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PROSPECTUS Filed Pursuant to
RULE 424(b)(1)
RS No. 333-84431
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2,133,348 Shares
NEW ERA OF NETWORKS, INC.
Common Stock
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This prospectus is part of a registration statement that we filed with the
SEC relating to the public offering of 2,133,348 shares (the "Shares") of our
common stock that are held by some of our current stockholders. We issued such
shares to these selling stockholders in connection with the acquisitions of D&M
(Asia) Ltd., a Hong Kong corporation, Database & Management (S) Pte. Ltd., a
Singapore corporation, SLI International AG, a Swiss corporation, Convoy
Corporation, a Delaware corporation and Microscript, Inc., a Massachusetts
corporation. The sale of the Shares is not being underwritten.
Our common stock is listed on The Nasdaq Stock Market's National Market
under the symbol "NEON." On August 17, 1999, the last sale price of our common
stock was $14.4375 per share.
THIS OFFERING INVOLVES MATERIAL RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Prospectus dated August 18, 1999
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION ............................. 2
FORWARD-LOOKING STATEMENTS ...................................... 3
THE COMPANY ..................................................... 4
RISK FACTORS .................................................... 5
USE OF PROCEEDS ................................................. 11
SELLING STOCKHOLDERS ............................................ 11
PLAN OF DISTRIBUTION ............................................ 13
LEGAL MATTERS ................................................... 14
EXPERTS ......................................................... 14
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THE SHARES OF COMMON STOCK ARE NOT BEING OFFERED IN ANY JURISDICTION
WHERE AN OFFER IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THE DOCUMENTS.
WHERE YOU CAN FIND MORE INFORMATION
o GOVERNMENT FILINGS. We file annual, quarterly and special reports and
other information with the Securities and Exchange Commission (the
"SEC"). You may read and copy any document that we file at the SEC's
public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also
available to you free of charge at the SEC's web site at
http://www.sec.gov.
o STOCK MARKET. The common stock is traded on The Nasdaq Stock Market's
National Market. Material filed by NEON can be inspected at the offices
of The Nasdaq Stock Market, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
o INFORMATION INCORPORATED BY REFERENCE. The SEC allows us to
"incorporate by reference" the information we file with them, which
means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file
later with the SEC will automatically update and supersede previously
filed information, including information contained in this document.
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, until this
offering has been completed:
1. Our Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
2. Our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1999.
3. Our Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999.
4. Our Current Report on Form 8-K/A filed on November
18, 1998.
5. Our Current Report on Form 8-K filed on June 24,
1999.
6. Our Current Report on Form 8-K filed on July 13,
1999.
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7. The description of our common stock, which is
contained in our registration statement on Form 8-A
filed on January 23, 1997 and amended by our
registration statement on Form 8-A/A filed on June 5,
1997.
8. The description of our preferred shares rights, which
is contained in our registration statement on Form
8-A filed on August 14, 1998 and amended by our
registration statement on Form 8-A/A filed on August
17, 1998.
You may request free copies of these filings by writing or telephoning
us at the following address:
New Era of Networks, Inc.
7400 East Orchard Road, Suite 230
Englewood, CO, 80111
Attention: Investor Relations
(303) 694-3933
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated into this prospectus by
reference contain forward-looking statements. Such forward-looking statements
are not historical facts but rather are based on current expectations, estimates
and projections about NEON's industry, management's beliefs, and assumptions
made by management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
that are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in such forward-looking
statements. Such risks and uncertainties include those described in "Risk
Factors" in this prospectus and in the documents incorporated into this
prospectus by reference. You are cautioned not to place undue reliance on these
forward-looking statements which reflect management's view only as of the date
of this prospectus. We undertake no obligation to update such statements or
publicly release the result of any revisions to these forward-looking statements
which it may make to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
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THE COMPANY
New Era of Networks, Inc. ("NEON") develops, markets and supports
enterprise application integration ("EAI") software and services. Our
architectural platform provides organizations with a structured software
platform for the rapid and efficient integration and ongoing maintenance of
disparate systems and applications across the enterprise. Our packaged software
solutions support EAI across popular hardware platforms, operating systems, and
database types. NEON has four product offerings: MQSeries Integrator, NEON
Integration Adapters, NEON Integration Options and NEON Integration
Applications.
RECENT EVENTS
Second Quarter Results. On July 20, 1999, we announced that our
second-quarter revenues were $26.1 million, compared to revenues of $11.5
million for the same period last year. We reported a per-share loss of 28 cents,
compared to a loss of 11 cents for the second quarter of 1998. Excluding
acquisition-related charges and amortization, our loss for the quarter, net of
tax effect, was 19 cents, compared to earnings of 5 cents in the second quarter
of 1998. After our July 6, 1999 announcement of anticipated second-quarter
results, several lawsuits alleging violation of federal securities laws have
been filed against the Company and various officers. The Company believes that
these lawsuits are without merit, and we will respond appropriately.
Acquisitions. We announced in April the acquisition of VIE Systems, a
privately held EAI company with a strong presence in travel and transportation,
financial services and retail markets. Also in April, we announced the
acquisition of SLI International AG, a worldwide provider of SAP R/3
implementation, training, support and business consulting services. In June, we
announced the acquisitions of Convoy Corporation and MicroScript Inc. Convoy
Corporation is a worldwide provider of application integration software and
professional services for PeopleSoft applications. MicroScript Inc. is the
leading supplier of application integration software on the Microsoft platforms.
Their primary markets are healthcare and hospitality. In connection with the
acquisitions we have made in the last nine months, we are re-assessing our cost
structure. We have already consolidated certain of our offices and have
terminated a number of employees in connection with those consolidations, and
expect this to continue. As a result of these efforts, we plan to take a
restructuring charge in the range of $3-$4 million in the third quarter of 1999.
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RISK FACTORS
As described by the following factors, past financial performance
should not be considered a reliable indicator of future performance and
investors should not use historical trends to anticipate results or trends in
future periods.
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND DEPEND ON MANY FACTORS.
Except for the second quarter of 1999 results, we had significant
historic revenue growth. As in the second quarter of 1999, such growth rates may
not be sustainable, and you should not use these past results to predict future
operating margins or results. Our quarterly operating results have fluctuated
significantly in the past and may vary significantly in the future. Our future
operating results will depend on many factors, including the following:
- the continued growth of the Enterprise Application Integration
("EAI") software market;
- the size of the orders for our products, and the timing of
such orders;
- potential delays in our implementations at customer sites;
- continued development of indirect distribution channels;
- increased demand for our products;
- the timing of our product releases;
- competition;
- the effects of global economic uncertainty on capital
expenditures for software; and
- the effects of Year 2000 issues on software purchases.
Quarterly revenues and operating results depend upon the volume and
timing of customer contracts received during a given quarter, and the percentage
of each contract which we are able to recognize as revenue during each quarter,
each of which is difficult to forecast. In addition, as is common in the
software industry, a substantial portion of our revenues in a given quarter
historically have been recorded in the third month of that quarter, with a
concentration of such revenues in the last two weeks of the third month. If this
trend continues, any failure or delay in the closing of orders during the last
part of a quarter, such as occurred in the second quarter of 1999, will have a
material adverse effect on our business.
As a result of these and other factors, we believe that
period-to-period comparisons of our historical results of operations are not a
good predictor of our future performance. If our future operating results are
below the expectations of stock market analysts, our stock price may decline.
SOFTWARE LICENSE REVENUE GROWTH IS INCREASINGLY DEPENDENT ON OUR RELATIONSHIP
WITH IBM.
Our revenue growth for the first half of 1999 reflected strong sales of
MQSI and its predecessor product, MQIntegrator, through IBM's distribution and
reseller channel. MQSI is an IBM-branded product, for which IBM has assumed
production and fulfillment obligations. IBM sells this product directly through
its distributors and resellers and we resell it both directly and through our
indirect channels. In the first half of 1999, royalty income from IBM sales of
MQSI accounted for a significant portion of our total software license revenue
and we expect it to continue to be a significant percentage of our software
license revenue in the future. Accordingly, we continue to be more dependent on
IBM's management of the MQSI product, and any delay or shortfall in revenues
from IBM, or in our ability to report revenue, could have a material adverse
effect on our business and operating results.
Through the second quarter of 1999, we recorded royalty income for the
MQSI product in the same quarter in which IBM recorded the sale to its customer.
In July 1999, IBM informed us that they would no longer provide royalty
information in time for us to record revenue during the current quarter. Thus,
we will record no IBM royalty income in the third quarter of 1999 and will
record it on a one-quarter lag thereafter.
IF OUR SALES CYCLE IS LONGER THAN WE ANTICIPATE, OUR OPERATING RESULTS MAY
SUFFER.
Our customers typically take a long time to evaluate our products.
Therefore the timing of license revenue is difficult to predict. A sale of our
products to a customer typically involves a significant technical evaluation and
a commitment of capital and other resources by the customer. This evaluation
process frequently results in a sales cycle that lasts several months.
Additional delays are caused by customers' internal procedures to approve large
capital expenditures and to test, implement and accept new technologies that
affect key operations within their organization. Our operating expense levels
are relatively fixed in the short-term and are based in part on expectations of
future revenues.
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Consequently, any delay in the recognition of revenue due to a longer sales
cycle caused by these factors could result in operating losses.
WE HAVE A SHORT OPERATING HISTORY AND A HISTORY OF OPERATING LOSSES.
An investor in our common stock must evaluate the risks, uncertainties,
expenses and difficulties frequently encountered by companies in rapidly
evolving markets. We have had a limited operating history upon which an
evaluation of our Company and its prospects can be based. Prior to 1996, we
recorded only nominal product revenue, and we have not been profitable on an
annual basis. At June 30, 1999, our Company had an accumulated deficit of
approximately $26.3 million (which includes acquisition-related costs). To
address these risks and uncertainties, we must do the following:
- successfully implement our sales and marketing strategy;
- expand our direct sales channels;
- further develop our indirect distribution channels;
- respond to competition;
- continue to attract and retain qualified personnel;
- continue to develop and upgrade our products and technology
more rapidly than competitors; and
- commercialize our products and services with future
technologies.
We may not successfully implement any of our strategies or successfully
address these risks and uncertainties. Even if we accomplish these objectives we
may not be profitable in the future.
FAILURE TO ADD CUSTOMERS OR EXPAND INTO NEW MARKETS MAY HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
A significant portion of our revenue has come from a small number of
large purchasers. For example, in 1998 our top ten customers accounted for 38%
of total revenues. In 1998 and the six months ended June 30, 1999, Industrial
Bank of Japan accounted for approximately 10% and 12% of our total revenues,
respectively. Historically, our revenues have been derived primarily from sales
to large banks and financial institutions. For example, sales to large banks and
financial institutions accounted for 57% of total revenues in 1998 and 38% of
total revenues for the second quarter of 1999. These customers or other
customers may not continue to purchase our products. Our failure to add new
customers that make significant purchases of our products and services would
have a material adverse effect on our business, financial condition and results
of operations.
While we have developed experience marketing our products to financial
institutions, we have less experience with other vertical market segments. New
market segments that we are currently targeting are likely to have significantly
different characteristics than the financial institutions segment. As a result,
we may change our pricing structures, sales methods, sales personnel, consulting
services and customer support. We may not be successful in selling our products
and services to the additional segments targeted. Our inability to expand sales
of our products and services into these additional markets will materially
adversely effect our business.
OUR GROWTH IS DEPENDENT UPON THE SUCCESSFUL DEVELOPMENT OF OUR DIRECT AND
INDIRECT SALES CHANNELS.
We sell our products primarily through our direct sales force and we
support our customers with our internal technical and customer support staff. We
will continue to rely on our ability to recruit and train additional sales
people and qualified technical support personnel. Our ability to achieve
significant revenue growth in the future will greatly depend on our ability to
recruit and train sufficient technical, customer and direct sales personnel,
particularly additional sales personnel focusing on the new vertical market
segments that we target. We have in the past and may in the future experience
difficulty in recruiting qualified sales, technical and support personnel. Our
inability to rapidly and effectively expand our direct sales force and our
technical and support staff could materially adversely affect our business.
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We believe that future growth also will depend on developing and
maintaining successful strategic relationships with distributors, resellers, and
systems integrators. Our strategy is to continue to increase the proportion of
customers served through these indirect channels. We are currently investing,
and plan to continue to invest, significant resources to develop these indirect
channels. This could adversely affect our operating results if these efforts do
not generate license and service revenues necessary to offset such investment.
Also, our inability to recruit and retain qualified distributors, resellers and
systems integrators could adversely affect our results of operations. Another
risk is that because lower unit prices are typically charged on sales made
through indirect channels, increased indirect sales could adversely affect our
average selling prices and result in lower gross margins.
OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON OUR SUITE OF EAI PRODUCTS.
A substantial majority of our revenues come from the NEON EAI suite of
products and related services, and we expect this pattern to continue.
Accordingly, our future operating results will depend on the demand for NEON and
related services by future customers, including new and enhanced releases that
are subsequently introduced. There can be no assurance that the market will
continue to demand our current products or that we will be successful in
marketing any new or enhanced products. If our competitors release new products
that are superior to NEON in performance or price, demand for our products may
decline. A decline in demand for NEON as a result of competition, technological
change or other factors would have a material adverse effect on our business,
financial condition and results of operations.
INABILITY TO INTEGRATE ACQUIRED COMPANIES MAY INCREASE THE COSTS OF RECENT
ACQUISITIONS.
We may from time to time acquire companies with complementary products
and services in the application integration or other related software markets.
Between September 1997 and June 1999, we acquired eight companies, four of which
were acquired in the second quarter of 1999. These acquisitions will expose us
to increased risks and costs, including the following:
- assimilating new operations and personnel;
- diverting financial and management resources from existing
operations; and
- integrating acquired personnel and technologies.
We may not be able to generate sufficient revenues from any of these
acquisitions to offset the associated acquisition costs. We will also be
required to maintain uniform standards of quality and service, controls,
procedures and policies. Our failure to achieve any of these standards may hurt
relationships with customers, employees, and new management personnel. In
addition, our future acquisitions may result in additional stock issuances which
could be dilutive to our stockholders.
We may also evaluate joint venture relationships with complementary
businesses. Any joint venture we enter into would involve many of the same risks
posed by acquisitions, particularly those risks associated with the diversion of
resources, the inability to generate sufficient revenues, the management of
relationships with third parties, and potential additional expenses, any of
which could have a material adverse effect on our financial condition and
results of operations.
THERE ARE MANY RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
We continue to expand our international operations, and these efforts
require significant management attention and financial resources. Each version
of our product also has to be localized within each country. We have committed
resources to the opening and integration of additional international sales
offices and the expansion of international sales and support channels. Our
efforts to develop and expand international sales and support channels may not
be successful. International sales are subject to a number of risks, including
the following:
- longer payment cycles;
- unexpected changes in regulatory requirements;
- difficulties and expenses associated with complying with a
variety of foreign laws;
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- import and export restrictions and tariffs;
- difficulties in staffing and managing foreign operations;
- difficulty in accounts receivable collection and potentially
adverse tax consequences;
- currency fluctuations;
- currency exchange or price controls; and
- political and economic instability abroad.
Additionally, intellectual property may be more difficult to protect
outside of the United States. International sales can also be affected to a
greater extent by seasonal fluctuations resulting from the lower sales that
typically occur during the summer months in Europe and other parts of the world.
In addition, the market for our products is not as developed outside of North
America. We may not be able to successfully penetrate international markets or
if we do, there can be no assurance that we will grow these markets at the same
rate as in North America.
OUR FAILURE TO MANAGE GROWTH OF OPERATIONS MAY ADVERSELY AFFECT US.
We must plan and manage effectively in order to successfully offer
products and services and implement our business plan in a rapidly evolving
market. We continue to increase the scope of our operations domestically and
internationally and have grown our headcount substantially. For example, at
January 1, 1996, we had a total of 35 employees and at June 30, 1999 we had a
total of 1,172 employees. We may further expand domestically or internationally
through internal growth or through acquisitions of related companies and
technologies. This growth will continue to place a significant strain on our
management systems and resources.
For us to effectively manage our growth, we must continue to enact the
following measures:
- improve our operational, financial and management controls;
- improve our reporting systems and procedures;
- install new management and information control systems; and
- expand, train and motivate our workforce.
In particular, we are currently migrating our existing accounting
software to a packaged application that will allow greater flexibility in
reporting and tracking results. If we fail to install this software in an
efficient and timely manner or if the new systems fail to adequately support our
level of operations, then we could incur substantial additional expenses to
remedy such failure.
WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.
The market for our products is characterized by rapid technological
change, frequent new product introductions and enhancements, changes in customer
demands and evolving industry standards. Our existing products could be rendered
obsolete if we fail to keep up in any of these ways. We have also found that the
technological life cycles of our products are difficult to estimate, partially
because they may vary according to the particular application or vertical market
segment. We believe that our future success will depend upon our ability to
continue to enhance our current product line while we concurrently develop and
introduce new products that keep pace with competitive and technological
developments. These developments require us to continue to make substantial
product development investments.
Existing Products. We currently serve a customer base with a wide
variety of hardware, software, database, and networking platforms. To gain broad
market acceptance, we believe that we will have to support our products on a
variety of platforms. Our success will depend, among others, on the following
factors:
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- our ability to integrate our products with multiple platforms,
especially relative to our competition;
- the portability of our products, particularly the number of
hardware platforms, operating systems and databases that our
products can source or target;
- the integration of additional software modules under
development with existing products; and
- our management of software development being performed by
third-party developers.
Future Products. There can be no assurance that we will be successful
in developing and marketing future product enhancements or new products that
respond to technological changes, shifting customer preferences, or evolving
industry standards. We may experience difficulties that could delay these
products. If we are unable to develop and introduce new products or enhancements
of existing products in a timely manner or if we experience delays in the
commencement of commercial shipments of new products and enhancements, then
customers may forego purchases of our products and purchase those of our
competitors.
OUR FAILURE TO MAINTAIN CLOSE RELATIONSHIPS WITH KEY SOFTWARE VENDORS WILL
ADVERSELY AFFECT OUR PRODUCT OFFERING.
We believe that in order to provide competitive solutions for
heterogeneous, open computing environments, it is necessary to develop, maintain
and enhance close relationships with a wide range of vendors, including
database, Enterprise Resource Planning, supply chain and Electronic Data
Interchange software vendors, as well as hardware and operating system vendors.
There can be no assurance that we will be able to maintain our existing
relationships or develop additional relationships with such vendors. Our failure
to do so could adversely affect the portability of our products to existing and
new platforms and databases and the timing of the release of new and enhanced
products.
OUR INABILITY TO ATTRACT AND RETAIN PERSONNEL MAY ADVERSELY AFFECT US.
Our success greatly depends on the continued service of our key
technical, sales and senior management personnel. None of these persons are
bound by an employment agreement. The loss of any of our senior management or
other key research, development, sales and marketing personnel, particularly if
lost to competitors, could have a material adverse effect on our future
operating results. In particular George F. (Rick) Adam, our Chief Executive
Officer, and Harold A. Piskiel, our Chief Technology Officer, would be difficult
to replace. Our future success will depend in large part upon our ability to
attract, retain and motivate highly skilled employees. We face significant
competition for individuals with the skills required to perform the services we
offer. We cannot assure that we will be able to retain sufficient numbers of
these highly skilled employees. Because of the complexity of the EAI software
market, we have in the past experienced a significant time lag between the date
on which technical and sales personnel are hired and the time at which such
persons become fully productive, and we expect this pattern to continue.
OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS MAY ADVERSELY AFFECT
US.
Our success and ability to compete is dependent in part upon our
proprietary technology. We rely on a combination of copyright, trademark and
trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect our proprietary rights. We presently have
two patents, and we have two patent applications pending. Despite our efforts to
protect our proprietary rights, existing copyright, trademark and trade secret
laws afford only limited protection. In addition, the laws of certain foreign
countries do not protect our rights to the same extent as do the laws of the
United States. Attempts may be made to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as proprietary.
Accordingly, there can be no assurance that we will be able to protect our
proprietary rights against unauthorized third-party copying or use. Any
infringement of our proprietary rights could materially adversely affect our
future operating results. Furthermore, policing the unauthorized use of our
products is difficult and litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets or to determine
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of resources and could have a
material adverse effect on our future operating results.
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INTELLECTUAL PROPERTY CLAIMS CAN BE COSTLY AND RESULT IN THE LOSS OF SIGNIFICANT
RIGHTS.
It is also possible that third parties will claim that we have
infringed their current or future products. We expect that EAI software
developers will increasingly be subject to infringement claims as the number of
products in different industry segments overlap. Any claims, with or without
merit, could be time-consuming, result in costly litigation, cause product
shipment delays, or require us to enter into royalty or licensing agreements,
any of which could have a material adverse effect upon our operating results.
There can also be no assurance that such royalty or licensing agreements, if
required, would be available on terms acceptable to us, if at all. There can be
no assurance that legal action claiming patent infringement will not be
commenced against us, or that we would prevail in such litigation given the
complex technical issues and inherent uncertainties in patent litigation. In the
event a patent claim against us was successful and we could not obtain a license
on acceptable terms or license a substitute technology or redesign to avoid
infringement, our business, financial condition and results of operations would
be materially adversely affected.
We are involved in a declaratory judgment action in Federal District
Court for the State of Colorado and a trademark dilution case in Texas District
Court for Bend County against NEON Systems, Inc. over the use of the trademark
NEON. The Texas damage action was filed in June 1999. An adverse judgment or
settlement, particularly in the Texas action, may result in increased costs,
expenses and may have an adverse effect on our business.
GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR BUSINESS
The EAI software market could be negatively impacted by certain factors
that have impacted the ERP software market, including global economic
difficulties and uncertainty, reductions in capital expenditures by large
customers, and increasing competition. These factors could in turn give rise to
longer sales cycles, deferral or delay of customer purchasing decisions, and
increased price competition. The presence of such factors in the EAI software
market could adversely affect our operating results.
YEAR 2000 RISKS MAY RESULT IN MATERIAL ADVERSE EFFECTS ON OUR BUSINESS.
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
year 2000, these code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in a little
over a year, computer systems and/or software products used by many companies
may need to be upgraded to comply with such year 2000 requirements. While we
have assessed our products, services and internal systems, certain internal
financial packages have not yet been implemented and may require further
assessment by us. We believe we are currently expending sufficient resources to
review our products and services, as well as our internal management information
system in order to remedy those products, services and systems that are not year
2000 compliant. We expect such modifications will be made on a timely basis and
we do not believe that the cost of such modifications will have a material
effect on our operating results. There can be no assurance, however, that we
will be able to modify such products, services and systems in a timely and
successful manner to comply with the year 2000 requirements, which could have a
material adverse effect on our operating results. Moreover, we believe that some
customers may be purchasing our products as an interim solution to their year
2000 needs until their current suppliers reach compliance. Conversely, year 2000
issues could cause a significant number of companies, including our current
customers, to reevaluate their current system needs and as a result consider
switching to other systems and suppliers. Any of the foregoing could result in a
material adverse effect on our business, operating results and financial
condition. Additionally, during the remainder of 1999 there is likely to be an
increased customer focus on addressing year 2000 issues, creating the risk that
customers may reallocate capital expenditures to fix year 2000 problems of
existing systems. If customers defer purchases of our software because of such a
reallocation, it could adversely affect our operating results.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE.
The trading price of our common stock has fluctuated significantly
since our initial public offering in June 1997, and often such fluctuations have
been unrelated or disproportionate to our operating performance. In addition,
the trading price of our common stock could be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of
technological innovations or new products by us or our competitors, developments
with respect to patents or proprietary rights, changes in financial estimates by
securities analysts and other events or factors. In addition, the stock market
has experienced volatility that has particularly affected the market prices of
equity securities of many high technology companies and that often has been
unrelated or disproportionate to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of our
common stock.
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ADOPTION OF THE EURO PRESENTS UNCERTAINTIES FOR OUR COMPANY.
In January 1999, the new "Euro" currency was introduced in certain
European countries that are part of the European Monetary Union, or EMU. During
2002, all EMU countries are expected to be operating with the Euro as their
single currency. A significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace generally and, additionally, all of the final
rules and regulations have not yet been defined and finalized by the European
Commission with regard to the Euro currency. We are currently assessing the
effect the introduction of the Euro will have on our internal accounting systems
and the sales of our products. We are not aware of any material operational
issues or costs associated with preparing our internal systems for the Euro.
However, we do utilize third party vendor equipment and software products that
may or may not be EMU compliant. Although we are currently taking steps to
address the impact, if any, of EMU compliance for such third party products, the
failure of any critical components to operate properly post-Euro may have an
adverse effect on the business or results of operations of our Company or
require us to incur expenses to remedy such problems.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock by
the Selling Stockholders. All net proceeds from the sale of the common stock
covered by this prospectus will go to the Selling Stockholders who offer and
sell their shares.
SELLING STOCKHOLDERS
The following table sets forth the number of shares owned by each of
the Selling Stockholders as of August 18, 1999. None of the Selling Stockholders
has had a material relationship with NEON within the past three years other than
as described below or as a result of the ownership of the shares or other
securities of NEON. None of the Selling Stockholders holds a number of shares
that exceeds 1% of NEON's outstanding capitalization. No estimate can be given
as to the amount of shares that will be held by the Selling Stockholders after
completion of this offering because the Selling Stockholders may offer all or
some of the shares and because there currently are no agreements, arrangements
or understandings with respect to the sale of any of the shares. The shares
offered by this prospectus may be offered from time to time by the Selling
Stockholder named below.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES WHICH
SHARES MAY BE SOLD PURSUANT TO
NAME OF SELLING STOCKHOLDER BENEFICIALLY OWNED THIS PROSPECTUS (1)
- --------------------------- ------------------ -----------------------
<S> <C> <C>
Paul Actis......................... 292 225
Phillip Ciolfi..................... 222,832 42,197
26 Frost Street Trust.............. 222,832 102,025
ALCE Partners...................... 52,018 46,817
Gayla Barger....................... 197 178
Bay Partners....................... 134,350 120,915
Rod Beckstrom...................... 5,588 5,030
Tom J. Bjornson.................... 58,642 52,778
Draper & Associates II............. 130,518 117,467
Draper & Associates II............. 2,735 2,462
Timothy Draper Living Trust........ 5,007 4,507
Demian Entrekin.................... 23,603 21,243
Steve M. Entrekin.................. 7,751 6,976
Caleb E. Entrekin.................. 9,581 8,623
Charles Entrekin Trust............. 125,218 112,697
Charles Entrekin Trust............. 1,367 1,231
John Fisher........................ 10,014 9,013
Chris Herron....................... 8,568 7,712
Imperial Bank Warrant.............. 1,072 965
Steve Jurvetson.................... 2,002 1,802
Larry Kubal........................ 3,338 3,005
Labrador Ventures II............... 36,683 33,015
Evelyn Lewin....................... 146 132
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C> <C>
Eric Loos.......................... 13,716 12,345
Lysander, LLC...................... 6,676 6,009
M. Petruzzelli Trust............... 888 800
Mary Lou MacArthur................. 204 184
Katie MacKrill..................... 3,271 2,944
Mike McConnell..................... 5,628 5,066
Rich McGillicuddy.................. 886 798
Neil McGovern...................... 7,011 6,310
Oasis Ventures LLC................. 10,186 9,168
Warren Packard..................... 166 150
Jerrold Petruzzelli................ 9,366 8,430
Constantino Quintong............... 2,375 2,138
Ezra J. Roizen..................... 20,565 18,509
Charles Schuman.................... 63 57
Margaret Shiner.................... 350 315
Tina Singh......................... 630 567
Jim Smith.......................... 2,337 2,104
Carl Soane......................... 3,739 3,366
John Valencia...................... 42,269 38,043
Woodside Fund III SBIC............. 132,664 119,398
Lane Yago.......................... 387 349
Christopher F. DiTota.............. 13,845 12,461
Franz Koepper...................... 106,193 95,573
Christian Schuler.................. 18,414 16,573
Andrew Street...................... 36,705 15,600
Michael Eugene Tinworth............ 12,235 5,200
</TABLE>
- ----------
(1) Does not include an aggregate of 431,651 shares of common stock
beneficially owned by the Selling Stockholders that have been deposited
in escrow to secure the indemnification obligations of the Selling
Stockholders. A number of shares equivalent to these escrow shares have
been included in this registration statement, but they are not included
in this column of the table. We intend to file a prospectus supplement
to reflect any change in the number of shares offered by the individual
selling stockholders as a result of the expiration of the escrow.
(2) Does not include an aggregate of 618,225 shares of common stock to be
issued pursuant to an agreement with the former stockholders of Convoy
Corporation subject to final documentation and approval by the parties.
We intend to file a prospectus supplement to reflect any change in the
number of shares offered by the individual selling stockholders as a
result of the finalization and approval of the agreement.
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<PAGE> 13
PLAN OF DISTRIBUTION
We are registering all 2,133,348 shares of common stock (the "Shares")
on behalf of the Selling Stockholders. As used in this prospectus, "Selling
Stockholders" includes the pledgees, donees, transferees or other successors in
interest that receive such shares as a gift, partnership distribution or other
non-sale related transfer. The Shares may be offered and sold from time to time
by the Selling Stockholders. The Selling Stockholders will act independently of
NEON in making decisions with respect to the timing, manner and size of each
sale.
The Selling Stockholders may sell the Shares in the over-the-counter
market or otherwise, at (1) market prices prevailing at the time of sale, (2)
prices related to the prevailing market prices or (3) negotiated prices. The
Selling Stockholders may sell some or all of their Shares through:
o a block trade in which a broker-dealer may resell a portion of
the block, as principal, in order to facilitate the
transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account;
o an over-the-counter distribution in accordance with the rules
of the Nasdaq National Market;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers; or
o in privately negotiated transactions.
To the extent required, this prospectus may be amended and supplemented from
time to time to describe a specific plan of distribution.
In connection with the distribution of the Shares, the Selling
Stockholders may also enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of
NEON's common stock in the course of hedging the positions they assume with the
Selling Stockholders. The Selling Stockholders may also:
o sell NEON common stock short and redeliver the Shares to close
out such short positions;
o enter into option or other types of transactions that require
the Selling Stockholder to deliver the Shares to a
broker-dealer, who will then resell or transfer the Shares
pursuant to this prospectus (as supplemented or amended to
reflect such transaction); or
o loan or pledge the Shares to a broker-dealer, who may sell the
loaned shares or, in the event of default, sell the pledged
shares pursuant to this prospectus (as supplemented or amended
to reflect such transaction).
In addition, any Shares that qualify for sale pursuant to Rule 144 may
be sold under Rule 144 rather than pursuant to this prospectus.
The Selling Stockholders may negotiate and pay broker-dealers
commissions, discounts or concessions for their services. Broker-dealers engaged
by the Selling Stockholders may allow other broker-dealers to participate in
resales. However, the Selling Stockholders and any broker-dealers involved in
the sale or resale of the Shares may qualify as "underwriters" within the
meaning of the Securities Act. In addition, the broker-dealers' commissions,
discounts or concessions may qualify as underwriters' compensation under the
Securities Act. If the Selling Stockholders qualify as "underwriters," they will
be subject to the prospectus delivery requirements of Section 153 of the Act,
which may include delivery through the facilities of the NASD. NEON will pay all
expenses incident to the offering and sale of the Shares to the public other
than any commissions and discounts of underwriters, dealers or agents and any
transfer taxes.
We have advised the Selling Stockholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of Shares in the
market and to the activities of the Selling Stockholders and their affiliates.
In addition, we will make copies of this prospectus available to the Selling
Stockholders, and we have informed them of the need for delivery of copies of
this prospectus to purchasers at or prior to the time of any sale of the Shares
offered hereby. The Selling Stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of Shares is made, if required, a
Prospectus Supplement will be distributed that will set forth the number of
Shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation,
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<PAGE> 14
any discount, commission or concession allowed or reallowed or paid to any
dealer, and the proposed selling price to the public.
The sale of Shares by the Selling Stockholders is subject to compliance
by the Selling Stockholders with certain contractual restrictions they have with
us. There can be no assurance that the Selling Stockholders will sell all or any
of the Shares.
NEON has agreed to indemnify certain Selling Stockholders against
certain liabilities, including liabilities under the Securities Act. In return,
certain Selling Stockholders have agreed to indemnify NEON and certain related
persons against certain liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
NEON by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California.
EXPERTS
The financial statements of NEON as of December 31, 1996, 1997 and 1998
and for each of the three years in the period ended December 31, 1998
incorporated by reference in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The financial statements of Century Analysis Inc. as of and for the
years ended December 31, 1997 and 1996 incorporated by reference in this
prospectus from the Current Report on Form 8-K of New Era of Networks, Inc.
filed on October 14, 1998, as amended, have been audited by Deloitte & Touche
LLP, independent auditors as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
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