AMENDMENT TO AMENDED AND RESTATED CONVERTIBLE NOTE

Exhibit 4.2
Execution Copy

ZIX CORPORATION

AMENDMENT NO. 2

Relating to

AMENDED AND RESTATED

CONVERTIBLE NOTE DUE 2005-2008

and

AMENDED AND RESTATED

COMMON STOCK PURCHASE WARRANT

TABLE OF CONTENTS

AMENDMENT NO. 2

      THIS AMENDMENT NO. 2, dated as of December 8, 2005 (this “Agreement”), by and between ZIX CORPORATION, a Texas corporation (the “Company”), and AMULET LIMITED , a Cayman Islands exempt company (the “Purchaser”), amends the AMENDED AND RESTATED CONVERTIBLE NOTE DUE 2005-2008 in the original principal amount of $10,000,000 issued by the Company (the “Note”), the AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, (the “Registration Rights Agreement”) and the PURCHASE AGREEMENT (such capitalized term and all other capitalized terms used herein having the respective meanings provided herein).

W I T N E S S E T H :

      WHEREAS, the Company and the Purchaser have previously executed and delivered, one to the other, the Purchase Agreement and the Registration Rights Agreement, and the Company has issued the Note to the Purchaser;

      WHEREAS, the Company and the Purchaser wish to amend certain terms of the Note and to confirm the meaning of certain provisions of the Registration Rights Agreement, upon the terms and subject to the conditions of this Agreement;

      NOW THEREFORE, in consideration of the premises and the mutual covenants made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

      1. Definitions.

      1.1 As used in this Agreement, the terms “Agreement”, “Company”, “Note”, “Registration Rights Agreement” and “Purchaser” shall have the respective meanings assigned to such terms in the introductory paragraph of this Agreement.

      1.2 Capitalized terms used in this Agreement and not defined in this Agreement shall have the respective meanings provided in the Note or if not defined in the Note, as defined in the Registration Rights Agreement and if not defined in the Note or the Registration Rights Agreement, as defined in the Purchase Agreement.

      1.3 All the agreements or instruments herein defined shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms thereof and of this Agreement.

      1.4 The following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

     “Amendment No. 1” means Amendment No. 1 to Purchase Agreement, dated as of April 13, 2005, by and between the Company and the Purchaser.

     “Amendment Underlying Shares” means any shares of Common Stock issued upon a Share Redemption of the Note pursuant to the terms of the Note that are added by this Agreement.

     “Effective Time” means the date on which and time at which the Company and the Purchaser execute and deliver this Agreement, one to the other.

     “First Registration Statement” means the Company’s Registration Statement on Form S-3, Registration No. 333-120548, ordered effective by the SEC on February 3, 2005.

     “Holder” shall have the meaning provided in the Registration Rights Agreement.

     “Other Agreement” means the Amendment No. 2, dated as of the date hereof, between the Company and the holder of the Other Note relating to, among other things, amendment of the Other Note.

     “Purchase Agreement” means the Purchase Agreement, dated as of November 1, 2004, by and between the Company and the Purchaser, as amended by Amendment No. 1.

     “Second Registration Statement” means the Company’s Registration Statement on Form S-3, Registration No. 333-124318, ordered effective by the SEC on July 20, 2005.

      2. Amendments and Confirmation . The following amendments in Section 2.1 shall become effective at the Effective Time.

      2.1 Partial Redemption of the Note . As contemplated by Section 2(d)(2) of the Note, on or before December 9, 2005, the Company shall redeem the

remaining $1,950,687.00 outstanding principal amount of the principal installment of the Note scheduled to be due on November 2, 2008. The Redemption shall be effected in two tranches and the Share Redemption Notices for each such redemption are attached hereto as Exhibit A and Exhibit B. Notwithstanding the period specified in the Note for the giving of Redemption Notices, the Purchaser agrees to accept the Share Redemption Notices attached hereto. Solely for purposes of permitting the Company to give the attached Share Redemption Notices, and not for purposes of otherwise relieving the Company of its obligation to comply, or the Purchaser’s rights under, the following provisions of the Note, the Purchaser hereby also waives the following additional requirements related to such redemption:

     (a) Section 2(c)(1)(C) of the Note regarding the availability of the Registration Statement for use by the Purchaser; and

     (b) Section (3)(o)(2) of the Note as to reporting the Share Redemptioncompleted on December 1, 2005 so long as the Company reports the information specified in such Section 3(o)(2) in the Current Report on Form 8-K filed by the Company as required by Section 6.3.

      2.2 Confirmations Regarding Registration Rights Agreement. The Company acknowledges and agrees, for the benefit of the Purchaser and its transferee or transferees under the Registration Rights Agreement, that in case the Purchaser transfers Registrable Securities to a Holder in a transaction not covered by a Registration Statement and in accordance with Section 7(c) of the Registration Rights Agreement the Purchaser assigns rights under the Registration Rights Agreement to such Holder and such Holder agrees in writing to be bound by the Registration Rights Agreement,

     (a) such Registrable Securities shall be Additional Registrable Securities for purposes of the Registration Rights Agreement, and such Holder shall be entitled to registration rights with respect to such Registrable Securities pursuant to Section 2(a)(ii) of the Registration Rights Agreement; and

     (b) in case the Purchaser so assigns its rights in part, notwithstanding that such Holder agrees in writing to be bound by the Registration Rights Agreement, thereafter for all purposes the Purchaser and such Holder shall be deemed to be parties to two separate Registration Rights Agreements with the Company, which shall mean, among other things, that any consent under or waiver or amendment of one of such Registration Rights Agreements may be made by the Company and the holder of Registrable Securities party to such Registration Rights Agreement without the holder of Registrable Securities party to such other Registration Rights Agreement having any rights in respect of such consent, waiver or amendment relating to the first such Registration Rights Agreement.

      2.3 Concerning the Purchase Agreement, the Security Agreement and the Warrants. On November 23, 2005 the Company gave the Purchaser a Maximum Share Amount Notice. Notwithstanding the provisions of Section 6.16 of the Purchase Agreement and the provisions of the Security Agreement, the Company and the Purchaser agree as follows:

     (a) The Company shall seek, and use its best efforts to obtain, the Stockholder Approval by May 1, 2006, rather than by the date that is 60 days after the Maximum Share Amount Notice Date for such Maximum Share Amount Notice.

     (b) The Purchaser’s right to require redemption of the Note during the 30-day period otherwise provided for in Section 6.16(b)(2) of the Purchase Agreement in respect of such Maximum Share Amount Notice shall be tolled until the earlier of (1) May 1, 2006 and (2) the date on which the stockholder meeting is held (the “Redemption Right Date”), with the result that the Purchaser’s right to require redemption of the Note pursuant to Section 6.16(b)(3) of the Purchase Agreement shall be a right to require such redemption, whether or not the Company obtains Stockholder Approval, and such right may be exercised commencing on the Redemption Right Date.

     (c) Notwithstanding Section 15(c)(6) of the Security Agreement, upon the later of (x) December 30, 2005 and (y) the date on which the Company has by Share Redemption or cash redemption reduced the aggregate outstanding principal amount of the Notes to $10,000,000 or less, the Company shall be entitled to release of all cash Collateral in excess of $7,936,405.20 upon the Company’s request therefor in accordance with Section 15(c) of the Security Agreement and satisfaction of the other requirements of Section 15(c) of the Security Agreement. Thereafter, until such time as no Maximum Share Amount Deficiency exists, if the aggregate outstanding principal amount of the Notes is reduced below $10,000,000 the Company shall be entitled, upon its request and the satisfaction of the requirements of Section 15(c) of the Security Agreement other than Section 15(c)(6) of the Security Agreement, to release of cash Collateral in excess of the lesser of (x) $7,936,405.20 and (y) the aggregate outstanding principal amount of the Notes. If no Maximum Share Amount Deficiency exists, then the provisions of Section 15(c) of the Security Agreement, without regard to the foregoing provisions of this Section 2.3(c), shall once again be in effect. The Purchaser hereby consents to the release of $2,063,594.80 of Collateral pursuant to Section 15(e) of the Security Agreement in order to allow the payment of the cash portion of redemption consideration on the Other Note.

     (d) Notwithstanding Section 15(c)(6) of the Security Agreement, until the earlier of (x) the date no Maximum Share Amount Deficiency exists and (y) April 30, 2006, the Company shall be entitled, upon its request and the satisfaction of the requirements of Section 15(c) of the Security Agreement other than Section

15(c)(6) of the Security Agreement, to release of cash Collateral equal to the funds held in the Collateral Account attributable to interest on the cash Collateral otherwise required to be maintained and held pursuant to the Security Agreement. If no Maximum Share Amount Deficiency exists, then the Company’s right to release of cash Collateral consisting of interest earned on the cash Collateral in the Collateral Account shall revert to the provisions of Section 15(c) of the Security Agreement, without regard to this Section 2.3(e).

     (e) The Company represents and warrants that Rodman & Renshaw has amended its agreement with the Company such that the portion of the Maximum Share Amount previously allocated to the warrants to purchase 166,667 shares of Common Stock issued to Rodman & Renshaw is now available for the issuance of shares upon conversion of the Note and the Other Note and exercise of the Warrants, the Redemption Warrants and the warrants issued or issuable by the Company in connection with the Other Note.

     (f) As provided in Section 8(f) of the Warrant, the redemption of the Note provided for in Section 2.1 of this Agreement shall be treated as a Share Redemption but in lieu of the number of shares of Common Stock determined under Section 8(f) of the Warrant that would be repriced by reason thereof, the Purchase Price under and as defined in the Warrant shall be reduced to $1.44 for 98,277 shares of Common Stock issuable upon exercise of the Warrant.

      3. Representations, Warranties, Etc. of the Company.

      3.1 Affirmation of Certain Representations and Warranties, Etc. The Company hereby affirms to the Purchaser that all of the representations and warranties to, and covenants and agreements of, the Company set forth in Section 3 of Amendment No. 1 (other than (1) the representations, warranties, covenants and agreements set forth in Section 3.5 regarding the Form D, which the Company will not be filing with regard to the transactions contemplated by this Agreement, and regarding the Company’s registration obligations, as to which certain additional shares of Common Stock have previously been registered on the Second Registration Statement, and (2) Section 3.18 of Amendment No. 1) are true and correct, and are hereby made, as if given and made at the date hereof and as if each reference therein, directly or indirectly, to (1) the “Amended Note” (as defined in Amendment No. 1) were a reference to the Note as amended by this Agreement, (2) the “Amendment Transaction Documents” (as defin