensation

 

34

Anti-Hedging or Pledging Policy

 

35

Incentive Compensation Recoupment Policy

 

35

Equity Ownership Guidelines

 

35

Executive Termination Benefits Agreements

 

35

Compensation Committee Report

 

36

2019 EXECUTIVE COMPENSATION

 

37

Summary Compensation Table

 

37

2019 Grants of Plan-Based Awards

 

38

Outstanding Equity Awards at 2019 Fiscal Year-End

 

39

2019 Option Exercises and Stock Vested

 

40

Pension Benefits

 

40

Nonqualified Deferred Compensation

 

40

Separation Payments and Change in Control Payments

 

40

General

 

40

Severance Benefits

 

40

Accelerated Vesting of Equity-Based Awards

 

41

Health Benefits Continuation

 

41

Potential Payments

 

41

Potential Payments Upon Termination or Change in Control

 

42

Equity Compensation Plan Information

 

43

Non-Shareholder-Approved Stock Option Agreements With Third Parties

 

44

CEO Pay Ratio

 

44

Certain Relationships and Related Transactions

 

45

OTHER MATTERS

 

46

WHERE YOU CAN FIND MORE INFORMATION

 

46

 

 

 

 


 

 

Questions and Answers About the Annual Meeting and Voting

 

This Question and Answer section provides some background information and brief answers to several questions you might have about the enclosed proposals. We encourage you to read this Proxy Statement in its entirety.

 

What is a proxy?

 

A proxy is your legal designation of another person, called a proxy holder, to vote the shares that you own. If you designate someone as your proxy holder in a written document, that document is called a proxy.

 

When I vote my shares, whom am I designating as my proxy?

 

We have designated Noah F. Webster, our General Counsel and Corporate Secretary, and David E. Rockvam, our Chief Financial Officer, to act as proxy holders at the Annual Meeting as to all shares for which proxy cards are returned or voting instructions are provided by Internet or telephonic voting.

 

What is a proxy statement?

 

A proxy statement is a document that the Securities and Exchange Commission (the “SEC”) regulations require us to give you when we ask you to sign a proxy card designating the proxy holders described above to vote on your behalf.

 

What is the record date?

 

The record date for the Annual Meeting is April 13, 2020. The record date is established by our Board of Directors as required by Texas law. Only shareholders of record of our common stock and our Series A Preferred Stock (collectively, our “Voting Shareholders”) at the close of business on the record date are entitled to receive notice of the Annual Meeting and to vote their shares electronically during the live audio-only webcast of the Annual Meeting, or by telephone from the U.S. using the toll-free telephone number on the proxy card, or by the Internet, using the procedures and instructions described on the proxy card and other enclosures.

 

What is the difference between a shareholder of record and a shareholder who holds stock in street name, also called a “beneficial owner”?

 

If your shares are registered in your name at our stock registrar and transfer agent, Computershare Trust Company, N.A., you are a shareholder of record.

 

If your shares are registered at our stock registrar and transfer agent, Computershare Trust Company, N.A., in the name of a broker, bank, trustee, nominee, or other similar shareholder of record, your shares are held in street name and you are the beneficial owner of the shares.

 

What methods can I use to vote?

 

By Written Proxy. All Voting Shareholders may vote by mailing the written proxy card.

 

By Telephone and Internet Proxy. All Voting Shareholders of record may vote by telephone from the U.S. using the toll-free telephone number on the proxy card, or by the Internet, using the procedures and instructions described on the proxy card and other enclosures. Street name holders may vote by telephone or the Internet if their bank, broker, or other Voting Shareholder of record makes those methods available, in which case the bank, broker, or other Voting Shareholder of record will enclose the instructions with the Proxy Statement. The telephone and Internet voting procedures, including the use of control numbers, are designed to authenticate Voting Shareholders’ identities, to allow Voting Shareholders to vote their shares, and to confirm that their instructions have been properly recorded.

 

By Electronic Submission during the Virtual Annual Meeting. Voting Shareholders of record and street name holders may vote electronically during the live audio-only webcast of the Annual Meeting as described in the following question and answer.

 

i


 

How do I cast an electronic ballot during the live audio-only webcast of the Annual Meeting?

 

Voting Shareholders of Record. To log in to the Annual Meeting and to cast your vote electronically during the virtual meeting, you will need the unique control number which appears on the notice regarding the availability of proxy materials, the proxy card (printed in the box and marked by the arrow) and the instructions that accompanied the proxy materials. 

 

Street Name Holders. To log in to the Annual Meeting and to cast your vote electronically during the virtual meeting, you will need to ask your broker or bank for a control number and your broker or bank will provide you with instructions that you must follow to have your shares voted. Please note that if you own shares in street name and you are issued a legal proxy, any previously executed proxy will be revoked and your vote will not be counted unless you attend the virtual meeting and vote your shares electronically.

 

What will occur at the Annual Meeting?

 

First, we will determine whether we have a quorum of shares represented at the Annual Meeting to conduct business. If a quorum is not present at the Annual Meeting, we will adjourn or reschedule the meeting. If enough shares are represented at the Annual Meeting to conduct business, then we will vote on the proposals described in this Proxy Statement and any other business properly brought before the meeting or any adjournment or postponement thereof. We know of no other matters that will be presented for consideration at the Annual Meeting. If, however, other matters or proposals are presented and properly come before the meeting, the proxy holders intend to vote all proxies in accordance with their best judgment in the interest of Zix Corporation and our shareholders.

 

A representative of Whitley Penn LLP, our independent registered public accounting firm, is expected to be present at the Annual Meeting and will be afforded the opportunity to make a statement, if that representative so desires, and to respond to appropriate questions. A representative of Broadridge Financial Solutions, Inc. will count the votes and act as the independent inspector of election.

 

What is a quorum?

 

The holders of a majority of the shares entitled to vote at the Annual Meeting must be represented at the virtual meeting in person or by proxy to have a quorum for the transaction of business at the meeting and to act on the matters specified in the notice. A Voting Shareholder will be deemed to be represented at the virtual Annual Meeting if such shareholder:

 

 

Is present during the live audio-only webcast of the Annual Meeting; or

 

 

Is not present during the live audio-only webcast of the Annual Meeting, but has voted by proxy card before the Annual Meeting; or

 

 

Is not present during the live audio-only webcast of the Annual Meeting, but a broker has cast for the Voting Shareholder a discretionary vote on Proposal 2.

 

As of the record date, there were 57,287,319 shares of common stock outstanding and entitled to vote at the Annual Meeting, held by or through 405 holders of record. Each share of our common stock is entitled to one vote.

 

As of the record date, 100,206 shares of our Series A Preferred Stock were outstanding and entitled to vote on an as-converted basis at the Annual Meeting, held by or through one holder of record. As of the record date, the 100,206 shares of Series A Preferred Stock were convertible into 18,235,400 shares of our common stock.

 

Our Voting Shareholders are entitled to cast an aggregate of 75,522,719 votes at the Annual Meeting, so a quorum equals 37,761,361 shares of our common stock (in each case, including the Series A Preferred Stock on an as-converted basis).

 

As of the record date, there were no shares of our Series B Preferred Stock outstanding.

 

ii


 

What proposals are Voting Shareholders being asked to consider at the Annual Meeting?

 

At the Annual Meeting, we will ask our Voting Shareholders to consider and vote on the following:

 

 

Proposal 1 is to elect eight members of our Board of Directors for a one-year term;

 

 

Proposal 2 is to ratify the appointment of Whitley Penn LLP as our independent registered public accountants for the fiscal year ending December 31, 2020;

 

 

Proposal 3 is a vote to approve, on an advisory basis, the compensation of our named executive officers; and

 

 

Any other business properly brought before the meeting or any adjournment or postponement thereof.

 

What are my voting choices on Proposal 1 for director nominees?

 

For the vote on the election of the director nominees, Voting Shareholders may:

 

 

Vote in favor of all nominees;

 

 

Vote to withhold votes from all nominees; or

 

 

Vote to withhold votes as to specific nominees, and in favor of the remaining nominees.

 

The Board recommends that you vote “FOR” Proposal 1 and “FOR” each of the director nominees.

 

What vote is needed to elect directors?

 

The eight nominees will be elected who receive a plurality of the FOR votes out of all votes cast (either FOR or WITHHELD) electronically during the live audio-only webcast or by proxy at the Annual Meeting.

 

What is a plurality of the votes?

 

In order to be elected, a director nominee does not have to receive a majority of FOR votes cast out of all votes cast either affirmatively or withheld electronically during the live audio-only webcast or by proxy at the Annual Meeting. Instead, the eight nominees who will be elected are those who receive the most FOR votes of all the votes cast on Proposal 1 electronically during the live audio-only webcast or by proxy at the meeting.

 

What happens if a director nominee does not receive a majority of FOR votes?

 

Under our Director Nomination and Election Policies, each director nominee in an uncontested election tenders his or her conditional resignation to the Corporate Secretary before the Annual Meeting. That resignation offer becomes effective automatically if the tendering director nominee fails to receive a majority of FOR votes cast out of all votes cast either affirmatively or withheld electronically during the live audio-only webcast or by proxy at the Annual Meeting (“Majority WITHHELD Vote”). The Nominating and Corporate Governance Committee of the Board (the “Nominating and Corporate Governance Committee”) then recommends to the Board whether to accept the offered resignation. The Board will, within 90 days after the certification of voting results, decide whether or not to accept the offered resignation. In general, any director nominee who receives a Majority WITHHELD Vote will not participate in the Nominating and Corporate Governance Committee recommendation or the Board decision regarding an offered resignation. If all members of the Nominating and Corporate Governance Committee received a Majority WITHHELD Vote, then the independent directors who did not receive a Majority WITHHELD Vote will appoint a committee among themselves to consider and make a recommendation to the Board with respect to the offered resignations. If three or fewer directors receive a majority of FOR votes cast out of all votes cast either affirmatively or withheld electronically during the live audio-only webcast or by proxy at the Annual Meeting, then all directors (including those who received a Majority WITHHELD Vote) may participate in the Board’s decision whether to accept or not to accept the offered resignations. The Company will promptly disclose the Board’s decision in a Current Report on Form 8-K, including the reasons a resignation is not accepted.

 

iii


 

What are my voting choices on Proposal 2, the ratification of the appointment of Whitley Penn LLP as the Company’s independent registered public accounting firm?

 

For the vote on the ratification of the appointment of our independent registered public accounting firm, Voting Shareholders may:

 

 

Vote in favor of the ratification;

 

 

Vote against the ratification; or

 

 

Abstain from voting on the ratification.

 

Our Board recommends that you vote “FOR” Proposal 2.

 

What vote is required to ratify the appointment of the Company’s independent registered public accounting firm?

 

The proposal to ratify the appointment of our independent registered public accounting firm requires the FOR vote of the holders of a majority of the shares entitled to vote on the proposal and represented electronically during the live audio-only webcast or by proxy at the Annual Meeting.

 

What are my voting choices on Proposal 3, the advisory vote to approve our executive compensation?

 

For the advisory vote on executive compensation, Voting Shareholders may:

 

 

Vote to approve, on an advisory basis, our executive compensation;

 

 

Vote against the approval, on an advisory basis, of our executive compensation; or

 

 

Abstain from voting on the advisory proposal.

 

Our Board recommends that you vote “FOR” Proposal 3.

 

What vote is required for the advisory approval of the Company’s executive compensation?

 

The Company’s executive compensation will be approved by the Voting Shareholders, on an advisory basis, if the votes cast FOR the proposal are a majority of the shares entitled to vote on the proposal and represented electronically during the live audio-only webcast or by proxy at the Annual Meeting.

 

How often will the Company hold an advisory vote to approve executive compensation?

 

At our 2017 Annual Meeting of Shareholders, our shareholders voted, in an advisory vote, on various frequencies for conducting future advisory votes with respect to compensation of our named executive officers, with an annual frequency receiving the most advisory votes that were cast. After considering those voting results and other factors, our Board determined that the Company would hold an annual advisory vote on the compensation of our named executive officers until (a) the next required vote on the frequency of shareholder votes on the compensation of our named executive officers or (b) the Board otherwise determines that a different frequency for such advisory votes is in the best interests of our shareholders.

 

What if a Voting Shareholder does not specify a choice for a matter when returning a proxy?

 

Voting Shareholders should specify their choice for each proposal described on the enclosed proxy card. Proxy cards that are signed and returned will be voted FOR proposals described in this proxy statement for which no specific instructions are given.


iv


 

How are withheld votes, abstentions and broker non-votes counted?

 

Both abstentions and broker non-votes are counted as “present” for purposes of determining the existence of a quorum at the Annual Meeting. Shares voted WITHHELD as to a director nominee on Proposal 1 will have no effect on the election of the nominees, but, for purposes of the Majority WITHHELD Vote and the effectiveness of a nominee’s conditional resignation, will count as votes against the indicated nominee. Shares voted ABSTAIN on Proposals 2 and 3 will have the same effect as votes cast AGAINST that proposal. Broker non-votes will not be included in vote totals and will not affect the outcome of the vote on the proposals.

 

Why did I receive more than one Proxy Statement?

 

If you received more than one Proxy Statement, your shares are probably registered in different names or are in more than one account. Please vote each proxy card that you receive.

 

What if I want to change my vote?

 

You may revoke your vote on any proposal at any time before the Annual Meeting for any reason. To revoke your proxy before the meeting, write to Zix Corporation, Attention: Corporate Secretary, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960. You will need to include a copy of your earlier voted proxy and may be required to provide other information to facilitate the administrative steps actually required to properly revoke your prior proxy and properly record the revocation. You may also attend the virtual Annual Meeting and change your vote by electronically voting your shares. Attendance at the virtual Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically so request or cast your vote electronically at the virtual meeting.

 

Where will I find the voting results of the Annual Meeting?

 

We will announce the preliminary voting results at the Annual Meeting and will publish the preliminary or final voting results in a Current Report on Form 8-K that we will file with the SEC within four business days after the Annual Meeting. If the voting results are not final when that Current Report is filed, we will publish the final voting results in a Current Report on Form 8-K that we will file with the SEC within four business days after the final voting results are determined. You may request a copy of either Current Report at investor.zixcorp.com or by contacting our Investor Relations office at (214) 515-7357.

 

How can I submit a question for the Annual Meeting?

 

By accessing www.proxyvote.com, our shareholders will be able to submit questions in writing in advance of our Annual Meeting, vote, view the annual meeting procedures, and obtain copies of proxy materials and our 2019 Annual Report on Form 10-K. Shareholders may also submit questions in writing on the day of or during the Annual Meeting at www.virtualshareholdermeeting.com/ZIXI2020. Shareholders will need their unique control number which appears on the notice regarding the availability of proxy materials, the proxy card (printed in the box and marked by the arrow) and the instructions that accompanied the proxy materials. 

 

As part of the Annual Meeting, we will hold a live question and answer session, during which we intend to answer all questions submitted in writing before or during the virtual meeting in accordance with the annual meeting procedures, as time permits. Questions and answers will be grouped by topic and substantially similar questions will be grouped and answered once.

 

What if I need Technical Assistance?

 

Beginning 20 minutes prior to the start of and during the virtual Annual Meeting, we will have a support team ready to assist shareholders with any technical difficulties they may have accessing or hearing the virtual meeting.  If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting log-in page.


v


 

Where can I find additional information? Who can help answer my questions?

 

You should carefully review the entire Proxy Statement, which contains important information regarding the proposals, before voting. The section titled “WHERE YOU CAN FIND MORE INFORMATION” describes additional sources from which to obtain this Proxy Statement, our public filings under the Securities Exchange Act of 1934 and other information about our Company. Additionally, a copy of this Proxy Statement is available on our Company’s website at investor.zixcorp.com.

 

If you would like additional copies of this Proxy Statement or other documents that we have filed with the SEC that are incorporated by reference into this Proxy Statement, free of charge, or if you have questions about the proposals or the procedures for voting your shares, please contact: Zix Corporation, Attention: Corporate Secretary, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960 or (214) 370-2000.


 

vi


 

 

ZIX CORPORATION

2711 North Haskell Avenue

Suite 2200, LB 36

Dallas, Texas 75204-2960

 

PROXY STATEMENT

 

Annual Meeting of Shareholders

June 10, 2020

 

Information Concerning Solicitation and Voting

 

General

 

This Proxy Statement is furnished on behalf of the Board of Directors (the “Board”) of Zix Corporation (“we,” “us,” “our” or the “Company”) to solicit proxies to be voted at the Annual Meeting of our Shareholders to be held on Wednesday, June 10, 2020, at 10:00 a.m. Central Time, and at any adjournment or postponement of the Annual Meeting for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders.

 

Whether or not you personally attend the virtual audio-only Annual Meeting, it is important that your shares entitled to vote be represented and voted at the Annual Meeting. Most holders of our common stock and our Series A Preferred Stock (collectively, our “Voting Shareholders”) have a choice of voting over the Internet, by using a toll-free telephone number, or by completing a proxy card and mailing it in the postage-paid envelope provided. Check your proxy card or the information forwarded by your bank, broker, or other Voting Shareholder of record to determine which voting options are available to you. Please be aware that if you vote over the Internet, you may incur costs such as telecommunication and Internet access charges for which you will be responsible. The Internet voting and telephone voting facilities for Voting Shareholders of record will be available until 11:59 p.m. Eastern Time on June 9, 2020. This Proxy Statement and the accompanying proxy card were first mailed on or about April 24, 2020.

 

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT.

 

Solicitation of Proxies

 

The Company is making this solicitation on behalf of our Board. The Company will bear the expense of the preparation, printing and distribution of the enclosed proxy card, Notice of Annual Meeting of Shareholders and this Proxy Statement, and any additional material relating to the Annual Meeting that may be furnished to our shareholders by our Board related to the furnishing of this Proxy Statement. We have engaged Georgeson Inc. to assist in the solicitation of proxy materials from Voting Shareholders at a fee of approximately $8,500 plus reimbursement of reasonable out-of-pocket expenses. Proxies may also be solicited without additional compensation by our officers or employees by telephone, fax or e-mail. We will reimburse banks and brokers who hold shares in their name or custody, or in the name of nominees for others, for their out-of-pocket expenses incurred in forwarding copies of the proxy materials to those persons for whom they hold those shares. To obtain the necessary representation of Voting Shareholders at the Annual Meeting, supplementary solicitations may be made by mail, telephone, fax or e-mail by our officers or employees, without additional compensation, or by selected securities dealers. We anticipate that the cost of those supplementary solicitations, if any, will not be material.

 


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Purpose of Annual Meeting

 

The purpose of the Annual Meeting is to obtain approval for the proposals described in this Proxy Statement and to consider any other business properly brought before the Annual Meeting or any adjournment or postponement thereof. At the Annual Meeting, we will ask Voting Shareholders to consider and vote on the following proposals:

 

 

Proposal 1: elect eight members of our Board for a one-year term;

 

 

Proposal 2: ratify the appointment of Whitley Penn LLP as our independent registered public accountants for the fiscal year ending December 31, 2020; and

 

 

Proposal 3: approve, on an advisory basis, the compensation of our named executive officers.

 

Record Date and Shares Outstanding

 

Only shareholders who owned shares of our common stock and our Series A Preferred Stock at the close of business on April 13, 2020, referred to in this Proxy Statement as the “Record Date,” are entitled to notice of, and to vote at, the Annual Meeting. As of the Record Date, 57,287,319 shares of our common stock were outstanding and entitled to vote at the Annual Meeting. Holders of our common stock are entitled to one vote, in person or by proxy, for each share of common stock held in their name on the Record Date.

 

As of the Record Date, 100,206 shares of our Series A Preferred Stock were outstanding and entitled to vote on an as-converted basis at the Annual Meeting. As of the Record Date, the 100,206 shares of Series A Preferred Stock were convertible into 18,235,400 shares of common stock.

 

As of the record date, there were no shares of our Series B Preferred Stock outstanding.

 

Quorum

 

A majority of the outstanding shares of our common stock entitled to vote at the Annual Meeting (including the Series A Preferred Stock on an as-converted basis) must be represented, electronically during the live audio-only webcast or by proxy, at the Annual Meeting to constitute a quorum to conduct business at the meeting. As of the Record Date, 75,522,719 shares of our common stock (including the Series A Preferred Stock on an as-converted basis) were outstanding and entitled to vote at the Annual Meeting, so we will require a quorum of at least 37,761,361 shares of our common stock (including the Series A Preferred Stock on an as-converted basis) represented at the Annual Meeting in order to conduct business at the meeting.

 

Revocability of Proxies

 

You may revoke your proxy at any time before it is exercised. Execution of the proxy will not affect your right to virtually attend the Annual Meeting. Revocation may be made before the Annual Meeting by written revocation or through a duly executed proxy bearing a later date sent to Zix Corporation, Attention: Corporate Secretary, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960; or your proxy may be revoked electronically during the live audio-only webcast of the Annual Meeting by specific written notice to the Secretary during the live audio-only webcast of the Annual Meeting before the voting of the proxy or by the electronic vote of your shares at the virtual meeting. Any revocation sent to the Company must include the shareholder’s name and must be received before the Annual Meeting to be effective.

 

How Your Proxy Will Be Voted

 

In the absence of specific instructions to the contrary, shares represented by properly executed proxies received by the Company, including unmarked signed proxies, will be voted FOR each of the proposals that will be considered at the Annual Meeting. In addition, if any other matters properly come before the Annual Meeting the persons named as proxy holders in the enclosed proxy card will have discretion as to how they will vote the shares they represent. Other than the proposals described in this Proxy Statement, we have not received notice of any matters that may properly be presented at the Annual Meeting.


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Dissenters’ Rights

 

Under Texas law, shareholders are not entitled to dissenters’ rights with respect to any of the proposals that will be considered at the Annual Meeting.

 

Tabulation of Votes

 

Votes cast at the Annual Meeting will be tabulated by a representative of Broadridge Financial Solutions, Inc. as the independent inspector of election.

 

Vote Required to Approve Proposals

 

Proposal 1

 

On Proposal 1, shares may either be voted FOR an individual director nominee or voted WITHHELD as to an individual director nominee. If a quorum is represented at the Annual Meeting, the eight nominees who receive the greatest number of FOR votes (also called a “plurality” of FOR votes) will be elected as directors. Brokers cannot cast discretionary votes in the election of directors, so you must instruct your broker how to vote your shares on Proposal 1. Broker non-votes will not be included in vote totals and will not affect the outcome of the vote on this proposal. A vote WITHHELD as to any director will have no effect on the election of the nominees, but, for purposes of the Majority WITHHELD Vote (as described in the Question and Answer section of this Proxy Statement) and the effectiveness of a nominee’s conditional resignation, will be counted as a vote against the election of that director. In the election of directors, shareholders are not entitled to cumulate their votes or to vote for a greater number of persons than the number of nominees named in this Proxy Statement.

 

Proposal 2

 

On Proposal 2, shares may either be voted FOR the ratification of the appointment of Whitley Penn LLP as the Company’s independent auditors for the fiscal year ending December 31, 2020, or voted AGAINST that ratification, or voted to ABSTAIN. If a quorum is represented at the Annual Meeting, the approval of Proposal 2 would require the FOR vote of the holders of a majority of the shares entitled to vote on the proposal and represented in person or by proxy at the Annual Meeting. Because votes to ABSTAIN are counted as shares represented at the meeting, they will have the same effect as votes AGAINST Proposal 2.

 

Proposal 3

 

On Proposal 3, shares may either be voted FOR the approval, on an advisory basis, of the compensation of our named executive officers, or voted AGAINST that advisory approval, or voted to ABSTAIN. If a quorum is represented at the Annual Meeting, approval of Proposal 3 requires the FOR vote of the holders of a majority of the shares entitled to vote on the proposal and represented in person or by proxy at the Annual Meeting. Broker non-votes will not be included in vote totals and will not affect the outcome of the vote on this proposal. Because votes to ABSTAIN are counted as shares entitled to vote on Proposal 3, they will have the same effect as votes AGAINST Proposal 3.

 

Other Matters

 

An affirmative vote of a majority of the shares represented at the Annual Meeting is generally required for action on any other matters that may properly come before the Annual Meeting. Our bylaws require the affirmative vote of a majority of the shares outstanding (as opposed to a mere majority of shares represented at a meeting) in order to remove a director or amend our bylaws.

 

Effect of Broker Non-Votes

 

If your shares are held in a brokerage account and you do not instruct your broker how to vote on a particular proposal, your brokerage firm could either:

 

 

Vote your shares on that proposal in the broker’s discretion, if the rules permit; or

 

 

Leave your shares unvoted on that proposal.

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A broker “non-vote” occurs when a broker or nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker or nominee does not have the discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner. Brokers do not have discretionary authority to vote on Proposals 1 or 3, but they do have the discretionary authority to vote on Proposal 2.

 

Shareholders’ Proposals

 

If you would like to submit a proposal to be included in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be held next year, the submission must be in writing and received by us no later than December 25, 2020. Submissions of shareholder proposals after that date will be considered untimely for inclusion in the Proxy Statement and form of proxy for our 2021 Annual Meeting. A shareholder proposal that does not qualify under Securities and Exchange Commission (the “SEC”) Rule 14a-8 for inclusion in our Proxy Statement must be received by the Corporate Secretary at the principal executive offices of the Company no earlier than February 10, 2021 and no later than March 12, 2021.

 

All notices of proposals, whether or not to be included in our proxy materials, should be sent to our principal executive offices at Zix Corporation, Attention: Corporate Secretary, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960.

 

Reducing the Costs of Proxy Solicitation

 

To reduce the expenses of delivering duplicate copies of our annual report to shareholders, this proxy statement and the notice of Internet availability of proxy materials, we take advantage of the SEC’s “householding” rules that permit us to deliver only one set of such proxy materials to shareholders who share an address, unless otherwise requested. If you share an address with another shareholder and have received only one set of proxy materials, you may request, and we undertake to deliver promptly upon such request, a separate copy of these materials at no cost to you by contacting Zix Corporation, Attention: Corporate Secretary, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960 or (214) 370-2000. For future Annual Meetings, you may request separate voting materials, or request that we send only one set of proxy materials to you if you are receiving multiple copies, by calling or writing to us at the phone number and address given above.

 

Shareholders of Record: If you vote on the Internet at www.proxyvote.com, simply follow the prompts for enrolling in the electronic proxy delivery service.

 

Beneficial Owners: If you hold your shares in a brokerage account, you also may have the opportunity to receive copies of these documents electronically. Please check the information provided in the proxy materials mailed to you by your bank, broker or other holder of record regarding the availability of this service.

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Proposals

 

Proposal 1 — Election of Directors

 

Our Voting Shareholders will vote on the election of eight members of our Board at the Annual Meeting. Each director will serve until the next Annual Meeting of Shareholders and until the director’s successor is duly elected and qualified, unless earlier removed in accordance with our bylaws.  

 

Our Board currently consists of nine members. Richard D. Spurr is not standing for re-election at the Annual Meeting. Consequently, Mr. Spurr will cease to be a director of the Company effective as of the adjournment of the  Annual Meeting. Mr. Spurr’s departure is not the result of any disagreement with the Company on any matter related to our operations, policies or practices. Our Board will not be nominating a director to stand for election as successor to Mr. Spurr at our Annual Meeting. Rather, by resolution in accordance with our bylaws, the Board has adopted and approved a reduction in the size of the Board by one and fixed the number of directors of the Company at eight, effective as of the adjournment of the Annual Meeting. As a result, no more than eight directors can be elected at our Annual Meeting.

 

The nominees for election to our Board are:

 

Name

 

Principal Occupation

 

Director Since

Mark J. Bonney

 

Consultant

 

January 2013

Maryclaire “Marcy” Campbell

 

Vice President and General Manager North America and Australia Sales and Head of Global Sales Operations PayPal Holdings

 

March 2020

Taher A. Elgamal

 

Chief Technology Officer of Security, Salesforce.com Inc.

 

July 2011

James H. Greene, Jr.

 

Founding Partner, True Wind Capital Management, L.P.

 

February 2019

Robert C. Hausmann

 

Operating Partner, Thoma Bravo

 

November 2005

Maribess L. Miller

 

Consultant

 

April 2010

Brandon Van Buren

 

Principal, True Wind Capital Management, L.P.

 

February 2019

David J. Wagner

 

Chief Executive Officer, Zix Corporation

 

January 2016

 

For biographical and other information regarding the nominees for director, please see “OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION — Directors.” For information on our directors’ compensation, please see “INFORMATION ON THE COMPENSATION OF DIRECTORS.”

 

Each of the persons nominated for election to our Board has agreed to stand for election. Our Board has no reason to believe that any of the nominees will be unable or unwilling to serve if elected, and to the knowledge of the Board, each of the nominees intends to serve the entire term for which election is sought. Our bylaws provide that the Board may reduce the number of positions on our Board. In addition, our bylaws provide that the Board may fill any vacancy in the Board by the affirmative vote of a majority of the remaining directors.

 

The eight nominees who receive the greatest number of FOR votes (also called a “plurality” of FOR votes) will be elected as directors. Broker non-votes will not be included in vote totals and will not affect the outcome of the vote on this proposal. A vote WITHHELD as to any director will have no effect on the election of the nominees, but, for purposes of the Majority WITHHELD Vote (as described in the Question and Answer section of this Proxy Statement) and the effectiveness of a nominee’s conditional resignation, will be counted as a vote against the election of that director.

 

OUR BOARD RECOMMENDS THAT YOU VOTE

FOR PROPOSAL 1 AND FOR EACH DIRECTOR NOMINEE NAMED ABOVE.

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Proposal 2 — Ratification of Appointment of Accountants

 

The Audit Committee of the Board (the “Audit Committee”) has recommended, and the Board has appointed, Whitley Penn LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020. Services provided to the Company and its subsidiaries by Whitley Penn LLP in fiscal 2019 are described under “Independent Registered Public Accountants.”

 

We are asking our Voting Shareholders to ratify the appointment of Whitley Penn LLP as our independent registered public accounting firm for the 2020 fiscal year. Although ratification is not required by our bylaws or otherwise, the Board is submitting the appointment of Whitley Penn LLP to our Voting Shareholders for ratification as a matter of good corporate practice.

 

A representative of Whitley Penn LLP will be present at the Annual Meeting to respond to appropriate questions and to make any statements that the firm may desire.

 

Votes cast FOR Proposal 2 by a majority of the shares of our common stock (including the Series A Preferred Stock on an as-converted basis) represented at the Annual Meeting is required to approve Proposal 2. Shares voted to ABSTAIN as to Proposal 2 will be counted as represented at the meeting and will have the same effect as a vote against Proposal 2.

 

If our Voting Shareholders do not approve Proposal 2, the appointment of Whitley Penn LLP will be reconsidered by our Audit Committee and our Board. Even if Proposal 2 is approved, the Audit Committee in its discretion may select a different independent registered public accounting firm if it determines that a change would be in the best interests of the Company and our shareholders and otherwise complies with all regulations of the SEC regarding a change in public accounting firms.

 

OUR BOARD RECOMMENDS

THAT YOU VOTE FOR PROPOSAL 2.

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Proposal 3 — Approve, on an Advisory basis, the Compensation of our Named Executive Officers

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act enables the Company’s Voting Shareholders to vote to approve, on an advisory (nonbinding) basis, the compensation of the Company’s named executive officers. The Company seeks your advisory vote and asks that you support the compensation of the named executive officers as disclosed in this proxy statement. Our Board intends to conduct an annual advisory vote on the compensation of the Company’s named executive officers.

 

As described in detail under “COMPENSATION DISCUSSION AND ANALYSIS,” our compensation program is designed to attract, retain and motivate our executives and drive overall Company performance. We believe that our compensation program, with its balance of short-term incentives and long-term incentives (including both time-based and performance-based equity awards that vest over multiple years), rewards sustained performance that is aligned with shareholder interests.

 

This proposal, commonly known as a “say-on-pay” proposal, gives the Company’s shareholders the opportunity to express their views on the compensation of our named executive officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of the Company’s named executive officers described in this proxy statement.

 

Accordingly, the Board invites you to review carefully the section titled “Compensation Discussion and Analysis” beginning on page 25 and the tabular and other disclosures on compensation under “2019 Executive Compensation” beginning on page 36 and to cast a vote to approve the compensation of the Company’s named executive officers through the following resolution:

 

“Resolved, that shareholders approve the compensation of the Company’s named executive officers, as discussed and disclosed in the Compensation Discussion and Analysis, the executive compensation tables, and any narrative executive compensation disclosure contained in this proxy statement.”

 

The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee of the Board (the “Compensation Committee”) or the Board. The Board and Compensation Committee value the opinions of the Company’s shareholders and to the extent there is any significant vote against the named executive officers’ compensation as disclosed in this proxy statement, the Board will consider the shareholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.

 

At our 2017 Annual Meeting of Shareholders, our shareholders voted, in an advisory vote, on various frequencies for conducting future advisory votes with respect to the compensation of our named executive officers, with an annual frequency receiving the most advisory votes that were cast. After considering those voting results and other factors, our Board determined that the Company would hold an annual advisory vote on the compensation of our named executive officers until (a) the next required vote on the frequency of shareholder votes on the compensation of our named executive officers or (b) the Board otherwise determines that a different frequency for such advisory votes is in the best interests of our shareholders.

 

OUR BOARD RECOMMENDS

THAT YOU VOTE FOR PROPOSAL 3.

 

 

 

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OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION

 

Directors

 

The following table indicates the names of our director nominees and their ages and positions:

 

Name

 

Age

 

 

Position

Mark J. Bonney(4)(6)

 

 

66

 

 

Independent Director

Maryclaire “Marcy” Campbell(4)

 

 

61

 

 

Independent Director

Taher A. Elgamal(1)(5)

 

 

64

 

 

Independent Director

James H. Greene, Jr.(5)

 

 

69

 

 

Independent Director

Robert C. Hausmann(2)(6)

 

 

57

 

 

Chairman of the Board; Independent Director

Maribess L. Miller(3)(5)

 

 

67

 

 

Independent Director

Brandon Van Buren(4)

 

 

37

 

 

Independent Director

David J. Wagner

 

 

55

 

 

Chief Executive Officer

 

 

(1)

Chair of the Nominating and Corporate Governance Committee

(2)

Chair of the Compensation Committee

(3)

Chair of the Audit Committee

(4)

Member of the Nominating and Corporate Governance Committee

(5)

Member of the Compensation Committee

(6)

Member of the Audit Committee

 

Mark J. Bonney joined our Board in January 2013. He currently serves as President and CEO of On Board Advisors, LLC, a financial and strategic advisory firm.  From October 2019 to December 2019 Mr. Bonney was Independent Chairman of the Board of SeaChange International, Inc.,(NASDAQ: SEAC), a provider of end-to-end video delivery and management software solutions for cable wireless, OTT and other content providing enterprises. From April 2019 to October 2019 he was Executive Chair and Principal Executive Officer of SeaChange.  From August 2017 to April 2019 he was a Director and Chairman of the Audit and Compensation Committees of SeaChange.  From May 2018 until its merger with Taptica, PLC in April 2019, he served as President and Chief Executive Officer and a director of RhythmOne PLC, (LSE AIM:RTHM), a provider of digital advertising solutions. Until its sale in August 2017, he served as President and Chief Executive Officer and a director of MRV Communications, Inc., (NASDAQ:MRVC), a supplier of network equipment to the telecommunications industry. Mr. Bonney served as an independent Director and Chairman of the Audit Committee of MRV from April 2013 until joining the management team in August 2014.  He also served as a Director and Chairman of the Audit Committee and the Corporate Governance and Nominating Committee of Sigma Designs, Inc., (NASDAQ:SIGM), a provider of high-performance system-on-a-chip semiconductor solutions enabling the convergence of the smart home, from August 2012 through August 2015. He was executive vice president and Chief Financial Officer of Direct Brands, LLC, a privately owned direct to consumer media company from 2010 to 2012, vice president and general manager of the Authentication Solutions Group of JDS Uniphase Corporation (“JDSU”) an optical technologies and telecommunications firm, from 2008 to 2010 and executive vice president and Chief Financial Officer of American Bank Note Holographics, Inc., (“ABNH”) an optical security device company from 2005 to 2008, before the company’s sale to JDSU. Mr. Bonney also served as an outside director and chairman of the audit committee of ABNH from 2003 until 2005. Mr. Bonney has also held executive roles with technology companies, including president, Chief Operating Officer and a director of Axsys Technologies, Inc., a manufacturer of components and subsystems for aerospace, defense, data storage, medical and other high technology applications from 1999 to 2002 and Chief Financial Officer of Zygo Corporation, a manufacturer of metrology measurement and control systems and optical components for semiconductor, data storage and industrial markets from 1993 to 1999. He received a Master’s degree from the University of Hartford and a Bachelor’s degree from Central Connecticut State University.

 

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Our Board selected Mr. Bonney to serve as a director because of his experience as a Chief Executive Officer, Chief Operating Officer and a Chief Financial Officer of several middle market publicly-traded companies. This experience and his experience as a director of seven publicly traded technology companies allow Mr. Bonney to contribute to the Board’s deliberations across a broad array of issues as well as providing the Board with meaningful experience in discharging its oversight of corporate governance, operations and financial performance.

 

Maryclaire “Marcy” Campbell was elected to our Board in March 2020.  Ms. Campbell is currently Vice President and General Manager North America and Australia sales and head of global Sales Operations for PayPal. Prior to this role, she held roles as Vice President and General Manager North America, Vice President Worldwide Sales & Accounts for Braintree (a PayPal Division) and Vice President North American Sales and Accounts for Braintree.  Ms. Campbell has led high-performance sales, business development, and marketing organizations  for large and small enterprises including  Qubole, Engine Yard, Netscape, and IBM. Ms. Campbell holds a Bachelors of Arts in History and Communications from the University of Hartford, where she was summa cum laude, and a National Regent Scholar.

 

Our Board selected Ms. Campbell to serve as a director because of her experience at technology companies experiencing rapid growth, which contributes to the Board’s growth strategy and customer success organization. She brings over 25 years of experience in building and managing sales, marketing, business development and service operations in global information technology businesses.

 

Taher A. Elgamal was elected to our Board in July 2011. Dr. Elgamal currently serves as Chief Technology Officer Security at Salesforce.com, Inc., a provider of enterprise cloud computing solutions. He is also co-founder and Chairman of IdentityMind, Inc. and serves as a director of Intelligent Fiber Optic Systems Corporation and Vindicia, Inc. Dr. Elgamal has also held executive roles at technology and security companies, including as Chief Executive Officer of First Information Security (data security) from 2012 to 2013, Chief Security Officer of Axway, Inc. (data security) from 2008 to 2011, Chief Technology Officer of Tumbleweed Communications (email encryption) from 2006 to 2008, Chief Technology Officer of Securify, Inc. from 2001 to 2004, Chief Executive Officer and President of Securify, Inc. from 1998 to 2001 and chief scientist of Netscape Communications from 1995 to 1998. Dr. Elgamal is a recipient of the RSA Conference 2009 Lifetime Achievement Award, and he is recognized as the “father of SSL,” the Internet security standard Secure Sockets Layer. Dr. Elgamal was issued several patents in online security, payments and data compression. He received a Bachelor’s degree in electrical engineering from Cairo University, a Master’s degree in electrical engineering from Stanford University and a doctorate in electrical engineering from Stanford University.

 

Our Board selected Dr. Elgamal to serve as a director because of his expertise in cybersecurity and encryption technologies. In addition, his experience working with data security firms contributes to the Board’s oversight of the Company’s cybersecurity risks as well as its marketing strategy. His experience as an executive and director at public and private information technology companies adds to the Board’s understanding of many matters facing the Company, including personnel management, business operations and corporate governance.

 

James H. Greene, Jr. joined our Board in February 2019. Mr. Greene is a Founding Partner of True Wind Capital Management, L.P. (“True Wind”), a private equity fund manager focused on the technology industry, where he serves on the Investment Committee and is responsible for all aspects of managing the firm. Prior to founding True Wind in 2014, Mr. Greene was with Kohlberg Kravis Roberts & Co. (“KKR”), a global investment manager, which he joined in 1986. At KKR, Mr. Greene founded the Global Technology Group in 2004 which he led until 2010. Mr. Greene headed the Industrial Group at KKR until 2013. Mr. Greene was a Partner at KKR from 1993 until 2015. Prior to joining KKR, Mr. Greene had 14 years of banking experience as a Vice President at Bankers Trust Company. Mr. Greene currently serves as a Director and Chairman of Pegasus Transtech (Transflo), a Director of Western New York Energy LLC, and a Director and Co-Chief Executive Officer of Nebula Acquisition Corporation. He is also a Trustee and a Member of the Executive Committee of the University of Pennsylvania, a member of the Executive Committee and Board of Penn Medicine, which includes the Perelman School of Medicine and the University of Pennsylvania Health System. Mr. Greene received a Bachelor’s degree in Economics from the University of Pennsylvania.

 

Our Board selected Mr. Greene to serve as a director in connection with the $100 million private placement that we consummated with True Wind in February 2019 and pursuant to the Investment Agreement (the “Investment Agreement”) between us and True Wind, dated January 14, 2019, which we entered into with respect to that transaction. Mr. Greene’s experience as a private equity investor in the information technology industry brings to the Board valuable experience and perspective on a variety of matters facing the Company, including financial and capital markets, operations, business development, personnel management and executive compensation.

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Robert C. Hausmann was elected to our Board in November 2005, was elected Lead Independent Director in December 2012 and non-executive Chairman of the Board in December 2014. In September 2016, Mr. Hausmann became an Operating Partner with Thoma Bravo, a private equity investment firm. During varying periods from 2016 to the present time, Mr. Hausmann has served the following Thoma Bravo-affiliated companies (all of which are privately held) in the following capacities: Veriforce formerly known as PEC Safety (chairman of board, chairman of compensation committee and member of audit committee); Nixtex Global, Ltd. (member of board, audit and compensation committees); Motus, LLC (member of board and audit committee); Riskonnect, Inc. (member of board and audit committee); and T2 Systems, Inc. (member of board and audit committee). Mr. Hausmann was co-founder, a director and Chief Financial Officer of TetraSun, Inc., a solar cell R&D and Manufacturing company that was sold to First Solar, Inc. in 2013. Prior to co-founding TetraSun, Mr. Hausmann was a consultant to public and private companies with respect to operational and financial management matters, including Sarbanes-Oxley and systems and process re-engineering. He also served as Vice President and Chief Financial Officer of Securify, Inc. (computer security monitoring) from September 2002 through June 2005. From September 1999 through September 2002, Mr. Hausmann served as Vice President and Chief Financial Officer of Resonate, Inc. (network traffic management) and managed that company’s initial public offering. Prior to these positions, he served as Operations Partner and Chief Financial Officer of Mohr, Davidow Ventures, a Silicon Valley-based venture capital partnership; and as the Chief Financial Officer of Red Brick Systems, Inc., where Mr. Hausmann managed the company’s initial public offering. Mr. Hausmann earned a Master of Business Administration degree from Santa Clara University and a Bachelors of Arts degree in Finance and Accounting from Bethel University.

 

Our Board selected Mr. Hausmann to serve as a director because of his experience as Operating Partner of a technology oriented private equity investment firm, Chief Financial Officer of two publicly-traded companies and two private companies and as Chief Financial Officer of a Silicon Valley venture capital firm, all of which contributes to the Board’s resources in overseeing the Company’s financial and accounting matters, including public company reporting and disclosure. His consulting work at public and private companies, principally in the information technology industry, brings to the Board valuable experience and perspective on a variety of matters facing the Company, including financial markets, operations, corporate governance, compliance and systems and process re-engineering.

 

Maribess L. Miller was elected to our Board in April 2010. Ms. Miller was a member of the public accounting firm PricewaterhouseCoopers LLP from 1975 until 2009, including serving as the North Texas Market Managing Partner from 2001 until 2009; as Southwest Region Consumer, Industrial Products and Services Leader from 1998 until 2001; and as Managing Partner of that firm’s U.S. Healthcare Audit Practice from 1995 to 1998. Since July 2014, Ms. Miller has served as a member of the board of directors for Triumph Bancorp, Inc. (NASDAQ: TBK) and is currently chair of the Nominating and Corporate Governance committee and member of the audit committee. Ms. Miller serves on the board of D.R. Horton where she chairs the nominating governance committee and sits on the compensation and audit committees.  Ms. Miller is also a member of the board of directors and chair of the audit committee for Midmark Corporation, a privately-held medical supply company. She served on the Texas State Board of Public Accountancy from 2009 until 2015, is past Board Chair for the Texas Health Institute  and the North Texas Chapter of the National Association of Corporate Directors. She also served on the board of the TCU Neeley School of Business. She graduated cum laude with a Bachelor’s degree in Accounting from Texas Christian University. Ms. Miller is a Certified Public Accountant.

 

Our Board selected Ms. Miller to serve as a director because of her extensive experience in auditing and consulting with companies in various fields, including healthcare and technology companies, which allows her to contribute valuable perspective and insights about the Company’s operations. In addition, Ms. Miller has special expertise in public company accounting and financial reporting. She brings to our Board and the Audit Committee invaluable technical understanding of public company accounting and internal control over financial reporting.

 

Brandon Van Buren joined our Board in February 2019. Mr. Van Buren has been a Principal at True Wind since 2017. Prior to joining True Wind, Mr. Van Buren was a Principal at Google Capital, Alphabet Inc.’s private investment arm, where he led growth equity investments within the technology, media, and telecommunications sectors. Prior to joining Google, Mr. Van Buren was with KKR from 2010 to 2012 where he executed leveraged buyout transactions within the technology space. Mr. Van Buren holds a Bachelor’s degree in Business Administration with concentrations in Finance and Accounting from California Polytechnic State University, San Luis Obispo and a Masters of Business Administration from Harvard Business School where he was a Baker Scholar.

10


 

 

Our Board selected Mr. Van Buren to serve as a director in connection with the $100 million private placement that we consummated with True Wind in February 2019 and pursuant to the Investment Agreement entered into with respect to that transaction. Mr. Van Buren’s experience as a private equity investor in the information technology industry brings to the Board valuable experience and perspective on a variety of matters facing the Company, including financial and capital markets, operations, business development, finance and mergers and acquisitions.

 

David J. Wagner was elected to our Board in January 2016. He joined our Company in January 2016 as President and CEO. Prior to joining the Company, Mr. Wagner held leadership roles at Entrust for 20 years. From 2013 through 2015, Mr. Wagner served as President of Entrust, where he led the successful integration of Entrust after its acquisition by Datacard. Mr. Wagner delivered revenue growth and led the re-investment strategy to move Entrust solutions to the cloud. He also served as Chief Financial Officer of Entrust from 2003 to 2013. Before joining Entrust, Mr. Wagner held various finance and accounting positions at Nortel Networks from 1991 through 1995 and at Raytheon Systems from 1986 to 1991. Mr. Wagner is a graduate of The Pennsylvania State University where he received an undergraduate degree in accounting and a Master’s degree in business administration.

 

Our Board selected Mr. Wagner to serve as a director because, as the Company’s CEO, his direct, day-to-day knowledge of and interaction with all aspects of our business, including shareholders, employees and customers, is unique among the directors and provides our Board with important insights into our Company’s business. In addition, he brings his sales, marketing and strategy development and implementation experience gained through his executive experience in the global security industry.

 

11


 

 

Executive Officers

 

The following table indicates the names of our current Executive Officers and their ages and positions. Officers serve at the discretion of our Board.

 

Name

 

Age

 

 

Position

David J. Wagner

 

 

55

 

 

Chief Executive Officer and President

David E. Rockvam

 

 

51

 

 

Vice President and Chief Financial Officer

David J. Robertson

 

 

61

 

 

Vice President, Engineering

Noah F. Webster

 

 

47

 

 

Vice President, General Counsel and Corporate Secretary

 

David J. Wagner was elected to our Board in January 2016. He joined our Company in January 2016 as President and CEO. Prior to joining the Company, Mr. Wagner held leadership roles at Entrust for 20 years. From 2013 through 2015, Mr. Wagner served as President of Entrust, where he led the successful integration of Entrust after its acquisition by Datacard. Mr. Wagner delivered revenue growth and led the re-investment strategy to move Entrust solutions to the cloud. He also served as Chief Financial Officer of Entrust from 2003 to 2013. Before joining Entrust, Mr. Wagner held various finance and accounting positions at Nortel Networks from 1991 through 1995 and at Raytheon Systems from 1986 to 1991. Mr. Wagner is a graduate of The Pennsylvania State University where he received an undergraduate degree in accounting and a Master’s degree in business administration.

 

David E. Rockvam has served as our Chief Financial Officer (“CFO”) since June 27, 2016. Mr. Rockvam brings a wealth of experience in the data security market and more than 20 years of experience in investor relations, financial planning, and business and corporate development. Prior to his role at Zix, he served in several executive roles during 18 years with Entrust, including Chief Investor Relations Officer and Chief Financial Officer of Asia Digital Media, an Entrust joint venture. He also held executive roles at Entrust such as General Manager of Entrust Certificate Services, Chief Marketing Officer, and Senior Vice President of Product Marketing. Mr. Rockvam began his career at Nortel Networks, where he served in various financial leadership positions. He earned a master of business administration from The University of Texas at Dallas and an undergraduate degree from Texas Tech University.

 

David J. Robertson has served as our Vice President, Engineering since March 2002. Mr. Robertson has over 40 years of experience in the Internet and telecommunications industries, with specific expertise in hosted network architecture, security technology, communication protocols, software systems and wireless infrastructure. From 1981 through 2000, he was employed by Nortel Networks (telecommunications), where he held technology Vice President positions in the Wireless, Carrier and Enterprise Divisions. From 2001 to 2002, he participated in creating technology startup companies with STARTech Early Ventures (venture capital). He has been a participant in several industry standards-setting groups, serves with the City of Richardson Chamber of Commerce and is a named inventor on 10 U.S. Patent filings. He holds a Bachelor of Science degree in Electrical Engineering from the University of Waterloo, Canada, and a Master’s degree in Engineering from Carleton University, Canada.

 

Noah F. Webster has served as our Vice President and General Counsel since June 2018. Mr. Webster has over 16 years of legal experience in negotiating agreements, security, compliance and intellectual property. Prior to joining Zix, Mr. Webster worked for eight years at BlackBerry, serving most recently as General Counsel, Mobility Solutions, and holding other legal roles involving privacy and anticorruption legal compliance, M&A, and patent litigation. Before BlackBerry, Mr. Webster worked for Kirkland & Ellis in Chicago, where he represented and advised clients in patent litigations, trademark infringement and general intellectual property matters. Mr. Webster earned his Juris Doctorate degree from the University of Illinois College of Law and clerked with the U.S. District Court for the Eastern District of Michigan and the High Court of American Samoa. He began his career serving as a U.S. Army Engineer Officer. He is a graduate of the U.S. Military Academy, where he earned an undergraduate degree in mechanical engineering. Mr. Webster is a member of the bar for the states of Texas and Illinois. He also holds certification as a Leading Professional in Ethics & Compliance and is registered to practice before the United States Patent and Trademark Office.

12


 

 

SECURITY OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN

BENEFICIAL OWNERS

 

The following table sets forth as of March 12, 2020 (unless otherwise indicated) the shares of our common stock that were beneficially owned by each director, by each executive officer, by all of our directors and executive officers as a group, and by all persons known by us to beneficially own more than 5% of our outstanding common stock. We do have equity ownership guidelines for our directors and executive officers as described in the section of this Proxy Statement titled “Equity Ownership Guidelines.”

 

 

 

Amount and Nature of

Beneficial Ownership(1)

 

Beneficial Owner(2)

 

Total Beneficial

Ownership

 

 

 

Percent of

Class(3)

 

Mark J. Bonney(4)

 

 

118,213

 

 

 

*

 

Maryclaire Campbell(5)

 

 

30,015

 

 

 

*

 

Taher A. Elgamal(6)

 

 

96,067

 

 

 

*

 

James H. Greene, Jr.(7)

 

18,159,104

 

(18)(19)

 

 

31.8

%

Robert C. Hausmann(8)

 

 

101,174

 

 

 

*

 

Maribess L. Miller(9)

 

 

89,392

 

 

 

*

 

Richard D. Spurr(10)

 

 

94,718

 

 

 

*

 

Brandon Van Buren(11)

 

 

0

 

 

 

 

 

David J. Wagner(12)

 

 

1,060,438

 

 

 

 

1.9

%

David E. Rockvam(13)

 

 

526,084

 

 

 

*

 

David J. Robertson(14)

 

 

485,183

 

 

 

*

 

Noah F. Webster(15)

 

 

212,272

 

 

 

*

 

BlackRock Inc.(16)

 

 

4,310,169

 

 

 

 

7.6

%

Renaissance Technologies LLC(17)

 

 

3,135,765

 

 

 

 

5.5

%

Zephyr Holdco, LLC(18)

 

18,159,104

 

(19)

 

 

31.8

%

 

 

 

 

 

 

 

 

 

All directors and executive officers as a group (12 persons)

 

 

20,972,660

 

 

 

 

36.8

%

 

 

*

Denotes ownership of less than 1%.

 

(1)

Reported in accordance with the beneficial ownership rules of the SEC. Unless otherwise noted, each shareholder listed in the table has both sole voting and sole investment power over the common stock shown as beneficially owned, subject to community property laws where applicable.

 

(2)

Unless otherwise noted, the address for each beneficial owner is c/o Zix Corporation, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960.

 

(3)

Percentages are based on the total number of shares of our common stock outstanding at March 12, 2020, which was 57,047,114 shares. Shares of our common stock that were not outstanding, but could be acquired upon exercise of an option or other convertible security within 60 days of March 12, 2020 are deemed outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by a particular person (subject, in the case of Mr. Greene and Zephyr Holdco, LLC). However, those shares are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person.

 

(4)

Includes purchased shares, shares of restricted stock and deferred stock units held by Mr. Bonney and 63,519 shares that Mr. Bonney has the right to acquire under outstanding stock options that are currently exercisable or that become exercisable within 60 days of March 12, 2020.

 

(5)

Includes shares of restricted stock held by Ms. Campbell.

 

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(6)

Includes shares of restricted stock held by Dr. Elgamal and 52,708 shares that Dr. Elgamal has the right to acquire under outstanding stock options that are currently exercisable or that become exercisable within 60 days of March 12, 2020.

 

(7)

Represents indirect beneficial ownership of the shares held by Zephyr Holdco, LLC. See footnotes 18 and 19.

 

(8)

Includes purchased shares, shares of restricted stock and deferred stock units held by Mr. Hausmann.

 

(9)

Includes purchased shares, shares of restricted stock and deferred stock units held by Ms. Miller and 15,408 shares that Ms. Miller has the right to acquire under outstanding stock options that are currently exercisable or that become exercisable within 60 days of March 12, 2020.

 

(10)

Includes purchased shares held by Mr. Spurr and 37,500 shares that Mr. Spurr has the right to acquire under outstanding stock options that are currently exercisable or that become exercisable within 60 days of
March 12, 2020.

 

(11)

Mr. Van Buren does not beneficially own any shares. Mr. Van Buren’s address is c/o True Wind Capital, Four Embarcadero Center, Suite 2350, San Francisco, California 94111.

 

(12)

Includes purchased shares and shares of restricted stock held by Mr. Wagner and 200,000 shares that Mr. Wagner has the right to acquire under outstanding stock options that are currently exercisable or that become exercisable within 60 days of March 12, 2020.

 

(13)

Includes shares of restricted stock held by Mr. Rockvam and 87,500 shares that Mr. Rockvam has the right to acquire under outstanding stock options that are currently exercisable or that become exercisable within 60 days of March 12, 2020.

 

(14)

Includes purchased shares and shares of restricted stock held by Mr. Robertson and 180,000shares that Mr. Robertson has the right to acquire under outstanding stock options that are currently exercisable or that become exercisable within 60 days of March 12, 2020.

 

(15)

Includes shares of restricted stock held by Mr. Webster.

(16)

Based solely on our review of the Schedule 13G filed with the SEC on February 6, 2020, BlackRock, Inc., 55 East 52nd Street, New York, New York 10055, has sole voting power with respect to 4,065,516 shares and sole dispositive power with respect to 4,310,169 shares.

 

(17)

Based solely on our review of the Schedule 13G filed with the SEC on February 13, 2020, Renaissance Technologies LLC, 800 Third Avenue, New York, New York 10022, has sole voting power with respect to 3,052,694 shares, sole dispositive power with respect to 3,101,861 shares and shared dispositive power with respect to 33,861 shares.

 

(18)

Based on our review of the Schedule 13D filed with the SEC on March 25, 2020, Zephyr Holdco, LLC, Four Embarcadero Center, Suite 2350, San Francisco, California 94111, has shared voting and dispositive power with respect to 18,159,104 shares of common stock into which 100,206 shares of Series A Preferred Stock are convertible (see footnote 19 below). The manager of Zephyr Holdco, LLC is True Wind Capital, L.P. The general partner of True Wind Capital, L.P. is True Wind Capital GP, LLC. Mr. James H. Greene, Jr. and Mr. Adam H. Clammer are the managing members of True Wind Capital GP, LLC.

 

(19)

Represents shares of common stock issuable upon conversion of 100,206 shares of Series A Preferred Stock, which initially had a Stated Value of $1,000 per share, which accretes at a fixed rate of 8.0% per annum, compounded quarterly (the “Accreted Value”). Each share of Series A Preferred Stock is convertible into (i) shares of common stock equal to the product of (A) the Accreted Value with respect to such share on the applicable conversion date multiplied by (B) the Conversion Rate as of the applicable conversion date divided by (C) 1,000 plus (ii) cash in lieu of fractional shares. The current Conversion Rate is equal to 166.11, subject to adjustment from time to time upon the occurrence of certain customary events. Zephyr Holdco, LLC holds all of the outstanding Series A Preferred Stock.

14


 

 

Corporate Governance

 

Board of Directors

 

Our business is managed under the direction of our Board. As of March 12, 2020, our Board consists of nine members. Richard D. Spurr is not standing for re-election at the Annual Meeting. Consequently, Mr. Spurr will cease to be a director of the Company effective as of the adjournment of the  Annual Meeting. Mr. Spurr’s departure is not the result of any disagreement with the Company on any matter related to our operations, policies or practices. Our Board will not be nominating a director to stand for election as successor to Mr. Spurr at our Annual Meeting. Rather, by resolution in accordance with our bylaws, the Board has adopted and approved a reduction in the size of the Board by one and fixed the number of directors of the Company at eight, effective as of the adjournment of the Annual Meeting. As a result, no more than eight directors can be elected at our Annual Meeting.

 

Other than Mr. Spurr, who is not standing for re-election at our Annual Meeting, the names of our  current Board members, their professional experience and attributes are described in this Proxy Statement and in our 2019 Annual Report on Form 10-K.

 

Corporate Governance

 

Our principal corporate governance documents are available on our website at www.zix.com/corporate-governance. We are in compliance with applicable corporate governance requirements, including those of the Sarbanes-Oxley Act of 2002, the Dodd–Frank Wall Street Reform and Consumer Protection Act, and the NASDAQ Listing Rules. We will continue to monitor our policies and procedures to ensure compliance with developing standards in the corporate governance area. Our Board has also designated our Corporate Secretary as the Company’s Chief Governance Officer and looks to this officer to keep the Board informed of both developing and current corporate governance matters.

 

Director Independence

 

Our Board has determined that all of our current Board members other than Richard D. Spurr and David J. Wagner are “independent” as defined in the NASDAQ Listing Rules. The NASDAQ independence definition includes a series of objective tests, that the subject director is not an employee of the Company and has not engaged in various types of business dealings with the Company. In addition, as further required by the NASDAQ Listing Rules, our Board has made a subjective determination as to each independent director that no relationships exist which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board is cognizant of the fact that two of our independent directors, Messrs. Van Buren and Greene, serve on our Board pursuant to, and in accordance with, the Investment Agreement we entered into in connection with the private placement we consummated with True Wind in February 2019, as described elsewhere in this proxy statement. In the event that any member of our Board perceives that an actual or potential conflict of interest could exist with either of these directors involving a matter that comes before our Board, we expect that appropriate measures (including, by way of example, recusal from Board participation) would be implemented.

 

Board Leadership Structure

 

The Board believes that the independent oversight of management is an important function of an effective board of directors. The independent members of our Board have determined that the most effective Board leadership structure for our Company at the present time is to have separate individuals in the roles of Chairman of the Board and CEO. Accordingly, Mr. Hausmann currently serves as non-executive Chairman of the Board and Mr. Wagner currently serves as CEO. Our Board believes this structure has strong investor support and demonstrates the Company’s commitment to sound corporate governance. The Board retains the authority to modify this structure. The Board elected Mr. Hausmann as non-executive Chairman of the Board in December 2014. Among other roles, the non-executive Chairman advises the CEO about his relationship and communication with the Board, acts as the principal liaison between the independent members of the Board and the CEO, sets the agendas (in consultation with the CEO) and serves as the chairman at meetings of the Board and private sessions of the independent Board members and coordinates the work of the Board’s committees. The Board believes this governance structure allows the CEO to focus his time and energy on operating and managing the Company, leverages the experience and perspectives of the Chairman and promotes balance between the independent Directors’ oversight of our Company and the CEO’s management of the business on a day-to-day basis.


15


 

 

Risk Oversight by the Board

 

Our management is responsible for assessing and managing the various risks our Company faces. Our Board is responsible for overseeing management in this effort. For example, the Board as a whole oversees management’s plans and strategies for dealing with strategic business risks and cybersecurity risks. In addition, our Board is carefully monitoring management’s efforts to assess and manage specific business and operational risks presented by the ongoing COVID-19 pandemic and the economic fall-out resulting therefrom. Our decision to conduct our 2020 annual meeting of shareholders in a virtual manner is an example of this risk assessment and management effort. In exercising its oversight responsibilities, our Board allocates some areas of focus to its standing committees. Specifically, our Audit Committee has oversight responsibility for financial and compliance risks, such as accounting, finance, internal controls, tax, legal and other compliance matters, in addition to overseeing compliance with our Code of Conduct and Code of Ethics. Our Nominating and Corporate Governance Committee oversees succession planning and compliance with our environmental, social and corporate governance principles. Our Compensation Committee is responsible for overseeing and monitoring our executive compensation programs and monitoring and assessing the interplay between those programs and risks in our business.

 

Throughout the year, our CEO, CFO and General Counsel and other officers review and discuss various risks with the Board and its committees. Our Board has also designated our General Counsel as the Company’s Chief Compliance Officer and looks to this officer to keep the Board apprised of material developments with respect to the compliance-related risks that the Company faces, as well as the Company’s efforts to manage those risks.

 

Political Activities and Contributions

 

The Company provides to policymakers, directly and by participating in business and industry associations, information and opinions on matters related to its business. The Company’s activity in this respect is principally to offer comments on legislative or regulatory initiatives dealing with privacy or cyber security. The Company has no intention to directly use shareholder funds for advocacy in elections for any public office or to contribute shareholder funds to any third party for that purpose.

 

 

Attendance at Board Meetings and Annual Meeting

 

Our Board meets during the year to monitor and assess our performance, review significant developments, review and discuss our long-term business strategies and act on matters requiring Board approval. Our Board met on 15 occasions during 2019. Each of the directors, except for Ms. Campbell, who was appointed to the Board in March of 2020, attended at least 75% of the aggregate of all meetings of our Board and its committees held in 2019 during periods in which that director served on the Board and those committees. Directors typically attend our Annual Meeting of Shareholders. All of our directors, except for Ms. Campbell, who was appointed to the Board in March of 2020, attended our 2019 Annual Meeting of Shareholders.

 

Committees of the Board of Directors

 

Our Board has three standing committees: Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. These committees devote attention to specific subjects and to assist our Board in discharging its business and risk oversight and governance responsibilities. Each committee’s charter, in addition to our Corporate Governance Guidelines, is available on our website at www.zix.com/corporate-governance.  

 

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee is currently comprised of Taher A. Elgamal (chair), Mark J. Bonney, Maryclaire Campbell (who joined the committee in March 2020) and Brandon Van Buren. Our Board has determined that each member of the Nominating and Corporate Governance Committee qualifies as “independent” in accordance with the NASDAQ Listing Rules. Under its charter, which is available on our website at www.zix.com/corporate-governance, the committee’s principal responsibilities include: establishing the criteria for nominating new directors; identifying suitable individuals under those criteria who are qualified to serve as directors; recommending to the Board qualified nominees for election as directors; and developing and recommending to the Board environmental, social and corporate governance principles or practices that the committee believes should be adopted or implemented by the Company, the Board or its committees. In the first quarter of 2020 the Nominating and Corporate Governance Committee retained Spencer Stuart, a third-party director search firm, to identify potential candidates for the new director seat created in March 2020, which included Ms. Campbell. The then-current Nominating and Corporate Governance Committee met on five occasions during 2019.

16


 

 

Shareholder Nomination of Director Candidates

 

Our Board and Nominating and Corporate Governance Committee will consider director nominations suggested by shareholders in accordance with the Company’s bylaws and the Director Nomination and Election Policies that have been adopted by our Board and are available on our website at www.zix.com/corporate-governance.

 

A shareholder desiring to nominate a person for election to our Board must send a written notice to our principal executive offices at Zix Corporation, Attention: Corporate Secretary, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960. Shareholder nominations for the 2021 Annual Meeting must be received no earlier than February 10, 2021, and not later than March 12, 2021. The written notice must contain the information required by Section 1.12 of our bylaws, including all information required to be disclosed in solicitations of proxies for election of directors and as otherwise required pursuant to Regulation 14A under the Securities Exchange Act of 1934. The final selection of director nominees is within the sole discretion of our Board.  

 

Diversity of Directors

 

Our Board and Nominating and Corporate Governance Committee believe that the Board should include directors with diversity of education, experience, skills, qualities, backgrounds and other attributes. The Board does not follow any ratio or formula to determine the appropriate mix of directors, but instead uses its judgment to identify nominees whose education, experience, skills, qualities, backgrounds and other attributes, taken as a whole, will contribute to the diversity of the Board.

 

Director Qualification Criteria

 

As described in our Director Nomination and Election Policies, the criteria considered by our Nominating and Corporate Governance Committee and Board in evaluating director candidates include the following characteristics:

 

 

Integrity

 

The candidate’s ability to objectively analyze complex business problems and develop creative solutions.

 

The candidate’s business and financial sophistication.

 

The candidate’s availability and ability to participate in Board activities and fulfill the responsibilities of a director, including attendance at, and active participation in, meetings of the Board and its committees.

 

The candidate’s ability to work well with the other directors and senior management of the Company.

 

The candidate’s ability to meet the independence criteria that have been adopted by the Board.

 

Such other objective or subjective criteria as the Nominating and Corporate Governance Committee or the Board may deem appropriate from time to time.

 

Candidates who will serve on our Audit Committee must have the following additional characteristics:

 

 

The candidate must meet additional independence requirements in accordance with applicable rules and regulations.

 

The candidate must have the ability to read and understand fundamental financial statements, including a company’s balance sheet, statement of operations and statement of cash flows.

 

At least one member of the Audit Committee must meet the requirements of an “audit committee financial expert” under SEC rules and regulations.

 

Other factors considered in candidates may include, but are not limited to, the following:

 

 

The extent to which the candidate possesses pertinent technological, political, business, financial or social/cultural expertise and experience.

 

The extent of the candidate’s commitment to increasing shareholder value.

 

The candidate’s achievement in education, career and community.

17


 

 

The candidate’s past or current service on boards of directors of public or private companies, charitable organizations and community organizations.

 

The extent of the candidate’s familiarity with issues affecting the Company’s business and industry.

 

The candidate’s expected contribution to the Board’s desired balance and diversity.

 

The Nominating and Corporate Governance Committee will evaluate a nominated candidate and, after consideration of the director qualification criteria set forth in our Director Nomination and Election Policies (as summarized above), will determine whether or not to proceed with the candidate. These procedures have not been materially modified since the disclosure of our Director Nomination and Election Policies in the proxy statement related to our 2014 Annual Meeting of Shareholders. These procedures do not create a contract between our Company, on the one hand, and a Company shareholder(s) or a candidate recommended by a shareholder(s), on the other hand. We reserve the right to change these procedures at any time, consistent with the requirements of applicable law, rules and regulations, and the discretion of our Board. There are no material differences in the procedures for evaluating new director nominees based on whether they are recommended by a security holder or by our Board.

 

Director Election Procedures

 

Our Director Nomination and Election Policies include a so-called “plurality plus” requirement with respect to the election of our directors. Accordingly, each director nominee in an uncontested election tenders his or her conditional resignation to the Corporate Secretary before the election. If a director nominee receives a Majority WITHHELD Vote in the election, that director’s resignation offer becomes effective automatically. The Nominating and Corporate Governance Committee then recommends to the Board whether to accept the offered resignation. Within 90 days after the certification of voting results in the election, the Board will decide whether or not to accept the offered resignation. In general, any director nominee who receives a Majority WITHHELD Vote will not participate in the Nominating and Corporate Governance Committee recommendation or the Board decision regarding an offered resignation. If all members of the Nominating and Corporate Governance Committee received a Majority WITHHELD Vote, then the independent directors who did not receive a Majority WITHHELD Vote will appoint a committee among themselves to consider and make a recommendation to the Board with respect to the offered resignations. If three or fewer directors receive a majority of FOR votes cast out of all votes cast in the election, then all directors (including those who received a Majority WITHHELD Vote) may participate in the Board’s decision whether to accept or not to accept the offered resignations. The Company will promptly disclose the Board’s decision in a Current Report on Form 8-K, including the reasons a resignation is not accepted.

 

Audit Committee

 

Our Audit Committee is comprised of Maribess L. Miller (chair), Mark J. Bonney and Robert C. Hausmann. Our Board determined that all three members of the Audit Committee satisfy the independence and other requirements for audit committee membership required by the NASDAQ Listing Rules and the SEC, and that each has sufficient knowledge in reading and understanding our financial statements to serve on the Audit Committee. Our Board also determined that all three members of the Audit Committee qualify as an “audit committee financial expert” under the SEC rules.

 

Under its charter, which is available on our website at www.zix.com/corporate-governance, our Audit Committee’s principal responsibilities include, among others: assisting the Board with its oversight of the integrity of our financial statements, our compliance with legal and regulatory requirements, the selection and engagement of our independent auditors, assessing and monitoring the qualifications and independence of our independent auditors; overseeing our systems of internal control over financial reporting and disclosure controls and procedures; preparing an audit committee report to be included in our annual proxy statement as required by the SEC; establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; engaging independent counsel and other advisers, as necessary, to carry out its duties; and reporting regularly to the Board as appropriate and performing such other purposes and responsibilities as may be delegated or assigned to the Audit Committee by the Board. The Audit Committee met on nine occasions during 2019.


18


 

 

Compensation Committee

 

Our Compensation Committee is currently comprised of Robert C. Hausmann (chair), Taher A. Elgamal, James H. Greene, Jr. and Maribess L. Miller. Our Board has determined that each member of the Compensation Committee qualifies as “independent” in accordance with the NASDAQ Listing Rules. All of the independent directors on our Board ultimately approve the compensation payable to our executives and directors, but the Board has established the Compensation Committee to assist it in compensation decisions. The then-current Compensation Committee met on seven occasions during 2019.

 

The Compensation Committee operates under a written charter that is available on our website at www.zix.com/corporate-governance. Under its charter, the Compensation Committee’s primary responsibilities include, among other things, the following:

 

 

Establish and review the Company’s overall management compensation philosophy and policies;

 

 

Directly review and approve corporate goals and objectives relevant to the compensation of the CEO and other executive officers, including annual and long-term performance goals and objectives;

 

 

Evaluate the performance of the CEO and other executive officers in light of those goals and objectives; and determine and approve the compensation of the CEO and other executive officers based on that evaluation, including incentive-based cash compensation and equity-based compensation;

 

 

Review and authorize any employment, compensation, benefit or severance agreement with any executive officer (and any amendments or modifications thereto);

 

 

Administer and oversee any equity-based or other compensation plan or program as to which the Board has delegated such responsibility to the Compensation Committee; and

 

 

Review and make recommendations to the Board with respect to the Company’s director compensation philosophy and policies.

The Compensation Committee’s charter provides that the Compensation Committee, in its sole discretion, has the authority to retain a compensation consultant. Since 2018, Meridian Compensation Partners, LLC (“Meridian”) has been retained directly by the Compensation Committee to provide periodic advice, analysis and consultation to the Compensation Committee. Meridian does not provide any services directly to the Company, its affiliates or to management.

 

The Compensation Committee has evaluated the independence of its advisors in light of SEC rules and NASDAQ Listing Rules, which require consideration of the following factors:

 

 

Whether any other services are provided to the Company by the consultant or firm;

 

 

The fees paid by the Company as a percentage of the consulting firm’s total revenue;

 

 

The policies or procedures maintained by the consulting firm that are designed to prevent a conflict of interest;

 

 

Any business or personal relationships between the individual consultants involved in the engagement and a member of the Compensation Committee;

 

 

Any company stock owned by the individual consultants involved in the engagement; and

 

 

Any business or personal relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement.

19


 

 

The Compensation Committee discussed these considerations and concluded that its engagement of its advisors and the services provided to the Compensation Committee by its advisors did not raise any conflict of interest.

 

Policies, Procedures, and Practices

 

Our processes and procedures for the consideration and determination of executive and director compensation are as follows:

 

 

Our Compensation Committee requests recommendations from the CEO with respect to the elements of compensation for the members of management who are direct reports to the CEO.

 

 

Our Compensation Committee consults with and meets with the CEO as required to discuss his recommendations, meets in executive session, or discusses among themselves, as appropriate, in order to formulate a recommendation regarding the compensation of our executives to our Board (excluding the CEO).

 

 

Our Compensation Committee then makes a recommendation to our Board (excluding the CEO).

 

 

Our Board members (excluding the CEO) consult and meet with the CEO and the members of the Compensation Committee as required to discuss the latter’s recommendation, meet in executive session, or discuss among themselves, as appropriate, to reach a decision.

 

 

The decision of our Board members (excluding the CEO) is communicated to the CEO.

 

 

As required by NASDAQ Listing Rules, the CEO does not participate in discussions or decisions regarding his own compensation.

 

 

For the consideration and determination of director compensation, our Board typically refers the matter to the Compensation Committee in order for it to review the matter and make a recommendation to the entire Board.

 

 

The Compensation Committee has the authority to create one or more subcommittees of two or more of its members. The Compensation Committee may delegate any of its responsibilities to a subcommittee so long as such delegation is not otherwise inconsistent with law and applicable rules and regulations of the SEC and NASDAQ.

 

Compensation Committee Interlocks and Insider Participation

 

During 2019, the Compensation Committee was composed entirely of independent directors. None of the members of the Compensation Committee is or was, during 2019 or previously, an officer or employee of our Company or any of our subsidiaries and none had any relationship requiring disclosure under Item 404 of the SEC’s Regulation S-K. During 2019, none of our executive officers served as a member of a board of directors or compensation committee of any other entity that had one or more executive officers serving as a member of our Board or Compensation Committee.

 

Communications with Directors

 

Shareholders interested in communicating with our Board may do so by writing to our executive offices at Zix Corporation, Attention: Corporate Secretary, 2711 North Haskell Avenue, Suite 2200, LB 36, Dallas, Texas 75204-2960. Our Corporate Secretary will review all shareholder communications. Those that appear to contain subject matter reasonably related to matters within the purview of our Board will be forwarded, as appropriate, to the Board, committee or individual Board member.

 

20


 

Code of Ethics

 

We have a Code of Conduct and Code of Ethics, which applies to all of our employees, officers and directors, including our CEO and senior financial officials. It is available on our website at www.zix.com/corporate-governance. The Code of Conduct and Code of Ethics affirms that we expect all directors, officers and employees to uphold our standards of ethical behavior and compliance with the law and to avoid conflicts of interest between the Company and their personal and professional affairs. It establishes procedures for the confidential reporting of suspected violations of the Code of Conduct and Code of Ethics. It also sets forth procedures to receive, retain, and treat complaints received regarding accounting, internal control, auditing or compliance matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting, internal control, auditing or compliance matters. Our Code of Conduct and Code of Ethics also addresses conflicts between the interests of our directors or officers and our Company or its shareholders. Any waiver of our Code of Conduct and Code of Ethics must be approved by the Board, or a committee of the Board, as applicable, and must be in compliance with applicable law. Any waiver of our Code of Conduct and Code of Ethics will be publicly disclosed by posting information about the waiver on our website at www.zix.com/corporate-governance.

 

Independent Registered Public Accountants

 

General

 

Whitley Penn LLP has been appointed by the Audit Committee as our independent registered public accounting firm for fiscal year 2020. Also, Whitley Penn LLP was selected by the Audit Committee as our independent registered public accounting firm the previous 14 consecutive fiscal years. Whitley Penn’s service in that role in each of those years was ratified by our shareholders.

 

A representative of Whitley Penn LLP is expected to be present at the 2020 Annual Meeting, and will have the opportunity to make a statement and to respond to appropriate questions.

 

Fees Paid to Independent Public Accountants

 

Following is a summary of Whitley Penn’s professional fees billed to us for the years ended December 31, 2018 and December 31, 2019:

 

 

 

2018

 

 

 

2019

 

 

Audit Fees

 

$

186,070

 

(1)

 

$

403,030

 

(1)

Audit-Related Fees

 

$

18,009

 

(2)

 

$

18,589

 

(2)

Tax Fees

 

 

 

 

 

 

 

 

All Other Fees

 

$

27,325

 

(3)

 

-0-

 

 

Total Fees

 

$

231,404

 

 

 

$

421,619

 

 

 

 

(1)

Audit fees consist of the annual audits of our consolidated financial statements included in our Annual Report on Form 10-K, the quarterly review of our consolidated financial statements included in our Quarterly Reports on Form 10-Q, as well as accounting advisory services related to financial accounting matters, and other services related to filings made with the SEC.

 

(2)

Audit-related fees consist of required audits of our employee benefit plan.

 

(3)

These fees include fees incurred in relation to our shelf registration filings on Form S-3.

 

21


 

Audit Committee Pre-Approval Policies and Procedures

 

Our Audit Committee is required to pre-approve the audit and non-audit services to be performed by Whitley Penn LLP in order to assure that the provision of services does not impair the auditor’s independence. Annually, Whitley Penn LLP presents to our Audit Committee the services that are expected to be performed by the independent auditor for the succeeding fiscal year. Our Audit Committee reviews and, as it deems appropriate, pre-approves those services. The services and estimated fees are to be presented to our Audit Committee for consideration in the following categories: Audit, Audit-Related, Tax and All Other (each as defined in Schedule 14A under the Securities Exchange Act of 1934). For each service listed in those categories, our Audit Committee receives detailed documentation indicating the specific services to be provided. The term of any pre-approval is 12 months from the date of pre-approval, unless our Audit Committee specifically provides for a different period. Our Audit Committee reviews, on at least an annual basis, the services provided by Whitley Penn LLP and the fees incurred for those services. Our Audit Committee may also revise the list of pre-approved services and related fees from time-to-time, based on subsequent determinations. All of the services provided by Whitley Penn LLP in 2019 were approved in accordance with the Audit Committee’s pre-approval policies, and all of the services expected to be provided by Whitley Penn LLP in 2020 have been pre-approved by our Audit Committee.


22


 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

The Audit Committee oversees, pursuant to its written charter, which was adopted by the Board, the Company’s internal control over financial reporting. The Audit Committee also has the sole authority and responsibility to select, evaluate, compensate and replace our independent registered public accountants. The Company’s independent registered public accounting firm is responsible for auditing the Company’s financial statements. The activities of the Audit Committee are in no way designed to supersede or alter the responsibilities of the independent registered public accounting firm.

 

Management has the primary responsibility for our financial statements and our reporting processes, including our systems of internal control. In fulfilling its oversight responsibilities, the Audit Committee reviewed with management for inclusion in our 2019 Annual Report on Form 10-K, the audited consolidated financial statements of the Company, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements.

 

The Audit Committee has reviewed and discussed with management and the independent accounting firm, as appropriate, the audited financial statements and management’s report on internal control over financial reporting and the independent accounting firm’s related opinions. The Audit Committee has discussed with the independent registered public accounting firm, Whitley Penn LLP, the required communications specified by auditing standards together with guidelines established by the SEC and the Sarbanes-Oxley Act.

 

The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board, regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with Whitley Penn LLP the firm’s independence.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for 2019 filed with the SEC.

 

April 24, 2020

Respectfully submitted by the Audit Committee,

 

 

 

Mark J. Bonney

 

Robert C. Hausmann

 

Maribess L. Miller, Chair

 

This Report will not be deemed to be incorporated by reference in any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this Report by reference.

 

23


 

 

INFORMATION ON THE COMPENSATION OF DIRECTORS

 

General

A director who is an employee of the Company receives no additional compensation for his or her services as a director. A director who is not an employee (a non-employee director) receives compensation for his or her services as described in the following paragraphs, other than Messrs. Van Buren and Greene as described below. All directors are reimbursed for reasonable expenses incurred in connection with attendance at Board and committee meetings.

 

Retainer/Fees

 

Each non-employee director (other than Messrs. Van Buren and Greene) receives an annual retainer for service as a director. The Compensation Committee recommends to the Board for approval the director pay program.  To ensure that the director pay program is competitive with the market and not excessive, the Compensation Committee periodically reviews competitive non-employee director compensation market data provided by the Compensation Committee’s independent consultant, Meridian.  The market data uses the same peer group that the Compensation Committee has approved for benchmarking officer pay as discussed later in the Compensation Discussion and Analysis. Pursuant to the Investment Agreement, Messrs. Van Buren and Greene do not receive any cash compensation or equity awards from the Company for their service as directors.

For 2019, the annual retainer was $146,000 (the “Annual Retainer”). Subject to the annual one-time election of the director otherwise, $67,200 of the Annual Retainer is paid in cash (“Cash Portion”) and $78,800 in the form of restricted stock or deferred stock units (“Equity Portion”). Pursuant to such election, non-employee directors (other than Messrs. Van Buren and Greene) may elect to increase the Equity Portion (with a corresponding decrease in the Cash Portion) and, subject to compliance with the Company’s stock ownership guidelines, to increase the Cash Portion (with a corresponding decrease in the Equity Portion). Each such non-employee director also may elect to receive the entirety of the Equity Portion in the form of either restricted stock or deferred stock units pursuant to such election. The restricted stock and deferred stock units vest quarterly over a period of one year (deferred stock units may be subject to further vesting requirements if specified in the applicable grant agreement).

The non-executive Chairman of the Board also received an additional annual fee of $24,000, payable in cash, and each non-employee director serving as a chair of one of the standing Board committees received an additional annual fee, also payable in cash, as follows:

 

Audit Committee - $14,000

 

Compensation Committee - $10,000

 

Nominating & Corporate Governance Committee - $7,500

 

Each non-employee director (other than Messrs. Van Buren and Greene) received an annual fee of $5,000, payable in cash, for service on each standing committee of the Board (committee chairs will not receive this fee).

 

All of the cash fees described above were paid in four quarterly installments. All of the equity awards described above were granted in the first quarter of 2019.

 

Non-employee directors do not receive additional compensation for attending board or committee meetings.

 

Option Awards Upon Initial Election or Appointment

 

New non-employee directors have, from time to time, received a discretionary grant of options pursuant to our incentive plan following their initial election or appointment to the Board, although, as noted above, Messrs. Van Buren and Greene do not receive equity awards from the Company. As noted above, such grants remain at the discretion of the Board.

 


24


 

 

2019 Director Compensation Paid

 

The following table sets forth the cash and non-cash compensation paid to our non-employee directors who served in calendar year 2019:

 

2019 Director Compensation

 

Name(1)

 

Fees

Earned

or Paid

in Cash(2)

 

 

Restricted

Stock

Awards(3)

 

 

Deferred

Stock Unit

Awards(4)

 

 

Non-Equity

Incentive Plan

Compensation

 

 

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

 

 

All Other

Compensation

 

 

Total

 

Mark J. Bonney(5)

 

$

90,000

 

 

 

 

 

$

66,000

 

 

 

 

 

 

 

 

 

 

 

$

156,000

 

Taher A. Elgamal

 

$

103,340

 

 

$

55,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

158,500

 

Robert C. Hausmann(6)

 

$

129,000

 

 

 

 

 

$

56,000

 

 

 

 

 

 

 

 

 

 

 

$

185,000

 

Maribess L. Miller

 

$

99,000

 

 

 

 

 

$

66,000

 

 

 

 

 

 

 

 

 

 

 

$

165,000

 

Richard D. Spurr

 

$

90,840

 

 

$

55,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

146,000

 

 

 

(1)

As noted above, neither James H. Greene, Jr. nor Brandon Van Buren receives compensation for his service as director.

 

(2)

See the discussion above for an explanation of the components of cash compensation paid to our directors in 2019.

(3)

Mr. Elgamal was granted 7,715 shares of restricted stock, as of December 31, 2019 Mr. Elgamal has 1,928 stock awards outstanding and 52,708 option awards outstanding . Mr. Spurr was granted 7,715 shares of restricted stock, as of December 31, 2019 Mr. Spurr has 1,928 stock awards outstanding and 37,500 option awards outstanding. Messrs. Bonney and Hausmann and Ms. Miller were not granted any shares of restricted stock. The fair market value of the shares of restricted stock awards computed in accordance with FASB ASC Topic 718 was $7.15 per share on the grant date.

(4)

Mr. Bonney was granted 9,231 deferred stock units as of December 31, 2019 Mr. Bonney has 78,894 option awards outstanding and 25,568 deferred units outstanding. Mr. Hausmann was granted 7,832 deferred stock units, as of December 31, 2019 Mr. Hausmann has 21,693 deferred units outstanding. Ms. Miller was granted 9,231 deferred stock units, as of December 31, 2019 Ms. Miller has 15,408 option awards outstanding and 22,884 deferred units outstanding. Messrs. Elgamal and Spurr were not granted any deferred stock units. The fair market value of the deferred stock units awards computed in accordance with FASB ASC Topic 718 was $7.15 per unit on the grant date.

(5)

Fees earned in cash by Mr. Bonney were paid to On Board Advisors, LLC.

(6)

Fees earned in cash by Mr. Hausmann were paid to Business Services Group, LLC.

25


 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

Our Business

 

The Company is a leading provider of cloud email security, productivity and compliance solutions. Trusted by the nation’s most influential institutions in healthcare, finance and government, Zix delivers a superior experience and easy-to-use solutions for email encryption and data loss prevention, advanced threat protection and archiving. As a leading provider of cloud-based cybersecurity, compliance, and productivity solutions for businesses of all sizes, we are focused on the protection of business communication, enabling our customers to better secure data and meet compliance needs. We serve organizations in many industries, with particular emphasis on the healthcare (including multiple major hospitals and several Blue Cross Blue Shield plans), financial services (including several U.S. Banks), and insurance and government (including divisions of the U.S. Treasury and the SEC) sectors.

 

 

2019 Financial Performance Highlights

 

 

Zix delivered record annual revenue of $173.4 million, which constitutes growth of 146% year-over-year.

 

Net income (loss) determined in accordance with generally accepted accounting principles (“GAAP”) was $(14.7) million in 2019, compared to $15.4 million in 2018. Our 2019 net loss is attributed to significant transaction and integration-related costs incurred to acquire AppRiver and DeliverySlip in 2019, amortization of intangible assets recognized from the same acquisitions as well as higher operating expenses and interest expense. Our 2018 net income includes a $7.8 million tax benefit resulting from a decrease to our deferred tax asset valuation allowance based on our expected future profitability and ability to use net operating losses.  

 

Net income (loss) attributable to common shareholders for 2019 was $(24.6) million compared with $15.4 million in 2018. Our 2019 net loss attributable to common shareholders includes deemed and accrued dividends of $9.9 million to preferred shareholders.

 

Cash flow from operations for the full year ended December 31, 2019, was $14.0 million, down $2.7 million from $16.7 million for the full year ended December 31, 2018.

 

Cash and cash equivalents at 2019 year-end was $13.3 million.

 

We spent $284.6 million, net of cash acquired, related to our purchase of AppRiver and DeliverySlip, in February 2019 and May 2019, respectively.

 

We incurred a loss of $0.46 of GAAP diluted earning per share of common stock attributable to shareholders in 2019, a decrease from $0.29 per share of common stock in 2018.

Non-Binding Advisory Vote on Executive Compensation (“Say-on-Pay”) and Frequency of Say-on-Pay

 

In 2019, our shareholders approved, on an advisory basis, the compensation of our named executive officers, as discussed and disclosed in our proxy statement for the 2019 Annual Meeting of Shareholders. Advisory votes in favor of the compensation were cast by over 98.8% of the shares of common stock present in person or represented by proxy and entitled to vote at the 2019 Annual Meeting of Shareholders. The Board and our Compensation Committee (also referred to as the “Committee” in this Compensation Discussion and Analysis) took the results of the Say-on-Pay vote into account when evaluating the compensation programs for our named executive officers in 2019. Based in part on the level of support from our shareholders, our Compensation Committee elected not to make material changes to the compensation programs for our named executive officers during 2019, other than as previously disclosed in our proxy statement for the 2019 Annual Meeting of Shareholders, and will continue to provide our shareholders with an annual opportunity to cast an advisory vote on the compensation programs for our named executive officers.

 

Governance and Evolving Compensation Practices

 

The Compensation Committee and the Board are mindful of evolving practices in executive compensation and corporate governance. In response, we have adopted certain policies and practices that are in keeping with “best practices” in many areas. For example:

26


 

 

 

A significant portion of compensation is directly tied to the achievement of pre-established performance goals.

 

 

The Compensation Committee engages an independent compensation consultant.

 

 

We do not provide excessive executive perquisites or extraordinary relocation benefits to our named executive officers.

 

 

We do not provide named executive officers tax gross-ups for excise taxes triggered as a result of change-in-control severance.

 

 

Our incentive plans and our executive termination benefit agreements (“ETBAs”) have “double-trigger” vesting for equity awards in the context of a change in control if the awards are assumed by the acquiring company, whereby participants would receive accelerated vesting only if the change in control is coupled with their termination without cause or voluntary resignation for good reason.

 

 

Our incentive plans expressly prohibit repricing of options (directly or indirectly) without prior shareholder approval.

 

 

Our Policy on the Prevention of Insider Trading prohibits various types of transactions involving Company stock or securities, including short sales, options trading, hedging, margin purchases and pledges.

 

 

Our stock ownership guidelines require our executive officers to align their long-term interests with those of our shareholders.

 

 

Our executive compensation is subject to recoupment or “clawback” under applicable law and in accordance with the Company’s Incentive Recoupment Policy.

 

Executive Compensation Overview

 

A significant portion of the 2019 compensation of our named executive officers is directly linked to our financial results and stock price through our Company’s short- and long-term incentive programs and awards.

 

For 2019, compensation designed for our executive officers consisted of:

 

 

Base salary;

 

 

Short-term cash awards conditioned upon achieving objective performance targets;

 

 

Long-term equity incentives in the form of time and performance-based restricted stock; and

 

 

Ability to participate generally in all group health and welfare benefit programs and tax-qualified retirement plans on the same basis as applicable to all of our employees.

 

As described in more detail below, short-term cash performance awards under our 2019 Variable Compensation Plan (“VCP”) were tied to achieving pre-established target levels under two objective performance measures: annual recurring revenue (“ARR”) and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). As further discussed below, the Company achieved a portion of the 2019 targets established under the two metrics under the 2019 VCP. Accordingly, the named executive officers received a portion of the target payout with respect to the 2019 VCP.

 

Long-term incentive awards granted to officers in 2019 were awarded in performance-based restricted stock and in time-based restricted stock. For 2019, the mix for the awards granted was 50% in performance-based restricted stock and 50% in time-based restricted stock for the Chief Executive Officer (also referred to as the “CEO” in this Compensation Discussion and Analysis), and 50% in performance-based restricted stock and 50% in time-based restricted stock for other named executive officers (in prior years the mix has been 25% in performance based restricted stock and 75% in time-based restricted stock for our other named executive officers).

 

27


 

General

 

The Compensation Committee administers the cash and non-cash compensation programs applicable to our executive officers. The Board generally reviews and ratifies compensation decisions made by the Compensation Committee.

 

The Compensation Committee makes all decisions about executive officer compensation with input from our Chief Executive Officer about his direct reports. The Compensation Committee considers these compensation recommendations made by the Chief Executive Officer, and often refines those recommendations as part of the process of making its final compensation determinations. Our Chief Executive Officer’s compensation is determined solely by the Compensation Committee, which, consistent with NASDAQ requirements, is comprised exclusively of independent directors, and the Chief Executive Officer does not participate in discussions or decisions surrounding his compensation.

 

During 2019, our named executive officers (collectively, “named executive officers” or “NEOs”) were:

 

 

David J. Wagner, President & Chief Executive Officer

 

Kelly P. Haggerty, Vice President, Product Management & Strategy

 

David J. Robertson, Vice President, Engineering

 

David E. Rockvam, Vice President & Chief Financial Officer

 

Noah F. Webster, Vice President & General Counsel

The compensation paid in 2019 to our NEOs, as set forth below in the “Summary Compensation Table,” primarily consisted of base salary, time- and performance-based restricted stock, and payout with respect to the 2019 VCP. NEOs also received partial match contributions to the Company-sponsored 401(k) plan (which we offer on a non-discriminatory basis to all 401(k) plan participants) and Company-funded life insurance benefits (which we offer on a non-discriminatory basis to all full-time employees). We have no non-qualified deferred compensation arrangements, defined benefit retirement plans or meaningful NEO perquisites.

 

Approval Authority for Certain Compensation Related Matters

 

Compensation decisions affecting the CEO and other NEOs are approved by the Compensation Committee and are separately ratified by the Board, except that the CEO does not participate in any discussions or decisions related to the CEO’s own compensation.

 

Role of Executive Officers in Compensation Decisions

 

Our Board, the Compensation Committee and our management each plays a role in our compensation process. The Compensation Committee reviews and approves our executive compensation practices, which the Board then reviews and customarily ratifies. While the CEO does not participate in discussions or decisions about his own compensation, officers, including the CEO, participate in Compensation Committee meetings from time to time and provide recommendations for the Compensation Committee’s consideration as it relates to the pay levels of other executives, incentive plan design and other related topics. Our Board has delegated to our management the authority to make certain compensation related decisions for employees who are not executive officers.

 

Independent Compensation Consultant

 

The Committee continued to engage Meridian as its independent compensation consultant for 2019. Meridian provided executive and non-employee director compensation consulting services to the Committee, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses and trends on executive compensation and benefits. Interactions between Meridian and management were generally limited to discussions on behalf of the Committee or as required to compile information at the Committee’s direction. During 2019, Meridian did not provide any other services to the Company or its affiliates. Based on these factors and its own evaluation of Meridian’s independence pursuant to the requirements approved and adopted by the SEC, the Committee has determined that the work performed by Meridian does not raise any conflicts of interest.


28


 

 

Compensation Philosophy and Objectives

 

Our Board and Compensation Committee believe that an effective executive compensation program is one that, among other things, accomplishes the following goals:

 

 

Attracts and retains executives (i) with the experience, skills, and knowledge that our Company seeks and requires and (ii) that are committed to achieving our goals;

 

 

Rewards the achievement of specific, objective performance metrics established by our Compensation Committee; and

 

 

Motivates management to increase long-term shareholder value.

 

Our Board and Compensation Committee seek to implement and maintain a compensation plan for our executive officers that is fair, reasonable, and competitive, and that attracts and retains talented and qualified personnel. Our Board believes that equity awards supplement base salary and VCP awards, which are cash based, and motivate the recipient to work to achieve long term value for our shareholders. Our Board also believes that equity awards, VCP awards, and ETBAs are crucial to recruiting (and retaining) the services of qualified and talented personnel.

 

Risk Considerations

 

The Board and Compensation Committee reviewed with management the design and operation of our compensation programs for all employees, including executive officers, for the purpose of determining whether such programs might encourage inappropriate risk-taking that could have a material adverse effect on the Company. After conducting its evaluation, the Board concluded that the components and structure of the Company’s compensation programs do not encourage employees to take risks that are reasonably likely to have a material adverse effect on the Company. In particular, our Board believes that the likelihood of inappropriate risk-taking is mitigated in the following ways:

 

 

We have a robust clawback policy enabling us to recoup previously paid compensation from our executive officers upon the occurrence of certain events.

 

 

We have instituted caps on the amounts that may be paid to our executive officers under our short- and long-term incentive programs.

 

 

We have adopted stock ownership guidelines for our directors and executive officers, requiring such individuals to own a significant amount of our stock to align their interests with our shareholders.

 

 

Compensation decisions affecting the CEO and other NEOs are approved by the Compensation Committee, which is comprised solely of independent directors.

 

 

The Compensation Committee is responsible for approving incentive plan performance goals.

 

 

The Compensation Committee has the ability to use discretion to align payouts with performance as appropriate.

Competitive Market Information

 

The Compensation Committee regularly evaluates the compensation of the Company’s executives, including the named executive officers, to the market compensation levels of similar positions. This market analysis is conducted annually for Chief Executive Officer compensation, and biennially for all other executive officers. In 2018, Meridian provided a competitive market analysis of chief executive officers and for other executive officers using proxy-disclosed compensation from the Company’s peer group, listed below, as well as survey data sourced from Radford’s Global Technology Survey in order to help inform its decision on officer compensation for 2019.

 

29


 

The Compensation Committee approved the following peer group for use in benchmarking CEO compensation after consideration of business models, company revenue and market capitalization of other companies in the Company’s technology industry segment, and input from Meridian:

 

Amber Road

Asure Software

Brightcove, Inc.

Carbonite, Inc.

ChannelAdvisor Corporation

Digimarc

Everbridge, Inc.

Finjn Holdings

GlobalSCAPE

Mitek Systems

MobileIron, Inc.

OneSpan, Inc.

Proofpoint, Inc.

PROS Holdings, Inc.

Qualys, Inc.

Rapid7, Inc.

Smith Micro

Support.com

Upland Software, Inc.

Wide Point

 

 

The Compensation Committee reviews the peer group each year and may make changes year-to-year, as it deems appropriate, based on the considerations listed above and to address companies that may become unavailable for continued use due to merger, acquisition or other events.  For purposes of the Company’s 2020 executive compensation program, the Compensation Committee and Meridian have worked together to implement a new peer group based on the increased size of the Company following the AppRiver acquisition, which will be disclosed in the proxy for the 2021 annual meeting.

 

Data from the compensation analysis peer group was evaluated with respect to base salary, target and actual total cash (base salary + target bonus and base salary + last paid bonus), long-term incentive values, and target and actual total direct compensation (target total cash + total long-term incentive values and actual total cash + long term incentive values).

 

Executive Officer Base Salaries and Compensation Comparisons

 

The base salary of each executive officer relates primarily to the experience, responsibilities and performance of each executive officer, as well as with reference to compensation paid by similar companies for comparable positions. For 2019, the Compensation Committee also considered the 2018 executive compensation market analysis prepared by Meridian. We believe this approach offers our executives, including our named executive officers, a reasonable base salary as subjectively determined by our Compensation Committee following a recommendation by our CEO. In connection with this process, the Board ratifies NEO base salary determinations made by the Compensation Committee, and the CEO’s base salary is determined and ratified without any input or participation by the CEO.

2019 base salaries for all named executive officers increased from 2018 as set forth below in the “Summary Compensation Table.”

 

Executive Officer Short-Term Incentive Program Variable Compensation

 

We believe that variable compensation, based on the Company’s achievement of objective performance measures, is an important component of an executive’s overall compensation package and helps to align compensation outcomes with performance outcomes. Furthermore, we believe a variable compensation element motivates the recipient to achieve financial and business objectives established by our Board and enables the recipient to share in the success of our business endeavors.

 

The Company’s executive officers, other than executives whose primary function is sales, typically are eligible to receive VCP awards approved by our Compensation Committee for each fiscal year. Each eligible executive officer is provided a target variable compensation opportunity, with payment conditioned upon the Company meeting objective performance targets of specific metrics that are established by the Compensation Committee. For 2019, our Compensation Committee established the 2019 VCP with metrics based on two independently-weighted objective performance measures:

 

 

Non-GAAP ARR (50%)

 

Non-GAAP Adjusted EBITDA (50%). Adjusted EBITDA adds back stock-based compensation and certain litigation and consulting expenses.

30


 

 

The 2019 VCP payout opportunities can range from 50% of target for performance at a threshold goal to 200% of target for performance up to a maximum goal, as shown in the table below. Any percentage level achievement between the minimum and target performance goal for a performance metric, between the target and the upside performance goal, and between the upside performance goal and the maximum performance goal would result in the payment of a portion of the 2019 VCP payment opportunity allocated to that performance metric determined by interpolation on a straight-line basis. Performance below the threshold goal results in no payout for a performance metric.

 

As indicated in the table below, the Company achieved varying levels of the 2019 performance metrics for a weighted average actual payout of 113% of target.

 

Variable Compensation for Named Executive Officers

 

2019 Performance Metrics

 

Weight

 

 

Minimum

Goal

 

 

Minimum

Payout

 

 

Target

Goal

 

 

Target

Payout

 

 

Upside

Goal

 

 

Upside

Payout

 

 

Maximum

Goal

 

 

Maximum

Payout

 

ARR

 

 

50.0

%

 

 

95

%

 

 

50

%

 

 

100

%

 

 

100

%

 

 

105

%

 

 

150

%

 

 

110

%

 

 

200

%

Adjusted EBITDA**

 

 

50.0

%

 

 

95

%

 

 

50

%

 

 

100

%

 

 

100

%

 

 

105

%

 

 

150

%

 

 

110

%

 

 

200

%

 

 

 

 

 

 

 

2019 Metric Levels*

 

 

 

 

 

 

 

 

 

 

2019 Performance Metric

 

Weight

 

 

Minimum

50%

 

Target

100%

 

Upside

150%

 

Maximum

200%

 

2019

Actual

Achievement*

 

2019

Actual %

Achievement*

 

 

2019

Achievement

% Per the

Plan

 

ARR

 

 

50.0

%

 

$191.9MM

 

$202 MM

 

$212.1MM

 

$222.2MM

 

$209.7MM

 

 

103.80

%

 

 

138.00

%

Adjusted EBITDA**

 

 

50.0

%

 

$36.8MM

 

$38.7MM

 

$40.6 MM

 

$42.6MM

 

$38.2MM

 

 

98.70

%

 

 

88.00

%

Total Weighted Payout

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.25

%

 

 

113

%

 

*

Dollar amounts in millions.

**

For a detailed description of how the Company uses non-GAAP metrics and arrived at ARR and Adjusted EBITDA for the full year 2019, see our fourth quarter earnings release and Form 8-K, filed with the SEC on February 20, 2020.

 

The 2019 VCP 100% targets in ARR and Adjusted EBITDA were based on detailed internal budget forecasts and were calculated by applying the same methodology used to determine the actual ARR and Adjusted EBITDA reported quarterly in our earnings release with certain accounting adjustments to address, as applicable, an acquisition related haircut to deferred revenue.

 

The table below sets forth the variable compensation amounts payable to our named executive officers at 100% target achievement under the 2019 VCP and the amounts actually paid based on performance achievement against the goals listed above.

 

 

 

 

 

Amount

Payable at

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

100%

Target

 

 

Target %

of Base

 

 

Average

Payout

 

 

Amount

 

Name

 

Year

 

Achievement

 

 

Salary

 

 

Percentage

 

 

Paid

 

David J. Wagner

 

2019

 

$

300,000

 

 

 

75

%

 

 

113

%

 

$

339,000

 

David E. Rockvam

 

2019

 

$

150,000

 

 

 

50

%

 

 

113

%

 

$

169,500

 

Kelly P. Haggerty

 

2019

 

$

94,500

 

 

 

35

%

 

 

113

%

 

$

106,785

 

David J. Robertson

 

2019

 

$

105,000

 

 

 

35

%

 

 

113

%

 

$

118,650

 

Noah F. Webster

 

2019

 

$

94,500

 

 

 

35

%

 

 

113

%

 

$

106,785

 

 


31


 

 

Equity-Based Long-Term Incentive Awards

 

General

 

In recent years, we have awarded equity-based long-term incentives as time-based and performance-based restricted stock to our executives.

 

We have historically offered an equity element to executive compensation for the following reasons:

 

 

Equity-based awards motivate the award recipient to work to achieve the financial and business metrics that our Board establishes for each grant cycle.

 

 

It enables the award recipient to share in the success of our Company’s business, as that success is reflected in our stock price.

 

Equity awards align the award recipient’s interest with the shareholders’ interests and promote a long-term focus on shareholder value creation.

 

 

Facilitating equity ownership through a long-term incentive program helps hold officers accountable in the future for their decision-making today as changes in future share price will impact the value of stock they own even after it has vested.

 

 

Equity-based awards are crucial to recruiting and retaining the services of qualified and talented personnel (i.e., the award recipient).

 

 

Equity-based compensation is a competitive and customary form of compensation among the software industry.

 

We have no non-qualified deferred compensation arrangements and no defined benefit pension plans; accordingly, our Board believes that equity-based awards are a significant component of our executive compensation program and means by which our executives anticipate accumulating value for retirement.

 

Equity awards, to the extent made, are granted to our executive officers based on the following factors:

 

 

The impact of the individual’s role to our Company;

 

 

The individual’s experience, skills and/or knowledge in fulfilling that role;

 

 

The value of grants in employee retention and motivation for future performance;

 

 

An assessment of peer companies’ equity-based compensation for similarly-situated executives; and

 

 

An assessment of equity-based compensation among our executive officers.

 

In 2019, we awarded restricted stock to Messrs. Wagner, Haggerty, Robertson, Rockvam, and Webster, 50% of which was time-based and 50% of which was performance-based (the “2019 Equity Grants”). In general, the time-based restricted stock vests ratably and annually over three years (one-third each year) and the performance-based restricted stock vests ratably and annually over three years (one-third each year) subject to achievement of the annual performance conditions. The annual performance conditions for each tranche of the performance-based awards are set each year.

 

Policies and Practices

 

The Board generally considers and makes equity-based compensation awards to each of our executive officers on an annual basis. The Board generally grants equity awards in the first quarter of each year, following the public announcement of the Company’s financial performance for the prior calendar year.


32


 

2019 Performance-Based Equity Awards

 

For 2019, our Compensation Committee approved a performance metric of Adjusted Gross Margin for the vesting of the first tranche of the 2019 performance-based restricted stock award, the second tranche of the 2018 performance-based restricted stock award and the third tranche of the 2017 performance-based restricted stock award (“2019 Performance Share Metric”). The 2019 Performance Share Metric included a minimum performance goal, a target performance goal, an upside performance goal and a maximum performance goal. The achievement of the minimum performance goal would result in the vesting of 50% of the portion of the performance-based restricted stock eligible for vesting in 2019, the achievement of the target performance goal would result in the vesting of 100% of the portion of the performance-based restricted stock eligible for vesting in 2019, the achievement of the upside performace goal would result in the vesting of 150% of the portion of the performance-based restricted stock eligible for vesting in 2019, and the achievement of maximum target performance goals would result in a maximum possible vesting of 200% of the portion of the performance-based restricted stock eligible for vesting in 2019. Any percentage level achievement between the minimum performance goal and target performance goal would result in the vesting of a portion of the performance-based restricted stock eligible for vesting in 2019 determined by interpolation on a straight-line basis. Any percentage level achievement between the target performance goal and upside performance goal would result in the vesting of a portion of the performance-based restricted stock eligible for vesting in 2019 determined by interpolation on a straight-line basis. Likewise any percentage level achievement between the upside performance goal and maximum performance goal would result in the vesting of a portion of the performance-based restricted stock eligible for vesting in 2019 determined by interpolation on a straight-line basis.  The 2019 performance results do not affect the vesting of the 2020 and 2021 tranches of the performance-based equity awards. The performance goals for these tranches will be established at the beginning of each year, respectively.

 

As indicated in the table below, the Company met a 79% achievement of the 2019 Performance Share Metric which resulted in the vesting of 79% of the portion of the performance-based restricted stock eligible for vesting in 2019.

 

Performance Shares for Named Executive Officers

 

 

 

2019 Metric Levels

 

2019 Actual

Achievement

2019

Performance

Metric

 

Minimum Value

 

Minimum Vesting

Percentage

 

Metric

Relative to

Target

 

Target Value

 

Target Vesting

Percentage

 

Metric

Relative to

Target

 

Upside Value

 

Upside Vesting

Percentage

 

Metric

Relative to

Target

 

Maximum Value

 

Maximum Vesting

Percentage

 

Metric

Relative to

Target

 

 

2019 Actual

Value

 

2019 Actual

Vesting

Percentage

 

Achievement

Relative to

Target

Adjusted Gross Margin

 

$102.20*

 

50%

 

95%

 

$107.60

 

100%

 

100%

 

$113.00

 

150%

 

105%

 

$118.4

 

200%

 

110%

 

$105.30

 

79%

 

98%

 

*

Dollar amounts in millions

 

The 100% target for the 2019 Performance Share Metric identified in the table above was based on detailed internal budget forecasts and was calculated by applying the same methodology used to determine the actual gross margin reported quarterly in our earnings release with certain accounting adjustments to address, as applicable.

 

The table below sets forth the performance-based restricted stock vesting to our named executive officers at 79% target achievement of the 2019 Performance Share Metric, and the shares or units actually vested.

33


 

 

 

 

 

 

2017 Grant

 

 

2018 Grant

 

 

2019 Grant

 

 

 

 

 

Name

 

Year

 

Vesting at

100% Target

Achievement(1)

 

 

Percent

Actual

Achievement

 

 

Vesting

at 79%

Payout

 

 

Vesting at

100%

Target

Achievement(2)

 

 

Percent

Actual

Achievement

 

 

Vesting

at 79%

Payout

 

 

Vesting at

100% Target

Achievement(3)

 

 

Percent

Actual

Achievement

 

 

Vesting

at 79%

Payout

 

 

Total

Amount

Vested

 

David J. Wagner

 

2019

 

 

14,815

 

 

 

79

%

 

 

11,703

 

 

 

29,630

 

 

 

79

%

 

 

23,407

 

 

 

37,500

 

 

 

79

%

 

 

29,625

 

 

 

64,735

 

David E. Rockvam

 

2019

 

 

5,555

 

 

 

79

%

 

 

4,388

 

 

 

5,556

 

 

 

79

%

 

 

4,389

 

 

 

19,167

 

 

 

79

%

 

 

15,141

 

 

 

23,918

 

Kelly P. Haggerty

 

2019

 

 

3,333

 

 

 

79

%

 

 

2,633

 

 

 

3,333

 

 

 

79

%

 

 

2,633

 

 

 

10,000

 

 

 

79

%

 

 

7,900

 

 

 

13,166

 

David J. Robertson

 

2019

 

 

3,333

 

 

 

79

%

 

 

2,633

 

 

 

3,333

 

 

 

79

%

 

 

2,633

 

 

 

12,500

 

 

 

79

%

 

 

9,875

 

 

 

15,141

 

Noah F. Webster

 

2019

 

 

0

 

 

 

79

%

 

 

0

 

 

 

0

 

 

 

79

%

 

 

0

 

 

 

10,000

 

 

 

79

%

 

 

7,900

 

 

 

7,900

 

 

(1)

Represents the final one third of the total performance-based restricted stock granted in 2017 by the Company to the executive officer that vested in 2019.

 

(2)

Represents one-third of the total performance-based restricted stock granted in 2018 by the Company to the executive officer. The remaining portion of the performance-based restricted stock granted in 2018 will be eligible for vesting in 2020 if the Company meets the approved performance goals in 2020.

 

(3)

Represents one-third of the total performance-based restricted stock granted in 2019 by the Company to the executive officer. The remaining portion of the performance-based restricted stock granted in 2019 will be eligible for vesting in 2020 and 2021 if the Company meets the approved performance goals in 2020 and 2021, respectively.

 

Impact of Accounting and Tax Treatments of Compensation

 

The Compensation Committee considers the anticipated accounting and tax treatment to the Company and the participants in its review and establishment of compensation programs and payments, but the tax and accounting treatment of the salary compensation, variable compensation, stock options or stock awards paid or awarded to our executives generally is not a material factor in determining the magnitude of compensation payable to our executives or the relative mix of these elements in their compensation packages.

 

As a result of tax reform that became effective on January 1, 2018, future grants of performance awards will no longer be eligible to qualify for the “qualified performance-based compensation” exemption from Section 162(m) of the Internal Revenue Code (“Section 162(m)”). Section 162(m) generally limits the deductibility of compensation paid to certain “covered employees” to $1,000,000 per annum. The Tax Cuts and Jobs Act, which became effective on January 1, 2018, amended Section 162(m) to, among other things, (i) expand the number of covered employees to include the chief financial officer (and they remain covered employees for all future years) and (ii) eliminate entirely the exception to Section 162(m)’s deduction limits for certain “qualified performance-based compensation” (subject to the grandfathering of certain preexisting, written arrangements that were in effect as of November 2, 2017). Several classes of our preexisting compensation arrangements, including certain equity grants to our executive officers, were designed to meet the previous requirements for deductibility, though deductibility of compensation was only one factor that the Compensation Committee and Board take into account in setting executive pay.

 

Although tax deductibility of compensation is advantageous and the Compensation Committee may continue to administer our preexisting compensation arrangements in a way that may be intended to preserve their deductibility (subject to additional guidance from the U.S. Internal Revenue Service regarding the grandfathering described above), such arrangements may or may not continue to qualify as “qualified performance-based compensation” under Section 162(m). Further, given that, the primary objective of our compensation programs is meeting the compensation objectives set forth above, the Compensation Committee and the Board reserve the right to issue awards that are not intended to or will not be deductible under Section162(m).

 

Anti-Hedging and Anti-Pledging Policy

 

Pursuant to our insider trading policy, directors, executive officers and their family members are prohibited from engaging in hedging transactions involving our stock or securities because these transactions would allow a person to continue to own our securities but without the full risks and rewards of ownership and their objectives would no longer be the same as our shareholders.

 

34


 

Pursuant to our insider trading policy, directors, executive officers and their family members are prohibited from purchasing our securities on margin, holding our securities in a margin account or pledging our stock as collateral for a loan (except for cashless option exercises) because these sales could occur when such person possesses