Document:

Exhibit
10.2

 

WADDELL & REED
FINANCIAL, INC.

 

2003
EXECUTIVE INCENTIVE PLAN

As Amended and Restated

 

Effective
July 14, 2004

 

1.                                      Purpose

 

The purposes of the Plan
are to advance the interests of stockholders of the Company by providing
performance-based incentives to eligible Participants and to enable the Company
and its Subsidiaries to attract, retain, motivate and reward the best qualified
executive officers and key employees by providing them with the opportunity to
earn competitive compensation directly linked to the Company’s performance. The
Plan is designed to assure that amounts paid to certain executive officers and
employees of the Company will not fail to be deductible by the Company for
Federal income tax purposes because of the limitations imposed by
Section 162(m). With respect to individuals who are Covered Employees, the
Plan is intended to provide “qualified performance-based compensation,” as such
term is defined in Treas. Reg. Section 1.162-27(e), to the extent
deemed appropriate by the Committee at the time Performance Goals are
established for a Fiscal Year. Nothing herein shall be construed as preventing
the Plan from providing both “qualified performance-based compensation” and
nonqualified compensation for the same Fiscal Year in the manner permitted
under Section 162(m). The Plan shall be administered and construed in a
manner consistent with Section 162(m) and regulations thereunder for any
Fiscal Year in which the Plan is intended to provide “qualified
performance-based compensation.”

 

2.                                      Definitions

 

Unless the context
requires otherwise, the following words as used in the Plan shall have the
meanings ascribed to each below, it being understood that masculine, feminine,
and neuter pronouns are interchangeable and that each comprehends the others.

 

(a)                                  “Board”
means the Board of Directors of the Company.

 

(b)                                 “Committee”
means the Compensation Committee of the Board (or such other committee of the
Board that the Board shall designate from time to time) or any subcommittee
thereof comprised of two or more directors each of whom is an “outside
director” within the meaning of Section 162(m).

 

(c)                                  “Company”
means Waddell & Reed Financial, Inc.

 

(d)                                 “Covered
Employee” means (i) the chief executive officer of the Company, and (ii) a
person designated by the Committee, at the time of Performance Goals are
established, who the Committee believes is likely to be a “covered employee”
(within the meaning of Section 162(m)(3)) with respect to the fiscal year
during which the Incentive Plan Award is granted or in the foreseeable future.

 

 

(e)                                  “Fiscal
Year” means the twelve month period beginning on each January 1 and ending
on the following December 31.

 

(f)                                    “Incentive
Percentage” means the pre-established award formula established by the
Committee for each Fiscal Year which specifies a percentage of a pool of funds,
as determined by the Committee, to be paid as an Incentive Plan Award. The
Committee may establish different Incentive Percentages for individual
Participants or different classes of Participants, and/or, if applicable, the
achievement levels of the Performance Goals. Solely with respect to Covered
Employees, for any Fiscal Year for which the Plan is intended to provide
“qualified performance-based compensation,” the Incentive Percentages
applicable to the Covered Employees must be established by the Committee no
later than 90 days (or, if earlier,
the passage of 25% of the performance period) after
the beginning of the performance period for which the Incentive Plan Award
pertains.

 

(g)                                 “Incentive
Plan Award” means the annual incentive compensation award granted under the
Plan, which is contingent and based upon the attainment of the Performance
Goals with respect to a Fiscal Year.

 

(h)                                 “Participant”
means (i) each executive officer of the Company and (ii) each other
individual employee or member of a class of employees of the Company or a
Subsidiary who the Committee designates as a participant under the Plan. For
each Fiscal Year, the Committee shall determine which of such executive officers
and other individual employees or class of employees shall participate in the
Plan. For any Fiscal Year for which “qualified performance-based compensation”
is to be provided, the Committee shall designate the individual or classes of
Covered Employees for such compensation no later than 90 days (or, if earlier, the passage of 25%
of the performance period) of after the beginning of
any performance period.

 

(i)                                     “Performance
Goals” means the
pre-established objective performance goals established by the Committee for
each Fiscal Year.  Solely with respect
to Covered Employees, for any Fiscal Year for which the Plan is intended to
provide ‘qualified performance-based compensation,’ Performance Goals
applicable to the Covered Employees must be established by the Committee no
later than 90 days (or, if earlier, the passage of 25% of the performance
period) after the beginning of any performance period applicable to the
relevant award.  One or more of the
following business criteria (including or excluding extraordinary and/or
non-recurring items to be determined by the Committee in advance) for the
Company, on a consolidated basis, and/or for specified subsidiaries or business
or geographical units of the Company (except with respect to the total
shareholder return and earnings per share criteria), shall be used by the
Committee in establishing Performance Goals for awards:  (i) earnings per share;
(ii) increase in revenues; (iii) increase in cash flow; (iv) increase
in cash flow return; (v) return on net assets; (vi) return on assets;
(vii) return on investment; (viii) return on capital;
(ix) return on equity; (x) economic value added; (xi) operating
margin;

 

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(xii) contribution margin; (xiii) net income; (xiv) pre-tax
earnings; (xv) pre-tax earnings before interest, depreciation and
amortization; (xvi) pre-tax operating earnings after interest expense and
before incentives, service fees, and extraordinary or special items;
(xvii) operating income; (xviii) total stockholder return;
(xix) debt reduction; and (xx) any of the above goals determined on
an absolute or relative basis, or as adjusted in any manner which may be
determined in the discretion of the Committee, or as compared to the performance
of a published or special index deemed applicable by the Committee including,
but not limited to, the Standard & Poor’s 500 Stock Index or a group of
competitor companies, including the group selected by the Company for purposes
of the stock performance graph contained in the proxy statement for the
Company’s annual meetings of stockholders.

 

(j)                                     “Plan”
means the Waddell & Reed Financial, Inc. 2003 Executive Incentive
Plan, as Amended and Restated, as set forth herein and as may be amended,
modified or supplemented from time to time.

 

(k)                                  “Section 162(m)”
means Section 162(m) of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder (including any proposed regulations).

 

(l)                                     “Stock”
means the Company’s Class A common stock, $0.01 par value.

 

(m)                               “Subsidiary”
means any entity of which the Company owns, directly or indirectly, equity
representing more than 50% of the voting power of all classes of equity
entitled to vote.

 

3.                                      Administration

 

The Committee shall
administer and interpret the Plan, provided that, in no event, shall the Plan
be interpreted in a manner which would cause any amount payable under the Plan
to any Covered Employee to fail to qualify as performance-based compensation
under Section 162(m) to the extent the Committee intends compensation to
so qualify. The Committee shall establish the Performance Goals for any Fiscal
Year in accordance with Section 4 and certify whether such goals have been
obtained. Any determination made by the Committee under the Plan shall be final
and conclusive on all parties, but shall be based on such objective information
or financial data as is relevant to the Performance Goal(s). Subject to the
provisions of the Plan, the Committee shall have full discretionary authority
to administer and interpret the Plan, to exercise all powers either
specifically granted to it under the Plan or as are necessary or advisable in
the administration of the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan, all of which shall
be binding on all persons, including the Company, the Participants (or any
person claiming any rights under the Plan from or through any Participant), and
any stockholder of the Company. The Committee shall act pursuant to a majority
vote at a meeting at which quorum, as defined by the Committee Charter, is
present or by unanimous written consent. The Committee may employ such legal
counsel, consultants, and agents (including counsel or agents who are employees
of the

 

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Company or a Subsidiary)
as it may deem desirable for the administration of the Plan and may rely upon
any opinion received from any such counsel, consultant, or agent and any
computation received from such consultant or agent. All expenses incurred in
the administration of the Plan, including, without limitation, for the
engagement of any counsel, consultant, or agent shall be paid by the Company.
No member or former member of the Board or the Committee shall be liable for
any act, omission, interpretation, construction, or determination made in
connection with the Plan other than as a result of such individual’s willful
misconduct.

 

The Committee may
delegate its responsibilities for administering the Plan to one or more persons
as the Committee deems necessary. However, the Committee may not delegate its
responsibilities under the Plan relating to any Covered Employee where such
delegation is prohibited under Section 162(m) pertaining to “qualified
performance-based compensation.”

 

4.                                      Incentive Plan Awards

 

(a)                                  Performance Goals. On or before
April 1 of each year (or such other date as may be required or permitted
under Section 162(m)), the Committee shall establish the Performance Goals
that must be satisfied in order for a Participant to receive an Incentive Plan
Award for such year.

 

(b)                                 Certification and Maximum Amount Payable.
The Committee shall, promptly after the date on which the necessary financial,
individual or other information for a particular Fiscal Year becomes available,
certify: (i) whether, or the degree to which, if applicable, each of the
Performance Goals has been attained; and (ii) with respect to each
qualifying Participant who is a Covered Employee, the amount of the Incentive
Plan Award, if any, payable to such Participant. The Committee or its designee
shall likewise certify the amount of the Incentive Plan Award, if any, payable
with respect to a qualifying Participant who is not a Covered Employee. If the
Committee certifies in writing that any of the Performance Goals established
for the relevant Fiscal Year under Section 4(a) have been satisfied, each
Participant who is employed by the Company or one of its Subsidiaries on the
last day of the Fiscal Year for which the Incentive Plan Award is payable shall
receive the Incentive Plan Award. The Incentive Plan Award shall be determined
by multiplying the Incentive Percentage applicable to the Participant by the
dollar amount of the pool of funds available with respect to the Fiscal Year to
which the Incentive Plan Award pertains. In no event, however, will an
Incentive Plan Award for a Covered Employee exceed $5,000,000. To be eligible
for payment of any Incentive Plan Award, the Participant must: (i) have
performed the Participant’s duties to the satisfaction of the Committee;
(ii) have not engaged in any act deemed by the Committee to be contrary to
the best interests of the Company; and (iii) otherwise complied with
Company policies at all times prior to the date the Incentive Plan Award is
actually paid. No Incentive Plan Award shall be paid to any Participant who
does not satisfy each of the above. If a Participant’s employment terminates
for any reason (including, without limitation, his death, disability, or
retirement under the terms of any retirement plan maintained by the Company or
a Subsidiary) prior to the last day of the Fiscal Year for which the

 

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Incentive Plan Award is
payable, such Participant shall receive an Incentive Plan Award equal to the
maximum Incentive Plan Award payable to such Participant under the preceding
sentence multiplied by a fraction, the numerator of which is the number of days
that have elapsed during the calendar year in which the termination occurs
prior to and including the date of the Participant’s termination of employment
and the denominator of which is 365.

 

(c)                                  Negative Discretion.
Notwithstanding any provision in Section 4(b) to the contrary, the
Committee shall have the right, in its absolute discretion, (i) to reduce
or eliminate the amount otherwise payable to any Participant under
Section 4(b) based on individual performance or any other factors that the
Committee, in its discretion, shall deem appropriate and (ii) to establish
rules or procedures that have the effect of limiting the amount payable to each
Participant to an amount that is less than the maximum amount otherwise
authorized under Section 4(b). 
Notwithstanding the foregoing, in no event shall reduction of any
Participant’s payment amount have the effect of increasing the amount paid to
any Covered Employee.

 

(d)                                 Affirmative
Discretion. Notwithstanding any other provision in the Plan to the
contrary, (i) the Committee shall have the right, in its discretion, to
pay to any Participant who is not a Covered Employee an annual Incentive Plan
Award for such year in an amount up to the maximum bonus payable under
Section 4(b), based on individual performance or any other criteria that
the Committee deems appropriate, and (ii) in connection with the hiring of
any person who is or becomes a Covered Employee, the Committee may provide for
a minimum Incentive Plan Award amount in any calendar year, regardless of
whether performance objectives are attained.

 

5.                                      Payment

 

Except as otherwise provided hereunder, payment of any
Incentive Plan Award amount determined under Section 4 shall be made to
each Participant as soon as practicable after the Committee certifies that one
or more of the applicable Performance Goals have been attained (or, in the case
of any Incentive Plan Award payable under the provisions of Section 4(d),
after the Committee determines the amount of any such Incentive Plan Award).  The Incentive Plan Award may be paid in
whole or in part, in the discretion of the Committee, in either options to
purchase Stock or in shares of Stock which will be subject to certain
restrictions and/or a risk of forfeiture, with the remainder, if any, to be
paid in cash.  The value of
any Stock-based payment under an Incentive Plan Award shall be determined in
the sole and absolute discretion of the Committee.  The Committee will establish a formula to convert an Incentive
Plan Award into a Stock-based payment of equivalent fair market value.  All options to purchase Stock and restricted
Stock issued as payment for all or any part of an Incentive Plan Award shall be
distributed from the total number of shares of Stock reserved and available for
distribution under the Waddell & Reed Financial, Inc. 1998 Executive
Deferred Compensation Stock Award Plan, as amended and restated, and as may be
further amended, modified or restated, and shall comply in full with all of the
terms and provisions regarding stock options and restricted stock, as applicable,
set forth in such stock award plan, including, without limitation,
Section 6A thereof.

 

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6.                                      General Provisions

 

(a)                                  Effectiveness of the Plan.  The Plan became effective with respect to calendar
years beginning on or after January 1, 1999 and shall remain effective
until December 31, 2008, unless the term is extended by action of the
Board.

 

(b)                                 Amendment and Termination. Notwithstanding Section 6(a),
the Board or the Committee may at any time amend, suspend, discontinue, or
terminate the Plan; provided, however, that no such amendment, suspension,
discontinuance, or termination shall adversely affect the rights of any
Participant with respect to any Fiscal Year which has already commenced and no
such action shall be effective without approval by the stockholders of the
Company to the extent necessary to continue to qualify the amounts payable
hereunder to Covered Employees as “qualified performance-based compensation”
under Section 162(m).

 

(c)                                  Designation of Beneficiary. Each
Participant may designate a beneficiary or beneficiaries (which beneficiary may
be an entity other than a natural person) to receive any payments which may be
made following the Participant’s death. Such designation may be changed or
canceled at any time without the consent of any such beneficiary. Any such
designation, change or cancellation must be made in a form approved by the
Committee and shall not be effective until received by the Committee. If no
beneficiary has been named, or the designated beneficiary or beneficiaries
shall have predeceased the Participant, the beneficiary shall be the
Participant’s spouse or, if no spouse survives the Participant, the
Participant’s estate. If a Participant designates more than one beneficiary,
the rights of such beneficiaries shall be payable in equal shares, unless the
Participant has designated otherwise.

 

(d)                                 No Right of Continued Employment. Nothing in this Plan shall be
construed as conferring upon any Participant any right to continue in the
employment of the Company or any of its Subsidiaries.

 

(e)                                  No Limitation on Corporate Actions. Nothing contained in the Plan shall
be construed to prevent the Company or any Subsidiary from taking any corporate
action which is deemed by it to be appropriate or in its best interest, whether
or not such action would have an adverse effect on any awards made under the
Plan. No employee, beneficiary or other person shall have any claim against the
Company or any Subsidiary as a result of any such action.

 

(f)                                    Non-alienation of Benefits. Except as expressly provided
herein, no Participant or beneficiary shall have the power or right to
transfer, anticipate, or otherwise encumber the Participant’s interest under
the Plan. The Company’s obligations under this Plan are not assignable or
transferable except to (i) a corporation which acquires all or
substantially all of the Company’s assets, or (ii) any corporation into
which the Company may be merged or consolidated. The provisions of the Plan

 

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shall inure to the
benefit of each Participant and the Participant’s beneficiaries, heirs,
executors, administrators, or successors in interest.

 

(g)                                 Withholding. Any amount payable to a Participant
or a beneficiary under this Plan shall be subject to any applicable Federal,
state, and local income and employment taxes and any other amounts that the
Company or a Subsidiary is required by law to deduct and withhold from such
payment.

 

(h)                                 Severability. If any provision of this Plan is
held unenforceable, the remainder of the Plan shall continue in full force and
effect without regard to such unenforceable provision and shall be applied as
though the unenforceable provision were not contained in the Plan.

 

(i)                                     Governing Law. The Plan shall be construed in
accordance with and governed by the laws of the State of Kansas, without
reference to the principles of conflict of laws except that any matters
relating to the internal governance of the Company shall be governed by the
general corporate laws of the state of Delaware.

 

(j)                                     Headings. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in a construction of the provisions of the
Plan.

 

(k)                                  Plan not Funded. Plan awards shall be made solely
from the general assets of the Company. To the extent any person acquires a
right to receive payments from the Company under the Plan, the right is no
greater than the right of any other unsecured general creditor.

 

(l)                                     No Guarantee. While a discretionary Incentive
Plan Award may have been paid in the past, whether such payments will be made
in the future will depend upon various factors, such as the Company’s financial
condition and performance. There is no guarantee that the Company will pay any
such discretionary award.  The Committee
may, in its sole discretion, reduce, eliminate or increase, any Incentive Plan
Award, except that the amount of any Incentive Plan Award intended to be
“qualified performance-based compensation” may not be increased above the
amount established for the Performance Goal and Incentive Percentage. The
Company may withhold an Incentive Plan Award, or portions thereof, for any
reason including gross misconduct (e.g.,
theft, dishonesty/compromised integrity, fraud, harassment, etc.) or any
actions deemed to be contrary to the best interests of the Company by the
Committee.

 

(m)                               Rights to Payments. No Participant shall have any
enforceable right to receive any Incentive Plan Award made with respect to a
Fiscal Year or to retain any payment made with respect thereto if for any
reason the requirements of Section 4 are not satisfied.

 

7Exhibit
4.1

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”)
is made as of this
             
day of
                        ,
2004, by and among NEON Systems, Inc., a Delaware corporation (the “Company”)
and the Shareholders (as defined below).

 

Recitals

 

WHEREAS, the Company and the Shareholders have entered
into that certain Combination Agreement of even date herewith (the “Combination
Agreement”), pursuant to which InnerAccess Technologies Inc. (“InnerAccess”)
and Merger
Sub (as such term is defined in the Combination Agreement), inter alia, have amalgamated (the
“Amalgamation”) to form Neon Systems Canada Inc. (“Amalco”) and pursuant to
which the issued and outstanding shares in the capital of InnerAccess, other
than such shares held by the Merging Shareholders (as such term is defined in
the Combination Agreement), and the issued and outstanding shares in the
capital of each of the Merging Shareholders were exchanged for, among other
things, Amalco Class B Redeemable Shares, par value equal to the Canadian
dollar equivalent of the product of 0.02952 and the closing price of the Common
Stock on the Nasdaq National Market on the last trading day prior to the
Closing Date (calculated at the Canadian Dollar Exchange Rate on the day prior
to the Closing Date) per share, (the “Redeemable Shares”) and each such
Redeemable Share was redeemed by Amalco immediately after the Amalgamation in
consideration for 0.02952 of a share of the Company’s common stock, par value
US$0.01 per share (the “Common Stock”); and

 

WHEREAS, the Combination Agreement provides that the
Shareholders shall have registration rights as set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual
promises and covenants set forth herein, the parties hereby agree as follows:

 

1.             Certain
Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:

 

“Commission”
shall mean the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act.

 

“Shareholders”
shall mean those persons set forth on Exhibit I hereto.

 

“Registrable Securities”
shall mean any Common Stock held by the Shareholders and any Common Stock
issued (or issuable upon the conversion or exercise of any warrant, option,
right or other security (a “Convertible Security”) which is issued) as a
dividend or other distribution by way of a stock dividend, stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, in each case with respect to, or in
exchange for or in replacement of the Common Stock received by the Shareholders
pursuant to the Amalgamation; excluding in all cases, however, any Registrable

 

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Securities sold in a transaction pursuant to a
registration statement (including one under this Agreement), a transaction
pursuant to Rule 144 promulgated under the Securities Act or any other
transaction in which registration rights are not transferred.

 

The terms “register,”
“registered” and “registration” refer to a registration effected
by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering by the Commission of the
effectiveness of such registration statement.

 

“Registration Expenses”
shall mean all expenses, other than Selling Expenses (as defined below),
incurred by the Company in complying with Section 2.1 hereof, including,
without limitation, all registration, qualification and filing fees, exchange
listing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company) and the reasonable fees and disbursements of one counsel
for the Shareholders.

 

“Securities Act”
shall mean the Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect at the time.

 

“Selling Expenses”
shall mean all underwriting discounts, selling commissions and stock transfer
taxes applicable to the securities registered by the Shareholders and, except
as set forth above, all fees and disbursements of counsel for any Shareholders.

 

Capitalized terms not
otherwise defined herein shall have the respective meanings attributed to them
in the Combination Agreement.

 

2.             Registration
Rights.

 

2.1           Company Registration.

 

(a)           Notice of
Registration.  If, at any time or
from time to time prior to the expiration of the Restricted Period, the Company
shall determine to register any of its Common Stock, either for its own account
or the account of any security holder or holders, other than (i) a registration
relating solely to employee benefit plans, or (ii) a registration relating
solely to a transaction pursuant to Rule 145 under the Securities Act, the Company
will:

 

(i)    promptly give to
the Shareholders written notice thereof (which notice shall be given not less
than thirty (30) days prior to the effective date of the Company’s registration
statement relating to such registration); and

 

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(ii)   include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request made by any Shareholder, within
twenty (20) days after receipt of such written notice from the Company and the
Company shall use its best efforts to cause a registration statement covering
the Registrable Securities to become effective under the Securities Act.  Following a request by any Shareholder to
have Registrable Securities included in a registration by the Company, any
Shareholder, individually, may determine how many shares of Common Stock, if
any, they wish to include in any such registration.

 

(b)           Underwriting.  If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Shareholders as part of the written notice given
pursuant to Section 2.1(a)(i).  In
such event the right of Shareholders to registration pursuant to
Section 2.1 shall be conditioned upon such Shareholders’ participation in
such underwriting, and the inclusion of Registrable Securities in the
underwriting shall be limited to the extent provided herein.  The Shareholders and all other shareholders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company.  Notwithstanding any other
provision of this Section 2.1, if the managing underwriter reasonably
determines that marketing factors require a limitation of the number of shares
to be underwritten, the managing underwriter may limit some or all of the
Registrable Securities that may be included in the registration and
underwriting as follows: the number of Registrable Securities that may be
included in the registration and underwriting by the Shareholders shall be
determined, subject to Section 2.2 below, by multiplying the number of
shares of Common Stock of all selling shareholders, including the Company,
which the managing underwriter is willing to include in such registration and
underwriting, times a fraction, the numerator of which is the number of
Registrable Securities held by the Shareholders, and the denominator of which
is the total number of shares of Common Stock (including the Registrable
Securities) which all selling shareholders, including the Company, have
requested to have included in such registration and underwriting.  To facilitate the allocation of shares in
accordance with the above provisions, the Company may round the number of
shares allocable to any such person to the nearest 100 shares.  If any Shareholder disapproves of the terms
of any such underwriting, he may elect to withdraw therefrom by written notice
to the Company and the managing underwriter, delivered not less than seven days
before the effective date and such withdrawal shall not prevent the Shareholder
from again exercising his registration rights in respect of such withdrawn
Registrable Securities as described in subsection (a) above.

 

(c)           Right to Terminate
Registration.  The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.1 prior to the effectiveness of such registration whether
or not the Shareholders have elected to include securities in such
registration.

 

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2.2           Expenses
of Registration.  All Registration
Expenses incurred in connection with all registrations pursuant to
Section 2.1 shall be borne by the Company.  Unless otherwise stated, all Selling Expenses relating to
securities registered on behalf of the Shareholders shall be borne by the
Shareholders pro rata on the basis of the number of shares so registered.

 

2.3           Registration
Procedures.  In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Agreement, the Company will keep Shareholders advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof.  At its expense, the
Company will:

 

(a)           Prepare and file with
the Commission a registration statement with respect to the securities to be
registered, including, without limitation, the Registrable Securities and use
its best efforts to cause such registration statement to become and remain
effective for at least one hundred and twenty (120) days or until the
distribution described in the Registration Statement has been completed,
provided, however, that (i) such 120-day period shall be extended for a period
of time equal to the period any Shareholder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company, (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable Securities are sold, provided that Rule 415, or any successor
rule under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation
to file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (A) includes any prospectus required by Section 10(a)(3)
of the Act or (B) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (A)
and (B) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, in
the registration statement.

 

(b)           Furnish to each
underwriter such number of copies of a prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents as such underwriter may reasonably request in order to facilitate the
public sale of the shares by such underwriter, and promptly furnish to each
underwriter and the Shareholders notice of any stop-order or similar notice
issued by the Commission or any state agency charged with the regulation of
securities, and notice of any NASDAQ or securities exchange listing.

 

(c)           Prepare and file with
the Commission such amendments and supplements to such registration statement
and the prospectus used in connection with such registration statement, and use
its best efforts to cause each such amendment to become effective, as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all Common Stock covered by such registration statement.

 

4

 

(d)           Furnish to the
Shareholders such reasonable number of copies of such registration statement
and each amendment or supplement thereto, a prospectus, including any
preliminary or summary prospectus, in conformity with the requirements of the
Securities Act, and such other
documents as they may reasonably request in order to facilitate the public offering
of Registrable Securities owned by them.

 

(e)           Use its best efforts to
register or qualify the Common Stock covered by such registration statement
under such securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Shareholders and to keep such registration or
qualification in effect for so long as such registration statement remains in
effect; provided that the Company shall not be required to register in any
jurisdictions which require it, in connection therewith or as a condition
thereto, to qualify to do business or to file a general consent to service of
process or to subject itself to taxation in any such states or jurisdiction.

 

(f)            In the event of the
issuance of any stop order suspending the effectiveness of the registration
statement, or of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any Registrable Securities
included in such registration statement for sale in any jurisdiction, the
Company shall use commercially reasonable efforts promptly to obtain the
withdrawal of such order.

 

2.4           Indemnification.

 

(a)           To the maximum extent
permitted by law, the Company will indemnify and hold harmless Shareholders,
each of their officers, directors and partners, and each person controlling
Shareholders within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, to which they may become
subject under the Securities Act, the Securities Exchange Act of 1934, as
amended, or other federal, or state law, to the extent such expenses, claims,
losses, damages or liabilities arise out of or are based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, or any violation or alleged violation by the Company of
the Securities Act or the Securities Exchange Act of 1934, as amended, or any
state securities law or any rule or regulation promulgated under the Securities
Act or the Securities Exchange Act of 1934, as amended, or any state securities
law applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse Shareholders, each
of their officers and directors, and each person controlling Shareholders, each
such underwriter and each person

 

5

 

who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained herein shall not apply to
amounts paid in settlement of any claim, loss, damage, liability or expense if
settlement is effected without the consent of the Company (which consent shall
not unreasonably be withheld); provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by Shareholders,
any controlling person or underwriter specifically for use therein.
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Commission, the indemnity agreement
herein shall not inure to the benefit of any underwriter (if there is an
underwriter) or Shareholders if a copy of the final prospectus filed pursuant
to Rule 424(b) was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act provided that the Company has delivered such amended or
supplemented preliminary prospectus or final prospectus on a timely basis to
permit such delivery or sending.

 

(b)           To the extent permitted
by law, Shareholders will, if Registrable Securities are included in the
securities as to which such registration, qualification or compliance is being
effected, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company’s securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, and each other person selling securities, each of such person’s
officers and directors and each person controlling such persons within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by
Shareholders of any rule or regulation promulgated under the Securities Act
applicable to Shareholders and relating to action or inaction required of
Shareholders in connection with any such registration, qualification or
compliance, and will reimburse the Company, such other persons, such directors,
officers, persons, underwriters or control persons for any legal or other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by

 

6

 

Shareholders specifically for use therein; provided,
however, that the indemnity contained herein shall not apply to amounts paid in
settlement of any claim, loss, damage, liability or expense if settlement is
effected without the consent of the Shareholders (which consent shall not be
unreasonably withheld).  Notwithstanding
the foregoing, the liability of Shareholders under this subsection (b)
shall be limited in an amount equal to the net proceeds from the sale of the
shares sold by Shareholders, unless such liability arises out of or is based on
willful conduct by Shareholders. In addition, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the final
prospectus filed pursuant to applicable rules of the Commission, the indemnity
agreement herein shall not inure to the benefit of the Company, any underwriter
or (if there is no underwriter) any other person if a copy of the final
prospectus filed pursuant to such rules was not furnished to the person or
entity asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act.

 

(c)           Each party entitled to
indemnification under this Section 2.4 (the “Indemnified Party”) shall
give notice to the party required to provide indemnification (the “Indemnifying
Party”) promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party’s expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Agreement
unless the failure to give such notice is materially prejudicial to an
Indemnifying Party’s ability to defend such action and provided further, that
the Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or separate or different defenses. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.  No Indemnified Party shall
consent to entry of any judgment or enter into any settlement without the
consent of each Indemnifying Party.

 

(d)           If the indemnification
provided for in this Section 2.4 is unavailable to an Indemnified Party in
respect of any losses, claims, damages or liabilities referred to therein, then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and all shareholders offering securities in the offering, including,
without limitation, the Shareholders (the “Selling Shareholders”) on the other
from the offering of the Company securities, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to

 

7

 

reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one hand and
the Selling Shareholders on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations.  The relative benefits received by the Company on the one hand and
the Selling Shareholders on the other shall be the net proceeds from the
offering (before deducting expenses) received by the Company on the one hand
and the Selling Shareholders on the other. 
The relative fault of the Company on the one hand and the Selling
Shareholders on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Selling Shareholders and the parties’
relevant intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.  The
Company and the Selling Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 2.4(d) were based
solely upon the number of entities from whom contribution was requested or by
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 2.4(d).  The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages and liabilities referred to
above in this Section 2.4(d) shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim, subject to the provisions
of Section 2.4(c) hereof. 
Notwithstanding the provisions of this Section 2.4(d), no Selling
Shareholder shall be required to contribute any amount or make any other
payments under this Agreement which in the aggregate exceed the proceeds
received by such Selling Shareholder. 
No person guilty of fraudulent misrepresentation (within the meaning of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.

 

2.5           Certain
Information.

 

(a)           Shareholders agree,
with respect to any Registrable Securities included in any registration to
furnish to the Company such information regarding the Shareholders, the Registrable
Securities and the distribution proposed by Shareholders as the Company may
reasonably request in writing from the Shareholders and as shall be required in
connection with any registration, qualification or compliance referred to in
Section 2.1.

 

(b)           The failure of
Shareholders to furnish the information requested pursuant to
Section 2.5(a) shall not affect the obligation of the Company under
Section 2.1 to the other Selling Shareholders who furnish such information
unless, in the reasonable opinion of counsel to the Company or the
underwriters, such failure impairs or may impair the legality of the
Registration Statement or the underlying offering.

 

2.6           No
Transfer of Rights.  The
registration rights contemplated herein are not transferable and shall not
inure to the benefit of any person other than Shareholders.

 

8

 

2.7           Non-Impairment
of Rights.  The Company hereby
covenants and agrees that it will not grant to any other person registration
rights that are superior to or that would interfere with the registration
rights granted to Shareholders hereunder.

 

3.             Miscellaneous.

 

3.1           Governing
Law. This Agreement shall be governed in all respects by the internal laws
of the State of Delaware, without regard to internal principles of conflict of
laws.

 

3.2           Successors
and Assigns. Except as otherwise provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.

 

3.3           Entire
Agreement; Amendment. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.  Except as expressly
provided herein, this Agreement, or any provision hereof, may be amended,
waived, discharged or terminated only upon the written consent of the Company
and the holders of two-thirds (2/3) of the Registrable Securities subject to
the terms hereof.

 

3.4           Notices,
etc.  All notices and other
communications required or permitted hereunder shall be in writing and shall be
mailed by registered or certified mail, postage prepaid, or otherwise delivered
by hand or by messenger including Federal Express or similar courier service,
addressed:

 

(a) if to the Company, to

 

NEON Systems, Inc.

14100 Southwest Freeway, Suite 500

Sugar Land, Texas 77478

Fax: (281) 634-8282

Attention:  General Counsel

 

with a copy to:

 

 

 

Fax: 
                                     

Attention: 
                            

 

(b) if to the Shareholders
at the respective addresses of the Shareholders set out in Exhibit 1 to this
Agreement

 

(c)           Any
party may change its address for notice under this Agreement by notice to the
other party in accordance with this Section.

 

9

 

Each such notice or other communication shall for all purposes of this
Agreement be treated as effective upon receipt.

 

3.5           Delays
or Omissions.  Except as expressly
provided herein, no delay or omission to exercise any right, power or remedy
accruing to any party to this Agreement shall impair any such right, power or
remedy of such party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.  Any waiver,
permit, consent or approval of any kind or character on the part of any party
of any breach or default under this Agreement, or any waiver on the part of any
party of any provisions or conditions of this agreement, must be in writing and
shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or
by law or otherwise afforded to any party to this Agreement, shall be
cumulative and not alternative.

 

3.6           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall
constitute one instrument.

 

3.7           Severability.  In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision.

 

3.8           Titles
and Subtitles. The titles and subtitles used in this Agreement are used for
convenience only and are not considered in construing or interpreting this Agreement.

 

IN WITNESS WHEREOF, the undersigned or each of their
respective duly authorized officers or representatives have executed this
agreement effective upon the date first set forth above.

 

	
   

  	
  Company:

  
	
   

  	
   

  
	
   

  	
  NEON SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Shareholders:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
							

 

10

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				

 

11

 

Exhibit I

 

	
  Shareholder

  	
   

  	
  Address

  	
   

  	
  Shares of
  Common

  Stock

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

12

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