sc14d9
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/ Recommendation Statement under
Section 14(d)(4) of the Securities Exchange Act of 1934
NEON Systems, Inc.
(Name of Subject Company)
NEON Systems, Inc.
(Name of Person(s) Filing Statement)
Common Stock, par Value $0.01 Per Share
(Title of Class of Securities)
640509105
(CUSIP Number of Class of Securities)
Brian D. Helman
Chief Financial Officer
14100 Southwest Freeway, Suite 500
Sugar Land, Texas 77478
(281) 491-4200
(Name, address and telephone number of person
authorized to receive notices and communications on
behalf of the person(s) filing statement)
With a copy to:
Paul R. Tobias, Esq.
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
8911 Capital of Texas Highway North
Westech 360, Suite 3350
Austin, Texas 78759
(512) 338-5400
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Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer. |
TABLE OF CONTENTS
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Item 1. |
Subject Company Information. |
Name and Address. The name of the subject company is NEON
Systems, Inc., a Delaware corporation (NEON
or the Company). The address of the
Companys principal executive office is 14100 Southwest
Freeway, Suite 500, Sugar Land, Texas 77478 and the
telephone number of the Companys principal executive
office is (281) 491-4200.
Securities. This Solicitation/ Recommendation Statement
on Schedule 14D-9 (this Schedule or
Statement) relates to the Common Stock,
$0.01 par value per share, of the Company (the
Common Stock, or also referred to as, the
Shares). As of December 27, 2005, there
were 9,569,041 shares of Common Stock issued and
outstanding.
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Item 2. |
Identity and Background of Filing Person. |
Name and Address. The Company is the person filing this
Statement. The information about the Companys address and
business telephone number in Item 1, under the heading
Name and Address, is incorporated herein by
reference. The Companys website address is
www.neonsys.com. The information on the Companys
website should not be considered a part of this Statement.
Tender Offer. This Statement relates to the tender offer
by Noble Acquisition Corp., a Delaware corporation
(Offeror), a wholly owned subsidiary of
Progress Software Corporation, a Massachusetts corporation
(Progress), under which Offeror is offering
to purchase all outstanding Shares at a price of $6.20 per
Share, net to the holder thereof in cash, without interest (the
Offer Price), upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated
December 29, 2005 (the Offer to
Purchase), and the related Letter of Transmittal
(which, together with the Offer to Purchase, as each may be
amended or supplemented from time to time, constitute the
Offer). The Offer was commenced on December
29, 2005 and expires at 12:00 midnight, New York City time, on
January 27, 2006, unless it is extended in accordance with its
terms. The Offer is conditioned on, among other things, there
being validly tendered and not withdrawn before the expiration
of the Offer that number of Shares that, together with the
Shares then owned by Progress and Offeror, represents at least a
majority of the sum of (i) the outstanding shares of Common
Stock as of the date of the expiration of the Offer, and
(ii) the number of shares of Common Stock issuable pursuant
to outstanding options and warrants of the Company that would be
vested and exercisable as of April 19, 2006 (the
Minimum Condition).
The Offer is described in the Tender Offer Statement on
Schedule TO (together with the exhibits thereto, as
amended, the Schedule TO), filed by
Offeror and Progress with the Securities and Exchange Commission
(the SEC) on December 29, 2005. The
Offer to Purchase and Letter of Transmittal are being mailed
with this Statement and are filed as Exhibits (a)(1) and
(a)(2) hereto, respectively, and are incorporated herein by
reference.
The Offer is being made pursuant to an Agreement and Plan of
Merger, dated as of December 19, 2005 (as such agreement
may be amended from time to time, the Merger
Agreement), by and among Progress, Offeror and the
Company. The Merger Agreement provides, among other things, that
following the consummation of the Offer and subject to the
satisfaction or waiver of the conditions set forth in the Merger
Agreement and in accordance with the relevant portions of the
Delaware General Corporation Law (the DGCL),
Offeror will merge with and into the Company (the
Merger) and each Share that is not tendered
pursuant to the Offer will be converted into the right to
receive cash in an amount equal to the Offer Price (other than
Shares that are held by Progress, the Offeror, the Company or
any of their respective subsidiaries or by stockholders, if any,
who properly exercise their dissenters rights under the
DGCL). Following the effective time of the Merger (the
Effective Time), the Company will continue as
a wholly owned subsidiary of Progress (the Surviving
Corporation). A copy of the Merger Agreement is filed
as Exhibit (e)(1) hereto and is incorporated herein by
reference.
According to the Offer to Purchase, the Offerors and
Progresss principal executive offices are located at 14
Oak Park Drive, Bedford, Massachusetts 01730 and the telephone
number of their principal executive offices is
(781) 280-4000.
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Item 3. |
Past Contracts, Transactions, Negotiations and
Agreements. |
Except as described in this Schedule, in the Information
Statement (as defined below) or otherwise incorporated herein by
reference, to the knowledge of the Company, as of the date of
this Schedule, there are no material agreements, arrangements or
understandings, nor any actual or potential conflicts of
interest, between the Company or its affiliates and (i) the
Companys executive officers, directors or affiliates or
(ii) Offeror, Progress or their respective executive
officers, directors or affiliates.
Certain executive officers and directors of the Company have
interests in the Offer and the Merger, which are described below
and in the Information Statement pursuant to Section 14(f)
of the Securities Exchange Act of 1934, as amended (the
Exchange Act), and
Rule 14f-1
thereunder (the Information Statement) that
is attached as Annex I to this Statement and incorporated
herein by reference, and which may present them with certain
potential conflicts of interest.
The Companys directors and executive officers have entered
into, or participate in, as applicable, the various agreements
and arrangements discussed below and in the Information
Statement, which is incorporated herein by reference.
In the case of each plan or agreement discussed below or in the
Information Statement to which the term change in
control applies, the consummation of the Offer would
constitute a change in control.
Arrangements with Executive Officers and Directors of the
Company.
Cash Consideration Payable Pursuant to the Offer. If the
Companys directors and executive officers were to tender
any Shares they own for purchase pursuant to the Offer, they
would receive the same cash consideration on the same terms and
conditions as the other stockholders of the Company. As of
December 19, 2005, the Companys directors and
executive officers directly owned 13,800 Shares in the
aggregate (excluding the exercise of options to purchase
Shares). If the directors and executive officers were to tender
all of their Shares for purchase pursuant to the Offer and those
Shares were accepted for purchase and purchased by Offeror, the
directors and executive officers would receive an aggregate of
$85,560 in cash.
As of December 19, 2005, the Companys directors and
executive officers held options to purchase
1,467,500 Shares in the aggregate, 780,712 of which were
vested and exercisable as of that date, with exercise prices
ranging from $2.49 to $17.63 and an aggregate weighted average
exercise price of $4.34 per Share. Pursuant to the Merger
Agreement, effective upon the acceptance for payment by
Purchaser pursuant to the Offer of a number of Shares that
satisfies the Minimum Condition (the Appointment
Time) or the Effective Time, all of the outstanding
options will be canceled, and the holder of options with an
exercise price less than the Offer Price (whether or not vested
or exercisable)
(In-the-Money
Options) will be entitled to receive a cash payment
equal to the product of (i) the total number of Shares
issuable pursuant to such
In-the-Money Options,
and (ii) the excess of $6.20 over the applicable exercise
price per share. As a result, assuming none of the directors or
executive officers exercises any options after December 19,
2005, the executive officers and directors will be entitled to
receive a payment of $3,497,741 in the aggregate for all
In-the-Money Options
held by such executive officers and directors.
As of December 19, 2005, one of our directors, William W.
Wilson III, is an affiliate of CSFT Holdings, Inc., the
holder of a warrant to purchase 1,125,000 Shares at an
exercise price of $4.80 per share, which is currently
exercisable (the Warrant). Pursuant to the
Merger Agreement, the Company is required to use commercially
reasonable efforts to ensure, effective upon the Appointment
Time, that all of the outstanding warrants are canceled. In
consideration of such cancellation, the holders of warrants that
are exercisable, as of immediately prior to the Appointment
Time, at an exercise price per share less than the Offer Price
(In-the-Money
Warrants) will be entitled to receive a cash payment
equal to the product of (i) the total number of Shares
issuable pursuant to such
In-the-Money Warrants,
and (ii) the excess of $6.20 over the applicable exercise
price per share. As a result, assuming the Warrant is not
exercised, CSFT Holdings, Inc. will be entitled to receive a
payment of $1,575,000 in the aggregate for the Warrant.
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Employment Agreements/Change of Control Arrangements. The
Company has entered into employment agreements with each of Mark
Cresswell, Brian D. Helman and Shelby R. Fike (the
Employment Agreements), pursuant to which the
Company is obligated to pay a lump sum amount equal to
12 months total compensation to each such employee upon a
change of control (as defined in the Employment
Agreement) and an involuntary termination (as
defined in the Employment Agreements). The consummation of the
Offer will constitute a change of control under the
Employment Agreements. It is anticipated that
Messrs. Helman and Fike will be subject to an
involuntary termination, and as a result, the
Company will be obligated to pay each of them a lump sum of
$247,500 and $180,000, respectively.
Mark Cresswell will continue with DataDirect Technologies, a
subsidiary of Progress (DataDirect) as its
Chief Technology Officer. However, his change in position from
Chief Executive Officer of the Company to Chief Technology
Officer of DataDirect will be deemed to be an involuntary
termination, and as a result, the Company will be
obligated to pay him a lump sum amount of $375,000.
The Company has also entered into the employment agreements with
each of Jerry Paladino, Chris Garner and Robert Evelyn pursuant
to which the Company is obligated to pay a lump sum amount equal
to six months total compensation to each such employee upon a
change of control and an involuntary
termination. If Messrs. Paladino, Garner and Evelyn
do not agree to comparable positions with Offeror or Progress,
then they may be subject to an involuntary
termination, and in such event the Company may be
obligated to pay each of them a lump sum of approximately
$154,200, $110,000 and $109,300, respectively. The Company
anticipates that Robert Evelyn, Chris Garner and Jerry Paladino
will remain with the Company after the Appointment Time. As a
result, it is anticipated that Messrs. Garner, Evelyn and
Paladino will enter into an amendment to their current NEON
employment agreements. The Company anticipates that such
amendments will provide for their continued employment with the
Company through November 30, 2006, and for the payment of a
retention bonus at the end of December 2006 in an amount equal
to six months total compensation, unless terminated without
cause sooner.
Resignation of Directors. On December 19, 2005, in
connection with the execution of the Merger Agreement and
contingent and effective upon the Appointment Time, Mark
Cresswell, Loretta Cross, George H. Ellis and William W.
Wilson III resigned as members of the Companys Board
of Directors. In connection with the approval of the Offer, the
Merger and the Merger Agreement, and contingent and effective
upon the Appointment Time, the Board of Directors elected Roger
J. Heinen, Jr., Michael L. Mark, Richard D. Reidy and
Norman R. Robertson to the Board of Directors as designees of
Progress (the Progress Designees). Prior to
the actions taken on December 19, 2005, none of the
Progress Designees was a director of, or held any position with,
the Company.
In addition, on December 19, 2005, in connection with the
execution of the Merger Agreement and contingent and effective
upon the effectiveness of the Merger, Richard Holcomb and David
F. Cary resigned as members of the Board of Directors.
Indemnification and Insurance. Section 145 of the
DGCL permits a corporation to include in its charter documents,
and in agreements between the corporation and its directors and
officers, provisions expanding the scope of indemnification
beyond that specifically provided by current law. The
Companys Amended and Restated Certificate of Incorporation
(the Certificate of Incorporation) provides
for the indemnification of the Companys directors to the
fullest extent permissible under Delaware law. The
Companys Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the
Company, provided that such person acted in good faith and in a
manner reasonably believed to be in and not opposed to the best
interest of the Company and, provided further, with respect to
any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
Following the Effective Time, Progress has agreed to, and has
agreed to cause the Surviving Corporation to fulfill and honor
the obligations of the Company pursuant to any indemnification
agreements between the Company and its present and former
directors and officers and any other employee of the Company
(the Indemnified Parties) and any
indemnification provisions set forth in the
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Companys organizational documents as in effect on the date
of the Merger Agreement, in each case to the full extent
permitted by applicable law. The Certificate of Incorporation
and Bylaws of the Surviving Corporation will contain provisions
with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained
in the Certificate of Incorporation and Bylaws of the Company as
in effect on the date of the Merger Agreement, which provisions
will not be amended, repealed or otherwise modified in any
manner that would adversely affect the rights of the Indemnified
Parties, unless such modification is required by law.
Progress has also agreed that for a period of six years after
the Effective Time, it will cause the Surviving Corporation to
maintain directors and officers liability insurance
covering those persons who are covered by the Companys
directors and officers liability insurance policy as
of the date of the Merger Agreement in an amount and on terms no
less favorable than those applicable to such current directors
and officers of the Company. Notwithstanding the foregoing,
Progress shall not be required to pay more than $275,000 for
such coverage, and may limit the coverage to the maximum
coverage that can be obtained for a $275,000 premium.
Arrangements with Progress.
Confidentiality Agreements. The summary of the Mutual
Non-Disclosure Agreement, dated as of May 4, 2005, between
the Company and Progress (the Confidentiality
Agreement) contained in Section 12 of the Offer
to Purchase is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Confidentiality
Agreement.
Merger Agreement and Voting and Tender Agreements. The
summaries of the Merger Agreement and the Voting and Tender
Agreements contained in Section 12 of the Offer to Purchase
and the description of the conditions of the Offer contained in
Section 15 of the Offer to Purchase are incorporated herein
by reference. Such summaries and descriptions are qualified in
their entirety by reference to the Merger Agreement and the
Voting and Tender Agreements.
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Item 4. |
The Solicitation or Recommendation. |
Solicitation/ Recommendation.
At a meeting held on December 19, 2005, the Board of
Directors of the Company (the Board of
Directors), by unanimous vote of all of its directors,
(i) determined that the Merger Agreement and the
transactions contemplated thereby (including the Offer and the
Merger) are advisable and are fair to and in the best interests
of the Companys stockholders, (ii) approved the
Merger Agreement, the Voting and Tender Agreements, and the
transactions contemplated thereby (including the Offer and the
Merger), which approvals constituted approval under
Section 203 of the DGCL, and (iii) recommended that
the Companys stockholders accept the Offer and tender
their Shares pursuant to the Offer.
Accordingly, the Board of Directors unanimously recommends
that the Companys stockholders accept the Offer and tender
their Shares pursuant to the Offer.
A letter to stockholders communicating the recommendation of the
Board of Directors and the press release issued by the Company
announcing the execution of the Merger Agreement are filed as
Exhibits (a)(5) and (a)(6) hereto, respectively, and are
incorporated herein by reference.
Background.
In May 2005, the Company entered into a non-disclosure agreement
with Progress to begin discussions related to a potential
business partnership and/or to discuss a potential acquisition
of the Company by Progress. Thereafter, the Company provided
certain information to Progress for the purpose of an initial
due diligence review of the Company.
In August 2005, the Company received an oral unsolicited
indication of interest to acquire the Company by a third party
entity. At a meeting of the Board of Directors held on
August 11, 2005, the
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Board discussed the oral indication of interest. At the meeting,
the Board of Directors did not make any decision with respect to
whether to pursue the sale of the Company. However, the Board of
Directors determined that the unsolicited indication of interest
was worth consideration and determined that the Company should
interview and hire an investment bank to provide assistance to
the Board in analyzing the value of the Company and to advise
the Company regarding strategic alternatives.
Between August 19 and August 22, 2005, the Companys
management interviewed four investment banks. After such
interviews, the Company narrowed the list of investment banks to
three, and received proposals from each. At a meeting of the
Board of Directors held on August 24, 2005, the Board
discussed the three proposals, and authorized management to
further interview the finalists with respect to their process
and methodology. In connection with this decision, the Board of
Directors considered the current financial plan of the Company,
and received a report from management on the operations, the
projected financial performance and strategic position of the
Company. The Company also reviewed its fiduciary duties in
evaluating its strategic alternatives, including potential
business combination transactions.
At a meeting of the Board of Directors held on August 30,
2005, the Board reviewed the proposals from the three finalists,
and decided to pursue an engagement letter with
Jefferies Broadview. The Companys management then
negotiated an engagement letter with Jefferies Broadview,
which was approved by the Companys Board of Directors in a
meeting held on September 13, 2005. On September 13,
2005, the Company engaged Jefferies Broadview as the
Companys financial advisor and authorized
Jefferies Broadview to contact those companies that would
most likely have interest in acquiring the Company. The Board of
Directors also instructed management to explore introductory
meetings with those prospective acquirors that had responded
affirmatively to the inquiry from Jefferies Broadview.
On November 4, 2005, the Company received a draft letter of
intent from a third party, in which such party proposed to
acquire all of the Shares for $6.00 per Share in cash,
subject to certain potential adjustments. On November 7,
2005, the Company received a draft letter of intent from
Progress proposing to acquire all of the Shares of the Company
for approximately $5.97 in cash and stock. On November 8,
2005, the Board of Directors held a meeting, at which the Board
of Directors, after a review of its fiduciary duties and careful
consideration and consultation with management and independent
legal and financial advisors, authorized the Companys
management to pursue a counter-offer with each offeror. Based
upon instructions from the Board of Directors, the
Companys management through Jefferies Broadview, then
informed both offerors that their offers were insufficient and
attempted to obtain a higher price from both parties.
In response, Progress submitted a revised draft letter of intent
on November 11, 2005 to acquire all of the outstanding
shares of the Company for $67.0 million in cash, less
transaction expenses, or approximately $5.99 per share.
Representatives of Jefferies Broadview contacted the other
offeror who refused to increase its offer above $6.00 per share.
The draft letter of intent provided for an exclusive negotiation
period through December 19, 2005 (subject to a mutual
extension of no more than five days if the parties had
negotiated in good faith) and was non-binding, except as to the
exclusivity provision. At a meeting of the Board of Directors
held on November 11, the Board reviewed the revised
proposal, and authorized the Company to negotiate further with
Progress. As a result, representatives of Progress and the
Company, including NEONs President and Chief Executive
Officer, Mark Cresswell, and its presiding director, George
Ellis, along with Rick Reidy, the President of Progress
DataDirect subsidiary, held telephonic discussions with respect
to the proposal. During such discussions, Progress agreed to a
proposed purchase price of $68.0 million in cash, or
approximately $6.23 per share, less transaction expenses in
excess of $2.0 million.
On November 12, 2005, the Company received the draft
revised letter of intent from Progress, and on November 13,
2005, the Board of Directors approved the execution of the
letter of intent. The letter of intent was executed on
November 14, 2005.
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During the week of November 14, 2005, representatives of
Progress met with representatives of the Company. The parties
discussed their respective businesses. During the week of
November 28, 2005, representatives of the Company provided
due diligence materials to Progress.
On December 1, 2005, Progress delivered to the Company a
form of Agreement and Plan of Merger prepared by Foley Hoag LLP,
Progress outside legal counsel (Foley
Hoag).
On December 2, 2005, the Board of Directors met to review
the financial and other terms of the proposed transaction and
draft agreements under discussion, including the significant
open issues under negotiation between the parties. Wilson
Sonsini Goodrich & Rosati, Professional Corporation
(WSGR) also reviewed with the Board of
Directors its fiduciary duties with respect to the proposed
transaction. The Board of Directors authorized management to
continue negotiations and advise the Board of Directors of its
progress.
On December 5, 2005, the Company responded to Parent with
proposed revisions to Parents initial draft of the Merger
Agreement. Foley Hoag also distributed a draft of the form of
Voting and Tender Agreement, a copy of which was forwarded to
counsel for John J. Moores. The parties and their respective
counsels, Foley Hoag and WSGR, discussed the unresolved issues
in a teleconference beginning in the morning on December 9,
2005. Later in the day on December 9, 2005, the Board of
Directors met to review the significant unresolved issues on the
Merger Agreement.
Foley Hoag distributed a revised draft of the Merger Agreement
on December 11, 2005. The parties and their respective
counsels, Foley Hoag and WSGR, then held another conference call
on December 12, 2005, to attempt to resolve outstanding
issues.
Throughout the week of December 12, 2005, representatives
of the Company and Progress met to discuss certain outstanding
issues with respect to the Merger Agreement. The Board of
Directors of the Company met on December 15, 2005 and then
again on December 16, 2005 and discussed with management
the status of the outstanding issues and provided direction with
respect to those issues.
Then, on December 16, 2005, Foley Hoag distributed a
revised draft of the Merger Agreement, reflecting the
conversations of the Company and Progress during the week. Foley
Hoag and WSGR then had further telephonic conversations on
December 17, 2005 and December 18, 2005.
On December 18, 2005, the Board of Directors held a special
meeting to review, with the advice and assistance of WSGR and
Jefferies Broadview, the proposed terms and conditions of
the proposed transaction and the current draft of the Merger
Agreement. Representatives of WSGR summarized for the Board of
Directors the terms of the most recent draft of the Merger
Agreement that had been negotiated by the parties as well as the
remaining issues that remained to be negotiated by the parties,
and reviewed with the Board of Directors its fiduciary duties in
considering the proposed transaction.
On December 19, 2005, Foley Hoag and WSGR had further
telephone conversations and representatives of the Company and
Progress continued to negotiate outstanding issues. At a meeting
of the Board of Directors held on December 19, 2005,
Jefferies Broadview reviewed the various financial analyses
and conveyed to the Board of Directors the oral opinion of
Jefferies Broadview (subsequently confirmed in writing)
that, as of December 19, 2005 and based upon and subject to
the qualifications and limitations set forth in its opinion, the
Offer Price was fair, from a financial point of view, to holders
of the Shares. Following Jefferies Broadviews
delivery of its opinion, and after careful consideration, the
Board of Directors unanimously (i) determined that the
Merger Agreement and the transactions contemplated thereby
(including the Offer and the Merger) are advisable and are fair
to and in the best interests of the Company and the
Companys stockholders, (ii) approved the Merger
Agreement, the Voting and Tender Agreements, and the
transactions contemplated thereby (including the Offer and the
Merger), which approvals constituted approval under
Section 203 of the DGCL, and (iii) recommended that
the Companys stockholders accept the Offer and tender
their Shares pursuant to the Offer.
On December 19, 2005, Progress informed the Company that
its board of directors had approved the transaction.
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The Merger Agreement was executed on December 19, 2005. A
joint press release announcing the execution of the Merger
Agreement, and the transactions contemplated thereby, including
the Offer and the Merger, was issued on December 20, 2005.
On December 29, 2005, Progress commenced the Offer and filed a
Schedule TO. In addition, on December 29, 2005, the Company
filed this Form 14D-9 Response and Recommendation to the
Tender Offer filed by Progress.
Reasons for Recommendation.
In approving the Merger Agreement and the other transactions
contemplated thereby, including the Offer and the Merger, and
recommending that all holders of Shares accept the Offer and
tender their Shares pursuant to the Offer, the Board of
Directors consulted with its financial and legal advisors and
with senior management of the Company and considered a number of
positive and negative factors including, but not limited to, the
following:
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Operating and Financial Condition of the Company; Ability to
Execute Business Plan. The Board of Directors considered the
Companys business, financial condition, results of
operations, financial plan and prospects if it were to remain
independent. The Board of Directors discussed and deliberated at
length concerning the Companys current business and
financial plans, including the risks associated with achieving
and executing upon such plans, as well as the competitive
environment and condition of the industries in which the Company
operates. |
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Results of Discussions with Third Parties; Other
Alternatives. The Board of Directors considered, after
discussions with Jefferies Broadview and the Companys
executive management, the process leading to the Offer and the
Merger, the extent of the market check by
Jefferies Broadview, the discussions with certain other
third parties regarding a possible business combination,
acquisition or similar transaction with the Company and the
likelihood of receiving offers in excess of the Offer Price. The
Board of Directors also considered other possible alternatives
to the Offer and the Merger, including remaining an independent
company. |
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Fairness of the Transaction; Financial Analyses and Opinion
of Jefferies Broadview. The Board considered at length
the amount of consideration to be received by the holders of
Shares pursuant to the Offer and the Merger and believes that
the terms of the Offer and Merger are fair to and are in the
best interests of the Companys stockholders. At a meeting
of the Board of Directors held on December 19, 2005, the
Board of Directors reviewed and considered the presentation of
Jefferies Broadview concerning the Company, Progress and
the financial aspects of the Offer and the Merger, including the
opinion of Jefferies Broadview, which was orally conveyed
to the Board of Directors on December 19, 2005, and
subsequently confirmed in writing, to the effect that, as of
December 19, 2005 and based upon and subject to the
qualifications and limitations set forth in its opinion, the
Offer Price was fair, from a financial point of view, to holders
of the Shares, which opinion is attached hereto as Annex II
and incorporated herein by reference. The Board of Directors was
aware that Jefferies Broadview would become entitled to
certain fees described in Item 5 of this Statement upon the
delivery of the opinion and the consummation of the transaction. |
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Historical Trading Prices. The Board of Directors
reviewed and considered the historical market prices, volatility
and trading information with respect to the Common Stock,
including the fact that the Offer Price represents a premium of
approximately 41% over the $4.35 closing price per Share on the
Nasdaq Stock Market (Nasdaq) on
December 19, 2005, the last full trading day prior to the
public announcement of the execution of the Merger Agreement,
and a premium of approximately 18% over the
52-week high trading
price of $5.25 per Share and a premium of approximately 130%
over the 52-week low
trading price of $2.69 per Share. The Offer Price also
represented premiums ranging from 39% to 86% over the trailing
average prices for the Shares for periods ranging from the last
month to the last twelve months. |
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Analysis and Presentation of Management. The Board of
Directors reviewed and considered the analyses and presentations
by senior management of the Company regarding the business,
operations, sales, management and competitive position of the
Company, including managements view that the Offer is fair
to the stockholders of the Company, and that the Offer is in the
best interests of the Company and its stockholders. |
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Cash Consideration. The Board of Directors considered the
desirability that the Offer Price and aggregate merger
consideration are payable in cash, thereby eliminating any
uncertainties in valuing consideration. The Board of Directors
considered that the cash consideration to be received by the
holders of the Shares in the Offer and the Merger would be
taxable to such holders for U.S. federal income tax
purposes. |
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Terms of the Agreement; Certainty of Closing; No Financing
Condition. The Board of Directors considered the terms and
conditions of the Offer, including the fact that the Offer is
subject to the Minimum Condition and considered the terms of the
Merger Agreement, including the representations, warranties and
covenants, and termination rights of the parties and termination
fees payable by the Company and the effect of the Voting and
Tender Agreements. The Board of Directors also considered the
reasonable likelihood of the consummation of the transactions
contemplated by the Merger Agreement and that Progress
obligations under the Merger Agreement are not subject to any
financing condition, the representations of Progress in the
Merger Agreement that it has and will have sufficient funds
available to it to consummate the Offer and the Merger, and
Progresss financial strength. |
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No Solicitation. The Board of Directors considered the
provisions in the Merger Agreement that provide for the ability
of the Board of Directors to respond to unsolicited acquisition
proposals, if (A) the Board of Directors determines (after
consultation with its outside legal counsel and its financial
advisor) that the acquisition proposal is, or is reasonably
likely to result in, a Superior Offer (as defined in
Section 6.1(c) of the Merger Agreement) and (B) the
Board of Directors determines (after consultation with its
outside legal counsel) that the failure to take such actions
would be inconsistent with its fiduciary duties. |
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|
Change in Recommendation. The Board of Directors has,
subject to certain conditions, the right, prior to the purchase
of Shares pursuant to the Offer, to withhold, withdraw, amend or
modify its approval or recommendation to the Companys
stockholders of the Merger Agreement, the Offer or the Merger
under certain circumstances. |
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|
Fiduciary Termination Right. The Board of Directors has
the right, prior to the purchase of Shares pursuant to the
Offer, to terminate the Merger Agreement upon a Change of
Recommendation (as defined in Section 6.3(c) of the Merger
Agreement) in order to enter into a definitive agreement with
respect to a Superior Offer, if, concurrent with such
termination, the Company pays to Progress a $2,040,000
termination fee. |
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|
Tender Offer. The Board of Directors considered that the
Offer and the Merger provide for a prompt cash tender offer for
all Shares to be followed by a merger for the same
consideration, thereby enabling the Companys stockholders
possibly to obtain the benefits of the transaction in exchange
for their Shares earlier than if the transaction were effected
as a one-step merger. |
|
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|
Failure to Close; Public Announcement. The Board of
Directors considered the possibility that the transactions
contemplated by the Merger Agreement may not be consummated, and
the effect of public announcement of the Merger Agreement,
including effects on the Companys sales, operating results
and stock price, and the Companys ability to attract and
retain key management and sales and marketing personnel. |
The foregoing discussion of information and factors considered
and given weight by the Board of Directors is not intended to be
exhaustive, but is believed to include all of the material
factors, both positive and negative, considered by the Board of
Directors. In view of the variety of factors considered in
connection with its evaluation of the Offer and the Merger, the
Board of Directors did not find it
8
practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching
its determinations and recommendations. In addition, individual
members of the Board of Directors may have given different
weights to different factors. In arriving at their respective
recommendations, the directors of NEON were aware of the
interests of executive officers and directors of NEON as
described under Past Contracts, Transactions, Negotiations
and Agreements in Item 3 hereof.
Opinion of NEONs Financial Advisor.
Pursuant to a letter agreement dated as of September 13,
2005, Jefferies Broadview was engaged to act as financial
advisor to the Board of Directors of NEON. The Board of
Directors selected Jefferies Broadview based on
Jefferies Broadviews reputation and experience in the
information technology (IT), communications,
healthcare technology and media industry in particular.
Jefferies Broadview focuses on providing merger and
acquisition advisory services to IT, communications, healthcare
technology and media companies. In this capacity,
Jefferies Broadview is continually engaged in valuing these
businesses and maintains an extensive database of IT,
communications, healthcare technology and media mergers and
acquisitions for comparative purposes. At the meeting of
NEONs Board of Directors on December 19, 2005,
Jefferies Broadview rendered its opinion that, as of the
date the opinion was rendered and based upon and subject to the
various qualifications and limitations described in the
Jefferies Broadview opinion, the Offer Price was fair, from
a financial point of view, to holders of the Shares.
Jefferies Broadviews opinion, which describes the
assumptions made, matters considered and limitations on the
review undertaken by Jefferies Broadview, is attached as
Annex II to this Statement. holders of the Shares are urged
to, and should, read the Jefferies Broadview opinion
carefully and in its entirety. The Jefferies Broadview
opinion is directed to NEONs Board of Directors and
addresses only the fairness of the Offer Price from a financial
point of view to holders of the Shares as of the date of the
opinion. The Jefferies Broadview opinion does not address
any other aspect of the Offer Price and does not constitute a
recommendation to any holder of the Shares. The summary of the
Jefferies Broadview opinion set forth in this Statement,
although materially complete, is qualified in its entirety by
reference to the full text of such opinion.
Jefferies Broadviews opinion does not address the
underlying business decision to enter into the Merger Agreement,
the Offer or the Merger, nor does it evaluate alternative
transaction structures or other financial or strategic
alternatives.
In reading the discussion of the fairness opinion set forth
below, you should be aware that Jefferies Broadview:
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reviewed the terms of a draft of the definitive agreement
furnished to Jefferies Broadview by NEONs legal
counsel; |
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reviewed certain publicly available financial statements and
other information with respect to NEON; |
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reviewed certain internal financial and operating information
concerning NEON, including certain projections for NEON prepared
and furnished to Jefferies Broadview by NEON management, |
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participated in discussions with NEON management concerning the
operations, business strategy, current financial performance and
prospects for NEON; |
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discussed with NEON management its view of the strategic
rationale for the Merger; |
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reviewed the recent reported closing prices and trading activity
for the Shares; |
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compared certain aspects of NEONs financial performance
with those of public companies Jefferies Broadview deemed
comparable; |
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analyzed available information, both public and private,
concerning other comparable mergers and acquisitions; |
9
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assisted in negotiations and discussions related to the Merger
among NEON, Progress and their respective legal
advisors; and |
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conducted other financial studies, analyses and investigations
as Jefferies Broadview deemed appropriate for purposes of
its opinion. |
In rendering its opinion, Jefferies Broadview relied,
without independent verification, on the accuracy and
completeness of all the financial and other information
(including without limitation the representations and warranties
contained in the Agreement) that was publicly available or
furnished to Jefferies Broadview by NEON, Progress or their
respective advisors. With respect to the financial projections
and estimates of future revenues examined by
Jefferies Broadview, Jefferies Broadview assumed that
they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of NEON as
to the future performance of NEON.
Jefferies Broadview also assumed, that in the course of
obtaining the regulatory and third party approvals, consents and
releases necessary for consummation of the Merger, no
modification, delay, limitation, restriction or condition will
be imposed that will have a material adverse effect on the
Merger and that the Merger will be consummated in accordance
with applicable laws and regulations and the terms of the Merger
Agreement as set forth in the December 18, 2005 draft
thereof, without waiver, amendment or modification of any
material term, condition or agreement.
Jefferies Broadviews opinion does not address the
relative merits of the Merger as compared to other business
strategies that might be available to NEON, nor does it address
the underlying business decision of the Company to proceed with
the Merger. Jefferies Broadview did not make or take into
account any independent appraisal or valuation of any of
NEONs assets or liabilities, contingent or otherwise, or
conduct any investigation into the business of NEON other than
as set forth in its written opinion. Jefferies Broadview
expressed no view as to the federal, state or local tax
consequences of the Merger.
For purposes of its opinion, Jefferies Broadview assumed
that NEON was not currently involved in any material transaction
other than the Merger, other than publicly announced
transactions and those activities undertaken in the ordinary
course of conducting its business.
Jefferies Broadviews opinion was necessarily based
upon market, economic, financial and other conditions as they
existed on December 19, 2005 and should be evaluated as of
that date. It should be understood that, although subsequent
developments may affect Jefferies Broadviews opinion,
Jefferies Broadview has no obligation to update, revise or
reaffirm its opinion.
The following is a summary explanation of the various sources of
information and valuation methodologies employed by
Jefferies Broadview in rendering its opinion. These
analyses were presented to NEONs Board of Directors at its
meeting on December 19, 2005. This summary includes the
financial analyses used by Jefferies Broadview and deemed
to be material, but does not purport to be a complete
description of analyses performed by Jefferies Broadview in
arriving at its opinion. Jefferies Broadview did not
explicitly assign any relative weights to the various factors or
analyses considered. This summary of financial analyses includes
information presented in tabular format. In order to fully
understand the financial analyses used by
Jefferies Broadview, the tables must be read together with
the text of each summary. The tables alone do not constitute a
complete description of the financial analyses.
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NEON Stock Performance Analysis |
Jefferies Broadview compared the recent stock performance
of NEON with that of the Nasdaq Composite and NEON Comparable
Indices. The NEON Comparable Indices are comprised of public
companies that Jefferies Broadview deemed comparable to
NEON. Jefferies Broadview selected companies competing in
the Integration and Middleware industry with trailing twelve
months (TTM) revenue less than $250MM.
10
The comparables index consists of the following companies:
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Attunity Ltd; |
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Informatica Corporation; |
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IONA Technologies PLC; |
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Jacada Ltd.; |
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NetManage, Inc.; |
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Seagull Holding N.V.; |
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Vitria Technology, Inc.; and |
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webMethods, Inc. |
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Public Company Comparables Analysis |
Jefferies Broadview considered ratios of share price and
equity market capitalization, adjusted for cash and debt when
appropriate, to reflect total enterprise value
(TEV) to selected historical operating and
balance sheet results in order to derive multiples that indicate
the value public equity markets place on companies in a
particular market segment. In order to perform this analysis,
Jefferies Broadview compared financial information of NEON
with publicly available information for the companies included
in the NEON Comparable Index. For this analysis, as well as
other analyses, Jefferies Broadview examined publicly
available information, as well as a range of estimates based on
equity research reports. The following tables include the
following terms as defined as follows: earnings before income
tax (EBIT) and price-earnings ratio
(P/ E Ratio).
The following table presents, based on closing prices as of
December 19, 2005, the median multiples and the range of
multiples for the Integration and Middleware comparables index
of TEV or NEON share price, divided by selected operating
metrics as appropriate:
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Median | |
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Multiples | |
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Range of Multiples | |
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| |
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TTM TEV/ Revenue
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0.85x |
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0.49 |
x |
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- |
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3.20x |
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TTM TEV/ EBIT
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28.91x |
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8.77 |
x |
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- |
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56.17x |
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TTM P/ E Ratio
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34.08x |
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15.87 |
x |
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- |
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81.06x |
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Projected 12/31/05 TEV/ Revenue
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0.87x |
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0.51 |
x |
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- |
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3.05x |
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Projected 12/31/05 TEV/ EBIT
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23.16x |
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9.45 |
x |
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- |
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27.52x |
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Projected 12/31/05 P/ E Ratio
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28.77x |
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19.14 |
x |
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- |
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46.45x |
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Projected 12/31/06 TEV/ Revenue
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0.89x |
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0.38 |
x |
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- |
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2.72x |
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Projected 12/31/06 TEV/ EBIT
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14.06x |
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10.78 |
x |
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- |
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16.07x |
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Projected 12/31/06 P/ E Ratio
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26.94x |
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19.53 |
x |
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- |
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40.14x |
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11
The Integration and Middleware comparables imply the following
medians and ranges for NEON per share value. Value is reflected
as No Value (NV) where there is no implied
value due to lack of NEON profitability:
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Median | |
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Values | |
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Range of Values | |
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| |
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| |
TTM TEV/ Revenue
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$ |
3.49 |
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$ |
2.77 |
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- |
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$ |
7.37 |
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TTM TEV/ EBIT
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NV |
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NV |
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- |
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NV |
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TTM P/ E Ratio
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NV |
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NV |
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- |
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NV |
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Projected 12/31/05 TEV/ Revenue
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$ |
3.63 |
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$ |
2.90 |
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- |
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$ |
7.46 |
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Projected 12/31/05 TEV/ EBIT
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$ |
2.21 |
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$ |
1.92 |
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- |
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$ |
2.31 |
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Projected 12/31/05 P/ E Ratio
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$ |
1.46 |
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$ |
0.97 |
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- |
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$ |
2.36 |
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Projected 12/31/06 TEV/ Revenue
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$ |
3.86 |
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$ |
2.68 |
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- |
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$ |
7.38 |
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Projected 12/31/06 TEV/ EBIT
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$ |
4.99 |
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$ |
4.31 |
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- |
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$ |
5.38 |
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Projected 12/31/06 P/ E Ratio
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$ |
7.14 |
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$ |
5.18 |
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- |
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$ |
10.65 |
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No company utilized in the public company comparables analysis
as a comparison to NEON is identical to NEON. In evaluating the
comparables, Jefferies Broadview made numerous assumptions
with respect to the Integration and Middleware and software
industrys performance and general economic conditions,
many of which are beyond the control of NEON. Mathematical
analysis, such as determining the median, average or range, is
not in itself a meaningful method of using comparable company
data.
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Transaction Comparables Analysis |
Jefferies Broadview considered ratios of equity purchase
price, adjusted for the sellers cash and debt when
appropriate, to selected historical and balance sheet operating
results in order to indicate multiples strategic and financial
acquirers have been willing to pay for companies in a particular
market segment. In order to perform this analysis,
Jefferies Broadview reviewed a number of transactions,
including those involving companies deemed by
Jefferies Broadview to be comparable to NEON based on
financial performance, market focus, business model and size.
Jefferies Broadview reviewed 10 comparable merger and
acquisition (M&A) transactions announced
from January 1, 2003 through December 19, 2005
involving sellers in the Integration and Middleware and software
industry. For this analysis, as well as other analyses,
Jefferies Broadview examined publicly available
information, as well as information from
Jefferies Broadviews proprietary database of
published and confidential M&A transactions in the IT,
communications, healthcare technology and media industries.
The Integration and Middleware and software transactions
consisted of the acquisitions of:
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Data Junction Corporation by Pervasive Software, Inc.; |
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Staffware plc by TIBCO Software Inc.; |
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Cardiff Software Inc. by Verity, Inc.; |
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ObjectStar International Limited by TIBCO Software Inc.; |
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SeeBeyond Technology Corporation by Sun Microsystems, Inc.; |
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DataDirect Technologies Limited by Progress Software Corporation; |
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Plumtree Software, Inc. by BEA Systems, Inc.; |
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Mercator Software, Inc. by Ascential Software Corporation; |
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Sagent Technology, Inc. (Assets) by Group 1 Software,
Inc.; and |
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a transaction between confidential parties; |
12
The following table presents the median multiple and the range
of multiples of adjusted price (defined as equity price plus
total debt minus cash and cash equivalents) divided by the
sellers revenue (which we refer to as P/ R) in the last
reported twelve months prior to acquisition for the transactions
listed above:
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Median | |
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Range of | |
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Multiple | |
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Multiples | |
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P/ R
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1.88x |
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0.50 |
x |
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- |
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10.94x |
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These comparables imply the following median and range for per
share value:
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Median | |
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Value | |
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Range of Values | |
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| |
P/ R
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$ |
5.28 |
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$ |
2.79 |
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- |
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$ |
19.42 |
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No transaction utilized as a comparable in the transaction
comparables analysis is identical to the Merger. In evaluating
the comparable transactions, Jefferies Broadview made
numerous assumptions with respect to the Integration and
Middleware industrys performance and general economic
conditions, many of which are beyond the control of NEON.
Mathematical analysis, such as determining the average, median
or range, is not in itself a meaningful method of using
comparable transaction data.
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Transaction Premiums Paid Analysis |
Jefferies Broadview considered the premiums paid above a
sellers share price in order to determine the additional
value that strategic and financial acquirers, when compared to
public stockholders, are willing to pay for companies in a
particular market segment. In order to perform this analysis,
Jefferies Broadview reviewed a number of transactions
involving publicly-held North American software vendors from
January 1, 2004 to December 19, 2005 with equity
purchase price between $25 million and $250 million.
Transactions were selected from Jefferies Broadviews
proprietary database of published and confidential M&A
transactions in the information technology, communications,
healthcare technology and media industries. These transactions
consisted of the acquisition of:
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Nuance Communications, Inc. by ScanSoft, Inc; |
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Nassda Corporation by Synopsys, Inc.; |
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Sanchez Computer Associates, Inc. by Fidelity National
Financial, Inc.; |
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SciQuest, Inc. by Trinity Ventures, Ltd.; |
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Basis 100, Inc. by First American Corporation; |
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MDSI Mobile Data Solutions Inc. by Vista Equity Partners; |
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Novadigm, Inc. by Hewlett-Packard Company; |
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Plumtree Software, Inc. by BEA Systems, Inc.; |
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Blue Martini Software, Inc. by Golden Gate Capital Management,
LLC (Multi-Channel Holdings, Inc.); |
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AD OPT Technologies Inc. by Kronos Inc.; |
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MDI Technologies, Inc. by Logibec Groupe Informatique Ltd.; |
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Marimba, Inc. by BMC Software, Inc.; |
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Extended Systems Incorporated by Sybase, Inc.; |
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Visual Networks, Inc. by Fluke Electronics Corporation (Danaher
Corporation); |
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Speedware Corporation, Inc. by Activant Solutions, Inc.; |
13
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IMPAC Medical Systems, Inc. by Elekta AB; |
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Vastera, Inc. by JPMorgan Chase & Co.; |
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Tarantella, Inc. by Sun Microsystems, Inc.; |
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BindView Development Corporation by Symantec Corporation; |
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Primus Knowledge Solutions, Inc. by Art Technology Group, Inc.; |
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Apropos Technology, Inc. by Enghouse Systems Ltd.; |
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Centra Software Inc. by Saba Software Inc.; |
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Landacorp, Inc. by SHPS Holdings, Inc.; and |
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Optika Inc. by Stellent, Inc. |
The following table presents the median premium and the range of
premiums for these transactions calculated by dividing:
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(1) the offer price per share minus the closing share price
of the sellers common stock twenty trading days or one
trading day prior to the public announcement of the transaction,
by |
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(2) the closing share price of the sellers common
stock twenty trading days or one trading day prior to the public
announcement of the transaction: |
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|
Median | |
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Range of | |
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|
Premiums | |
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Premiums | |
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| |
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| |
Premium Paid to Sellers Stock Price 1 Trading Day Prior to
Announcement
|
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29.3% |
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|
1.3 |
% |
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|
- |
|
|
|
84.7 |
% |
Premium Paid to Sellers Stock Price 20 Trading Days Prior
to Announcement
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39.7% |
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(8.6 |
)% |
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- |
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114.2 |
% |
The following table presents the median implied value and the
range of implied values of NEONs stock, calculated by
using the premiums shown above and NEONs share price
twenty trading days and one trading day prior to announcement:
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Median | |
|
Range of | |
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|
Values | |
|
Values | |
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| |
|
| |
Premium Paid to Sellers Stock Price 1 Trading Day Prior to
Announcement
|
|
$ |
5.63 |
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|
$ |
4.41 |
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|
- |
|
|
$ |
8.04 |
|
Premium Paid to Sellers Stock Price 20 Trading Days Prior
to Announcement
|
|
$ |
5.85 |
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|
$ |
3.83 |
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|
|
- |
|
|
$ |
8.98 |
|
No transaction utilized as a comparable in the transaction
premiums paid analysis is identical to the Merger. In evaluating
the comparables, Jefferies Broadview made numerous
assumptions with respect to the software industrys
performance and general economic conditions, many of which are
beyond the control of NEON. Mathematical analysis, such as
determining the average, median or range is not in itself a
meaningful method of using comparable transaction data.
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|
|
Present Value of Projected Share Price Analysis |
Jefferies Broadview calculated the present value of the
future potential share price of shares of NEON Common Stock
using management net income estimates for the twelve months
ending December 31, 2006. The implied share price
calculated using the median TTM P/ E Ratio for the public
company comparables, NEON projected earnings per share
(EPS) for the twelve months ended
December 31, 2006 and discounted based on the Capital Asset
Pricing Model (CAPM) using the median
capital-structure adjusted beta for the aggregate public company
comparables is $6.45.
14
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|
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Consideration of the Discounted Cash Flow
Methodology |
While discounted cash flow is a commonly used valuation
methodology, Jefferies Broadview did not employ such an
analysis for the purposes of its opinion. Discounted cash flow
analysis is most appropriate for companies that exhibit
relatively steady or somewhat predictable streams of future cash
flow. For a company such as NEON, with very limited intermediate
and long-term visibility, a preponderance of the value in a
valuation based on discounted cash flow will be in the terminal
value of the entity, which is extremely sensitive to assumptions
about the sustainable long-term growth rate of NEON. Given
managements inability to develop reliable long-term
forecasts and the uncertainty in forecasting the product mix,
operating performance, future cash flows and sustainable
long-term growth rate for NEON, Jefferies Broadview
considered a discounted cash flow analysis inappropriate for
valuing NEON.
The preparation of a fairness opinion is a complex process
involving determinations as to the most appropriate and relevant
methods of financial analysis and the application of these
methods to the particular circumstances and, therefore, is not
necessarily susceptible to partial analysis or summary
description. Selecting portions of the analysis or the summary
set forth above, without considering the analysis as a whole,
could create an incomplete view of the processes underlying the
opinion of Jefferies Broadview. In arriving at its fairness
determination, Jefferies Broadview considered the results
of all these constituent analyses and did not attribute any
particular weight to any particular factor or analysis
considered by it; rather, Jefferies Broadview made its
determination as to fairness on the basis of its experience and
professional judgment after considering the results of all such
analyses. Certain Jefferies Broadview analyses are based
upon forecasts of future results and are not necessarily
indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. The
foregoing summary does not purport to be a complete description
of the analyses performed by Jefferies Broadview.
Additionally, analyses relating to the value of businesses or
securities are not appraisals. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
In performing its analyses, Jefferies Broadview made
numerous assumptions with respect to industry performance and
general business and economic conditions and other matters, many
of which are beyond the control of NEON. The analyses performed
by Jefferies Broadview are not necessarily indicative of
actual values or actual future results, which may be
significantly more or less favorable than suggested by such
analyses. The consideration to be received by the holders of the
Shares pursuant to the definitive agreement and other terms of
the definitive agreement were determined through arms
length negotiations between NEON and Progress, and were approved
by the Board of Directors of NEON subsequent to the
recommendation made to and determinations made by NEONs
Board of Directors. Jefferies Broadview did not recommend
any specific consideration to NEONs Board of Directors or
that any specific consideration constituted the only appropriate
consideration with respect to the Merger Agreement and the
transactions contemplated thereby, including the Merger. In
addition, Jefferies Broadviews opinion and
presentation to NEONs Board of Directors was one of many
factors taken into consideration by NEONs Board of
Directors in making its decision to approve the Merger.
Consequently, the Jefferies Broadview analyses as described
above should not be viewed as determinative of the opinion of
NEONs Board of Directors with respect to the value of NEON
or whether NEONs Board of Directors would have been
willing to agree to different consideration.
Based upon and subject to the qualifications and limitations set
forth in its written opinion, a copy of which is attached as
Annex II, Jefferies Broadview was of the opinion that,
as of December 19, 2005, the Offer Price was fair, from a
financial point of view, to holders of the Shares.
Jefferies Broadview acted as financial advisor to
NEONs Board of Directors, received a fee from NEON upon
delivery of its opinion and will receive an additional fee upon
the successful conclusion of the Offer. NEON has reimbursed
Jefferies Broadview for airfare and other travel-related
costs and reasonable professional fees incurred in connection
with the engagement, and has indemnified
Jefferies Broadview and related parties against certain
liabilities, including liabilities under the federal securities
laws, in connection therewith. No limitations were imposed on
Jefferies Broadview by us with respect to the
investigations made or procedures followed by it in rendering
its opinion.
15
Jefferies Broadview and its affiliates in the past have
provided, currently are providing, or in the future may provide
investment banking, financial and advisory services to NEON,
Progress, or their affiliates unrelated to the Offer and Merger,
for which services they have received, or expect to receive,
compensation.
In the ordinary course of their businesses,
Jefferies Broadview and its affiliates, including
Jefferies Group, Inc., Jefferies Broadviews
parent company, may publish research reports regarding the
securities of NEON or Progress or their respective affiliates,
may actively trade or hold such securities for their own
accounts and for the accounts of their customers and,
accordingly, may at any time hold long or short positions in
those securities.
Intent to Tender.
To the Companys knowledge, all of NEONs executive
officers, directors, affiliates and subsidiaries currently
intend to sell or tender for purchase pursuant to the Offer any
Shares owned of record or beneficially owned by them. The
summary of the Voting and Tender Agreements contained in
Section 12 of the Offer to Purchase is incorporated herein
by reference. Such summary is qualified in its entirety by
reference to the Voting and Tender Agreements.
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|
Item 5. |
Person/ Assets, Retained, Employed, Compensated or
Used. |
Except as set forth below, neither the Company nor any person
acting on its behalf has employed, retained or agreed to
compensate any person to make solicitations or recommendations
to the stockholders of the Company concerning the Offer.
Jefferies Broadview. The Board of Directors retained
Jefferies Broadview to act as its financial advisor in
connection with, among other things, the Offer and the Merger.
Jefferies Broadview was selected by the Board of Directors
based on Jefferies Broadviews qualifications,
expertise and reputation. Jefferies Broadview is an
internationally recognized investment banking and advisory firm.
Jefferies Broadview, as part of its investment banking
business, is continuously engaged in the valuation of businesses
and securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and
other purposes. In the ordinary course of business,
Jefferies Broadview and its affiliates may acquire, hold or
sell, for their own accounts and the accounts of customers,
equity, debt and other securities and financial instruments
(including bank loans and other obligations) of NEON, Progress
and any other company that may be involved in the transaction,
as well as provide investment banking and other financial
services to such companies.
NEON engaged Jefferies Broadview to provide financial advisory
services to the Board of Directors in connection with, among
other things, the Offer and the Merger, and to render its
opinion, which is filed as Annex II hereto and is
incorporated herein by reference. Pursuant to the terms of an
engagement letter, Jefferies Broadview received a commitment fee
of $50,000 and a fee of $250,000 upon delivery of Jefferies
Broadviews opinion, and will receive a transaction fee of
approximately $1,016,000, less the amount of the commitment fee
and the opinion fee already paid, which is contingent upon the
consummation of the Offer. NEON has also reimbursed Jefferies
Broadview for air fare and other travel-related costs and
reasonable professional fees in connection with the engagement.
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|
Item 6. |
Interest In Securities Of The Subject Company. |
No transactions in the Shares have been effected during the past
60 days by the Company or, to the Companys knowledge,
by any of the Companys directors, executive officers,
affiliates or subsidiaries.
16
|
|
Item 7. |
Purposes Of The Transaction And Plans Or Proposals. |
Except as indicated in Items 3 and 4 above, no negotiations
are being undertaken or are underway by NEON in response to the
Offer, which relate to a tender offer or other acquisition of
NEONs securities by NEON, any subsidiary of NEON or any
other person.
Except as indicated in Items 3 and 4 above, no negotiations
are being undertaken or are underway by NEON in response to the
Offer which relate to, or would result in, (i) an
extraordinary transaction, such as a merger, reorganization or
liquidation, involving NEON or any subsidiary of NEON,
(ii) a purchase, sale or transfer of a material amount of
assets by NEON or any subsidiary of NEON, or (iii) any
material change in the present dividend rate or policy, or
indebtedness or capitalization of NEON.
Except as indicated in Items 3 and 4 above, there are no
transactions, board resolutions, agreements in principle or
signed contracts in response to the Offer that relate to or
would result in one or more of the matters referred to in this
Item 7.
|
|
Item 8. |
Additional Information. |
Information Statement. The Information Statement attached
as Annex I hereto is being furnished in connection with the
possible designation by Progress and Offeror, pursuant to the
terms of the Merger Agreement, of certain persons to be elected
to the Board of Directors other than at a meeting of the
Companys stockholders.
Stockholder Approval. The Company has represented in the
Merger Agreement that the execution and delivery of the Merger
Agreement by the Company and the consummation by the Company of
the transactions contemplated by the Merger Agreement have been
duly and validly authorized by the Board of Directors, and no
other corporate proceedings on the part of the Company are
necessary to authorize the Merger Agreement or to consummate the
transactions so contemplated, other than, with respect to the
Merger, the approval of the Merger Agreement by the holders of
at least a majority of the outstanding Shares prior to the
consummation of the Merger (unless the Merger is consummated
pursuant to the short-form merger provisions of the DGCL).
According to the Certificate of Incorporation, the Shares are
the only securities of the Company which entitle the holders
thereof to voting rights. If following the purchase of Shares by
Offeror pursuant to the Offer, Offeror and its affiliates own
more than a majority of the outstanding Shares, Offeror will be
able to effect the Merger without the affirmative vote of any
other stockholder of the Company.
Top-Up Option. Pursuant to, and subject to the
limitations in, the Merger Agreement, the Company granted to
Offeror an irrevocable option (the Top-Up
Option) to purchase, at a purchase price per share
equal to the Offer Price, that number of shares equal to the
lowest number of shares that, when added to the number of shares
owned by Offeror at the time of such exercise, will constitute
one share more than 90% of the shares then outstanding (assuming
the issuance of shares pursuant to the Top-Up Option and the
exercise of all outstanding stock options and warrants to
purchase shares of the Company Common Stock with an exercise
price less than the Offer Price). See Section 12 of the
Offer to Purchase.
Short-Form Merger. The DGCL provides that if a
parent company owns at least 90 percent of each class of
stock of a subsidiary, the parent company can effect a
short-form merger with that subsidiary without the action of the
other stockholders of the subsidiary. Accordingly, if as a
result of the Offer or otherwise Offeror acquires or controls
the voting power of at least 90 percent of the Shares,
Progress would be obligated in the Merger Agreement (subject to
the conditions to its obligations to effect the Merger contained
in the Merger Agreement), to effect the Merger without prior
notice to, or any action by, any other stockholder of the
Company if permitted to do so under the DGCL. Even if Progress
and Offeror do not own 90 percent of the outstanding Shares
following consummation of the Offer, Progress and Offeror could
seek to purchase additional Shares in the open market, from the
Company or otherwise in order to reach the 90 percent
threshold and effect a short-form merger. The consideration paid
per Share for any Shares so acquired could be greater or less
than that paid in the Offer.
17
Delaware Anti-Takeover Law. Section 203 of the DGCL
(Section 203) prevents certain
business combinations with an interested
stockholder (generally, any person who owns or has the
right to acquire 15 percent or more of a corporations
outstanding voting stock) for a period of three years following
the time such person became an interested stockholder, unless,
among other things, prior to the time the interested stockholder
became such, the board of directors of the corporation approved
either the business combination or the transaction in which such
stockholder became an interested stockholder. The Board of
Directors approved for purposes of Section 203 the entering
into by the Offeror, Progress and the Company of the Merger
Agreement and the consummation of the transactions contemplated
thereby and has taken all appropriate action so that
Section 203, with respect to the Company, will not be
applicable to Progress and the Offeror by virtue of such
actions. In addition, the Board of Directors approved for
purposes of Section 203 the entering into of the Voting and
Tender Agreements between Progress and each of the stockholders
party thereto and the transactions contemplated thereby and has
taken all appropriate action so that Section 203 with
respect to the Company will not be applicable to Progress and
the Offeror by virtue of such action.
United States Antitrust. Under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR Act), and the related rules and
regulations that have been issued by the Federal Trade
Commission (the FTC), certain acquisition
transactions may not be consummated until certain information
and documentary material (Premerger Notification and
Report Forms) have been furnished to the FTC and the
Antitrust Division of the Department of Justice (the
Antitrust Division) and certain waiting
period requirements have been satisfied. These requirements of
the HSR Act apply to the acquisition of Shares in the Offer and
the Merger.
Under the HSR Act, the purchase of Shares in the Offer may not
be completed until the expiration of a 15 calendar day waiting
period following the filing by Progress of a Premerger
Notification and Report Form concerning the Offer with the FTC
and the Antitrust Division, unless the waiting period is earlier
terminated by the FTC and the Antitrust Division. Progress will
file a Premerger Notification and Report Form with the FTC and
the Antitrust Division in connection with the purchase of Shares
in the Offer and the Merger, and, the required waiting period
with respect to the Offer and the Merger has not commenced,
which once commenced will be 15 calendar days after such
filing, unless earlier terminated by the FTC and the Antitrust
Division or Progress and Offeror receive a request for
additional information or documentary material (a
Second Request) prior to that time. If within
the 15 calendar day waiting period either the FTC or the
Antitrust Division issues a Second Request to Progress or
Offeror, the waiting period with respect to the Offer and the
Merger would be extended for an additional period of ten
calendar days following the date of substantial compliance by
Progress and Offeror with that request. Only one extension of
the waiting period pursuant to a request for additional
information is authorized by the HSR Act and the rules
promulgated thereunder. After that time, the waiting period
could be extended only by a court order or with Progresss
and Offerors consent. The FTC or the Antitrust Division
may terminate the additional ten calendar day waiting period
before its expiration. In practice, complying with a Second
Request can take a significant period of time. The Company will
also file its Premerger Notification and Report Form with the
FTC and the Antitrust Division in connection with the Offer, and
when filed then the Company could possibly receive a Second
Request from either the FTC or the Antitrust Division. Failure
by the Company to comply with an applicable Second Request will
not extend the waiting period with respect to the purchase of
Shares in the Offer. The Merger will not require an additional
filing under the HSR Act if Offeror owns at least
50 percent of the outstanding Shares at the time of the
Merger or if the Merger occurs within one year after the HSR Act
waiting period applicable to the Offer expires or is terminated.
The FTC and the Antitrust Division frequently scrutinize the
legality under the antitrust laws of transactions such as
Offerors proposed acquisition of the Company. At any time
before or after Offerors purchase of Shares pursuant to
the Offer, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin
the purchase of Shares pursuant to the Offer or the Merger or
seeking the divestiture of Shares acquired by Offeror or the
divestiture of substantial assets of Progress or its
subsidiaries, or of the Company or its
18
subsidiaries. Private parties and state governments may also
bring legal action under the antitrust laws under certain
circumstances. While NEON believes that consummation of the
Offer would not violate any antitrust laws, there can be no
assurance that a challenge to the Offer on antitrust grounds
will not be made or, if a challenge is made, what the result
will be. If any such action is threatened or commenced by the
FTC, the Antitrust Division or any state or any other person,
Offeror may not be obligated to consummate the Offer.
International Antitrust. In addition, the Offer and the
Merger may be subject to review under the antitrust laws of, and
may require filings of notices with competition authorities in,
other jurisdictions. The Company and Progress have not made any
filings with the competition authority in any other
jurisdictions under their respective antitrust laws, but would
expect to do so to the extent required.
Appraisal Rights. No appraisal rights are available in
connection with the Offer. However, if the Merger is
consummated, persons who are then stockholders of the Company
will have certain rights under Section 262 of the DGCL to
dissent and demand appraisal of, and payment in cash of the fair
value of, their Shares. Such rights, if the statutory procedures
were complied with, could lead to a judicial determination of
the fair value (excluding any element of value arising from the
accomplishment or expectation of the Merger) required to be paid
in cash to such dissenting stockholders for their Shares. Any
such judicial determination of the fair value of Shares could be
based upon considerations other than, or in addition to, the
price paid in the Offer and the Merger and the market value of
the Shares, including asset values and the investment value of
the Shares. The value so determined could be more or less than
the purchase price per Share pursuant to the Offer or the
consideration per Share to be paid in the Merger.
The foregoing summary of the rights of dissenting stockholders
under the DGCL does not purport to be a complete statement of
the procedures to be followed by stockholders desiring to
exercise any appraisal rights under the DGCL. The preservation
and exercise of appraisal rights require strict adherence to the
applicable provisions of the DGCL. Appraisal rights cannot be
exercised at this time. The information set forth above is for
informational purposes only with respect to alternatives
available to stockholders if the Merger is consummated.
Stockholders who will be entitled to appraisal rights in
connection with the Merger will receive additional information
concerning appraisal rights and the procedures to be followed in
connection therewith before such stockholders have to take any
action relating thereto. Stockholders who sell Shares in the
Offer will not be entitled to exercise appraisal rights.
Forward Looking Statements. Certain statements in this
Schedule are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended, which are intended to be covered by the safe
harbors created thereby and the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995. Words such as
believes, expects,
anticipates, predicts,
projects, may, intends,
target and similar expressions identify
forward-looking statements, but their absence does not mean that
the statement is not forward-looking. Forward-looking statements
also include any other passages that relate to expected future
events of trends that can only be evaluated by events or trends
that will occur in the future. Statements made in this Schedule
indicating NEONs intentions, beliefs, expectations, or
predictions for the future are forward-looking statements. These
statements are based on the opinions and estimates of management
at the time the statements were made and are subject to a number
of risks, assumptions and uncertainties that could cause
NEONs actual results to differ materially from those
projected in such forward-looking statements, including: the
ability to execute the Companys business plan; the ability
to achieve revenues from products and services that are under
development; competitive and pricing pressures; the risks of
losing clients, failing to acquire new clients or the reduction
of campaign volume from existing clients; and other risks
referenced from time to time in NEONs filings with the
Securities and Exchange Commission, which are available without
charge at www.sec.gov. Further risks and uncertainties
associated with the Offer include: development by competitors of
new or competitive products or services, the entry into the
market by new competitors, the ability to recruit and retain
qualified personnel, the ability to retain customers or attract
customers from other businesses, the
19
uncertainties of whether new software products and product
strategies will be successful, the sufficiency of NEONs
working capital and market and general economic conditions.
|
|
Item 9. |
Materials to be Filed as Exhibits. |
The following exhibits are filed herewith:
|
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|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
(a)(1) |
|
|
Offer to Purchase, dated December 29, 2005 (incorporated by
reference to Exhibit (a)(1)(A) to the Schedule TO filed by
Progress on December 29, 2005). |
|
|
(a)(2) |
|
|
Letter of Transmittal (incorporated by reference to
Exhibit (a)(1)(B) to the Schedule TO filed by Progress on
December 29, 2005). |
|
|
(a)(3) |
|
|
Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 thereunder
(attached hereto as Annex I). |
|
|
(a)(4) |
|
|
Opinion of Jefferies Broadview dated as of
December 19, 2005 (attached hereto as Annex II). |
|
|
(a)(5) |
|
|
Letter to NEON stockholders, dated December 29, 2005. |
|
|
(a)(6) |
|
|
Press Release issued by Progress and the Company on
December 20, 2005 (incorporated by reference to the
pre-commencement Schedule 14D-9 filed with the SEC on
December 20, 2005). |
|
|
(a)(7) |
|
|
Email, dated December 20, 2005, to NEON employees
(incorporated by reference to the pre-commencement Schedule
14D-9 filed with the SEC on December 20, 2005). |
|
|
(a)(8) |
|
|
Frequently Asked Questions (incorporated by reference to the
pre-commencement Schedule 14D-9 filed with the SEC on
December 20, 2005). |
|
|
(a)(9) |
|
|
Press Release issued by Progress and the Company on
December 29, 2005 (incorporated by reference to
Exhibit (a)(5)(E) to the Schedule TO filed by Progress on
December 29, 2005). |
|
|
(e)(1) |
|
|
Agreement and Plan of Merger, dated December 19, 2005 by
and among Progress Software Corporation, Noble Acquisition Corp.
and NEON Systems, Inc. (incorporated by reference to current
report on Form 8-K filed by the Company with the SEC on
December 20, 2005). |
|
|
(e)(2) |
|
|
Form of Voting and Tender Agreements (incorporated by reference
to current report on Form 8-K filed by the Company with the
SEC on December 20, 2005). |
|
|
(e)(3) |
|
|
Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit A to NEONs Proxy Statement
filed with the SEC on August 23, 2003). |
|
|
(e)(4) |
|
|
Bylaws (incorporated by reference to Exhibit 4.1 to
NEONs registration statement on Form S-1
(Registration No. 333-69651) effective March 5, 1999). |
|
|
Annex I |
|
|
Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 thereunder. |
|
|
Annex II |
|
|
Jefferies Broadview Opinion, dated as of December 19,
2005. |
20
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is
true, complete and correct.
|
|
|
|
|
Brian D. Helman, |
|
Chief Financial Officer |
Dated: December 29, 2005
21
ANNEX I
NEON Systems, Inc.
14100 Southwest Freeway, Suite 500
Sugar Land, Texas 77478
Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934
and Rule 14f-1
thereunder
This Information Statement is being mailed on or about
December 29, 2005 as part of the Solicitation/
Recommendation Statement on Schedule 14D-9 (the
Schedule 14D-9) to holders of shares
(the Shares) of common stock, $0.01 par
value (the Common Stock), of NEON Systems,
Inc., a Delaware corporation (NEON or the
Company). Capitalized terms used herein and
not otherwise defined herein shall have the meanings set forth
in the Schedule 14D-9. You are receiving this Information
Statement in connection with the possible election of persons
designated by Progress Software Corporation, a Delaware
corporation (Progress or
Parent), to a majority of the seats on the
Board of Directors of the Company (the Company
Board), pursuant to an Agreement and Plan of Merger,
dated as of December 19, 2005 (the Merger
Agreement), by and among Parent, Noble Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of
Parent (the Purchaser) and the Company.
This Information Statement is required by Section 14(f) of
the Securities Exchange Act of 1934, as amended, and
Regulation 14f-1
thereunder. YOU ARE URGED TO READ THIS INFORMATION STATEMENT
CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION.
Pursuant to the Merger Agreement, on December 29, 2005, the
Purchaser commenced a cash tender offer to acquire all of the
Shares (the Offer). The Offer is scheduled to
expire at 12:00 Midnight on January 27, 2006, unless the Offer
is extended. The Offer is conditioned on, among other things,
there being validly tendered and not withdrawn before the
expiration of the Offer that number of Shares that, together
with the Shares owned by Progress and Offeror, represents at
least a majority of the sum of (i) the outstanding shares
of Common Stock as of the date of the expiration of the Offer,
and (ii) the number of shares of Common Stock issuable
pursuant to outstanding options and warrants of the Company that
are vested and exercisable as of April 19, 2006 (the
Minimum Condition). Following the successful
completion of the Offer, upon approval by a stockholder vote, if
required, the Purchaser will be merged with and into the Company
(the Merger).
The information contained in this Information Statement
concerning Parent, the Purchaser and the Parent Designees (as
defined below) has been furnished to the Company by either
Parent or the Purchaser, and the Company assumes no
responsibility for the accuracy or completeness of such
information.
GENERAL
The Common Stock is the only class of voting securities of the
Company outstanding. Each Share entitles its record holder to
one vote on all matters submitted to a vote of the
Companys stockholders. As of December 27, 2005, there
were 9,569,041 Shares issued and outstanding.
I-1
PARENT DESIGNEES
The Merger Agreement provides that effective upon the acceptance
for payment of the Shares pursuant to the Offer, Progress will
be entitled to elect or designate such number of directors,
rounded up to the next whole number, on the Company Board as is
equal to the product of (i) the total number of directors
on the Company Board and (ii) the percentage that the
number of Shares beneficially owned by Progress (including
Shares owned by Purchaser) bears to the total number of Shares
then outstanding. Promptly following a request by Progress, the
Company shall take all action necessary to cause Progresss
designees to be elected or appointed to the Company Board,
including, using its best efforts to seek and obtain
resignations of a sufficient number of members of the Company
Board in order to effectuate such provisions. The Company shall
use its best efforts to cause the Parent Designees to constitute
the number of members, rounded up to the next whole number, on
each committee of the Company Board (other than as it relates to
action which may be taken or is required to be taken by the
Continuing Directors (as defined below) pursuant to the Merger
Agreement) that represents the same percentage as such
individuals represent on the Company Board. The Companys
obligations relating to the Company Board are subject to
Section 14(f) of the Exchange Act and
Rule 14f-1 under
the Exchange Act. In connection with the approval of the Offer,
the Merger and the Merger Agreement, and contingent and
effective upon the acceptance for payment by Purchaser pursuant
to the Offer of a number of Shares that satisfies the Minimum
Condition (the Appointment Time):
(i) each of Mark J. Cresswell, Loretta Cross, George H.
Ellis and William W. Wilson III have resigned from the
Company Board, (ii) the Company Board elected Roger J.
Heinen, Jr., Michael L. Mark, Richard D. Reidy and Norman
R. Robertson to the Company Board as designees of Progress (the
Parent Designees), and (iii) contingent
and effective upon the effectiveness of the Merger, Richard
Holcomb and David F. Cary resigned as members of the Company
Board.
The foregoing notwithstanding, the Merger Agreement further
provides that in the event the Parent Designees are elected to
the Company Board, at least two directors who were directors on
December 19, 2005, the date the Merger Agreement was
signed, shall continue to serve on the Company Board until the
effectiveness of the Merger (the Continuing
Directors).
The following information, which has been furnished to the
Company by Parent, sets forth the name, age, present principal
occupation or employment and five-year employment history for
each of the Parent Designees. Parent has informed the Company
that each of such individuals has consented to act as a
director, if so designated. If necessary, Parent may choose
additional or other Parent Designees, subject to the
requirements of
Rule 14f-1. Unless
otherwise indicated below, the business address of each such
person is Progress Corporation, 14 Oak Park Drive, Bedford, MA
01730.
Roger J. Heinen, Jr., age 54, has been a
director of Progress since March 1999. Mr. Heinen has since
December 1997 been a Venture Partner of Flagship Ventures, a
venture capital company. Mr. Heinen formerly served as
Senior Vice President, Developer Division, Microsoft
Corporation. Mr. Heinen is also a director of ANSYS Inc.
Michael L. Mark, age 59, has been a director of
Progress since July 1987. Mr. Mark is a private investor.
Richard D. Reidy, age 46, was appointed Vice
President, Development Tools in 1996 and was appointed Vice
President, Product Development in 1997, Vice President, Products
in 1999, Senior Vice President, Products and Corporate
Development in 2000 and President, DataDirect Technologies in
May 2004. Mr. Reidy joined Progress in 1985.
Norman R. Robertson, age 57, joined Progress in 1996
as Vice President, Finance and Chief Financial Officer and was
appointed Vice President, Finance and Administration and Chief
Financial Officer in 1997 and Senior Vice President, Finance and
Administration and Chief Financial Officer in 2000.
Parent has advised the Company that to the best knowledge of
Parent, none of the Parent Designees currently is a director of,
or holds any position with, the Company, and except as disclosed
in the Offer to Purchase, none of the Parent Designees
beneficially owns any securities (or rights to acquire any
I-2
securities) of the Company or has been involved in any
transactions with the Company or any of its directors, executive
officers or affiliates that are required to be disclosed
pursuant to the rules of the Securities and Exchange Commission
(the SEC), except as may be disclosed in the
Offer to Purchase. None of the Parent Designees has any family
relationship with any director or executive officer of the
Company.
Parent has advised the Company that each of the persons listed
in the table above is a U.S. citizen, has consented to act
as a director, and that none of such persons has during the past
five years been convicted in a criminal proceeding (excluding
traffic violations and similar misdemeanors) or was a party to a
civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was,
or is, subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of
such laws or is involved in any other legal proceeding which is
required to be disclosed under Item 401(f) of
Regulation S-K
promulgated by the SEC.
It is expected that the Parent Designees may assume office at
the Appointment Time, which cannot be earlier than January 27,
2006, and that, upon assuming office, the Parent Designees will
thereafter constitute at least a majority of the Company Board.
Parent has informed the Company that it will choose the Parent
Designees from the individuals shown in the table to serve on
the Company Board.
I-3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The percentage of shares owned provided in the table is based on
9,569,041 shares outstanding as of December 27, 2005.
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Except as indicated by footnote, the
persons named in the table have sole voting and investment power
with respect to all shares of common stock shown as beneficially
owned by them. The determination of whether these persons have
sole voting and investment power is based on information
provided by them. In computing an individuals beneficial
ownership, the number of shares of common stock subject to
options held by that individual that are exercisable within
60 days of December 27, 2005 are also deemed
outstanding. These shares, however, are not deemed outstanding
for the purpose of computing the beneficial ownership of any
other person.
The following table sets forth certain information regarding
beneficial ownership of our common stock as of December 27,
2005 by:
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each of our directors; |
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Mark J. Cresswell, our principal executive officer, and each of
the four other most highly compensated individuals who served as
our executive officers at fiscal year end; |
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all individuals who serve as directors or executive officers as
a group; and |
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each person who is known by us to own beneficially more than 5%
of our common stock. |
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Shares Beneficially Owned | |
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| |
Directors, Officers and 5% Stockholders |
|
Number | |
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Percent(1) | |
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| |
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| |
Mark J. Cresswell,
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295,624 |
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3.0 |
% |
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President, Chief Executive Officer and a director(2) |
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Brian D. Helman,
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140,374 |
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1.4 |
% |
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Chief Financial Officer(3) |
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Chris Garner,
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70,215 |
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* |
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Senior Vice President of Research and Development(4) |
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Jerry Paladino,
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56,250 |
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* |
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Senior Vice President, Worldwide Sales(5) |
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Shelby R. Fike,
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36,553 |
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* |
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Senior Vice President and General Counsel(6) |
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Richard Holcomb,
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93,174 |
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* |
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director(7) |
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George H. Ellis,
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66,874 |
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* |
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director(8) |
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David F. Cary,
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34,374 |
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* |
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director(9) |
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Loretta Cross,
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34,374 |
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* |
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director(10) |
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William W. Wilson III,
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5,728 |
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* |
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director(11) |
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John J. Moores,
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4,202,568 |
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44.0 |
% |
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stockholder(12) |
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Lloyd I. Miller, III,
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496,257 |
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5.2 |
% |
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stockholder(13) |
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All executive officers and directors as a group (10 Persons)(14)
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834,040 |
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8.0 |
% |
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(1) |
The percentage of ownership calculations (other than as declared
in footnote 13) is based on 9,569,041 shares
issued and outstanding on December 27, 2005. |
I-4
|
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(2) |
Includes 295,624 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable within 60 days of December 27, 2005. |
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(3) |
Includes 140,374 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. |
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(4) |
Includes 70,215 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable within 60 days of December 27, 2005. |
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(5) |
Includes 56,250 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. |
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(6) |
Includes 36,553 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. These shares do not include
150 shares held indirectly through a family member over
which Mr. Fike does not share voting control. |
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|
(7) |
Includes 79,374 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. |
|
|
(8) |
Includes 66,874 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. |
|
|
(9) |
Includes 34,374 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. |
|
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(10) |
Includes 34,374 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. |
|
(11) |
Includes 5,728 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. Does not include the warrant to acquire
1,125,000 shares of NEON common stock issued to CSFT
Holdings, Inc., in consideration of NEONs acquisition of
ClientSoft, Inc. Mr. Wilson is the President and CEO and is
a stockholder and director of CSFT Holdings, Inc. |
|
(12) |
Includes 744,265 shares of common stock owned by various
family trusts for which Mr. Moores serves as trustee, as to
which Mr. Moores disclaims beneficial ownership. Includes
10,000 shares of common stock owned by JMI Services, Inc.
Mr. Moores address is c/o JMI, Inc., 12680 High Bluff
Dr., Suite 200, San Diego, CA 92130. |
|
(13) |
Includes 277,516 shares of common stock for which
Mr. Miller shares voting and dispositive power as an
investment advisor to the trustee of a certain family trust.
Mr. Millers address is 4550 Gordon Drive, Naples,
Florida 34102. |
|
(14) |
Includes 833,540 shares of common stock issuable upon
exercise of outstanding stock options that are presently
exercisable or will become exercisable within 60 days of
December 27, 2005. Does not include shares held by 5% or
greater stockholders. |
COMPANY BOARD
The names of the current directors, their ages as of December
27, 2005 and certain other information about them are set forth
below. As indicated above, Mark J. Cresswell, Loretta Cross,
George H. Ellis and William W. Wilson III have resigned
contingent and effective upon the Appointment Time. Each
director is a U.S. citizen and there are no family
relationships among any of our directors, officers or key
employees.
Mark Cresswell, age 40, NEONs President since
March 2003 and its Chief Executive Officer since June 2004,
joined NEON Systems in October 2001 as Vice President and
General Manager of the Shadow group. Effective, June 15,
2004, the Company Board appointed Mr. Cresswell to the
Company Board. Mr. Cresswell joined NEON from Framesoft, an
investment banking software company based in Switzerland. Prior
to Framesoft, Mr. Cresswell joined NEON Systems in 1995
serving as Managing Director of the United Kingdom (UK) and
Benelux operations. As one of NEON Systems first
I-5
international employees, Mr. Cresswell was in charge of
managing the UK operations for NEON for 5 years. Prior to
joining NEON, Mr. Cresswell has held various senior
positions with several high-tech organizations.
Mr. Cresswell is qualified in Pure and Applied Mathematics
from Westcliff College in England.
George H. Ellis, age 56, has served as a director of
NEON since January 2000 and as the Presiding Director since
September 2003. Mr. Ellis has been Chairman and Chief
Executive Officer of SoftBrands, Inc., a global supplier of
enterprise-wide software, since December 2001. From October 2001
to confirmation of its plan of reorganization under
Chapter 11 of the Bankruptcy Code in August 2002,
Mr. Ellis was Chairman and Chief Executive Officer of
AremisSoft Corporation, a software company and a predecessor to
SoftBrands. Mr. Ellis, who served on the Board of Directors
of AremisSoft from April 1999 until February 2001, accepted the
position at AremisSoft to assist in the reorganization.
Mr. Ellis also served as Executive Vice President and Chief
Operating Officer of the Communities Foundation of Texas from
February 2000 until October 2001. Mr. Ellis served as Chief
Financial Officer of Sterling Software, Inc. from 1985 through
June 1996, and held a similar position with Sterling Commerce,
Inc. from February 1996 through June 1996. From 1996 through
1999, Mr. Ellis was a full time law student and a business
consultant providing consulting services to various
technology-related companies. During this time he was also a
Founder and Managing Director of Chaparral Ventures, Ltd., a
Dallas-based venture capital firm focused on electronic commerce
investment. Mr. Ellis currently is a member of the Board of
Advisors to the law school at Southern Methodist University and
the Advisory Board of the Entrepreneurs Foundation of North
Texas. Mr. Ellis also serves on the board of directors and
as the audit committee chairman of PeopleSupport, Inc., a Nasdaq
listed software company. Mr. Ellis is a Certified Public
Accountant and an attorney in the State of Texas. Mr. Ellis
holds a B.S. in Accounting from Texas Tech University and a J.D.
from Southern Methodist University.
Richard Holcomb, age 43, has served as a director of
NEON since May 1993 and as Chairman of the Special Committee
(reconstituted as the Nominating & Governance
Committee) since its inception. In March 2003, Mr. Holcomb
co-founded StrikeIron, a web services technology company, and
since that time has served as its chief executive officer and
chairman. Prior to founding StrikeIron, Mr. Holcomb served
as the interim CEO of GadgetSpace and oversaw its acquisition by
Infonic in 2001. In 1995 Mr. Holcomb co-founded HAHT
Commerce, an e-commerce
application provider, and served as its Chief Executive Officer
and Chairman from 1995 until 2001. Prior to 1995,
Mr. Holcomb co-founded Q+E Software, a privately held
supplier of client/server database access technology, in 1986
and from 1986 through 1994 served as its Chief Executive
Officer, President and Chairman. Q+E Software was acquired by
Intersolv in 1994. Mr. Holcomb serves on several public
advisory boards, including the North Carolina State University
Graduate School Board of Advisors, the North Carolina
Electronics and Information Technology Association (NCEITA), the
Council for Entrepreneurial Development (CED) and is a
former appointed member of the North Carolina Information
Resources Management Commission. Mr. Holcomb is also a
director of three privately-held software companies.
Mr. Holcomb holds a B.S. degree in Computer Science from
the University of South Carolina and an M.S. in Computer Science
from North Carolina State University.
David F. Cary, age 50, was appointed to the Company
Board as a director and as a member of the Audit Committee on
December 5, 2002. On July 25, 2003, Mr. Cary was
appointed the Chairman of the Audit Committee of NEON. Until
mid-2005, Mr. Cary served as the Chief Executive Officer
and a member of the board of directors of Sun Hill Software,
Inc., an enterprise software company. Mr. Cary joined a
predecessor of the Company in March 2003. Prior to joining Sun
Hill, Mr. Cary served in various consulting and advisory
positions in the software business from May 1999. Mr. Cary
was the Chief Financial Officer of i2 Technologies, Inc.
from June 1992 to May 1999 and has served on the board of
directors of Factory Logic, Inc. since July 2000. Mr. Cary
is a Certified Public Accountant and holds a B.S. in Accounting
from San Francisco State University and an M.B.A. from
Southern Methodist University.
Loretta Cross, age 49, was appointed to the Company
Board as a director and a member of the Audit Committee on
December 5, 2002. On July 25, 2003, Ms. Cross was
appointed to the NEON
I-6
Compensation Committee and named its Chairman. Since May 2004,
Ms. Cross has served as Managing Director for
Alvarez & Marsel, a consulting firm. Prior to May 2004,
Ms. Cross was the Senior Managing Director for FTI
Consulting, Inc., a public consulting firm, since its
acquisition of the U.S. Business Recovery Services Division
of PricewaterhouseCoopers in September 2002. From 1991 to
August 30, 2002, Ms. Cross served as a Partner with
PricewaterhouseCoopers, LLP. Before joining
PricewaterhouseCoopers LLP, Ms. Cross was with
Ernst & Young LLP and Touche Ross & Co. LLP.
Since January 1, 2002, Ms. Cross has served as a
director of the Texas Gulf Coast Lupis Foundation and Turnaround
Management Association, both non-profit organizations.
Ms. Cross is a Certified Public Accountant and holds a
B.B.A. in accounting from University of Texas at Austin.
William W. Wilson III, age 45, joined the
Company Board as a director on December 13, 2004 in
connection with NEONs acquisition of ClientSoft, Inc.
Mr. Wilson is the President and CEO and a director of CSFT
Holdings, Inc. Prior to joining the Companys Board as a
director, Mr. Wilson served as President and Chief
Executive Officer of ClientSoft since April 2000. He came to
ClientSoft from Marsh, a risk, insurance and professional
services firms, where he served as Managing Director and Chief
Information Officer of the firms global operations. At
Marsh, he was responsible for worldwide technology strategy,
planning and execution. Mr. Wilson served as Principal with
Johnson & Higgins before that company was acquired by
Marsh & McLennan in 1997. He started at
Johnson & Higgins in 1982 as an Associate, and was
promoted to Assistant Vice President in 1987. He led the Risk
Management Services Department until 1990, when he transferred
to J&Hs Information Systems department.
Mr. Wilson was promoted to Vice President in 1992.
Mr. Wilson has a B.S. in Finance and Accounting from Miami
University in Oxford, Ohio and an M.B.A. in Finance from Xavier
University, Cincinnati, Ohio. He also received the Associates in
Risk Management degree.
STATEMENT OF CORPORATE GOVERNANCE
The Company Board held a total of four regular meetings and six
special meetings in fiscal 2005. The Company Board held a total
of three regular meetings and 16 special meetings in fiscal
2006. All directors attended at least seventy-five percent (75%)
of all of the meetings held by the Company Board and meetings
held by committees of the Company Board on which that director
served.
NEON also believes that communication between its stockholders
and the members of the Company Board is enhanced by the
opportunity for personal interaction at the NEON Annual Meeting
of Stockholders. Accordingly, NEON encourages the members of the
Company Board to attend the Annual Meeting of Stockholders
whenever possible. At the Annual Meeting of Stockholders held on
September 20, 2004, four of the five members of the Company
Board were in attendance. At the Annual Meeting of the
Stockholders held on September 19, 2005, all of the members
of the Company Board were in attendance.
The Company Board considers all major decisions. The Company
Board has established three standing committees, an Audit
Committee, a Compensation Committee and a Nominating and
Governance Committee, so that certain areas can be addressed in
more depth than may be possible at a full Company Board meeting.
Audit Committee. The Audit Committee selects and hires
NEONs independent auditors, reviews the results and scope
of the audit and other accounting related services and reviews
and evaluates NEONs internal control functions. The Audit
Committee operates under an Audit Committee Charter adopted on
December 5, 2002, a copy of which was filed as an exhibit
to NEONs
Form 10-K/A filed
with the SEC on July 29, 2005. Members of the Audit
Committee in the fiscal year ended March 31, 2005 included
George H. Ellis, David F. Cary, and Loretta Cross, all of whom
were considered independent directors by the Company
Board. On July 25, 2003, David F. Cary was appointed to be
the Chairman of the Audit Committee for the fiscal year ending
March 31, 2004 and he has since been re-appointed the Audit
Committee Chairman for the fiscal years ending March 31,
2005 and March 31, 2006. Mr. Cary has also been named
NEONs financial expert by his fellow Audit Committee
members and the Company Board.
I-7
The Audit Committee met and/or took action six times during
fiscal 2005. A copy of the Audit Committee Charter may be found
on the Company page of our website,
www.neonsys.com.
Compensation Committee. The Compensation Committee makes
recommendations to the Company Board concerning salaries and
incentive compensation for our executive officers and directors
and administers our 1993 Stock Option Plan, the Stock Option
Plan for Non-Employee Directors, the 1999 Long-Term Incentive
Plan, the 2002 Stock Plan and the 2002 Director Stock
Option Plan. Members of the Compensation Committee during fiscal
2005 were Richard Holcomb and Loretta Cross, each of whom were
considered independent directors by the Company
Board. Ms. Cross has served as the Chairman of the
Compensation Committee since July 2003. The Compensation
Committee met and/or took action four times during fiscal 2004.
The Compensation Committee approved a Compensation Committee
Charter on August 11, 2005, a copy of which may be found on
the Company page of our website,
www.neonsys.com.
Nominating and Governance Committee. On May 4, 2005,
the Board of Directors discontinued the Special Committee
originally formed to review conflicts of interest and related
party transactions and reconstituted such committee as a
Nominating and Governance Committee. The members of the
Nominating and Governance Committee include Richard Holcomb,
George Ellis and Dave F. Cary, all of whom were considered
independent directors by the Company Board.
Mr. Holcomb, the former chairman of the Special Committee,
was appointed to be the Chairman of the Nominating and
Governance Committee. A Nominating and Governance Committee
Charter was adopted on August 11, 2005, a copy of which may
be found on the Company page of our website,
www.neonsys.com. The Special Committee met two times
during fiscal 2005. The Nominating and Governance Committee did
not meet during fiscal 2005.
The Nominating and Governance Committee will consider nominees
recommended by Company stockholders provided that such
recommendations are submitted to the Company which must be so
delivered or received after public disclosure of the date of the
annual meeting is given or made to stockholders but not later
than the close of business on the
10th day
following the earlier of (i) the day on which such notice
of the date of the annual meeting was mailed or (ii) the
day on which such public disclosure was made. Such notice must
set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director
all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such persons written consent to
being named in the proxy statement as a nominee and to serving
as a director if elected); and (ii) as to the stockholder
giving the notice and the beneficial owner, if any, on whose
behalf the nomination is made, (a) the name and address of
the stockholder as appearing on the corporations books, of
such stockholder and any other stockholders known by such
stockholder to be supporting such nominee(s), (b) the class
and number of shares of the Company owned by such stockholder or
beneficial owner, if any, and each stockholder supporting such
nominee(s), and (c) a representation that the stockholder
is a holder of record of stock of the Company entitled to vote
at such meeting and intends to appear in person or proxy at the
meeting to nominate the person(s) specified in the notice.
AUDIT COMMITTEE REPORT
Composition. The Audit Committee of the Company Board in
the fiscal year ended March 31, 2005 was composed of three
directors, George Ellis, Loretta Cross and Dave Cary, all of
whom were independent directors as defined by Nasdaq rules.
Mr. Cary was named the Audit Committees financial
expert as required by Nasdaq rules, and the Audit Committee
operated under a written charter adopted by the Company Board, a
copy of which was attached as Exhibit A to the proxy
statement for our 2002 annual meeting held in February 2003 and
was re-filed as an exhibit on our
Form 10-K/ A filed
with the SEC on July 29, 2005. The members of the Audit
Committee are George H. Ellis, David F. Cary, and Loretta Cross,
with Mr. Cary serving as its Chairman.
I-8
Responsibilities. The responsibilities of the Audit
Committee include selecting and hiring an accounting firm to be
engaged as our independent registered public accounting firm.
The independent registered public accounting firm is responsible
for performing an independent audit of NEONs consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States) and
for issuing a report thereon. The Audit Committees
responsibilities include the oversight of NEONs financial
reporting process, system of internal controls and corporate
compliance process.
Review with Management and Independent Accountants. In
this context, the Audit Committee has met and held discussions
with management and the independent registered public accounting
firm, including discussions regarding the audited consolidated
financial statements. Management has represented to the Audit
Committee that NEONs consolidated financial statements
were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed
the consolidated financial statements with management and the
independent accountants. The Audit Committee has also conducted
quarterly executive sessions with the independent registered
public accounting firm to discuss such financials statements and
the performance of NEONs management outside the presence
of such management. The Audit Committee discussed with the
independent registered public accounting firm matters required
to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees.
NEONs independent registered public accounting firm also
provided to the Audit Committee the written disclosures and the
letter required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit
Committees, and the Audit Committee discussed with the
independent accountants, KPMG LLP, the firms independence.
Summary. Based upon the Audit Committees
discussions with management and the independent registered
public accounting firm and the Audit Committees review of
the representations of management, and the report of the
independent registered public accounting firm to the Audit
Committee, the Audit Committee recommended that the Company
Board include the audited consolidated financial statements in
NEONs Annual Report on
Form 10-K for the
year ended March 31, 2005, as filed with the SEC on
June 29, 2005.
|
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Submitted by the Audit Committee, |
|
|
David F. Cary, Chairman |
|
George H. Ellis |
|
Loretta Cross |
COMPENSATION OF DIRECTORS
Prior to September 22, 2003, each of our non-employee
directors was monetarily compensated for serving as a member of
the Company Board. Each of the non-employee directors received a
fee of $1,000 for each of the Company Board meetings and
committee meetings that they attended. On August 11, 2003,
directors not seeking re-election at the
September 22nd annual meeting approved a change in
director compensation, to be effective as of the adjournment of
the annual meeting to be held September 22, 2003. Pursuant
to such change, beginning September 23, 2003, all
non-employee directors receive an annual fee of $20,000, paid on
a quarterly basis. The fee for attending Company Board meetings
remains $1,000 per meeting. The fee for attending committee
meetings was reduced from $1,000 per
I-9
meeting to $500 per meeting. The presiding director of the
Board also receives an additional $10,000 fee, paid quarterly,
and the Chairman of each Committee receives an additional $5,000
fee, paid quarterly. In fiscal year 2005, the Company Board met
10 times, the Audit Committee met six times, the Compensation
Committee met four times, and the Special Committee met two
times. In addition, in the fiscal year ended March 31, 2005
and thereafter, directors may now participate in NEONs
health benefit plans, which are available to all employees,
officers and directors of NEON.
In 1999 we adopted the Stock Option Plan for Non-Employee
Directors for compensation of our non-employee directors and
reserved 100,000 shares of our common stock for issuance
thereunder. Under such plan, non-employee directors on the
Company Board would be granted an option to
purchase 7,500 shares of our common stock in
connection with their respective appointments to our Board. The
options granted under the Stock Option Plan for Non-Employee
Directors vest equally in
331/3%
increments on the date of each successive annual meeting during
the three-year period following the date of grant.
At the annual meeting commenced on March 26, 2002 and
reconvened on April 5, 2002, the 2002 Director Option
Plan was approved by our stockholders to replace the Stock
Option Plan for Non-Employee Directors. Each current
non-employee director who was serving on the Company Board
immediately following the Annual Meeting of Stockholders
commenced on March 26, 2002 and who served on the Company
Board in any of the last three fiscal years ended March 31,
2001, received a one-time initial Election option
grant to purchase 12,500 shares of common stock for
each of such three previous fiscal years, up to a maximum grant
of 37,500 shares of common stock of NEON. Non-employee
directors subsequently joining the Company Board, whether by
appointment or election, receive a one-time initial
Election option grant to
purchase 12,500 shares of common stock under the
2002 Director Option Plan. The Election options granted
under the 2002 Director Option Plan vests equally in
quarterly increments during the three-year period following the
date of grant.
Additionally, all non-employee directors serving on the Company
Board immediately following any subsequent annual meeting of
stockholders after the adoption of the 2002 Director Option
Plan who have served as a director of NEON for at least the
preceding six months will receive an Annual grant of
an option to purchase 12,500 shares of common stock
under the 2002 Director Option Plan. The Annual options
granted will vest equally in quarterly increments during a
two-year period following the date of grant.
All stock options granted pursuant to the Stock Option Plan for
Non-Employee Directors are non-qualified stock options and will
remain exercisable for a period of ten years from the date of
grant or, if sooner, six months after the option holder ceases
to be a director of NEON. In the event of a change in control of
NEON or certain other significant events, all options
outstanding under the Stock Option Plan for Non-Employee
Directors would terminate, provided that immediately before the
effective date of such transaction each holder of an outstanding
option under the Stock Option Plan for Non-Employee Directors
would be entitled to purchase the total number of shares of
common stock that such option holder would have been entitled to
purchase during the entire remaining term of the option.
All stock options granted pursuant to the 2002 Director
Option Plan are and will be nonqualified stock options and will
remain exercisable for a period of ten years from the date of
grant. If a non-employee directors status as a director
terminates for any reason (excluding death and disability), then
all options held by him or her under the 2002 Director
Option Plan will expire three months following the termination.
If the non-employee directors status as a director
terminates due to death or disability, then all options held by
him or her under the 2002 Director Option Plan expire
twelve months following the termination. In the event of any
proposed dissolution or liquidation of NEON, any unexercised
option would terminate immediately prior to the consummation of
such proposed action. In the event of our merger or the sale of
substantially all of our assets, each option may be assumed or
an equivalent option substituted for by the successor
corporation. If following such assumption or substitution a
non-employee directors status as a director terminates
other than by his or her voluntary resignation, the option will
become fully vested and exercisable. If the successor
corporation does not agree to assume or substitute for the
option, each option will become fully vested and exercisable for
a period of 30 days from the date the
I-10
Company Board notifies the non-employee director of that the
option is fully vested and exercisable, after which the option
will terminate.
EXECUTIVE OFFICERS
Our executive officers, their ages as of December 27, 2005,
and certain additional information about them are as follows:
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Name |
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Age | |
|
Position |
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| |
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|
Mark J. Cresswell
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|
40 |
|
|
President and Chief Executive Officer |
Brian D. Helman
|
|
|
35 |
|
|
Chief Financial Officer and Secretary |
Chris Garner
|
|
|
50 |
|
|
Senior Vice President of Research & Development |
Shelby R. Fike
|
|
|
46 |
|
|
Senior Vice President and General Counsel |
Jerry Paladino
|
|
|
51 |
|
|
Senior Vice President of Worldwide Sales |
Robert Evelyn
|
|
|
46 |
|
|
Senior Vice President of Strategy and Solutions |
Mark J. Cresswell, see Director Biography.
Brian D. Helman, age 35, joined NEON Systems in May
2002 as Vice President of Finance and became NEONs Chief
Financial Officer in June of 2002. Prior to joining NEON
Systems, Mr. Helman served as vice president of finance and
business planning for NetSpeak Corporation, a publicly held
global provider of telecommunications software. Prior to joining
NetSpeak Corporation in 1996, Mr. Helman worked in the
audit practice of Deloitte & Touche, LLP.
Mr. Helman is a certified public accountant and holds a
Bachelor of Science degree in finance from the University of
Florida.
Chris Garner, age 50, was promoted to Senior Vice
President of Research and Development in December 2004.
Mr. Garner joined NEON Systems in July 2002 as a Director
of Development, and served as NEONs Vice President of
Research and Development since February 2003. Prior to NEON
Mr. Garner served as the Vice President of Research and
Development at Altra Energy Technologies/ Caminus Corporation,
an energy trading and management software company based in
Houston and New York. Prior to Altra, Mr. Garner was with
BMC Software as the Director of Development in the Patrol
division. Mr. Garner has held various senior positions with
several high-tech organizations in both R&D and Product
Management roles.
Jerry Paladino, age 51, was promoted to Senior Vice
President of Worldwide Sales in January 2005. Mr. Paladino
joined NEON Systems as Vice President of Sales in 2003 and was
promoted to Senior Vice President of Sales in December 2004.
Prior to joining NEON, he was managing partner and a founding
member of Product Operations, a management consulting
organization focused on sales methodology and team development.
From 1993 until 2001, Mr. Paladino held management
positions, including Vice President of Sales for the DataDirect
Division and Vice President of Inside Sales and Channels, at
MERANT (formerly INTERSOLV), a supplier of enterprise
development software and connectivity middleware. Prior to
joining MERANT, he held management positions in Customer
Support, Systems Engineering, and Marketing at LEGENT
Corporation. Mr. Paladino holds a Master of Science in
Engineering from the University of Arkansas.
Shelby R. Fike, age 46, was promoted to Senior Vice
President and General Counsel in December 2004. Mr. Fike
has served as NEONs Vice President and General Counsel
since September 30, 2002 and has served NEON as a corporate
attorney since May 2001. Prior to joining NEON, Mr. Fike
served as corporate counsel and director of legal services for
NetIQ Corporation from May 2000 to May 2001. Prior to joining
NEON Mr. Fike also held corporate counsel positions with
Mission Critical Software, Inc., from August 1998 to its
acquisition by NetIQ Corporation in May 2000 and with
Learmonth & Burchett Management Systems Plc and BSG
Consulting, Inc. Mr. Fike started his legal career as an
associate attorney with Porter & Clements, P.C.,
and then with Keck Mahin & Cate, LLC in their
Corporate/ M&A
I-11
sections. Mr. Fike holds a Bachelor of Arts degree in
Education from Texas Lutheran College and a J.D. degree
from Baylor University School of Law.
Robert Evelyn, age 46, has served as Senior Vice
President of Strategy and Solutions for NEON Systems, Inc. since
December 13, 2004. Previously, Mr. Evelyn was SVP and
Chief Operations Officer of ClientSoft. Prior to ClientSoft,
Mr. Evelyn was President of TOC Global Communications, a
Miami-based wireless technology service provider. While with
TOC, he was a key architect and instrumental in combining
open-based wireless technologies to deliver
easy-to-use competitive
solutions. Mr. Evelyn was also employed with IBM for
13 years where he was involved in various engineering and
field implementation projects. During his last five years at
IBM, Mr. Evelyn was involved in the development of mobile
and wireless technology and solutions. Mr. Evelyn has a
Bachelor of Science in Management Information Systems from Barry
University in Miami, Florida.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth for the fiscal years indicated
the compensation earned by Mark Cresswell, our President and
Chief Executive Officer, and each of our four most highly
compensated executive officers who were serving as officers at
the end of the fiscal year ended March 31, 2005
(collectively, the Named Executive Officers):
SUMMARY COMPENSATION TABLE(1)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation | |
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|
|
|
|
|
|
|
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| |
|
|
|
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|
Awards | |
|
Payouts | |
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|
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| |
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| |
|
|
|
|
|
|
Annual Compensation | |
|
|
|
Securities | |
|
|
|
|
|
|
|
|
| |
|
|
|
Underlying | |
|
|
|
|
Name and Principal |
|
|
|
|
|
Other Annual | |
|
Restricted Stock | |
|
Options/ | |
|
LTIP | |
|
All Other | |
Position(a) |
|
Year | |
|
Salary ($) | |
|
Bonus | |
|
Compensation ($) | |
|
Award(s) ($) | |
|
SARs (#) | |
|
Payouts ($) | |
|
Compensation ($) | |
|
|
| |
|
| |
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| |
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| |
|
| |
|
| |
|
| |
|
| |
Mark J. Cresswell(2)
|
|
|
2005 |
|
|
|
300,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
President and Chief Executive |
|
|
2004 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,000 |
|
|
|
|
|
|
|
|
|
|
Officer |
|
|
2003 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
Brian D. Helman(3)
|
|
|
2005 |
|
|
|
206,250 |
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer |
|
|
2004 |
|
|
|
180,000 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
94,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
150,000 |
|
|
|
|
|
|
|
49,424 |
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
Chris Garner
|
|
|
2005 |
|
|
|
168,333 |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
15,949 |
|
|
|
|
|
|
|
|
|
|
Sr. Vice President of Research |
|
|
2004 |
|
|
|
160,000 |
|
|
|
10,492 |
|
|
|
|
|
|
|
|
|
|
|
13,300 |
|
|
|
|
|
|
|
|
|
|
and Development |
|
|
2003 |
|
|
|
96,141 |
|
|
|
9,260 |
|
|
|
|
|
|
|
|
|
|
|
66,000 |
|
|
|
|
|
|
|
|
|
Jerry Paladino(4)
|
|
|
2005 |
|
|
|
160,000 |
|
|
|
284,827 |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
Sr. Vice President of |
|
|
2004 |
|
|
|
38,440 |
|
|
|
16,011 |
|
|
|
8,562 |
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
Worldwide Sales |
|
|
2003 |
|
|
|
|
|
|
|
6,250 |
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
Shelby R. Fike
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|
2005 |
|
|
|
160,000 |
|
|
|
40,000 |
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
Sr. Vice President and |
|
|
2004 |
|
|
|
160,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
6,361 |
|
|
|
|
|
|
|
|
|
|
General Counsel |
|
|
2003 |
|
|
|
147,187 |
|
|
|
6,250 |
|
|
|
|
|
|
|
|
|
|
|
17,300 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
The compensation described in this table does not include
medical, group life insurance or other benefits received by the
Named Executive Officers that are available generally to all of
our salaried employees, and may not include certain perquisites
and other personal benefits received by the Named Executive
Officers that do not exceed the lesser of $50,000 or ten percent
(10%) of any such officers salary and bonus disclosed in
the table. |
|
(2) |
Mr. Cresswell rejoined NEON in October 2001 at an annual
salary of $300,000. In October 2003, the Compensation Committee
of the Company Board conducted a compensation review and based
on the recommendations of the independent firm conducting such
compensation review set Mr. Cresswells compensation
for the fiscal year ended March 31, 2004 at an annual
salary of $300,000 with an annual bonus of $150,000 per
year conditioned on Mr. Cresswells achievement of the
individual and company goals set by the Board. |
I-12
|
|
(3) |
Mr. Helman joined NEON in May 2002. In connection with
Mr. Helmans relocation to Houston, NEON reimbursed
$49,424 in relocation expenses incurred by Mr. Helman. |
|
(4) |
Mr. Paladino was paid commission of all license fees and
maintenance fees received by NEON for transactions in North
America as NEONs senior vice president of North American
Sales. |
|
|
|
Option Grants In Last Fiscal Year |
The following table sets forth each grant of stock options made
during the fiscal year ended March 31, 2005 to the Named
Executive Officers:
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Potential Realizable | |
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|
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Value at Assumed | |
|
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|
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|
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|
Annual Rates of Stock | |
|
|
Number of | |
|
Percent of Total | |
|
|
|
|
|
Price Appreciation for | |
|
|
Securities | |
|
Options Granted to | |
|
Exercise or | |
|
|
|
Option Term(4) | |
|
|
Underlying | |
|
Employees in | |
|
Base Price | |
|
Expiration | |
|
| |
Name |
|
Options Granted | |
|
Fiscal Year(1) | |
|
($/Sh)(2) | |
|
Date(3) | |
|
5% ($) | |
|
10% ($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mark J. Cresswell(3)
|
|
|
100,000 |
|
|
|
10.8 |
% |
|
$ |
3.56 |
|
|
|
05/10/14 |
|
|
|
522,273 |
|
|
|
839,429 |
|
Jerry Paladino(3)
|
|
|
40,000 |
|
|
|
4.3 |
% |
|
$ |
3.56 |
|
|
|
05/10/04 |
|
|
|
220,909 |
|
|
|
335,772 |
|
Chris Garner(3)
|
|
|
15,949 |
|
|
|
1.7 |
% |
|
$ |
3.21 |
|
|
|
11/03/14 |
|
|
|
88,802 |
|
|
|
133,881 |
|
|
|
(1) |
Based on a total of 922,249 options granted during the fiscal
year ended March 31, 2005. During the fiscal year ended
March 31, 2005, 524,113 outstanding options were forfeited. |
|
(2) |
The option exercise price for the common stock is based on the
fair market value on the date of grant as determined pursuant to
the terms of the 1999 Stock Plan and the 2002 Stock Plan. |
|
(3) |
Options granted have a ten-year term and vest over a four-year
period with one-fourth of the options vesting one year from the
date of grant and one forty-eighth of the options vesting each
month thereafter. Options may terminate before their expiration
date upon death, disability or termination of employment of the
optionee. |
|
(4) |
In accordance with the rules of the SEC, shown are the gains or
option spreads that would exist for the respective
options granted. These gains are based on the assumed rates of
annual compound stock price appreciation of 5% and 10% from the
date the option was granted over the full option term. These
assumed compound rates of stock price appreciation are mandated
by the rules of the SEC and do not represent our estimate or
projection of future prices of our common stock. |
|
|
|
Aggregated Option Exercises In Last Fiscal Year And Fiscal
Year End Option Values |
The following table sets forth, for each of the Named Executive
Officers, information concerning the number of shares received
during fiscal 2005 upon exercise of options and the aggregate
dollar amount received from such exercise, as well as the number
and value of securities underlying unexercised options held on
March 31, 2005.
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|
Number of Securities | |
|
|
|
|
|
|
|
|
Underlying Unexercised | |
|
Value of Unexercised | |
|
|
|
|
|
|
Options at | |
|
in-the-Money Options at | |
|
|
Shares | |
|
|
|
Fiscal Year-End (#) | |
|
Fiscal Year-End ($)(1) | |
|
|
Acquired on | |
|
Value | |
|
| |
|
| |
Name |
|
Exercise (#) | |
|
Realized ($) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mark J. Cresswell(2)
|
|
|
|
|
|
|
|
|
|
|
112,499 |
|
|
|
257,501 |
|
|
|
|
|
|
|
|
|
Brian D. Helman(2)
|
|
|
|
|
|
|
|
|
|
|
43,750 |
|
|
|
150,250 |
|
|
|
|
|
|
|
|
|
Chris Garner(2)
|
|
|
|
|
|
|
|
|
|
|
41,250 |
|
|
|
53,999 |
|
|
|
|
|
|
|
|
|
Jerry Paladino(2)
|
|
|
|
|
|
|
|
|
|
|
37,499 |
|
|
|
62,501 |
|
|
|
|
|
|
|
|
|
Shelby R. Fike(2)
|
|
|
|
|
|
|
|
|
|
|
27,400 |
|
|
|
16,261 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on the difference between the option exercise price and
the closing sale price of $3.54 of our common stock as reported
on the Nasdaq National Market on March 31, 2005, the last
trading day of |
I-13
|
|
|
our 2004 fiscal year, multiplied by the number of shares
underlying the options, no current options issued to executive
officers are
in-the-money
options except as noted. |
|
|
(2) |
Options granted have a ten-year term and vest over a four-year
period with one-fourth of the options vesting one year from the
date of grant and one forty-eighth of the options vesting each
month thereafter. Options may terminate before their expiration
date upon death, disability or termination of employment of the
optionee. |
Employment Contracts And Termination Of Employment And Change
In Control Arrangements
The NEON Stock Plans provide that in the event of a merger of
NEON with or into another corporation, a change in control of
NEON, or a sale of substantially all of the assets of NEON, each
outstanding option and stock purchase right will be assumed or
an equivalent option or right substituted by the successor
corporation or a parent or subsidiary of the successor
corporation. In the event that the successor corporation refuses
to assume or substitute for the option or stock purchase right,
NEON optionees will fully vest in and have the right to exercise
the option or stock purchase right as to all of the optioned
stock, including shares as to which it would not otherwise be
vested or exercisable. If an option or stock purchase right
becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or Change in Control, the
NEON Plan Administrator must notify the Optionee in writing or
electronically that the option or stock purchase right will be
fully vested and exercisable for a period of at least fifteen
(15) and not more than thirty (30) days from the date
of such notice, and the option or stock purchase right shall
terminate upon the expiration of such period if unexercised.
In connection with their initial employment offers, NEON entered
into change of control severance arrangements with Brian D.
Helman and Shelby R. Fike.
In October 2003, the Company Board engaged KPMG to do a review
of the compensation of the executive officers and to prepare a
compensation study to be delivered to the Compensation
Committee. Based on the recommendations derived from the
compensation study, the Compensation Committee recommended that
the Company Board establish a new compensation plan for the
executive officers and negotiate standardized employment
agreements with such officers which contain non-compete
protection for NEON. In January 2004, each of the then-current
executive officers of NEON entered into an Executive Employment
Agreement with NEON. Such Executive Employment Agreement
provides the following: (i) severance on termination
without cause of six months total compensation (twelve
months for Mr. Helman); and (ii) in the event of a
change in control of NEON, (a) acceleration of the vesting
on unvested options and (b) if such executive
officers employment is terminated or constructively
terminated, payment of severance in the amount of six
months total compensation (twelve months for
Mr. Helman).
On May 26, 2005, the Compensation Committee amended the
employment agreements of Mark Cresswell, NEONs President
and Chief Executive Officer, and Shelby R. Fike, NEONs
Senior Vice President and General Counsel, to increase the
severance amount referenced above to twelve months total
compensation and to clarify the severance payments on
constructive termination on a change in control. Such amendments
to the employment agreements for Mr. Cresswell and
Mr. Fike with respect to the change in severance were in
addition to the amendments to the employment agreements of
Messrs. Cresswell, Helman, Fike, Garner, Paladino and
Evelyn with respect to the addition of an involuntary
termination.
Insurance and Indemnification. Following the Effective
Time, Progress has agreed to, and has agreed to cause the
surviving corporation in the Merger (the Surviving
Corporation) to, fulfill and honor the obligations of
the Company pursuant to any indemnification agreements between
the Company and its present and former directors and officers
and any other employee of the Company (the Indemnified
Parties) and any indemnification provisions set forth
in the Companys organizational documents as in effect on
the date of the Merger Agreement, in each case to the full
extent permitted by applicable law. The Certificate of
Incorporation and Bylaws of the Surviving Corporation will
contain provisions with respect to exculpation and
indemnification that are at least as favorable to the
Indemnified Parties as those
I-14
contained in the Certificate of Incorporation and Bylaws of the
Company as in effect on the date of the Merger Agreement, which
provisions will not be amended, repealed or otherwise modified
in any manner that would adversely affect the rights of the
Indemnified Parties, unless such modification is required by law.
Progress has also agreed that for a period of six years after
the Effective Time, it will cause the Surviving Corporation to
maintain directors and officers liability insurance
covering those persons who are covered by the Companys
directors and officers liability insurance policy as
of the date of the Merger Agreement in an amount and on terms no
less favorable than those applicable to such current directors
and officers of the Company. Notwithstanding the foregoing,
Progress shall not be required to pay more than $275,000 for
such coverage, and may limit the coverage to the maximum
coverage that can be obtained for a $275,000 premium.
Employee Stock Options. Pursuant to the Merger Agreement,
effective upon the Appointment Time, all of the outstanding
options will be canceled, and the holder of options with an
exercise price less than the Offer Price (whether or not vested
or exercisable)
(In-the-Money
Options) will be entitled to receive a cash payment
equal to the product of (i) the total number of Shares
issuable pursuant to such
In-the-Money Options,
and (ii) the excess of $6.20 over the applicable exercise
price per share. As a result, assuming none of the directors or
executive officers exercised any options after December 27,
2005, the executive officers and directors will be entitled to
receive a payment of $3,497,741 in the aggregate for all
In-the-Money Options
held by such executive officers and directors.
COMPENSATION COMMITTEE REPORT
Decisions on compensation of our executive officers generally
are made by the Compensation Committee of the Company Board. The
members of the Compensation Committee for NEON in the fiscal
year ended March 31, 2005 were Richard Holcomb and Loretta
Cross. Ms. Cross serves as the Chairman of the Compensation
Committee. Each member of the Compensation Committee is a
non-employee director. All decisions by the Compensation
Committee relating to compensation of our executive officers are
reviewed by the Company Board. Decisions with respect to awards
under certain of NEONs employee benefit plans are made
solely by the Compensation Committee in order for such awards to
satisfy applicable legal and regulatory considerations. Despite
this fact, the full Company Board often reviews and ratifies the
award of options to employees, especially awards to executive
officers. Set forth below is a report prepared by
Mr. Holcomb and Ms. Cross in their capacity as the
Compensation Committee addressing our compensation policies for
fiscal 2005 as they affected our executive officers.
Compensation Philosophy. In October 2003, the
Compensation Committee requested that the Audit Committee
authorize KPMG to conduct a compensation study with respect to
NEONs compensation of its executive officers as compared
to similarly situated officers at similarly situated companies.
Upon delivery of the results of the compensation study, the
Compensation Committee made recommendations to all of the
non-employee, independent members of the Company Board, with
Mark Cresswell not participating with respect to recommending
revised compensation packages for each executive officer. For
the fiscal years 2004 and 2005, the Compensation
Committees executive compensation packages were designed
to provide a competitive base salary complemented with
competitive bonus programs based on the mid-range results for
executives in similarly situated companies for each specific
position held by such executive officer as reflected by the
compensation study. The packages also included some additional
equity incentive awards to reward those executives whose equity
compensation fell below the mid-range competitive levels of
compensation when compared with similar positions at companies
similarly situated as reflected in the compensation study, thus
integrating pay and equity compensation with the Companys
annual and long-term performance goals and assisting NEON in
attracting and retaining qualified executives. Targeted levels
of total executive compensation were generally set at levels
that the Compensation Committee believed to be consistent with
others in NEONs industry as reflected by the compensation
study. In the fiscal year 2005, the Compensation Committee also
reinstated performance
I-15
bonuses to reward executive officers for above average corporate
performance and recognize individual initiatives and achievement.
Grant of Stock Awards. The Compensation Committee
endorses the position that stock ownership by management and
performance-based compensation arrangements are beneficial in
aligning managements and stockholders interests in
the enhancement of stockholder value and helps to attract and
retain these persons, and takes this factor into account in
designing the compensation packages of the Companys
executive officers. Under our 2002 Stock Plan, NEON may grant
non-qualified stock options, stock purchase rights and incentive
stock options to employees of NEON and its subsidiaries. Options
are exercisable over a period of time in accordance with the
terms of option agreements entered into at the time of the
grant. Stock options provide value to the recipients only if and
when the market price of NEONs common stock increases
above the option grant price. Stock acquired pursuant to a stock
purchase right provides value to the recipient if, at the time
of its vesting, the market price of NEONs common stock
exceeds the recipients purchase price for the stock.
Base Salary and Incentive Bonus Compensation. In addition
to stock-based awards in the form of option grants, the
Compensation Committee proposes two components of NEONs
non-stock-based compensation program. First, executive officers
will receive an annual base salary, which is believed to be
competitive with the mid-range level for similar positions at
similar companies in the industry. Second, executive officers
will be eligible to receive an annual bonus comprised of
(i) an amount, up to a maximum established amount per year,
awarded based upon the executives meeting and exceeding
established performance and other corporate goals set by the
Compensation Committee, and/or (ii) an amount equal to a
percentage based upon NEONs financial performance. All
current bonus awards are based on fiscal year results and are
payable annually on the achievement of annual goals or Progress
in achievement of such goals which is satisfactory to the Board.
In connection with NEONs executive team performance in the
fiscal year ended March 31, 2005, the Compensation
Committee voted to approve bonuses for executive officers at
fifty percent (50%) of each individual executive officers
annual bonus target. The Compensation Committee believes the
principal components of NEONs compensation plan will be
commensurate with others in the industry.
Fiscal 2005 Chief Executive Officer Compensation. For the
fiscal year ended March 31, 2005, the Compensation
Committee considered several factors in establishing
Mr. Cresswells compensation package, including
compensation practices in the industry, performance level,
contributions toward achievement of strategic goals and
NEONs overall financial and operating success. Effective
in October 2003, the Compensation Committee and the full Company
Board approved an executive compensation plan setting
Mr. Cresswells annual compensation at a base salary
of $300,000 and authorizing an annual bonus, subject to the
satisfactory achievement of individual and company goals, of
$100,000. The Compensation Committee determined that such
compensation package was commensurate with the policies set
forth above for setting the compensation of our principal
executive officer and is consistent with similar positions at
similar companies in the industry. In June 2004, the Company
Board promoted Mark Cresswell to the position of Chief Executive
Officer At such time, Mr. Cresswell was awarded a grant of
100,000 additional stock options under the 2002 Stock Plan with
standard vesting terms as previously described above and
Mr. Cresswells bonus allocation was increased to
$150,000. In May 2005, Mr. Cresswell was awarded a grant of
60,000 additional stock options under the 2002 Stock Plan with
standard vesting terms. In addition, Mr. Cresswells
employment agreement was amended to reflect an increased
severance amount of twelve months total compensation in the
event Mr. Cresswells employment is terminated without
cause or involuntarily or constructively terminated due to a
Change in Control of NEON. No additional change has been made to
Mr. Cresswells compensation plan as of the date of
this Information Statement.
I-16
Limit on the Deductibility of Executive Compensation. In
1993, Congress amended the Internal Revenue Code to add
Section 162(m). Section 162(m) of the Internal Revenue
Code limits the deductibility of compensation paid to specified
executive officers to $1,000,000 per officer in any one
year. Compensation, which qualifies as performance-based
compensation, does not have to be taken into account for the
purposes of this limitation. The Compensation Committee intends
to recommend action in connection with NEONs benefit plans
and salary and bonus policies to address this issue if and when
circumstances require.
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Submitted by the Compensation Committee, |
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Loretta Cross, Chairman |
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Richard Holcomb |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Since July 25, 2003, the Compensation Committee members
have been Richard Holcomb and Loretta Cross. Neither of these
directors has served as officers or employees of NEON or any of
its subsidiaries prior to or while serving on NEONs
Compensation Committee. There are no interlocking directorates
involving any of the executive officers or directors of NEON.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain former members of the Company Board and certain former
executive officers of NEON were stockholders and/or directors in
other companies with which NEON had business relationships.
Transactions between NEON and these other companies have been
described in the Related Party Transactions
disclosure in our
Form 10-K filed on
June 28, 2005. Notwithstanding such disclosures, no current
director or executive officer of NEON are stockholders and/or
directors or employees of any other companies with which NEON
has business relationships.
Other Directorships
Some members of the Company Board may also serve as officers or
directors of other software or computing companies. NEON and
such companies, despite each being software companies, are not
sufficiently similar in their operations to be competitors. We
do not believe that the concurrent service of our directors as
officers and/or directors of the entities listed in their
biographical descriptions poses potential conflicts of interest.
I-17
PERFORMANCE GRAPH
The following graph compares the annual cumulative total
stockholder return on an investment of $100 on March 5,
1999 (the date of the Companys initial public offering) in
our common stock, based on the market price of the common stock,
with the cumulative total return of a similar investment in
companies on the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Computer and Data Processing Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG NEON SYSTEMS, INC., THE NASDAQ STOCK MARKET (U.S.)
INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
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Cumulative Total Return |
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3/00 |
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3/01 |
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3/02 |
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3/03 |
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3/04 |
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3/05 |
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NEON SYSTEMS, INC.
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100.00 |
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14.11 |
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24.24 |
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6.18 |
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10.42 |
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10.73 |
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NASDAQ STOCK MARKET (U.S.)
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100.00 |
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47.20 |
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41.66 |
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22.38 |
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38.67 |
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37.64 |
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NASDAQ COMPUTER & DATA PROCESSING
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100.00 |
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32.47 |
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32.30 |
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24.83 |
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35.04 |
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35.09 |
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* |
$100 invested on 3/31/00 in stock or index-including
reinvestment of dividends. Fiscal year ending March 31. |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as
amended, requires NEONs executive officers (as defined
under Section 16), directors, and persons who beneficially
own greater than 10% of a registered class of NEONs equity
securities to file reports of ownership and changes in ownership
with the SEC. Based solely on our review of these reports and
written representations from NEONs executive officers and
directors, we believe that each of NEONs executive
officers, directors, and 10%
I-18
securityholders filed all of the required reports during the
fiscal year ended March 31, 2005, except as follows:
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Beginning in September 2003, NEON began filing electronically
the Section 16(a) reports of beneficial ownership and
changes of beneficial ownership on Form 3, Form 4, and
Form 5 on behalf of its officers and directors. Due to an
administrative error, NEON failed to report the automatic grant
of Annual Options to the non-employee independent directors
pursuant to the 2002 Director Option Plan on
September 22, 2003 and again on September 20, 2004. |
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Pursuant to the terms of the 2002 Director Option Plan,
each independent director who is re-elected at NEONs
annual meeting of stockholders is automatically granted an
option to acquire 12,500 shares of NEON common stock (the
Annual Options). Such Annual Options vest
quarterly over a two year term, expire in 10 years and
carry an exercise price of the closing price of NEONs
common stock on the Nasdaq Stock Market on the date of such
annual meeting of stockholders. |
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Upon the automatic grant to the independent directors on
September 20, 2003 and again on September 20, 2004,
NEON failed to file the requisite Forms 4 for each of
George Ellis, Richard Holcomb, Dave Cary and Loretta Cross. Such
grant of Annual Options for September 22, 2003 was
subsequently reported by NEON on Forms 5 filed for such
individuals on April 7, 2004. Such Annual Options carry an
exercise price of $4.23 and were properly reflected in
NEONs Proxy Statement filed with the SEC on July 28,
2004. The Annual Options granted at NEONs most recent
Annual Meeting of Stockholders on September 20, 2004 were
reported on a Form 4 for each of such independent directors
on October 29, 2004. Such Annual Options for the current
fiscal year ending March 31, 2005 carry an exercise price
of $3.64. NEON has taken internal measures to ensure that future
reports are filed on behalf of such independent directors in an
accurate and timely manner. |
I-19
ANNEX II
December 19, 2005
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CONFIDENTIAL
Board of Directors
NEON Systems, Inc.
14100 Southwest Freeway, Suite 500
Sugar Land, TX 77478
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Dear Members of the Board:
We understand that NEON Systems, Inc. (NEON or the
Company), Progress Software Corporation
(Progress or Parent) and Noble
Acquisition Corp., a wholly owned subsidiary of Parent
(Merger Sub), propose to enter into an Agreement and
Plan of Merger (the Agreement) pursuant to which
Merger Sub will commence an offer (the Offer) to
purchase any and all of the outstanding shares of common stock
of the Company (the Company Common Stock), at a
price of $6.20 in cash (the Offer Price), subject to
adjustment as provided in the Agreement. Following the closing
of the Offer, Merger Sub will be merged with and into the
Company (the Merger), any and all outstanding shares
of Company Common Stock (other than (a) shares held by
Parent, the Company, any of their respective subsidiaries or
Merger Sub and (b) Dissenting Shares (as defined in the
Agreement)) will be converted into the right to receive the
Offer Price, the separate corporate existence of Merger Sub
shall cease, and the Company shall continue as the surviving
corporation of the Merger. The terms and conditions of the
Merger are more fully detailed in the Agreement.
You have requested our opinion as to whether, as of the date
hereof, the Offer Price is fair from a financial point of view
to holders of Company Common Stock.
Jefferies Broadview, a division of Jefferies &
Company, Inc. (Jefferies Broadview), provides
investment banking services, including merger and acquisition
advisory services, to information technology (IT),
communications, healthcare technology, and media companies. In
this capacity, we are continually engaged in valuing such
businesses, and we maintain an extensive database of IT,
communications, healthcare technology, and media mergers and
acquisitions for comparative purposes. We are currently acting
as financial advisor to NEONs Board of Directors, have
received an engagement fee from NEON in such capacity and will
receive fees from NEON upon delivery of this opinion and upon
the closing of the Merger. In addition, the Company has agreed
to indemnify Jefferies Broadview and its affiliates in
connection with its engagement and to reimburse certain of our
expenses. In the ordinary course of their businesses,
Jefferies Broadview and its affiliates may publish research
reports regarding the securities of the Company or Progress or
their respective affiliates, may trade or hold such securities
for their own accounts and for the accounts of their customers
and, accordingly, may at any time hold long or short positions
in those securities.
In rendering our opinion, we have, among other things:
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1.) |
reviewed the terms of the Agreement in the form of the draft
dated December 18, 2005 furnished to us by the
Companys legal counsel, which, for the purposes of this
opinion, we have assumed, with your permission, to be identical
in all material respects to the agreement to be executed; |
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2.) |
reviewed NEONs annual report on
Form 10-K for the
fiscal year ended March 31, 2005, including the audited
financial statements included therein, and NEONs quarterly
report on
Form 10-Q for the
period ended September 30, 2005, including the unaudited
financial statements included therein; |
II-1
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3.) |
reviewed certain internal financial and operating information
for NEON, including quarterly financial projections through
March 31, 2007, prepared and furnished to us by NEON
management; |
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4.) |
participated in discussions with NEON management concerning the
operations, business strategy, current financial performance and
prospects for the Company; |
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5.) |
discussed with NEON management its view of the strategic
rationale for the Merger; |
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6.) |
reviewed the recent reported closing prices and trading activity
for Company Common Stock; |
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7.) |
compared certain aspects of NEONs financial performance
with those aspects of public companies we deemed comparable; |
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8.) |
analyzed available information, both public and private,
concerning other mergers and acquisitions we believe to be
comparable in whole or in part to the Merger; |
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9.) |
assisted in negotiations and discussions related to the Merger
among NEON, Progress and their respective financial and legal
advisors; and |
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10.) |
conducted other financial studies, analyses and investigations
as we deemed appropriate for purposes of this opinion. |
In rendering our opinion, we have relied, without independent
verification, on the accuracy and completeness of all the
financial and other information (including without limitation
the representations and warranties contained in the Agreement)
that was publicly available or furnished to us by NEON or its
advisors. With respect to the financial projections and
estimates of future revenues examined by us, we have assumed,
with your permission, that they were reasonably prepared and
reflect the best available estimates and good faith judgments of
the management of the Company as to the future performance of
the Company. We have also assumed, with your permission, that in
the course of obtaining the regulatory and third party
approvals, consents and releases necessary for consummation of
the Merger, no modification, delay, limitation, restriction or
condition will be imposed that will have a material adverse
effect on the Merger and that the Merger will be consummated in
accordance with applicable laws and regulations and the terms of
the Agreement as set forth in the December 18, 2005 draft
thereof, without waiver, amendment or modification of any
material term, condition or agreement. Our opinion does not
address the relative merits of the Merger as compared to other
business strategies that might be available to the Company, nor
does it address the underlying business decision of the Company
to proceed with the Merger. We have not made or taken into
account any independent appraisal or valuation of any of
NEONs assets or liabilities, contingent or otherwise. We
express no view as to the federal, state or local tax
consequences of the Merger.
For purposes of this opinion, we have assumed that NEON is not
currently involved in any material transaction other than the
Merger, other than publicly announced transactions and those
activities undertaken in the ordinary course of conducting its
business. Our opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can
be evaluated as of the date of this opinion. It should be
understood that, although subsequent developments may affect
this opinion, we have no obligation to update, revise or
reaffirm the opinion.
Based upon and subject to the foregoing qualifications and
limitations and those set forth below, we are of the opinion
that, as of the date hereof, the Offer Price is fair, from a
financial point of view, to holders of Company Common Stock.
II-2
This opinion speaks only as of the date hereof. It is understood
that this opinion is for the information of the Board of
Directors of NEON in connection with its consideration of the
Merger and does not constitute a recommendation to any holder of
Company Common Stock, or any other person, as to how such person
should vote on or act with respect to the Merger. This opinion
may not be used for any other purpose whatsoever or disclosed,
referred to, or communicated (in whole or in part) to any third
party for any purpose whatsoever except with our prior written
approval; except that this opinion may be included in its
entirety in any materials filed by the Company in respect of the
Offer or the Merger with the Securities and Exchange Commission,
provided that this opinion is reproduced in such filing in full
and any description of or reference to us or summary of this
opinion and the related analysis in such filing is in a form
acceptable to us and our counsel in our sole discretion.
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Sincerely, |
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Jefferies Broadview, |
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a division of Jefferies & Company, Inc. |
II-3