As Filed with the Securities and Exchange Commission on June 15, 2006
Registration No. 333-133344
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Convera Corporation
(Exact name of registrant as specified in its charter)
Delaware 54-1987541
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1921 Gallows Road, Suite 200
Vienna, Virginia 22182
(703) 761-3700 (Address, including zip code,
and telephone number,
including area code, of registrant's principal executive offices)
-------------------------------------------------
Patrick C. Condo
President and Chief Executive Officer
Convera Corporation
1921 Gallows Road, Suite 200
Vienna, Virginia 22182
(703) 761-3700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------------------------------
Copy to:
Stephen M. Davis, Esq.
Heller Ehrman LLP
Times Square Tower, 7 Times Square
New York, New York 10036
(212) 847-8798
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box.|_|
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CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Aggregate Registration Fee
Share (1) Offering Price (1)
- ---------------------------------- --------------- --------------------- ------------------------- --------------------------------
- ---------------------------------- --------------- --------------------- ------------------------- --------------------------------
Common Stock 5,103,333 $8.96 $45,725,864 $4,893(2)
- ---------------------------------- --------------- --------------------- ------------------------- --------------------------------
(1)Estimated solely for the purpose of computing the registration fee
required pursuant to Section 6(b) of the Securities Act and computed pursuant to
Rule 457(c) of the Securities Act, based on the average of the high and low
prices of the Common Stock on April 11, 2006 as reported on the Nasdaq National
Market.
(2)Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
The information in this prospectus is not complete and may be changed. The
selling stockholder may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and is not soliciting an
offer to buy these securities, in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION DATED JUNE 15, 2006
PRELIMINARY PROSPECTUS
5,103,333 Shares of Common Stock
par value $0.01
Convera Corporation
---------------------
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using the "shelf" registration process. The
selling stockholders listed on pages 11 and 12 may offer and resell up to an
aggregate of 5,103,333 shares of our common stock under this prospectus from
time to time.
We will not receive any of the proceeds from the offer and sale of the shares.
We will bear the costs relating to the registration of these shares.
Our common stock currently trades on the NASDAQ National Market under the symbol
"CNVR".
See "Risk Factors" beginning on page 3 to read about risks that you should
consider before buying shares of our common stock.
The Securities and Exchange Commission may take the view that, under certain
circumstances, the selling stockholders and any broker-dealers that participate
with the selling stockholders in the distribution of the shares may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended,
which we refer to as the Securities Act. Commissions, discounts, or concessions
received by any such broker-dealer or agent may be deemed to be underwriting
commissions under the Securities Act.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved these securities or passed upon the adequacy or accuracy
of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is June __, 2006
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION............................1
SUMMARY 2
RISK FACTORS...................................................3
USE OF PROCEEDS...............................................10
SELLING STOCKHOLDERS..........................................10
PLAN OF DISTRIBUTION..........................................13
LEGAL MATTERS.................................................15
EXPERTS.......................................................16
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized any person to provide you with
information that differs from what is contained or incorporated by reference in
this prospectus. If any person does provide you with information that differs
from what is contained or incorporated by reference in this prospectus, you
should not rely on it. This prospectus is not an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates, nor an offer or solicitation in any jurisdiction where offers
or sales are not permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, even though this prospectus may
be delivered or shares may be sold under this prospectus at a later date.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy these reports, proxy statements and other information at
the Securities and Exchange Commission's public reference room at 100 F Street,
N. E., Washington, D.C. 20549. You can request copies of these documents by
writing to the Securities and Exchange Commission and paying a fee for the
copying cost. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for more information about the operation of the public reference
room. Our Securities and Exchange Commission filings are also available at the
Securities and Exchange Commission's Web site at "http://www.sec.gov." In
addition, you can read and copy our Securities and Exchange Commission filings
at the office of the National Association of Securities Dealers, Inc. at 1735 K
Street, Washington, D.C. 20006.
The Securities and Exchange Commission allows us to "incorporate by reference"
information that we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the Securities and Exchange Commission will
automatically update and supersede this information. Further, all filings we
make under the Securities Exchange Act of 1934, which we refer to as the
Exchange Act, after the date of the initial registration statement and prior to
effectiveness of the registration statement shall be deemed to be incorporated
by reference into this prospectus. We incorporate by reference the documents
listed below and any future filings we make with the Securities and Exchange
Commission under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act:
1. Our Annual Report on Form 10-K for the year ended January 31, 2006, as filed
on March 31, 2006;
2. Our Quarterly Report on Form 10-Q for the quarter ended April 30, 2006, as
filed on June 9, 2006;
3. Our Current Report on Form 8-K dated February 13, 2006, as filed on February
14, 2006;
4. Our Current Report on Form 8-K dated February 16, 2006, as filed on February
23, 2006;
5. Our Current Report on Form 8-K dated February 22, 2006, as filed on February
28, 2006;
6. Our Current Report on Form 8-K dated February 28, 2006, as filed on March 1,
2006;
7. Our Current Report on Form 8-K dated May 24, 2006, as filed on May 24, 2006;
and
8. The description of our common stock set forth in our Registration Statement
on Form 8-A, filed on November 21, 2000.
We will provide to you at no cost a copy of any and all of the information
incorporated by reference into the registration statement of which this
prospectus is a part. You may make a request for copies of this information in
writing or by telephone. Requests should be directed to:
Convera Corporation
Attention: Chief Financial Officer
1921 Gallows Road, Suite 200
Vienna, Virginia 22182
(703) 761-3700
1
SUMMARY
This prospectus contains forward looking statements which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward looking statements as a result of certain factors appearing
under "Risk Factors" and elsewhere in this prospectus.
The following summary does not contain all the information that may be important
to you. You should read the entire prospectus, including the financial
statements and other information incorporated by reference in this prospectus,
before making an investment decision.
We design, develop, market, implement and support search and categorization
software solutions that enable a broad range of mission critical applications
within government agencies and commercial enterprises. These applications
include knowledge management, enterprise portals, intelligence gathering and
analysis, safety and national security, law enforcement, research and discovery,
regulatory compliance and customer service. We believe our enterprise solution,
RetrievalWare, offers customers the ability to manage vast stores of
unstructured information by providing highly scalable, fast, accurate and secure
search capabilities across more than 200 forms of text, video, image and audio
information, in more than 45 languages. We also offer professional services for
our software solutions to ensure our products integrate seamlessly into customer
environments and training, consulting and maintenance services to facilitate
optimal use of our technologies.
We maintain a portfolio of patented and proprietary technologies. Our core
technologies include: advanced computational linguistics and semantic networking
that leverage lexical knowledge using built-in knowledge bases to search not
only for specific word meanings, but also for related terms and concepts;
Adaptive Pattern Recognition Processing that identifies patterns in digital
data, providing the capability to build content-based analysis and retrieval
applications for any type of digital information; and intelligent real-time
video analysis that detects scene changes as they occur. Our most recent
software release, RetrievalWare 8, includes technical advancements such as
categorization, dynamic classification, profiling and distributed indexing
capabilities. In addition, we have embarked on an advanced Web indexing
development effort focused on applying portions of the Company's existing core
technology to also locate contextually relevant information on the World Wide
Web. This next-generation search technology, named Excalibur, contains billions
of pages of textual web content, approximately 1 billion images, 17 million
audio components and 5 million videos. We have developed the Excalibur Web
offering to add structure to the Web through the use of proprietary taxonomies
and ontologies, semantic analysis and deep knowledge resources capable of
providing end-users with more relevant search results. The technology also
supports complex queries, offers built in video and image search, and provides
geo-locational data. On November 1, 2005, we announced that the Excalibur Web
offering was commercially available. The Excalibur Web offering may be used in
concert with our RetrievalWare solution or with a customer's existing internal
application to create an integrated portal offering "blended" results from both
Intranet and open-source or Web-based content. We may elect to establish a
public search portal for the Excalibur Web offering over the coming quarters. We
also operate two hosting facilities under a master hosting facility agreement
with AT&T for the Excalibur Web offering.
We are a Delaware corporation, and we were established through the combination
of the former Excalibur Technologies Corporation and Intel Corporation's
Interactive Media Services division on December 21, 2000. Our principal
corporate offices are located at 1921 Gallows Road, Suite 200, Vienna, Virgina
22182. Our telephone number at that address is: (703) 761-3700. Our website
address is www.convera.com. Information contained on our website is not a part
of this prospectus.
2
FORWARD LOOKING STATEMENTS
This prospectus, including the documents incorporated by reference herein,
contains forward looking statements. These statements relate to future events or
our future financial performance. We have identified forward looking statements
in this prospectus using words such as "anticipates," "believes," "could,"
"estimates," "expects," "intends," "may," "plans," "potential," "predicts,"
"should," or "will" or the negative of such terms or other comparable
terminology. These statements are based on our beliefs as well as assumptions we
made using information currently available to us. Because these statements
reflect our current views concerning future events, these statements involve
risks, uncertainties, and assumptions. These risks, uncertainties, assumptions
and other factors, including the risks outlined under "Risk Factors," that may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from future results, levels of actual
activity, performance or achievements expressed or implied by such forward
looking statements.
Although we believe that the expectations reflected in the forward looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward looking statements after the date
of this prospectus to conform such statements to actual results, unless required
by law.
RISK FACTORS
An investment in our common stock involves a high degree of risk. We operate in
a dynamic and rapidly changing industry that involves numerous risks and
uncertainties. Before purchasing these securities, you should carefully consider
the following risk factors, as well as other information contained in this
prospectus or incorporated by reference into this prospectus, in evaluating an
investment in the securities offered by this prospectus. The risks and
uncertainties described below are not the only ones we face. Other risks and
uncertainties, including those that we do not currently consider material, may
impair our business. If any of the risks discussed below actually occur, our
business, financial condition, operating results or cash flows could be
materially adversely affected. This could cause the trading price of our common
stock to decline, and you may lose all or part of your investment.
WE HAVE HAD A HISTORY OF OPERATING LOSSES AND WILL LIKELY INCUR FUTURE
LOSSES; IF OUR LOSSES CONTINUE AND WE ARE UNABLE TO ACHIEVE PROFITABILITY, OUR
STOCK PRICE WILL LIKELY SUFFER.
We have operated at a loss for each of the past three fiscal years. For the
fiscal years ended January 31, 2006, 2005, and 2004, our net losses were
approximately $14.3 million, $19.8 million, and $18.1 million, respectively. In
addition, for the first quarter of fiscal 2007, we had a net loss of $10.1
million. These losses include expenditures associated with selling software
products, further developing software products during these years and developing
our Excalibur Web offering. We expect that our losses will continue for the
foreseeable future and will increase materially as we continue to invest in
Excalibur and these other programs and as we incur expected amortization expense
with respect to software development costs for Excalibur and stock based
compensation expense attributable to our compliance with the requirements of
SFAS No. 123(R). Accordingly, we cannot assure you that we will be able to
achieve or maintain profitability in the future. Our failure to achieve and
sustain our profitability will negatively impact the market price of our common
stock.
OUR ABILITY TO ACHIEVE PROFITABILITY IS HIGHLY DEPENDENT ON OUR
EXCALIBUR WEB OFFERING AND IF EXCALIBUR FAILS TO ACHIEVE MARKET ACCEPTANCE WE
WILL BE UNABLE TO GROW OUR BUSINESS AND ACHIEVE PROFITABILITY.
3
We have expended significant financial resources, as well as management
attention, on the Excalibur Web offering and expect that our expenditures on
Excalibur will continue to be significant. We believe that our future
profitability will depend on our ability to successfully market, and achieve
market acceptance for, Excalibur. The degree of market acceptance of Excalibur
will depend upon a number of factors, including:
o the advantages of Excalibur over competing products;
o our ability to innovate and develop new features for Excalibur;
o customer needs for search products;
o the price and cost-effectiveness of Excalibur; and
o the strength of sales, marketing and distribution support.
We are aware of a significant number of competing well-established search
products offered by companies with significantly greater financial and marketing
resources than us. Even if Excalibur achieves market acceptance, we may not be
able to maintain that market acceptance over time if competing products are
introduced that are viewed as more effective or are more favorably received than
Excalibur. If Excalibur does not achieve and maintain market acceptance, we will
not be able to generate sufficient revenue to attain profitability.
WHILE WE BELIEVE WE WILL HAVE SUFFICIENT FUNDS FOR OUR OPERATIONS FOR
AT LEAST THE NEXT TWELVE MONTHS, IT IS POSSIBLE THAT WE WILL NEED ADDITIONAL
CAPITAL DURING OR AFTER THAT TIME. WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE,
AND IT MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS, OR AT ALL, AND IF WE DO NOT
RECEIVE ANY NECESSARY ADDITIONAL CAPITAL, IT COULD HARM OUR FINANCIAL CONDITION
AND FUTURE PROSPECTS.
As of April 30, 2006, our balances of cash, cash equivalents and short-term
investments were approximately $64.0 million. We believe our current balance of
cash, cash equivalents and short-term investments, combined with any funds
generated from our operations will be sufficient to meet our working capital and
capital expenditure requirements for at least the next twelve months based upon
our estimates of funds required to operate our business during such period.
However, during or after that time, we may need to raise additional funds for
the following purposes:
o to fund our operations, including sales, marketing and research and
development programs including the Excalibur Web offering;
o to fund any growth we may experience;
o to enhance and/or expand the range of products and services we offer;
o to increase our promotional and marketing activities; or
o to respond to competitive pressures and/or perceived opportunities, such as
investment, acquisition and international expansion activities.
We cannot reassure our investors that if we need additional capital that it will
be available, and if so, on terms beneficial to us. Historically, we have
obtained external financing primarily from sales of our common stock. To the
extent we raise additional capital by issuing equity securities, our
shareholders may experience substantial dilution. If we are unable to obtain
additional capital, we may then attempt to preserve our available resources by
various methods including deferring the creation or satisfaction of commitments,
reducing expenditures on our research and development programs or otherwise
scaling back our operations. If we were unable to raise such additional capital
or defer certain costs as described above, that inability would have an adverse
effect on our financial position, results of operations and prospects.
4
WE EXPERIENCE QUARTERLY FLUCTUATIONS IN OUR OPERATING RESULTS, WHICH
MAY ADVERSELY AFFECT OUR STOCK PRICE.
Our quarterly operating results have varied substantially in the past. For
example, our total revenues for the four quarters of fiscal year 2006 were $5.1
million, $7.8 million, $4.5 million and $3.6 million respectively, and the price
per share of our common stock during those quarters ranged from $3.92 to $20.20.
Our total revenues for the first quarter of fiscal year 2007 were $4.7 million,
and the price per share of our common stock during this quarter ranged from
$7.40 to $10.25. Our quarterly operating results are likely to continue to vary
substantially from quarter to quarter in the future, due to a variety of factors
including the following:
o the ability of our Excalibur Web offering to achieve market
acceptance;
o the downturn in capital spending by customers as a result of general
economic conditions;
o the level of customer demand for our products and services, including
Excalibur;
o the delay or deferral of customer implementations;
o the budget cycles of our customers;
o seasonality of individual customer buying patterns;
o an increase in competition in the software and search industries; o
the size and timing of individual transactions;
o the timing of new software introductions and software enhancements by
us and our competitors;
o changes in operating expenses and personnel;
o changes in accounting principles, such as a requirement that stock
options be included in compensation, which would increase our expense
and have a negative effect on earnings;
o the overall trend towards industry consolidation; and
o changes in general economic and geo-political conditions and specific
economic conditions in the computer and software industries.
In particular, our period-to-period operating results have historically been
dependent upon the timing of the closing of significant license agreements.
Since purchasing our software products often requires significant capital
investment, our customers may defer or decide not to make their purchases. This
means sales can involve sales cycles of six months or more. We derive a
significant portion of our revenues from sales to agencies of the U.S.
Government, and, therefore, the budget cycle of the U.S. Government impacts our
total revenues. In certain financial quarters, we may derive a significant
portion of our revenues from a single customer. For example, revenues derived
from two customers accounted for approximately 32% of our total revenues in the
first quarter of fiscal year 2007. We have historically recorded a significant
portion of our total quarterly license revenues in the third month of a quarter,
with a concentration of these revenues occurring in the last half of that third
month. We expect these revenue patterns to continue. Despite these uncertainties
in our revenue patterns, we base our operating expenses upon anticipated revenue
levels, and we incur these expenses on an approximately ratable basis throughout
a quarter. As a result, if expected revenues are deferred or otherwise not
realized in a quarter for any reason, our business, operating results and
financial condition would be materially adversely affected.
In addition, steps which we have taken or may take in the future to control
operating expenses may hamper our development, sales and marketing efforts and,
ultimately, our operating results. For instance, we aligned our resources
through a number of reorganizations during fiscal years 2002 through 2005 to
attempt to focus on markets that have been consistently successful for us. These
reorganizations were intended to streamline our professional services, customer
support and sales organizations by reducing the number of our employees, improve
the productivity of each of those organizations and reduce management personnel
and other overhead costs in our marketing, development and administrative
organizations. However, the loss of key personnel in such restructurings and any
severance and other costs incurred in such restructurings could negatively
affect our quarterly operating results and adversely affect our stock price.
5
WE ARE IN AN EXTREMELY COMPETITIVE MARKET, AND IF WE FAIL TO COMPETE
EFFECTIVELY OR RESPOND TO RAPID TECHNOLOGICAL CHANGE, OUR REVENUES AND MARKET
SHARE WILL BE ADVERSELY AFFECTED
Our business environment and the search and software industries in general are
characterized by intense competition, rapid technological changes, changes in
customer requirements and emerging new market segments. Our competitors include
many companies that are larger and more established and have substantially more
resources than us. Current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address the needs of the markets which
we serve. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could have a material adverse effect on our business,
financial condition or results of operations.
In order for our strategy to succeed and to remain competitive, we must leverage
our core technology to develop new product offerings, update existing features
and add new components to our current products such as support for new datatypes
and taxonomies for specific vertical markets. These development efforts are
expensive, and we plan to fund these developments with our existing capital
resources, and other sources, such as equity issuances and borrowings, which may
be available to us. If these developments do not generate substantial revenues,
our business and results of operations will be adversely affected. We cannot
assure you that we will successfully develop any new products, complete them on
a timely basis or at all, achieve market acceptance or generate significant
revenues with them.
WE DESIGN OUR PRODUCTS TO WORK WITH CERTAIN SYSTEMS AND CHANGES TO
THESE SYSTEMS MAY RENDER OUR PRODUCTS INCOMPATIBLE WITH THESE SYSTEMS, AND WE
MAY BE UNABLE TO SELL OUR PRODUCTS
Our ability to sell our products depends on the compatibility of our products
with other software and hardware products. These products may change or new
products may appear that are incompatible with our products. If we fail to adapt
our products to remain compatible with other vendors' software and hardware
products or fail to adapt our products as quickly as our competitors, we may be
unable to sell our products.
OUR SOFTWARE PRODUCTS ARE COMPLEX AND MAY CONTAIN ERRORS THAT COULD
DAMAGE OUR REPUTATION AND DECREASE SALES
Our complex software products may contain errors that people may detect at any
point in the products' life cycles. We cannot assure you that, despite our
testing and quality assurance efforts and similar efforts by current and
potential customers, errors will not be found. The discovery of an error may
result in loss of or delay in market acceptance and sales.
WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUES FROM SALES TO U.S.
GOVERNMENT AGENCIES, WHICH ARE SUBJECT TO BUDGET CUTS AND, CONSEQUENTLY, A
CHANGE IN THE SIZE AND TIMING OF OUR U.S. GOVERNMENT CONTRACTS MAY MATERIALLY
AFFECT OUR OPERATING RESULTS
For the years ended January 31, 2006 and 2005, total revenues derived from sales
to agencies of the U.S. Government were approximately $11.3 million and $11.6
million, respectively, representing 54% and 45%, respectively, of total
revenues. For the quarter ended April 30, 2006, revenues derived from sales to
agencies of the U.S. Government were approximately $3.1 million, or 67% of total
revenues. While the U.S. Government has recently increased spending on defense,
information systems and homeland security initiatives, some government agencies
have realized budget reductions which may adversely impact their purchasing
decisions and timing. We are actively pursuing several opportunities for
business with certain U.S. Government agencies. While the nature and timing of
these opportunities, as well as the ability to complete business transactions
related to these opportunities, is subject to certain risks and uncertainties,
successful completion of any of these transactions could have a material impact
on our future operating results and financial position. There can be no
assurance that we will complete any of these potential transactions.
6
AS A U.S. GOVERNMENT CONTRACTOR, WE ARE SUBJECT TO A NUMBER OF
PROCUREMENT RULES AND REGULATIONS.
We must comply with and are affected by laws and regulations relating to the
award, administration and performance of U.S. Government contracts. Government
contract laws and regulations affect how we do business with our customers and,
in some instances, impose added costs on our business. In some instances, these
laws and regulations impose terms or rights that are more favorable to the
government than those typically available to commercial parties in negotiated
transactions. A violation of specific laws and regulations could result in the
imposition of fines and penalties or the termination of our contracts or
debarment from bidding on contracts.
WE DEPEND ON INTERNATIONAL SALES, PARTICULARLY IN THE UNITED KINGDOM,
AND ANY ECONOMIC DOWNTURN, CHANGES IN LAWS, CHANGES IN CURRENCY EXCHANGE RATES
OR POLITICAL UNREST IN THE UNITED KINGDOM OR IN OTHER COUNTRIES COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS
For the years ended January 31, 2006 and 2005, total revenues derived from
international sales were approximately $5.2 million and $7.5 million,
respectively, representing approximately 25% and 29%, respectively, of total
revenues. For the quarter ended April 30, 2006, revenues derived from
international sales were approximately $1.1 million, representing approximately
23% of total revenues. Most of our international sales are in the United
Kingdom. Our international operations have historically exposed us to longer
accounts receivable and payment cycles and fluctuations in currency exchange
rates. International sales are made mostly from our U.K. subsidiary and are
denominated in British pounds or Euros. As of April 30, 2006, approximately 11%
and 5% of our total consolidated accounts receivable were denominated in British
pounds and Euros, respectively. Additionally, our exposure to foreign exchange
rate fluctuations arises in part from intercompany accounts in which royalties
on our foreign subsidiary's sales are charged to our foreign subsidiary and
recorded as intercompany receivables on our books. We are also exposed to
foreign exchange rate fluctuations as the financial results of our foreign
subsidiary are translated into U.S. dollars in consolidation. Since exchange
rates vary, those results when translated may vary from expectations and
adversely impact overall expected profitability.
Our international operations expose us to a variety of other risks that could
seriously impede our financial condition and growth. These risks include the
following:
o potentially adverse tax consequences;
o difficulties in complying with regulatory requirements and standards;
o trade restrictions and changes in tariffs;
o import and export license requirements and restrictions; and
o uncertainty of the effective protection of our intellectual property
rights in certain foreign countries.
If any of these risks described above materialize, our international sales could
decrease and our foreign operations could suffer.
OUR EXCALIBUR WEB OFFERING RELIES ON A THIRD PARTY HOSTING FACILITY,
AND ANY FAILURE OR INTERRUPTION IN THE SERVICES PROVIDED BY THIS THIRD PARTY
COULD HARM OUR ABILITY TO OPERATE OUR BUSINESS AND DAMAGE OUR REPUTATION.
7
We rely on AT&T for both our primary and back-up hosting facilities to support
our Excalibur Web offering. We do not control the operation of these AT&T
facilities and each may be subject to damage or interruption from earthquakes,
floods, fires, power loss, telecommunications failures or similar events. These
facilities may also be subject to break-ins, sabotage, intentional acts of
vandalism or similar misconduct. Despite precautions taken at these facilities,
the occurrence of a natural disaster, cessation of operations by our third-party
web hosting provider or its decision to close a facility without adequate notice
or other unanticipated problems at either facility could result in lengthy
interruptions in our service. In addition, the failure by these facilities to
provide our required data communications capacity could result in interruptions
in our service. Interruptions in our service may cause us to lose revenue, cause
us to issue credits or refunds and cause customers to terminate their contracts
with us. Our business and reputation will be adversely affected if our customers
and potential customers believe our Excalibur service is unreliable.
WE DEPEND ON PROPRIETARY TECHNOLOGY LICENSED FROM THIRD PARTIES; IF WE
LOSE THESE LICENSES, IT COULD DELAY SHIPMENTS OF PRODUCTS INCORPORATING THIS
TECHNOLOGY AND COULD BE COSTLY
Our products use certain technology that we license from third parties,
generally on a nonexclusive basis. We believe that there are alternative sources
for each of the material components of technology we license from third parties.
However, the termination of any of these licenses, or the failure of the
third-party licensors to adequately maintain or update their products, could
delay our ability to ship these products while we seek to implement technology
offered by alternative sources. Any required replacement licenses could prove
costly. Also, any delay, to the extent it becomes extended or occurs at or near
the end of a fiscal quarter, could harm our quarterly results of operations.
While it may be necessary or desirable in the future to obtain other licenses
relating to one or more of our products or relating to current or future
technologies, we cannot assure that we will be able to do so on commercially
reasonable terms or at all.
BECAUSE OF THE TECHNICAL NATURE OF OUR BUSINESS, OUR INTELLECTUAL
PROPERTY IS EXTREMELY IMPORTANT TO OUR BUSINESS, AND ADVERSE CHANGES TO OUR
INTELLECTUAL PROPERTY COULD HARM OUR COMPETITIVE POSITION
We believe that our success depends, in part, on our ability to protect our
proprietary rights and technology. Historically, we have relied on a combination
of copyright, patents, trademark and trade secret laws, employee confidentiality
and invention assignment agreements, distribution and OEM software protection
agreements and other methods to safeguard our technology and software products.
Risks associated with our intellectual property, include the following:
o pending patent applications may not be issued;
o intellectual property laws may not protect our intellectual property
rights;
o third parties may challenge, invalidate, or circumvent any patent
issued to us;
o rights granted under patents issued to us may not provide competitive
advantages to us;
o unauthorized parties may attempt to obtain and use information that we
regard as proprietary despite our efforts to protect our proprietary
rights;
o others may independently develop similar technology or design around
any patents issued to us; and
o effective protection of intellectual property rights may be limited or
unavailable in some foreign countries in which we operate.
WE MAY IN THE FUTURE BE SUBJECT TO INTELLECTUAL PROPERTY RIGHTS CLAIMS,
WHICH ARE COSTLY TO DEFEND, COULD REQUIRE US TO PAY DAMAGES AND COULD LIMIT OUR
ABILITY TO USE CERTAIN TECHNOLOGIES IN THE FUTURE.
8
Companies in the software and technology industries own large numbers of
patents, copyrights, trademarks and trade secrets and frequently enter into
litigation based on allegations of infringement or other violations of
intellectual property rights. We face the possibility of intellectual property
rights claims against us. Our technologies may not be able to withstand any
third-party claims or rights against their use. Any intellectual property
claims, with or without merit, could be time-consuming, expensive to litigate or
settle and could divert management resources and attention.
With respect to any intellectual property rights claim, we may have to pay
damages or stop using technology if it is ultimately found by a court to be in
violation of a third party's rights. We may have to seek a license for the
technology, which may not be available on reasonable terms and may significantly
increase our operating expenses. The technology also may not be available for
license to us at all. As a result, we may also be required to develop
alternative non-infringing technology, which could require significant effort
and expense. If we cannot license or develop technology for the infringing
aspects of our business, we may be forced to limit our product and service
offerings and may be unable to compete effectively. Any of these results could
harm our operating results.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD ADVERSELY AFFECT
OUR BUSINESS, AND WE MAY HAVE DIFFICULTY ATTRACTING AND RETAINING SKILLED
EMPLOYEES
Our success depends to a significant degree upon the continued contributions of
our key management, marketing, technical and operational personnel. We generally
do not utilize employment agreements for our key employees. The loss of the
services of one or more key employees could have a material adverse effect on
our operating results. We also believe that our future success will depend in
large part upon our ability to attract and retain additional highly skilled
management, technical, marketing, product development, operational personnel and
consultants. Competition for such personnel, particularly software developers,
professional service consultants and other technical personnel, is intense, and
pay scales in the software industry have significantly increased. There can be
no assurance that we will be successful in attracting and retaining such
personnel.
OUR STOCK PRICE MAY FLUCTUATE WHICH MAY MAKE IT DIFFICULT TO RESELL SHARES OF
OUR STOCK
The market price of our common stock has been highly volatile. For example, in
the fourth quarter of fiscal year 2006, the market price per share of our common
stock ranged from $7.85 to $20.20, and in the first quarter of fiscal year 2007,
the market price of our common stock ranged from $7.40 to $10.25. This
volatility may adversely affect the price of our common stock, and our
stockholders may not be able to resell their shares of common stock following
periods of volatility because of the market's adverse reaction to this
volatility. We anticipate that this volatility, which frequently affects the
stock of software companies, will continue. Factors that could cause such
volatility include:
o future announcements concerning us or our competitors;
o quarterly variations in our operating results;
o actual or anticipated announcements of technical innovations or new
product developments by us or our competitors;
o general conditions in our industry;
o developments concerning litigation; and
o worldwide economic and financial conditions.
On occasion, the equity markets, and in particular the markets for software
companies have experienced significant price and volume fluctuations. These
fluctuations have affected the market price for many companies' securities and
may be unrelated to the companies' operating performance.
WE MAY NOT BE ABLE TO USE NET OPERATING LOSS CARRYFORWARDS
9
As of January 31, 2006, we had net operating loss carryforwards of approximately
$185 million. The deferred tax assets representing the benefits of these
carryforwards have been offset completely by a valuation allowance due to our
lack of an earnings history. The realization of the benefits of these
carryforwards depends on sufficient taxable income in future years. Lack of
future earnings could adversely affect our ability to utilize these
carryforwards. Additionally, past or future changes in our ownership and control
could limit the ability to utilize these carryforwards. Despite the
carryforwards, we may have income tax liability in future years due to the
application of the alternative minimum tax rules of the United States Internal
Revenue Code.
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE A THIRD PARTY FROM
ACQUIRING US AND CONSEQUENTLY DECREASE THE MARKET VALUE OF AN INVESTMENT IN OUR
STOCK
Some provisions of our amended and restated certificate of incorporation and
bylaws and of Delaware law could delay or prevent a change of control or changes
in our management that a stockholder might consider favorable. Any delay or
prevention of a change of control or change in management could cause the market
price of our common stock to decline.
ALLEN HOLDING INC. AND RELATED PARTIES EXERCISE VOTING CONTROL OVER A
SIGNIFICANT PERCENTAGE OF OUR OUTSTANDING SHARES, AND OUR OTHER SHAREHOLDERS MAY
NOT HAVE AN EFFECTIVE SAY IN ANY MATTERS UPON WHICH OUR SHAREHOLDERS VOTE
As of April 30, 2006, Allen Holding Inc., together with Allen & Company
Incorporated, Herbert A. Allen and certain related parties beneficially owned
approximately 43% of our voting power, and would therefore be able to
effectively control the outcome of matters requiring a stockholder vote. These
matters could include offers to acquire us and elections of directors. Allen
Holding and its related parties may have interests which are different than the
interests of our other stockholders.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares offered and
sold pursuant to this prospectus.
The selling stockholders will not pay any of the expenses that are incurred in
connection with the registration of the shares, but it will pay all commissions,
discounts and any other compensation to any securities broker or dealers through
whom they sell any of the shares.
SELLING STOCKHOLDERS
The following table sets forth the name of the selling stockholders, the
aggregate number of shares of common stock beneficially owned by the selling
stockholders as of February 22, 2006, and the aggregate number of shares of
common stock that the selling stockholders may offer and sell pursuant to this
prospectus. Because the selling stockholders may offer all or a portion of the
shares of common stock offered by this prospectus at any time and from time to
time after the date hereof, no estimate can be made of the number of shares that
the selling stockholders may retain upon completion of this offering. However,
assuming all of the shares offered by this prospectus are sold by the selling
stockholders then, after completion of this offering, no selling stockholder
will not own more than one percent of the shares of common stock outstanding.
10
The selling stockholders identified below purchased the shares of common stock
included in the table at a price of $7.50 per share in a private placement which
closed on February 28, 2006. All of these shares of common stock were issued and
sold pursuant to an exemption from the registration requirements of the
Securities Act as provided by Rule 506 of Regulation D promulgated under the
Securities Act. We also paid Allen & Company LLC a fee as compensation for
services as a financial advisor to us in connection with the private placement.
We are registering all of the shares of common stock offered for sale pursuant
to this prospectus as required by certain registration rights obligations
included in the subscription agreement executed by each selling stockholder as
part of the private placement.
In the following table, we have calculated shares of common stock beneficially
owned based upon the number of shares of common stock outstanding on February
22, 2006. Under the rules of the Securities and Exchange Commission, beneficial
ownership includes shares over which the named stockholders exercise voting
and/or investment power. Unless otherwise indicated in the footnotes below, we
believe that the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
applicable community property laws. The information with respect to beneficial
ownership of common stock held by each person is based upon information as
supplied or confirmed by the selling stockholders or based upon our actual
knowledge.
Within the past three years, no selling stockholder has held any position or
office with us or any of our affiliates or entered into a material relationship
with us or any of our affiliates.
Number of Shares
Beneficially Owned
(Excluding Shares Number of Shares Offered
Name Offered Hereby) Hereby
Anvil Investment Associates, L.P. (1) 149,900 50,000
Ashford Capital Partners, L.P. (1) 522,100 150,000
Carroll M. Carpenter (2) 0 7,900
Citigroup Alternative Investments Archer Investors 24,971 121,773
Ltd (3)
Citigroup Alternative Investments Archer Investors 12,436 62,723
LP (3)
Citigroup Alternative Investments Diversified 0 25,610
Arbitrage Strategies Fund Ltd (3)
Citigroup Alternative Investments Qualified Investor 0 48,200
Portfolio - Multi-Strategy Arbitrage Portfolio (3)
Hank & Co. (1) 200,000 100,000
Davis Opportunity Fund (4) 0 1,125,747
Elan Polo, Inc. Profit Sharing Plan (5) 0 16,600
Elliot Horowitz Trust 11/01/89 (6) 5,700 17,200
Fidelity Union Street Trust: Fidelity Export and 0 2,000,000
Multinational Fund (7)
Gardner Lewis Fund, L.P. (2) 100,600 228,800
Goldsmith Family Foundation (2) 5,600 12,800
Goldsmith Family Investments, LLC (2) 4,700 11,600
11
Jan Bernstein Riven (2) 0 1,955
Leonard Weinglass (2) 3,800 9,300
M. J. Murdock Charitable Trust (8) 44,700 70,000
Randalea LLC (2) 0 21,600
Saranac Arbitrage (ERISA) Ltd (3) 0 16,370
Saranac Arbitrage Ltd (3) 0 9,820
Saranac Total Return (ERISA) Ltd (3) 21,050 97,307
Saranac Total Return Ltd (3) 2,577 13,249
Saranac Total Return LP (3) 966 4,948
Selected Special Shares, Inc. (4) 0 174,773
SICAV Davis Opportunities Fund (4) 0 32,813
Stephen S. Riven (2) 0 720
TUA Stephen S. Riven IRA (2) 0 1,525
The Weitz Funds - Hickory Fund (9) 0 370,000
The Weitz Funds - Partners Opportunity Fund (9) 0 300,000
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(1) Ashford Capital Management Inc. exercises voting and dispositive power
with respect to the shares offered for resale by these selling
stockholders. Theodore H. Ashford, Chairman and Chief Executive Officer
of Ashford Capital Management Inc., may be deemed to share voting and
dispositive power with respect to such shares.
(2) Gardner Lewis Asset Management and William W. Gardner, Managing Member
of Gardner Lewis Asset Management, may be deemed to share voting and
dispositive power with respect to the shares offered for resale by
these selling stockholders.
(3) Saranac Capital Management L.P. exercises voting and dispositive power
with respect to the shares offered for resale by these selling
stockholders. Ross S. Margolies, Chief Investment Officer of Saranac
Capital Management L.P., may be deemed to share voting and dispositive
power with respect to such shares.
(4) Davis Selected Advisors, L.P. exercises voting and dispositive power
with respect to the shares offered for resale by these selling
stockholders. Kenneth Eich, Vice President, Doug Haines, Treasurer, and
Thomas Tays, Secretary, of Davis Selected Advisors, L.P., may be deemed
to share voting and dispositive power with respect to such shares.
(5) Paul R. Cohn, Administrator of the selling stockholder, may be deemed
to share voting and dispositive power with respect to such shares.
Gardner Lewis Asset Management and William W. Gardner, Managing Member
of Gardner Lewis Asset Management, also may be deemed to share voting
and dispositive power with respect to the shares offered for resale by
this selling stockholder.
12
(6) Elliot Horowitz, as trustee of this selling stockholder, exercises
voting and dispositive power with respect to the shares offered for
resale by this selling stockholder. Gardner Lewis Asset Management and
William W. Gardner, Managing Member of Gardner Lewis Asset Management,
also may be deemed to share voting and dispositive power with respect
to the shares offered for resale by this selling stockholder.
(7) The entity is a registered investment fund (the "Fund") advised by
Fidelity Management & Research Company ("FMR Co."), a registered
investment adviser under the Investment Advisers Act of 1940, as
amended. FMR Co., 82 Devonshire Street, Boston, Massachusetts 02109, a
wholly-owned subsidiary of FMR Corp. and an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, is
the beneficial owner of 2,000,000 shares of the Common Stock
outstanding of the Company as a result of acting as investment advisor
to various investment companies registered under Section 8 of the
Investment Company Act of 1940. Edward C. Johnson 3d, FMR Corp.,
through its control of FMR Co., and the Fund each has sole power to
dispose of the Securities owned by the Fund. Neither FMR Corp. nor
Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote
or direct the voting of the shares owned directly by the Fund, which
power resides with the Fund's Board of Trustees. The Fund is an
affiliate of a broker-dealer. The Fund purchased the Securities in the
ordinary course of business and, at the time of the purchase of the
Securities to be resold, the Fund did not have any agreements or
understandings, directly or indirectly, with any person to distribute
the notes or conversion shares.
(8) John Castles, Lynwood Swanson and Neal Thorpe, as trustees, and James
R. Martin, as Chief Investment Officer, of this selling stockholder,
exercises voting and dispositive power with respect to the shares
offered for resale by this selling stockholder. Gardner Lewis Asset
Management and William W. Gardner, Managing Member of Gardner Lewis
Asset Management, also may be deemed to share voting and dispositive
power with respect to the shares offered for resale by this selling
stockholder.
(9) Wallace R. Weitz & Company (the "Weitz Adviser"), a registered
investment adviser under the Investment Advisers Act of 1940, as
amended, acts as the investment adviser for each of these entities and
exercises voting and dispositive power with respect to the shares
offered for resale by these selling stockholders. Wallace R. Weitz, the
holder of all of the voting stock of the Weitz Adviser, may be deemed
to share voting power with respect to such shares.
PLAN OF DISTRIBUTION
The selling stockholders, or their pledgees, donees, transferees, or any of
their successors in interest selling shares received from a named selling
stockholder as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus (all of whom may be selling
stockholders), may sell the securities from time to time on any stock exchange
or automated interdealer quotation system on which the securities are listed, in
the over-the-counter market, in privately negotiated transactions or otherwise,
at fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at prices otherwise
negotiated. The selling stockholders may sell the securities by one or more of
the following methods, without limitation:
(a) block trades in which the broker or dealer so engaged will
attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
(b) purchases by a broker or dealer as principal and resale by the
broker or dealer for its own account pursuant to this
prospectus;
13
(c) an exchange distribution in accordance with the rules of any
stock exchange on which the securities are listed;
(d) ordinary brokerage transactions and transactions in which the
broker solicits purchases;
(e) privately negotiated transactions;
(f) short sales;
(g) through the writing of options on the securities, whether or
not the options are listed on an options exchange;
(h) through the distribution of the securities by any selling
stockholder to its partners, members or stockholders;
(i) one or more underwritten offerings on a firm commitment or
best efforts basis; and
(j) any combination of any of these methods of sale.
The selling stockholders may also transfer the securities by gift. We do not
know of any arrangements by the selling stockholders for the sale of any of the
securities.
The selling stockholders may engage brokers and dealers, and any brokers or
dealers may arrange for other brokers or dealers to participate in effecting
sales of the securities. These brokers, dealers or underwriters may act as
principals, or as an agent of a selling stockholder. Broker-dealers may agree
with a selling stockholder to sell a specified number of the securities at a
stipulated price per security. If the broker-dealer is unable to sell securities
acting as agent for a selling stockholder, it may purchase as principal any
unsold securities at the stipulated price. Broker-dealers who acquire securities
as principals may thereafter resell the securities from time to time in
transactions in any stock exchange or automated interdealer quotation system on
which the securities are then listed, at prices and on terms then prevailing at
the time of sale, at prices related to the then-current market price or in
negotiated transactions. Broker-dealers may use block transactions and sales to
and through broker-dealers, including transactions of the nature described
above. The selling stockholders may also sell the securities in accordance with
Rule 144 under the Securities Act of 1933, as amended, rather than pursuant to
this prospectus, regardless of whether the securities are covered by this
prospectus.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the securities owned
by them. The pledgees, secured parties or persons to whom the securities have
been hypothecated will, upon foreclosure in the event of default, be deemed to
be selling stockholders. The number of a selling stockholder's securities
offered under this prospectus will decrease as and when it takes such actions.
The plan of distribution for that selling stockholder's securities will
otherwise remain unchanged. In addition, a selling stockholder may, from time to
time, sell the securities short, and, in those instances, this prospectus may be
delivered in connection with the short sales and the securities offered under
this prospectus may be used to cover short sales.
To the extent required under the Securities Act of 1933, the aggregate amount of
selling stockholders' securities being offered and the terms of the offering,
the names of any agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offer will be set forth in an
accompanying prospectus supplement. Any underwriters, dealers, brokers or agents
participating in the distribution of the securities may receive compensation in
the form of underwriting discounts, concessions, commissions or fees from a
selling stockholder and/or purchasers of selling stockholders' securities, for
whom they may act (which compensation as to a particular broker-dealer might be
in excess of customary commissions).
14
The selling stockholders and any underwriters, brokers, dealers or agents that
participate in the distribution of the securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, and any
discounts, concessions, commissions or fees received by them and any profit on
the resale of the securities sold by them may be deemed to be underwriting
discounts and commissions.
A selling stockholder may enter into hedging transactions with broker-dealers
and the broker-dealers may engage in short sales of the securities in the course
of hedging the positions they assume with that selling stockholder, including,
without limitation, in connection with distributions of the securities by those
broker-dealers. A selling stockholder may enter into option or other
transactions with broker-dealers that involve the delivery of the securities
offered hereby to the broker-dealers, who may then resell or otherwise transfer
those securities. A selling stockholder may also loan or pledge the securities
offered hereby to a broker-dealer and the broker-dealer may sell the securities
offered hereby so loaned or upon a default may sell or otherwise transfer the
pledged securities offered hereby.
The selling stockholders and other persons participating in the sale or
distribution of the securities will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including Regulation M. This regulation may limit the timing of
purchases and sales of any of the securities by the selling stockholders and any
other person. The anti-manipulation rules under the Securities Exchange Act of
1934 may apply to sales of securities in the market and to the activities of the
selling stockholders and their affiliates. Furthermore, Regulation M may
restrict the ability of any person engaged in the distribution of the securities
to engage in market-making activities with respect to the particular securities
being distributed for a period of up to five business days before the
distribution. These restrictions may affect the marketability of the securities
and the ability of any person or entity to engage in market-making activities
with respect to the securities.
We have agreed to indemnify in certain circumstances the selling stockholders
and any brokers, dealers and agents who may be deemed to be underwriters, if
any, of the securities covered by the registration statement, against certain
liabilities, including liabilities under the Securities Act of 1933. The selling
stockholders have agreed to indemnify us in certain circumstances against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The securities offered hereby were originally issued to the selling stockholders
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended. We agreed to register the securities under the
Securities Act of 1933, and to keep the registration statement of which this
prospectus is a part effective until the earlier of February 28, 2008 or the
date on which the selling stockholders are eligible to sell all of the
securities under Rule 144 of the Securities Act of 1933 in the following three
month period. We have agreed to pay all expenses in connection with this
offering, but not including underwriting discounts, concessions, commissions or
fees of the selling stockholders or any fees and expenses of counsel or other
advisors to the selling stockholders.
We will not receive any proceeds from sales of any securities by the selling
stockholders.
We cannot assure you that the selling stockholders will sell all or any portion
of the securities offered hereby.
LEGAL MATTERS
For the purpose of this offering, Heller Ehrman LLP, New York, New York is
giving an opinion of the validity of the issuance of the securities offered in
this prospectus.
15
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, has audited
our consolidated financial statements included in our Annual Report on Form 10-K
for the year ended January 31, 2006 and management's assessment of the
effectiveness of our internal control over financial reporting as of January 31,
2006 as set forth in their reports, which are incorporated by reference in this
prospectus and elsewhere in this registration statement. Our financial
statements and management's assessment are incorporated by reference in reliance
on Ernst & Young LLP's reports given on their authority as experts in accounting
and auditing.
16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses to be paid by the
registrant in connection with the sale of the common stock being registered:
Securities and Exchange Commission registration fee... $ 4,893
Legal fees and expenses............................... $ 20,000
Accountants' fees and expenses........................ $ 25,000
Miscellaneous........................................ $ 1,000
Total................................................. $50,893
The foregoing items, except for the Securities and Exchange Commission
registration fee, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law. Section 145(a) of the Delaware General
Corporation Law (the "GCL") provides that a Delaware corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful.
Section 145(b) of the GCL provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the GCL further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsection (a) and (b) or in the defense of any claim,
issue or matter therein, such officer or director shall be indemnified against
expenses actually and reasonably incurred by him or her in connection therewith;
that indemnification provided for by Section 145 shall not be deemed exclusive
of any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against such officer
or director and incurred by him or her in any such capacity or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liabilities under Section 145.
Certificate of Incorporation and Bylaws. The Registrant's Bylaws provide,
pursuant to Section 145 of the GCL, for indemnification of officers, directors,
employees and agents of the Registrant and persons serving at the request of the
Registrant in such capacities within other business organizations against
certain losses, costs, liabilities and expenses incurred by reason of their
position with the Registrant or such other business organizations. Additionally,
the Bylaws provide for such indemnification to continue as to such persons even
after they have ceased holding their position with the Registrant.
II-1
ITEM 16. EXHIBITS
Exhibit
Number Description of Document
---------- --------------------------------------------------------------
5.1 Opinion of Heller Ehrman LLP (2)
10.1 Form of Subscription Agreement dated February 22, 2006 (1)
23.1 Consent of Heller Ehrman LLP (Included with 5.1)
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney (Included with signature page) (1)
- -----------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (File No.: 333-133344) filed with the Securities and Exchange
Commission on April 18, 2006.
(2) Previously filed as an exhibit to the Company's Amendment No. 1 to
Registration Statement on Form S-3 (File No.: 333-133344) filed with the
Securities and Exchange Commission on May 19, 2006.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that (a) and (b) do not apply if the information
required to be included in a post-effective amendment by (a) and (b) is
contained in periodic reports filed with or furnished to the SEC by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement; and
provided however, that paragraphs (a), (b) and (c) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in reports filed with or furnished to the
SEC by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement, or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the registration
statement.
(2) That, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered in the registration statement, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) That, for the purpose of determining liability under the Securities Act of
1933 to any purchaser:
(1) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3)
shall be deemed to be part of the registration statement as of the date the
filed prospectus was deemed part of and included in the registration statement;
and
(2) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the
purpose of providing the information required by Section 10(a) of the Securities
Act of 1933 shall be deemed to be part of and included in this registration
statement as of the earlier of the date such form of prospectus is first used
after effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or a prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of this registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in this registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date.
(d) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the Town of Vienna, Commonwealth of Virginia, this 15th day
of June, 2006.
CONVERA CORPORATION
By: /s/ Patrick C. Condo
Patrick C. Condo
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature Title Date
/s/ Patrick C. Condo President, Chief Executive Officer, June 15, 2006
-------------------- and Director
Patrick C. Condo (Principal Executive Officer)
/s/ John R. Polchin Chief Financial Officer and Secretary June 15, 2006
------------------ (Principal Financial Officer and
John R. Polchin Principal Accounting Officer)
*
- ------------------- Chairman of the Board June 15, 2006
Ronald J. Whittier
*
- ---------------------- Director June 15, 2006
Herbert A. Allen
*
- ----------------------- Director June 15, 2006
Herbert A. Allen, III
*
- ----------------------- Director June 15, 2006
Stephen D. Greenberg
*
- ------------------------ Director June 15, 2006
Eli S. Jacobs
*
- ------------------------- Director June 15, 2006
Donald R. Keough
*
- ------------------------- Director June 15, 2006
Ajay Menon
*
- -------------------------- Director June 15, 2006
Sydney Pollack
*
- -------------------------- Director June 15, 2006
Carl J. Rickertsen
*
- ------------------------- Director June 15, 2006
Jeffrey White
*By: /s/ John R. Polchin
Attorney-in-Fact
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Exhibit Index
Exhibit
Number Description of Document
------- -------------------------------------------------------------------
5.1 Opinion of Heller Ehrman LLP (2)
10.1 Form of Subscription Agreement dated February 22, 2006 (1)
23.1 Consent of Heller Ehrman LLP (Included with 5.1)
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney (Included with signature page) (1)
- -----------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (File No.: 333-133344) filed with the Securities and Exchange
Commission on April 18, 2006.
(2) Previously filed as an exhibit to the Company's Amendment No. 1 to
Registration Statement on Form S-3 (File No.: 333-133344) filed with the
Securities and Exchange Commission on May 19, 2006.