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                                                                   EXHIBIT 10.28

                               NEON SYSTEMS, INC.

                            2002 DIRECTOR OPTION PLAN

         1.     Purposes of the Plan. The purposes of this 2002 Director Option
                --------------------
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.

                All options granted hereunder shall be nonstatutory stock
options.

         2.     Definitions. As used herein, the following definitions shall
                -----------
apply:

                (a)     "Board" means the Board of Directors of the Company.
                         -----

                (b)     "Code" means the Internal Revenue Code of 1986, as
                         ----
amended.

                (c)     "Common Stock" means the common stock of the Company.
                         ------------

                (d)     "Company" means NEON Systems, Inc., a Delaware
                         -------
corporation.

                (e)     "Director" means a member of the Board.
                         --------

                (f)     "Disability" means total and permanent disability as
                         ----------
defined in section 22(e)(3) of the Code.

                (g)     "Employee" means any person, including officers and
                         --------
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.

                (h)     "Exchange Act" means the Securities Exchange Act of
                         ------------
1934, as amended.

                (i)     "Fair Market Value" means, as of any date, the value of
                         -----------------
Common Stock determined as follows:

                        (i)     If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;

                        (ii)    If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the day of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable; or

                        (iii)   In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.

                (j)     "Inside Director" means a Director who is an Employee.
                         ---------------

                (k)     "Option" means a stock option granted pursuant to the
                         ------
Plan.

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                (l)     "Optioned Stock" means the Common Stock subject to an
                         --------------
Option.

                (m)     "Optionee" means a Director who holds an Option.
                         --------

                (n)     "Outside Director" means a Director who is not an
                         ----------------
Employee.

                (o)     "Parent" means a "parent corporation," whether now or
                         ------
hereafter existing, as defined in Section 424(e) of the Code.

                (p)     "Plan" means this 2002 Director Option Plan, as it may
                         ----
be amended and/or restated from time to time.

                (q)     "Share" means a share of the Common Stock, as adjusted
                         -----
in accordance with Section 10 of the Plan.

                (r)     "Subsidiary" means a "subsidiary corporation," whether
                         ----------
now or hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code of 1986.

         3.     Stock Subject to the Plan. Subject to the provisions of Section
                -------------------------
10 of the Plan, the maximum aggregate number of Shares which may be sold under
the Plan is 250,000 Shares plus (a) any Shares which have been reserved but not
issued under the Company's Stock Option Plan for Non-Employee Directors (the
"Non-Employee Director Plan") as of the date of stockholder approval of this
Plan, (b) any Shares returned to the Non-Employee Director Plan as a result of
termination of options or repurchase of Shares issued under the Non-Employee
Director Plan and (c) an annual increase to be added on the first day of the
Company's fiscal year beginning on April 1, 2003, equal to the lesser of (i) 2%
of the outstanding Shares on such date or (ii) an amount determined by the
Board. The Shares may be authorized, but unissued, or reacquired Common Stock.

                If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.

         4.     Administration and Grants of Options under the Plan.
                ---------------------------------------------------

                (a)     Procedure for Grants. All grants of Options to Outside
                        --------------------
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:

                        (i)     No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options. (ii) Each Outside Director shall be
automatically granted a one-time Option to purchase up to 37,500 Shares (the
"Election Option") on: (A) the date on which this Plan is approved at a meeting
by the stockholders of the Company, provided he or she is an Outside Director
immediately following such meeting and has served as a Director since at least
March 31, 2001 or (B) the date on which such person first becomes an Outside
Director, if such date is subsequent to (A), whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
on a date subsequent to (A) but who remains a Director shall not receive an
Election Option upon such event. In the case of (A), the number of Shares
subject to an Election Option shall be equal to the product of (x) 12,500 and
(y) the the number of full or partial fiscal years that such grantee has served
as a Director as of March 31, 2001; provided that the number of Shares subject
to an Election Option shall not exceed 37,500. In the case of (B), the number of
Shares subject to an Election Option shall be 12,500.

                        (iii)   Each Outside Director shall be automatically
granted an Option to purchase 12,500 Shares (an "Annual Option") on the date of
the Company's annual stockholder meeting of each year provided (A) he or she is
an Outside Director immediately following such meeting, (B) as of such date, he
or she shall have served as a

                                     -2-

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Director for at least the preceding six (6) months and (C) no Annual Options
shall be granted on the date of the Company's annual stockholder meeting at
which this Plan is approved by the stockholders of the Company.

                        (iv)    The terms of an Election Option granted
hereunder shall be as follows:

                                (A)    the term of the Election Option shall be
ten (10) years.

                                (B)    the Election Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.

                                (C)    the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of the Election
Option.

                                (D)    subject to Section 10 hereof, the
Election Option shall become exercisable as to one-twelfth (1/12th) of the
Shares subject to the Election Option every three (3) months following its date
of grant, provided that the Optionee continues to serve as a Director on such
dates.

                        (v)     The terms of an Annual Option granted hereunder
shall be as follows:

                                (A)    the term of the Annual Option shall be
ten (10) years.

                                (B)    the Annual Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.

                                (C)    the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of the Annual
Option.

                                (D)    subject to Section 10 hereof, the Annual
Option shall become exercisable as to one-eighth (1/8th) of the Shares subject
to the Annual Option every three (3) months following its date of grant,
provided that the Optionee continues to serve as a Director on such dates.

                        (vi)    In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased under Options to exceed the total number
of Shares reserved for issuance under the Plan, then the remaining Shares
available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
the provisions of the Plan, by action of the Board, by the stockholders
approving an increase in the number of Shares which may be issued under the Plan
or through cancellation or expiration of Options previously granted hereunder.

         5.     Eligibility. Options may be granted only to Outside Directors.
                -----------
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof.

                The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.

         6.     Term of Plan. The Plan shall become effective upon its approval
                ------------
by the stockholders of the Company. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 11 of the Plan.

         7.     Form of Consideration. The consideration to be paid for the
                ---------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other Shares, which, in the case of
Shares acquired from the Company, (x) have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, (iv) consideration received by the
Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.

                                     -3-

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         8.     Exercise of Option.
                ------------------

                (a)     Procedure for Exercise; Rights as a Shareholder. Any
                        -----------------------------------------------
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof and may not be exercised for a fraction of a Share. An Option
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms of the Option by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment may
consist of any consideration and method of payment allowable under Section 7 of
the Plan. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. A share certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 10 of the Plan.

                        Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.

                (b)     Termination of Continuous Status as a Director. Subject
                        ----------------------------------------------
to Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not vested as to
his or her entire Option on the date of such termination, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

                (c)     Disability of Optionee. In the event an Optionee's
                        ----------------------
status as a Director terminates as a result of Disability, the Optionee may
exercise his or her Option, but only within twelve (12) months following the
date of such termination, and only to the extent that the Optionee was entitled
to exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
vested as to his or her entire Option on the date of termination, the Shares
covered by the unvested portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

                (d)     Death of Optionee. In the event of an Optionee's death,
                        -----------------
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
vested as to his or her entire Option on the date of death, the Shares covered
by the unvested portion of the Option shall revert to the Plan. To the extent
that the Optionee's estate or a person who acquired the right to exercise such
Option does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

         9.     Transferability of Options. Unless determined otherwise by the
                --------------------------
Board, an Option may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Optionee, only by
the Optionee. If the Board makes an Option transferable, such Option shall
contain such additional terms and conditions as the Board deems appropriate.

         10.    Adjustments Upon Changes in Capitalization, Dissolution, Merger
                ---------------------------------------------------------------
or Asset Sale.
-------------

                (a)     Changes in Capitalization. Subject to any required
                        -------------------------
action by the shareholders of the Company, the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, the number of Shares as well as the price per Share covered by
each such outstanding Option, and the number of Shares issuable

                                     -4-

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pursuant to the automatic grant provisions of Section 4 hereof shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.

                (b)     Dissolution or Liquidation. In the event of the proposed
                        --------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.

                (c)     Merger or Asset Sale. In the event of a merger of the
                        --------------------
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or substituted
for, the Option or equivalent option shall continue to be exercisable as
provided in Section 4 hereof for so long as the Optionee serves as a Director or
a director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a voluntary
resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.

                        If the Successor Corporation does not assume an
outstanding Option or substitute for it an equivalent option, the Option shall
become fully vested and exercisable, including as to Shares for which it would
not otherwise be exercisable. In such event the Board shall notify the Optionee
that the Option shall be fully exercisable for a period of thirty (30) days from
the date of such notice, and upon the expiration of such period the Option shall
terminate.

                        For the purposes of this Section 10(c), an Option shall
be considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares). If such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Board may, with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Option, for each Share of
Optioned Stock subject to the Option, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.

         11.    Amendment and Termination of the Plan.
                -------------------------------------

                (a)     Amendment and Termination. The Board may at any time
                        -------------------------
amend, alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation, stock exchange rule or quotation system rule, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.

                (b)     Effect of Amendment or Termination. Any such amendment
                        ----------------------------------
or termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.

         12.    Time of Granting Options. The date of grant of an Option shall,
                ------------------------
for all purposes, be the date determined in accordance with Section 4 hereof.

                                     -5-

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         13.    Conditions Upon Issuance of Shares. Shares shall not be issued
                ----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange or
quotation system upon which the Shares may then be listed or quoted, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.

                As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.

                Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

         14.    Reservation of Shares. The Company, during the term of this
                ---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

         15.    Option Agreement. Options shall be evidenced by written option
                ----------------
agreements in such form as the Board shall approve.

                                     -6-<PAGE>

                                                                   Exhibit 10.29

                               NEON SYSTEMS, INC.

                         Compensation Committee Meeting

                                January 28, 2002

     A meeting of the Compensation Committee of the Board of Directors of NEON
Systems, Inc. was held on January 28, 2002 following the monthly Meeting of the
Board of Directors. Present in person were Messrs. John Moores, Charlie Noell,
and Norris van den Berg. Present by telephone was Mr. George Ellis. Also present
was the General Counsel, Mr. Wayne E. Webb.

                  CHIEF EXECUTIVE OFFICER COMPENSATION PACKAGE

As the first order of business, the Board considered the compensation package
for Louis R. Woodhill, the Company's President and Chief Executive Officer. On
October 15, 2001, the Board of Directors appointed Louis R. Woodhill as the
President and Chief Executive Officer of NEON. Mr. Woodhill served as President
and Chief Executive Officer from October 15, 2001 to December 31, 2001 without a
compensation package. The Compensation Committee authorized a bonus of $135,000
based on Mr. Woodhill's achievement of a number of operational improvements
resulting in a refocusing of NEON's strategic direction in the quarter ended
December 31, 2001. Effective January 1, 2002, the Compensation Committee and the
full Board of Directors approved an executive compensation plan setting Mr.
Woodhill's annual compensation at a base salary of $450,000 and authorizing the
grant of an option to purchase 400,000 shares under the 1999 Long-Term Incentive
Plan with an exercise price equal to the closing price of NEON's common stock at
the close of business on January 28, 2002. The Compensation Committee has
determined that such compensation package is commensurate with its policies for
setting the compensation of our Chief Executive Officer and is believed by the
Compensation Committee to be consistent with similar positions at similar
companies in the industry.

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