UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

MATT BRODY, On Behalf of Himself and All Others Similarly Situated,

Plaintiff,

vs.

ZIX CORPORATION, RONALD A. WOESSNER, JOHN A. RYAN, DANIEL S. NUTKIS, STEVE M. YORK, RUSSELL J. MORGAN, WAEL MOHAMED and DENNIS F. HEATHCOTE,

Defendants.

§ § § § § § § § § § § § § § §

Civil Action No.

CLASS ACTION

DEMAND FOR JURY TRIAL

COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS

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SUMMARY AND OVERVIEW

1. This is a securities class action on behalf of all purchasers of the common stock of

Zix Corporation (“Zix” or the “Company”) between October 30, 2003 and May 4, 2004 (the “Class

Period”), against Zix and certain of its officers and directors for violations of the Securities

Exchange Act of 1934 (the “1934 Act”).

2. Zix is a global provider of e-messaging protection and transaction services. The

Company offers a range of solutions to protect organizations from viruses, spam and electronic

attack, as well as enabling secure electronic communications, such as e-mail encryption, e-

prescribing, online doctor visits and electronic viewing of medical laboratory test results.

3. During the Class Period, defendants disseminated materially false and misleading

statements regarding the Company’s business and prospects. On May 4, 2004, the Company

announced its results for Q1 2004. Though the release concealed the fact that the Company had not

achieved its Q1 2004 projections, shareholders began to sift through the release. On this news alone,

the Company’s shares were sent into a freefall, tumbling 50% in the following trading days to below

$7 per share. As evidence that the defendants’ business model did not work as defendants had

claimed continued to leak out, the Company’s shares continued their descent, dropping another 50%

months later.

4. The true facts, which were known by each of the defendants but concealed from the

investing public during the Class Period, were as follows:

(a) The Company was experiencing sluggish doctor adoption to e-prescribing,

reducing projections going forward but also requiring the Company to experience higher costs,

rendering the Company’s Q1 2004 projections false. In fact, not only would the Company’s cash

flow from operations not breakeven for Q1 2004, it was deteriorating by over 74% over the

comparable quarter.

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(b) The Company’s claim that it would achieve 1,000 deployed active doctors by

the end of Q4 2003 was grossly false and misleading. By the end of Q1 2004, the Company had

only deployed 230 physicians. Moreover, the Company’s claim it would achieve 10,000 active e-

prescribing doctors by the end of FY 2004 was grossly overstated. Aside from the fact that

physicians were not accepting of the product, long before the Company could even make these

predictions and deploy e-prescriptions, physicians would be required to reconfigure their patient

data, obtain wireless coverage and implement a wireless LAN. These additional barriers were

severely undercutting physician acceptance and deployment.

(c) The Company’s claim it had 4,000 deployments already on order was false.

In fact, when defendants made this claim, the physicians’ sites had not even been surveyed to

evaluate wireless/LAN needs, all of which would drastically impact not only the timing of these

“ordered” deployments but also whether these so-called ordered deployments would ever be

truthfully ordered and deployed.

(d) New offerings from its Elron acquisition were delayed as a result of

integration problems, preventing the Company from generating anticipated revenue until after Q2

2004.

5. As a result of the defendants’ false statements, Zix’s stock traded at inflated levels

during the Class Period, increasing to as high as $17.33 on April 12, 2004, whereby the Company’s

top officers and directors sold more than $4.6 million worth of their own shares and raised an

additional $10 million through the conversion of warrants.

JURISDICTION AND VENUE

6. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein arise

under §§10(b) and 20(a) of the 1934 Act and Rule 10b-5.

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7. Venue is proper in this District pursuant to §27 of the 1934 Act. Many of the false

and misleading statements were made in or issued from this District.

8. The Company’s principal executive offices are in Dallas, Texas, where the day-to-day

operations of the Company are directed and managed.

THE PARTIES

9. Plaintiff Matt Brody purchased Zix common stock as described in the attached

certification and was damaged thereby.

10. Defendant Zix is a global provider of e-messaging protection and transaction services.

The Company offers a range of solutions to protect organizations from viruses, spam and electronic

attack, as well as enabling secure electronic communications, such as e-mail encryption, e-

prescribing, online doctor visits and electronic viewing of medical laboratory test results. Process

may be served on Zix through its registered agent, Ronald A. Woessner at 2711 N. Haskell Avenue,

Suite 2300 LB36, Dallas, Texas 75204.

11. Defendant Ronald A. Woessner (“Woessner”) was the Senior Vice President and

General Counsel of Zix. During the Class Period, Woessner sold more than $1.5 million worth of

his Zix stock. Defendant Woessner may be served at 713 E. Bethel School Road, Coppell, Texas

75019.

12. Defendant John A. Ryan (“Ryan”) was Chairman and CEO of Zix. Defendant Ryan

may be served at 5001 Red Wolf Lane, Plano, Texas 75093.

13. Defendant Daniel S. Nutkis (“Nutkis”) was the Executive Vice President and Chief

Strategy Officer of Zix. During the Class Period, Nutkis sold more than $1.1 million worth of his

Zix stock. Defendant Nutkis may be served at 2711 N. Haskell Avenue, Suite 2300 LB36, Dallas,

Texas 75204.

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14. Defendant Steve M. York (“York”) was the CFO of Zix. During the Class Period,

York sold more than $1.4 million worth of his Zix stock. Defendant York may be served at 4615

Pine Valley Drive, Frisco, Texas 75034.

15. Defendant Russell J. Morgan (“Morgan”) was Vice President, Client Services of Zix.

During the Class Period, Morgan sold more than $179,000 worth of his Zix stock. Defendant

Morgan may be served at 2711 N. Haskell Ave., Suite 2300 LB36, Dallas, Texas 75204.

16. Defendant Wael Mohamed (“Mohamed”) was a Vice President, Global Sales of Zix.

During the Class Period, Mohamed sold more than $296,000 worth of his Zix stock. Defendant

Mohamed may be served at 2711 N. Haskell Ave., Suite 2300 LB36, Dallas, Texas 75204.

17. Defendant Dennis F. Heathcote (“Heathcote”) was Vice President, Sales and

Marketing of Zix. During the Class Period, Heathcote sold more than $88,500 worth of his Zix

stock. Defendant Heathcote may be served at 5708 Thackery Drive, Plano, Texas 75093.

18. The individuals named as defendants in ¶¶11-17 are referred to herein as the

“Individual Defendants.” The Individual Defendants, because of their positions with the Company,

possessed the power and authority to control the contents of Zix’s quarterly reports, press releases

and presentations to securities analysts, money and portfolio managers and institutional investors,

i.e., the market. Each defendant was provided with copies of the Company’s reports and press

releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and

opportunity to prevent their issuance or cause them to be corrected. Because of their positions and

access to material non-public information available to them but not to the public, each of these

defendants knew that the adverse facts specified herein had not been disclosed to and were being

concealed from the public and that the positive representations which were being made were then

materially false and misleading. The Individual Defendants are liable for the false statements

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pleaded herein at ¶¶27, 37-38, 43, as those statements were each “group-published” information, the

result of the collective actions of the Individual Defendants.

SCIENTER

19. In addition to the above-described involvement, each Individual Defendant had

knowledge of Zix’s problems and was motivated to conceal such problems. Defendant York, as

CFO, was responsible for financial reporting and communications with the market. Many of the

internal reports showing Zix’s forecasted and actual growth were prepared by the finance department

under York’s direction. Defendant Ryan, as CEO and Chairman, was responsible for the financial

results and press releases issued by the Company. Each Individual Defendant sought to demonstrate

that he could lead the Company successfully and generate the growth expected by the market.

Defendants were motivated to engage in the fraudulent practices alleged herein in order to obtain

financing for the Company and reap insider trading proceeds. The additional option and warrant

exercise throughout the year (which acts as an ongoing secondary offering) would deflect the

Company’s cash burn rate. The total number of options and warrants outstanding at the end of 2003

was nearly 9.7 million. Of the total, the Company reported that on March 9, 2004, it had roughly 4.1

million exercisable options and warrants priced below $10, with an average strike price of just $5.35

($22 million of potential funding). Thus, defendants were desirous to maintain a share price well

above the $5.35 average exercise price to encourage and induce warrant/option conversion.

FRAUDULENT SCHEME AND COURSE OF BUSINESS

20. Each defendant is liable for (i) making false statements, or (ii) failing to disclose

adverse facts known to him about Zix. Defendants’ fraudulent scheme and course of business that

operated as a fraud or deceit on purchasers of Zix common stock was a success, as it (i) deceived the

investing public regarding Zix’s prospects and business; (ii) artificially inflated the prices of Zix’s

common stock; (iii) allowed defendants to obtain increased compensation which was directly tied to

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the performance of Zix shares; (iv) allowed defendants to arrange to sell and actually sell in excess

of $10 million worth of Zix shares at artificially inflated prices via the conversion of warrants and

options and an additional $4.6 million via illegal insider trading; (v) used Zix’s artificially inflated

stock to consummate the stock-for-stock acquisition of MyDocOnline; and (vi) caused plaintiff and

other members of the Class to purchase Zix common stock at inflated prices.

BACKGROUND TO THE CLASS PERIOD

21. Zix is a global provider of e-messaging protection and transaction services. The

Company offers a range of solutions to protect organizations from viruses, spam and electronic

attack, as well as enabling secure electronic communications, such as e-mail encryption, e-

prescribing, online doctor visits and electronic viewing of medical laboratory test results.

22. Prior to the beginning of the Class Period, the Company acquired PocketScript and

Elron Software (“Elron”). These acquisitions were funded primarily through the issuance of stock,

together with a promissory note. The key to the Company’s business was essentially two-fold.

First, the Company sought to grow it’s e-prescription business through the deployment of its e-

prescribing services. The Company’s e-prescribing theory is that it would allow physicians to

streamline the medical prescription process for both physicians and patients. Purportedly, it would

also enable physicians to write and transmit prescriptions, enhance the capability of offering real-

time drug formularies and access to a comprehensive drug database that had information on virtually

every drug. The defendants claimed that the physicians would, through their e-prescription services,

be able to verify the drugs that were covered under the insurance plan for the patient and ensure that

they did not conflict with any of the prescriptions that the patient was then taking. The physician

would then transmit the physician’s orders to the pharmacy of the patient’s choice. Defendants’ e-

prescription services would, if executed as defendants claimed, eliminate errors due to illegibility

and interaction with other prescribed drugs, and increase the compliance with approved formulary,

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which helps manage costs and reduce administration and time for the physician and pharmacist alike.

As evidence of a need for this e-prescription service, defendants cited a 1999 medical report which

cited medical errors, including those related to improperly prescribed medications, as the No. 8

leading cause of death for Americans, higher than motorcycle accidents, breast cancer or even AIDS.

23. The Company’s Elron acquisition would be the second key to the defendants’ growth.

Elron essentially was an anti-spam content filtering and web filtering software which would

essentially allow the Company to expand its offerings to include web filtering. Defendants claim

that this anti-spam web filtering market was growing at 35% annually. This software, in addition to

defendants’ ability to market e-prescriptions, which defendants claimed would exceed $1 billion,

would propel the Company’s earnings and revenues. At a minimum, defendants would claim that

the Company would achieve cash flow break-even by the end of Q1 2004, and with respect to the

Company’s e-prescription business, defendants would have the e-prescription business deployed

with 1,000 physicians by the end of Q4 2003, and 10,000 physicians by the end of 2004. The

Company’s ability to market the Elron software, combined with the deployment of the physicians

and e-prescriptions, would make or break the Company. Unfortunately for the Company, the

deployment claims, as well as the integration and sales of the Elron software, would turn out to be

false, sending the Company’s shares to back to where they started at the beginning of the Class

Period.

24. On April 24, 2003, the Company issued a press release entitled “Zix Corporation

Announces First Quarter 2003 Financial Results.” The press release stated in part:

Zix Corporation (ZixCorp(TM)), a global provider of e-messaging management and protection services, today announced financial results for the first quarter ended March 31, 2003. For the first quarter 2003, ZixCorp reported a net loss of $6,831,000 or $0.36 per share, on revenues of $639,000, a 30% improvement over the net loss of $9,788,000, or $0.56 per share, on revenues of $389,000 recorded for the first quarter of 2002.

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“New end-user commitments for the first quarter total approximately $1.9 million, with $1.6 million of those attributable to the healthcare business we captured during this first quarter,” said John A. Ryan, president and CEO of ZixCorp. “A significant new customer win for ZixCorp this quarter is Anthem, Inc., the fifth largest health benefits provider in the United States, which ordered an enterprise-wide solution with 20,000 end-user licenses. Three out of the top six publicly traded health benefits providers in the U.S. industry -- Cigna, Humana, and now Anthem -- along with another important new customer -- the Blue Cross Blue Shield Association (BCBSA) -- have now selected ZixCorp for enterprise-wide solutions. BCBSA is the trade association that represents 42 independent Blue Cross and Blue Shield companies that collectively provide healthcare for 85 million Americans. In addition to BCBSA, ZixCorp has to date been selected by 13 Blue Cross Blue Shield organizations, including Anthem. We are honored to be their preferred supplier.

“Equally important is the mix of new healthcare business in the quarter. Excluding transactions over $300,000, we concluded over 25 major transactions averaging in excess of $50,000 each. This result compares to only five transactions at an average of $34,000 each concluded in the fourth quarter of 2002. By comparison, this quarter’s results represent a five-fold increase in the number of such transactions and almost a seven-fold increase in the total dollar value of such transactions over last quarter’s.”

Other health benefits providers that selected ZixCorp solutions during the quarter include Blue Cross Blue Shield of Kansas, the largest health insurer in the state of Kansas; Blue Cross of Northeastern Pennsylvania, the leading healthcare payor serving the northeastern areas of the state; American Medical Security, a health benefits provider serving members in 32 states; National Medical Health Card Systems Inc., a full-service pharmacy benefit management company with a nationwide network of pharmacies serving approximately 2.5 million plan members.

25. On June 25, 2003, the Company issued a press release entitled “Zix Corporation

Completes Private Placements for $5.75 Million.” The press release stated in part:

Zix Corporation (ZixCorp(TM)), a global provider of secure e-messaging management and protection services, today announced that it has completed private placements in which the company received an aggregate of $5,750,000 in cash in exchange for 1,566,758 shares of the company’s common stock and warrants to purchase 231,855 shares of the company’s common stock. The shares of common stock were sold at a price of $3.67 per share and the warrants have an exercise price of $4.96 per share. The warrants are immediately exercisable and expire in June 2007.

These securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States in the absence of an effective registration statement or an exemption from such registration requirements. The company is obligated to register these securities with the Securities and Exchange Commission within 30 days.

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“This transaction enhances our balance sheet and affords us the flexibility to pursue strategic opportunities to improve our leadership position in e-messaging and healthcare,” said John A. Ryan, ZixCorp’s chairman, president and CEO.

26. Defendants had set the stage for the Company’s shares to reverse their course of

lackluster trading, and actually inflate them through a series of fraudulent statements. Prior to the

commencement of the Class Period, defendants had never, in the Company’s existence, made a

single public sale of their individual shares. This would change in the weeks to come as defendants

caused the Company’s shares to double in price and induced others to exercise warrants staving off

potential bankruptcy and further enhancing the value of defendants’ own shares.

FALSE AND MISLEADING STATEMENTS

27. On October 30, 2003, the Company issued a press release entitled “Zix Corporation

Announces Third Quarter 2003 Financial Results.” The press release stated in part:

Zix Corporation (ZixCorp(TM)), a global provider of protection, management, and delivery solutions for electronic communications, today announced financial results for the third quarter ended Sept. 30, 2003. ZixCorp recorded a third quarter, 2003 net loss of $6.5 million, or $0.29 per share, an improvement of 26 percent compared to a net loss of $8.8 million, or $0.63 per share, for the corresponding quarter of 2002. Revenues were $2.2 million in the third quarter of 2003, an increase of 450 percent compared to $400 thousand in the third quarter of 2002. Cash and marketable securities balances as of Sept. 30, 2003 were $16.6 million.

“This third quarter represented a significant milestone in the growth of our business,” said John A. Ryan, chairman, president, and CEO of ZixCorp. “We achieved excellent progress across all parts of our business with new end-user orders and commitments to purchase totaling $3.7 million. That number is up 37 percent from the second quarter of 2003 and up more than 360 percent from the third quarter in 2002. End-user order backlog as of Sept. 30, 2003, has grown to approximately $8 million, which includes deferred revenues on the company’s consolidated balance sheet. In addition, we completed the acquisition of PocketScript in July and Elron Software early in September and we saw a cash infusion of almost $9 million predominately from warrant and option exercises. With these events now behind us, we anticipate the fourth quarter total of new end-user orders and commitments to purchase to range between $6.25 million and $7 million.

“With these acquisitions, we are now positioned with very strong offerings in three key areas -- secure e-messaging, protection management (including anti-spam, anti-virus, and Web filtering), and care delivery (e-prescribing). The protection management market is already well established -- IDC predicts there will be more than $800 million spent on email scanning and Web filtering solutions in 2004 and

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the market is expected to grow at 30 percent to 35 percent over the next few years. Both secure e-messaging and care delivery are emerging as high-growth markets. Up to now, we have established ZixCorp as a leader for secure messaging in healthcare by signing contracts with more than 160 customers in the past two years. With care delivery, we are at a unique time in the market when for the first time the benefits are well documented, the technology exists and can be implemented, and our PocketScript technology simply does a better job than the existing methods.”

28. October 30, 2003, the Company hosted a conference call with analysts in which

defendants York and Ryan discussed the Company’s Q3 2003 results. During the call, defendant

Ryan stated:

JOHN RYAN, CHAIRMAN, PRESIDENT, CEO, Zix Corporation: Thank you, Steve.

* * *

As you can see from the published results we finished the quarter with $16.6 million in cash and marketable securities and for the record we are not seeking cash at this time. We also have adequate cash to meet our needs, and we also have adequate potential cash in the many warrants or options that are currently in the money.

As always, we continue to monitor the situation, however we are very comfortable at this time with our position.

* * *

As I have stated in previous calls, our goal is to achieve cash flow breakeven by the end of Q1, 2004.

In light of the many changes in the company, we have re-evaluated that goal, and have come to the following position: it is management’s desire to achieve cash flow breakeven as early as possible and our current target remains the end of Q1, 2004.

* * *

As I have previously noted, we expect to achieve at least $1.5 million in the Web Inspector and Message Inspector products in the fourth quarter. We still believe this to be a fair goal.

* * *

That is, that e-prescribing will result in improved prescription drug safety, convenience, most importantly, I guess, reduced costs for their members.

* * *

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Our current goal is to deploy 1,000 physicians by the end of the year [2003], and then to scale a deployment capacity of at least 1,000 physicians a month in early 2004 with a goal of then supporting up to 2,000 physicians a month later in the year.

Of course, these targets will be adjusted accordingly, based on demand. We do have good experience in the team, as we have deployed over 500 physicians to date, and in fact, they processed over 65,000 transactions over the months of August or September.

* * *

Given our current position, our outlook for Q4 in the Care Services business is $2.25 million to $2.5 million in customer commitments. Clearly the low end of the range is virtually completed.

* * *

And as we’ve stated previously, we believe we can get to that position by Q1, 2004, was our original target, we’re now just double checking where we are with e-prescribing to make sure we have the appropriate coverage on those investments and that has been our stated goal, and our continued.

MARK ST. MARIE: ... I’m just saying it just sounds really aggressive to me. But if you guys think you can do it, then we’ll hold you to it.

29. Days later, with the Company’s shares artificially inflated, beginning with the

Company’s CFO, defendants commenced a massive insider trading spree where they sold the

majority of their holdings in Zix. All told, as defendants fabricated the expected deployments and

concealed the truth about the cumbersome realities of deploying physicians – even assuming they

wanted to, defendants would sell millions of dollars worth of their own shares. While these sales

were taking place, shareholders were left in the dark about the realities of the Company and

defendants’ misdeeds.

30. From November 3 to 5, 2003, defendant Nutkis sold 86,460 of his Zix shares for

$9.00-$9.13 per share.

31. From November 3 to 13, 2003, defendant York sold 105,000 of his Zix shares for

$8.91-$9.33 per share.

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32. From November 3 to 5, 2003, defendant Mohamed sold 32,980 of his Zix shares for

$9.00-$9.01 per share.

33. On November 5, 2003, defendant Heathcote sold 9,800 of his Zix shares for $9.04 per

share.

34. From November 5 to 13, 2003, defendant Woessner sold 61,167 of his Zix shares for

$9.12-$9.32 per share.

35. From November 6 to 12, 2003, defendant Morgan sold 20,000 of his Zix shares for

$8.92-$9.05 per share.

36. From January 9 to 13, 2004, defendant Woessner sold 60,000 of his Zix shares for

$9.50-$11.50 per share.

37. On January 30, 2004, the Company issued a press release entitled “Zix Corporation

Acquires Assets to Business of MyDocOnline.” The press release stated in part:

Zix Corporation (ZixCorp(TM)), a global provider of care delivery, protection, and management solutions for electronic communications, today announced it has acquired substantially all of the assets of MyDocOnline(TM), a subsidiary of Aventis Pharmaceuticals, the North American pharmaceuticals business of Aventis and a leading provider of secure Web-based communications, disease management, and laboratory information solutions for $6.9 million in ZixCorp stock. Additionally, Aventis has signed a three-year contract representing a minimum commitment of $4 million with ZixCorp for various services, initially consisting of patient educational services in various disease classes. The acquisition will be discussed during the quarterly conference call at 5:00 p.m. EST on Feb. 3. Details of the call are listed below. The acquisition enables ZixCorp to enhance its care delivery offerings to include online doctor visits, disease management, lab ordering, and reporting services.

MyDocOnline offers a variety of Internet-based healthcare services. MyDocOnline Connect is a Web-based tool that provides a secure channel between healthcare providers, their clinical and administrative partners, and their patients. Through MyDocOnline Connect, an array of medical practice functions can be efficiently completed online: patients can schedule appointments, complete doctor visits, receive trusted health information from their physician, and interact with self-help tools for healthy living. In addition, the disease management capability enables patients to have online access to preventative, educational, and counseling resources to aid in the delivery and effectiveness of care. Disease management is a critical component to MyDocOnline as it is considered to be one the greatest opportunities to

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increase clinical outcome and reduce costs relating to healthcare. Another MyDocOnline service is Dr. Chart(R), a Web communications tool that connects healthcare providers and laboratories by enabling physicians to initiate lab orders, check medical necessity compliance, and view results rapidly.

“The addition of MyDocOnline to our existing suite of secure e-communications and transaction capabilities is part of the strategy that the company has been working towards for the last 18 months,” said John A. Ryan, chairman and CEO for ZixCorp. “These solutions combined with our existing e-prescribing and compliance solutions provide us with a complete portfolio of solutions that are not only attractive to patients and physicians, but also provide significant benefits to providers, pharmacy benefit managers, pharmacies, and pharmaceutical companies. It enables ZixCorp to be uniquely positioned to capitalize on current trends in healthcare for improved care, improved service, and reduced cost. It is clear to me that the foundations we built with our SysTrust-certified ZixSecure Center(TM), secure communications services, and now over 200 healthcare customers, provides us with the unique ability to provide a more effective and secure means of communication within the healthcare community.”

“We are pleased that ZixCorp intends to further the goals that we originally set out for MyDocOnline: to enhance communications and disseminate information between physicians and patients,” said Kirk Schueler, Aventis senior vice president and former president and CEO of MyDocOnline, Inc. “We believe that a patient who communicates frequently with his or her physician is better informed and will be more compliant with treatment regimens, which can result in improved health.”

Daniel S. Nutkis, president, Care Delivery Solutions for ZixCorp said, “With the assets that we now have, ZixCorp can truly advance the way healthcare is delivered both in quality and efficiency. For example, during an office visit a physician can electronically order a laboratory test, electronically receive the results and annotate them, provide detailed instructions for the patient, and submit a prescription based on the patient’s formulary to the patient’s preferred pharmacy so it is immediately available for pick up. The patient is notified electronically and can access this information through our secure online care centers. All this can happen without having to schedule another appointment or wait the additional time to receive the results by mail or call the physician with follow-up questions. In addition, patients can be easily provided with educational material for deeper insight into their medical conditions and enrolled in a disease management program. With these solutions, ZixCorp can more effectively monitor outcomes, measure compliance, and ensure a more efficient and effective use of healthcare resources.”

Under the terms of the agreement, ZixCorp acquired substantially all of the assets and business of MyDocOnline by issuing 583,411 shares of ZixCorp’s common stock, valued at $6.9 million and three year warrants to purchase 145,853 shares of ZixCorp’s common stock. The share price was determined using a 20 day average prior to closing for a value of $11.83 and the warrant exercise price at 110 percent with a strike price of $13.01. ZixCorp is required to prepare and file a registration statement covering the resale of the shares and warrants delivered at

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closing. ZixCorp anticipates that registration of the shares will become effective in approximately 100 days.

Additionally, Aventis has signed a three-year service contract representing a minimum commitment of $4 million to ZixCorp for various ZixCorp services, initially consisting of patient educational services.

The services will be delivered in minimum amounts of $1 million, $1 million and $2 million in years one, two, and three, respectively. The $4 million has been paid upfront and in full by Aventis.

In connection with the acquisition, Aventis has loaned ZixCorp $3 million due March 15, 2007 with an annual interest rate of 4.5 percent. The note is payable in either cash or ZixCorp common stock at the option of ZixCorp. Additionally, at Aventis’ discretion, the note may be satisfied in the form of additional services provided to Aventis during the term of the note.

38. On February 3, 2004, the Company issued a press release entitled “Zix Corporation

Announces Fourth Quarter 2003 Financial Results; ZixCorp’s Fourth Quarter 2003 order bookings

exceed a record $7.3 million.” The press release stated in part:

Zix Corporation (ZixCorp(TM)), a global provider of care delivery, protection, and management solutions for electronic communications, today announced financial results for the fourth quarter ended Dec. 31, 2003. ZixCorp recorded a fourth quarter, 2003 net loss of $8.2 million, or $0.29 per share, compared to a net loss of $0.39 per share, for the corresponding quarter of 2002. Revenues were $2.0 million in the fourth quarter of 2003, an increase of 266 percent compared to $546,000 in the fourth quarter of 2002. Cash and marketable securities balances as of Dec. 31, 2003 were $13.9 million.

“We are extremely pleased with the continued momentum and growth in our business orders as illustrated by our fourth quarter order bookings,” said John A. Ryan, chairman and CEO of ZixCorp. “Our order bookings achievement of $7.3 million was an outstanding 356 percent improvement compared to the fourth quarter 2002. Additionally, for the full year 2003 we grew order input more than five fold verses total 2002 order input and ended 2003 with a record backlog of $13 million. The success was across both our major product lines with continued strength in healthcare but also with success expanding into other verticals.

The company completed its first full quarter of operations since the third quarter acquisitions of the assets and businesses of PocketScript and Elron Software and on Jan. 30 announced the acquisition of the assets and business of MyDocOnline(TM).

“We embark upon 2004 with a robust portfolio of products that have greater depth and breadth than a year ago,” continued John Ryan. “We expect the order growth to continue into the first quarter 2004 and estimate that we will

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achieve new order bookings between $11.5 and $13.0 million in the first quarter of which the recently announced Aventis order for $4.0 million is already closed and included.”

39. On February 3, 2004, the Company hosted a conference call for analysts in which

defendants York and Ryan discussed the Company’s Q4 2003 results. During the call, defendants

stated:

JOHN RYAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, Zix Corporation: Thank you.

* * *

We are extremely happy and both the capabilities of these product, however, we wanted to ensure that the first released under ZixCorp name was the best-quality released in the history of these products. As such, we will be releasing message inspector in the next couple of weeks and web inspector later this quarter. We want our existing and new customers to recognize that we only release the highest quality in our products, and the feedback from our install base has been very positive to date.

Despite this change in plan, the group is within $100,000 to $200,000 of plan and we expect great things in Q2 2004 and beyond.

* * *

With now a full quarter under our belt, we have set our goals on deployment for Q1, Q2 and the year. We expect to have deployed 2,000 physicians by the end of Q1, 2004. And our goal is 4,000 by the end of Q2.

This is basically the rollout of our existing backlog of committed physicians in the northeast. Clearly, we expect to sign new customers and grow our position in the market. It is our goal to have deployed 10,000 physicians by the end of 2004. Given we have 4,000 on order today, I believe this goal is very achievable.

* * *

Basically, our goal right how is simple: Deploy as many physicians as possible. In addition to the 4,000 e-prescribing physicians that we have already had prepaid, we have acquired a base of approximately 4,000 to 5,000 physicians on the e-labs results service known as Dr. Chart.

We have also acquired almost 300 doctors using the on-line doctor-visit applications as well. Overall, this represents almost 10,000 physicians that will be utilizing one of ZixCorp’s capabilities. This is the base we are now focusing on to cross-sell and ensure deployment as well as significant and continued use. We have also increased our investment in sales and we will continue to be aggressive and pursuing additional states during the first half of 2004.

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* * *

Now for some guidance for the first quarter of 2004. I expect orders to be in the range of 11.5 million to 13 million in the quarter. This represents an increase of 4.2 million to 5.7 million over Q4 of 2003. Included in the Q1 projection is the 4 million Adventist award that we have already been paid for.

We expect revenue this quarter to be approximately 2.8 million to 3 million. This will represent an almost 50% increase over Q4 2003 and we are just now seeing the revenue growth benefit of our backlog.

Lastly, cash position. As I stated in our last call, it is management’s desire to achieve cash-flow break even as early as possible. In [sic] our current target remained the end of Q1 2004, as I stated on the last call. I also stated that we would continue to be very conservative with cash and expense and that we’d be monitoring the opportunity in the e-prescription market versus our current planned investments during the quarter. I also noted that we needed to collect approximately 8.5 million in Q1 2004 to become breakeven based on that previously disclosed spend rate.

This represents approximately $8 million in people costs and a half a million dollars in capital costs. Our current estimate on collections in Q1 is that we will collect approximately $9 million in cash, which would have in fact achieved our goal. However, due to the accelerating market opportunity in e-prescriptions, which will result in an increased investment over the original amounts expected and the addition of approximately 2 million per quarter of costs with MyDocOnline, this will result in a total cash spend on operations in the amount of approximately $11 million in the quarter.

* * *

Our current cash position has also helped enable this decision. With the addition of 8.8 million in warrants and option exercises and the $3 million from the Adventist loan, we expect to finish Q1 with approximately 22 million in cash. This is more than adequate to fund our opportunity and it does not assume any more cash flowing to the company through warrant or option exercises during the quarter.

* * *

GARY KRAFT (ph).: So if your forecast for 10,000 docs by Q4, ’04. Are those in Massachusetts or other states as well.

JOHN RYAN: They certainly would be incremental doctors or physicians in the state but in other states as well.

* * *

So the guidance – the – the only guidance I’ve given beyond the Q1 right now is obviously on the physician deployments that we are targeting.

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40. In truth, the Company’s e-prescription business was not gaining traction. Not only

were physicians not accepting of it, defendants’ claim that the Company would have 10,000

physicians deployed in FY 2004 was grossly overstated, and, moreover, the claim (in defendants’

conference call) that the Company already had 4,000 physicians who ordered e-prescription

deployment was a grossly fraudulent statement. Defendants’ insider trading spree would then

continue with the Company’s shares still artificially inflated.

41. From February 11 to 17, 2004, defendant York sold 40,500 shares of his Zix stock for

$13.02-$13.97 per share.

42. From February 12 to 18, 2004, defendant Nutkis sold 23,500 shares of his Zix stock

for $13.00-$13.73 per share.

43. On April 1, 2004, the Company issued a press release entitled “Zix Corporation

Announces New Executive Appointments.” The press release stated in part:

Zix Corporation (ZixCorp(TM)), a global provider of e-messaging protection and transaction services, today announced the following appointments: Brad Almond has been promoted to the position of vice president finance and administration and chief financial officer. Daniel Sands, M.D., has joined ZixCorp as vice president and chief medical officer. Sands will report to Daniel Nutkis, who has been promoted to executive vice president and chief strategy officer.

“These appointments are part of our continuing strategy to shape and organize our company with the resources we need to capitalize on the growth and opportunity we see in the market,” said John A. Ryan, chairman and chief executive officer for ZixCorp. “Each appointment is a key part of our management growth plan.

“Brad Almond’s business skills coupled with his strong background in auditing and corporate finance in high-growth environments are the perfect mix for the top finance post. Dan Nutkis’ market-leading expertise of the strategic landscape and marketplace dynamics will ensure we stay on the right path and a step ahead. Daniel Sands is an internationally recognized leader in the area of clinical computing and patient and clinician empowerment through the use of computer technology. With Dr. Sands’ appointment to the post of chief medical officer, I can’t think of a better background to assist the company in its development of services to enhance physician-to-patient capabilities and efficiency.”

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In addition, the company announced that Steve York, ZixCorp’s current senior vice president, chief financial officer and treasurer, will assist the company in a consulting capacity for the next six months. Ryan added, “For 14 years, Steve has been a consistent executive presence for the many changes the company has experienced. The company appreciates his many contributions and we wish him well in his future endeavors.”

44. On April 8, 2004, defendant Woessner sold 20,000 shares of Zix stock for $16.01 per

share.

45. On May 4, 2004, the Company issued a press release entitled “Zix Corporation

Announces First Quarter 2004 Financial Results.” The press release stated in part:

Zix Corporation (ZixCorp(R)), a global provider of e-messaging protection and transaction services, today announced financial results for the first quarter ended March 31, 2004. ZixCorp recorded first quarter revenues of $2,843,000, an increase of 345% compared to $639,000 in the first quarter of 2003. ZixCorp recorded a first quarter 2004 net loss of $10.7 million, or $0.35 per share, compared to a net loss of $6.8 million, or $0.36 per share, for the corresponding quarter of 2003. Excluding one-time charges, ZixCorp recorded a net loss of $9.0 million, or $0.30 per share. Cash and marketable securities balances as of March 31, 2004, were $24.1 million. The company booked new orders of $9.2 million in the quarter compared to $1.9 million in the first quarter of 2003 representing a 384% increase year on year.

46. Though the release concealed the fact that the Company had not achieved its Q1 2004

projections, shareholders began to sift through the release. On this news alone, the Company’s

shares were sent into a freefall, tumbling 50% in the following trading days to below $7 per share.

As evidence that the defendants’ business model did not work as defendants had claimed continued

to leak out, the Company’s shares continued their descent, dropping another 50% months later.

47. The true facts, which were known by each of the defendants but concealed from the

investing public during the Class Period, were as follows:

(a) The Company was experiencing sluggish doctor adoption to e-prescribing,

reducing projections going forward but also requiring the Company to experience higher costs,

rendering the Company’s Q1 2004 projections false. In fact, not only would the Company’s cash

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flow from operations not breakeven for Q1 2004, it was deteriorating by over 74% over the

comparable quarter.

(b) The Company’s claim that it would achieve 1,000 deployed active doctors by

the end of Q4 2003 was grossly false and misleading. By the end of Q1 2004, the Company only

deployed 230 physicians. Moreover, the Company’s claim it would achieve 10,000 active e-

prescribing doctors by the end of FY 2004 was grossly overstated. Aside from the fact that

physicians were not accepting of the product, long before the Company could even make these

predictions and deploy e-prescriptions, physicians would be required to reconfigure their patient

data, obtain wireless coverage and implement a wireless LAN. These additional barriers were

severely undercutting physician acceptance and deployment.

(c) The Company’s claim it had 4,000 deployments already on order was false.

In fact, when defendants made this claim, the physicians’ sites had not even been surveyed to

evaluate wireless/LAN needs, all of which would drastically impact not only the timing of these

“ordered” deployments but also whether these so-called ordered deployments would ever be

truthfully ordered and deployed.

(d) New offerings from its Elron acquisition were delayed as a result of

integration problems, preventing the Company from generating anticipated revenue until after Q2

2004.

FIRST CLAIM FOR RELIEF

For Violation of §10(b) of the 1934 Act and Rule 10b-5 Against All Defendants

48. Plaintiff incorporates ¶¶1-47 by reference.

49. During the Class Period, defendants disseminated or approved the false statements

specified above, which they knew or deliberately disregarded were misleading in that they contained

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misrepresentations and failed to disclose material facts necessary in order to make the statements

made, in light of the circumstances under which they were made, not misleading.

50. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:

(a) Employed devices, schemes, and artifices to defraud;

(b) Made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they were

made, not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud or

deceit upon plaintiff and others similarly situated in connection with their purchases of Zix common

stock during the Class Period.

51. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of

the market, they paid artificially inflated prices for Zix common stock. Plaintiff and the Class would

not have purchased Zix common stock at the prices they paid, or at all, if they had been aware that

the market prices had been artificially and falsely inflated by defendants’ misleading statements.

52. As a direct and proximate result of these defendants’ wrongful conduct, plaintiff and

the other members of the Class suffered damages in connection with their purchases of Zix common

stock during the Class Period.

SECOND CLAIM FOR RELIEF

For Violation of §20(a) of the 1934 Act Against All Defendants

53. Plaintiff incorporates ¶¶1-52 by reference.

54. The Individual Defendants acted as controlling persons of Zix within the meaning of

§20(a) of the 1934 Act. By reason of their positions as officers and/or directors of Zix, and their

ownership of Zix stock, the Individual Defendants had the power and authority to cause Zix to

engage in the wrongful conduct complained of herein. Zix controlled each of the Individual

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Defendants and all of its employees. By reason of such conduct, the Individual Defendants and Zix

are liable pursuant to §20(a) of the 1934 Act.

CLASS ACTION ALLEGATIONS

55. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules

of Civil Procedure on behalf of all persons who purchased Zix common stock (the “Class”) on the

open market during the Class Period. Excluded from the Class are defendants.

56. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits to

the parties and the Court. Zix had more than 31 million shares of stock outstanding, owned by

hundreds if not thousands of persons.

57. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) Whether the 1934 Act was violated by defendants;

(b) Whether defendants omitted and/or misrepresented material facts;

(c) Whether defendants’ statements omitted material facts necessary to make the

statements made, in light of the circumstances under which they were made, not misleading;

(d) Whether defendants knew or deliberately disregarded that their statements

were false and misleading;

(e) Whether the price of Zix common stock was artificially inflated; and

(f) The extent of damage sustained by Class members and the appropriate

measure of damages.

58. Plaintiff’s claims are typical of those of the Class because plaintiff and the Class

sustained damages from defendants’ wrongful conduct.

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59. Plaintiff will adequately protect the interests of the Class and has retained counsel

who are experienced in class action securities litigation. Plaintiff has no interests which conflict

with those of the Class.

60. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.

PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;

B. Awarding plaintiff and the members of the Class damages, interest and costs,

including reasonable attorneys’ fees; and

C. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

JURY DEMAND

Plaintiff demands a trial by jury.

DATED: September 3, 2004 PROVOST & UMPHREY LAW FIRM, LLP JOE KENDALL State Bar No. 11260700 WILLIE C. BRISCOE State Bar No. 24001788

WILLIE C. BRISCOE

3232 McKinney Avenue, Suite 700 Dallas, TX 75204 Telephone: 214/744-3000 214/744-3015 (fax)

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LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP WILLIAM S. LERACH DARREN J. ROBBINS 401 B Street, Suite 1700 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax)

Attorneys for Plaintiff