SCHEDULE 14A
Information Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
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[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
CONVERA CORPORATION
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(Name of Registrant as Specified in Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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pursuant to Exchange Act Rule 0-11:
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[ ] Fee paid previously with preliminary materials.
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CONVERA CORPORATION
1921 Gallows Road, Suite 200
Vienna, Virginia 22182
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Convera Corporation, a Delaware corporation ("Convera" or the "Company"), will
be held at the Hyatt Regency Reston located at 1800 Presidents Street, Reston,
Virginia 20190, at 10:00 a.m. local time, on Tuesday, June 25, 2002 for the
following purposes:
1. To elect nine directors of the Company for terms expiring at the 2003
Annual Meeting.
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The close of business on May 8, 2002 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting.
PLEASE SIGN, DATE AND MAIL YOUR PROXY IN THE ENVELOPE PROVIDED FOR YOUR
CONVENIENCE. YOU MAY REVOKE THIS PROXY AT ANY TIME AND, IF YOU ATTEND THE
MEETING, YOU MAY VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors,
Marc S. Martin
Vice President, General Counsel & Secretary
Dated: May 17, 2002
CONVERA CORPORATION
Annual Meeting of Shareholders
PROXY STATEMENT
This Proxy Statement is furnished to shareholders in connection with
the solicitation by the Board of Directors of Convera Corporation, a Delaware
corporation (the "Company" or "Convera"), of proxies for use at the 2002 Annual
Meeting of Shareholders (the "Annual Meeting") of the Company to be held on
Tuesday, June 25, 2002 at 10:00 a.m. local time, and at any adjournment thereof,
for the purposes set forth in the accompanying Notice of Meeting. The Annual
Meeting will be held at the Hyatt Regency Reston located at 1800 Presidents
Street, Reston, Virginia 20190. The Company's principal executive offices are
located at 1921 Gallows Road, Suite 200, Vienna, Virginia 22182. The proxy
solicitation materials are being mailed to shareholders on or about May 17,
2002.
The Board of Directors has fixed May 8, 2002 as the record date for the
determination of the shareholders entitled to notice of and to vote at the
Annual Meeting. On that day, there were issued and outstanding 28,911,976 shares
of Convera common stock, par value $.01 per share, each entitled to one vote.
A form of proxy is enclosed for use at the Annual Meeting. The proxy
may be revoked by a shareholder at any time prior to the exercise thereof, and
any shareholder present at the Annual Meeting may revoke his proxy thereat and
vote in person if he or she so desires. When such proxy is properly executed and
returned, the shares it represents will be voted in accordance with any
instructions noted thereon. If no direction is indicated, all shares represented
by valid proxies received pursuant to this solicitation (and not revoked prior
to exercise) will be voted for the election of the nominees for directors named
in Item 1 herein (unless authority to vote is withheld).
Convera was established on December 21, 2000 through a business
combination transaction (the "Combination") of the former Excalibur Technologies
Corporation ("Excalibur") and Intel Corporation's ("Intel") Interactive Media
Services division. Convera is a successor registrant to Excalibur. Convera's
Annual Report for the fiscal year ended January 31, 2002 is enclosed with this
Proxy Statement for each shareholder.
Item 1
ELECTION OF DIRECTORS
General
Nine individuals, all of whom are members of the present Board of
Directors, have been nominated for election as directors of the Company until
the next annual meeting and until their respective successors are elected and
qualified.
The persons named in the proxy, who have been designated by the
Company's management, intend, unless otherwise instructed on the proxy card, to
vote for the election to the Board of Directors of the persons named below. If
any nominee should become unavailable to serve, the proxy may be voted for the
election of another person designated by the Board of Directors. The Board of
Directors has no reason to believe any of the persons named will be unable to
serve if elected. The affirmative vote of the holders of a plurality of the
shares of common stock voting at the Annual Meeting is necessary for the
election of directors. Any shares not voted (by abstention, broker non-vote, or
otherwise) have no impact on the vote. The Board of Directors recommends a vote
FOR the nominees listed below.
Information Concerning Directors and Nominees
Information regarding each nominee for director is set forth in the
following table.
Name Age Position
- ---- --- --------
Ronald J. Whittier 65 Chairman
Patrick C. Condo 45 President, Chief Executive Officer,
and Director
Herbert A. Allen 62 Director
Herbert A. Allen III 34 Director
Robert A. Burgelman 57 Director
Stephen D. Greenberg 53 Director
Eli S. Jacobs 64 Director
Donald R. Keough 75 Director
William S. Reed 64 Director
Ronald J. Whittier has been Chairman of the Company since the effective
date of the Combination on December 21, 2000 and was Chief Executive Officer
from December 21, 2000 through April 5, 2001. Mr. Whittier formerly held the
position of Senior Vice President and General Manager of Intel's Interactive
Media Services division since 1999. From 1995 to 1999, he was responsible for
coordinating Intel's various activities in content, applications and authoring
tools. Prior to 1995, he held various jobs at Intel, including manager of Intel
Architecture Labs, Director of Corporate Marketing and general manager of the
Memory Products Division. Mr. Whittier joined Intel in 1970.
Patrick C. Condo has been President and a director of the Company since
the effective date of the Combination on December 21, 2000 and was appointed to
the additional position of Chief Executive Officer on April 5, 2001. Mr. Condo
was formerly President and Chief Executive Officer of Excalibur since November
1995 and a Director since January 1996. Mr. Condo was President of Excalibur
from May 1995 to November 1995. He became Executive Vice President of Excalibur
in January 1995 after serving as the Director of Business Development from
November 1992.
Herbert A. Allen has been a director of the Company since the effective
date of the Combination on December 21, 2000 and was a director of Excalibur
since June 2000. He has been President, Chief Executive Officer, Managing
Director and a director of Allen & Company Incorporated, an investment banking
firm, for more than the past five years. He is a member of the Board of
Directors of The Coca-Cola Company. He is the father of Herbert A. Allen III.
Herbert A. Allen III has been a director of the Company since January
2002. He has been Executive Vice President and a Managing Director of Allen &
Company Incorporated, an investment banking firm, for more than the past five
years. He is the son of Herbert A. Allen.
Robert A. Burgelman has been a director of the Company since August
2001. He has served as a Professor of Management at Stanford University Graduate
School of Business since 1981.
Stephen D. Greenberg has been a director of the Company since August
2001. He has been a Managing Director of Allen & Company Incorporated, an
investment banking firm, since January 2002. Prior to that, he served as
Chairman of Fusient Media Ventures, Inc., a company focused on investing in and
building branded media and sports properties, since 2000. Mr. Greenberg was a
private investor from 1998-1999. From 1994-1998, Mr. Greenberg was President of
Classic Sports Network, a cable sports network. He is a member of the Board of
Directors of The Topps Company, Inc., a sports cards and confectionery products
company.
Eli S. Jacobs has been a director of the Company since February 2002.
He has been a private investor for more than the past five years.
Donald R. Keough has been a director of the Company since January 2002.
He was Chairman of Excalibur from June 1996 until the Combination. Since 1993,
Mr. Keough has been Chairman of DMK International, an investment ompany, and of
Allen & Company Incorporated, an investment banking firm. Mr. Keough also
serves on the Board of Directors of McDonald's Corporation, The Washington Post
Company, USA Networks, Inc. and YankeeNets LLC.
William S. Reed has been a director of the Company since February 2002.
He has been a Vice President of Wellesley College since 1990.
Information Concerning the Board of Directors and Its Committees
The Board of Directors held eight meetings during the fiscal year ended
January 31, 2002 and acted by unanimous written consent on five occasions. Each
incumbent director attended more than 75% of the aggregate number of meetings of
the Board of Directors and appropriate committees held during fiscal year 2002
since their election.
The Board of Directors has established a number of committees. The
Audit Committee met four times during the fiscal year ended January 31, 2002.
The Audit Committee consists of Mr. Stephen D. Greenberg (Chairman), Mr. Eli S.
Jacobs and Mr. William S. Reed. Each of the Audit Committee members is
independent as defined by the National Association of Securities Dealers'
("NASD") listing standards, except for Mr. Greenberg, who does not meet this
standard due to his employment by Allen and Company, Incorporated, a controlling
shareholder of the Company. As defined in the NASD listing standards, Audit
Committees may contain one member that does not meet independence standards
provided that the Board of Directors makes a determination that such
non-independent member is in the best interests of the Company and its
shareholders. The Board of Directors has made such determination with regard to
Mr. Greenberg's membership on the Audit Committee. During fiscal year 2002, the
Audit Committee consisted of Mr. Stephen Greenberg (Chairman), Mr. Herbert
Allen, and Mr. Andy Bryant. Mr. Bryant resigned from the Board in January 2002
upon Intel's sale of its Convera common stock holdings. Mr. Allen resigned from
the Audit Committee in January 2002 due to his change in status to a
non-independent member after Allen and Company, Incorporated acquired a
controlling interest in the Company. Information regarding the functions
performed by the Audit Committee is set forth in the "Report of the Audit
Committee," included in this proxy statement. The Audit Committee is governed by
a written charter adopted and approved by the Board of Directors. A copy of this
charter is incorporated by reference to the Company's Proxy Statement for its
2001 Annual Meeting of Shareholders.
The Compensation and Stock Option Administration Committee, is composed
of two directors, Mr. Allen (Chairman) and Mr. Greenberg. During fiscal year
2002, Mr. Bryant was also a member of this committee. The Compensation and Stock
Option Administration Committee administers management compensation and makes
recommendations in that regard to the Board of Directors and administers the
Company's Stock Option Plans. The Compensation and Stock Option Administration
Committee met on two occasions in fiscal year 2002.
Each non-employee director is paid $4,000 for attending each meeting of
the Board of Directors or its committees at which there is a quorum, whether in
person or by telephone, up to a maximum of $20,000 per fiscal year. In addition,
all directors are eligible for reimbursement of their expenses in attending
meetings of the Board of Directors or its committees. Further, each non-employee
director is granted options to purchase 25,000 shares of Convera common stock
upon becoming a director.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Mssrs. Allen and
Greenberg. During fiscal year 2002 and prior to his resignation on January 3,
2003, Mr. Bryant was also a member of the Compensation Committee. None of the
Compensation Committee members is an officer or employee of the Company or its
subsidiaries. No member of the Compensation Committee or executive officer of
the Company has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.
EXECUTIVE COMPENSATION
Executive Officers of the Registrant
The Board of Directors appoints the executive officers of the Company
to serve until their successors have been duly appointed and qualified. The
following information indicates the position, age and business experience of the
current Convera executive officers, Messrs. Condo, Buchanan, and Mann. There are
no family relationships between any of the executive officers of the Company.
Name Age Position
- ---- --- --------
Patrick C. Condo 45 President and Chief Executive Officer
James H. Buchanan 46 Senior Vice President and Chief
Operating Officer
Christopher M. Mann 35 Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
See the discussion included in the preceding section for the business
experience of Mr. Condo.
James H. Buchanan was named Senior Vice President and Chief Operating
Officer in September 2001. Previously, he served as Senior Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary from May 2001. He was named
Vice President, Chief Financial Officer, Treasurer and Assistant Secretary in
December 2000 upon the effective date of the Combination. Mr. Buchanan was the
Chief Financial Officer, Secretary and Treasurer of Excalibur since 1995. From
1991 to 1995, Mr. Buchanan was Vice President, Controller and Treasurer of
Legent Corporation, a software development company. Prior to that, he held
several financial management positions with Norfolk Southern Corporation and
PepsiCo. Mr. Buchanan is a certified public accountant.
Christopher M. Mann was named Vice President and Chief Financial
Officer, Treasurer and Assistant Secretary in September 2001. Mr. Mann was
previously Vice President, Finance, since joining the Company in September 2000.
Prior to joining Convera, Mr. Mann was a Senior Manager with
PricewaterhouseCoopers, LLP, an independent accounting firm, where he was
employed since 1990. Mr. Mann is a certified public accountant.
Summary Compensation Table
The following table presents information concerning the compensation of
the Company's Chief Executive Officer and each of the other most highly
compensated executive officers during the 2002 fiscal year (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company for the fiscal year ended January 31, 2002, as well as the previous two
fiscal years:
Long Term Compensation
Annual Compensation Awards Payouts
--------------------------------- --------------------- -----------------
Other Securities All
Annual Restricted Under- Other
Compen- Stock lying LTIP Compen-
Name and Principal Fiscal sation Award(s) Options/ Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) SARs (#) ($) ($)
- -------- ---- ---------- --------- --- --- -------- --- ---
Ronald J. Whittier 2002 326,466 109,500 -- -- 900,000(1) -- --
Chairman (2) 2001 42,564 (3) -- -- -- 900,000 -- --
Patrick C. Condo 2002 300,000 183,125 -- -- 1,275,000(4) -- --
President and Chief 2001 277,757 158,957 -- -- 100,000 -- --
Executive Officer (2) 2000 275,000 102,369 -- -- 175,000 -- --
James H. Buchanan 2002 250,000 60,563 -- -- 500,000(5) -- --
Chief Operating 2001 250,000 130,060 -- -- 205,000 -- --
Officer 2000 230,000 84,425 -- -- 35,000 -- --
Ciaran T. Doyle 2002 250,000 544,773(6) -- -- 400,000(7) -- --
Senior Vice President, 2001 26,602(8) 11,230 -- -- 400,000 -- --
Integration Services
Kamran Khan 2002 240,000 44,816 6,538 (9) -- 460,250(10) -- --
Senior Vice President, 2001 200,000 106,116 17,437 (11) -- 285,250 -- --
Sales and Business 2000 145,000 117,246 44,990 (12) -- 35,000 -- --
Development
David Nunnerley 2002 230,000 44,816 -- -- 443,000(13) -- --
Senior Vice President, 2001 200,000 77,442 9,594 (14) -- 293,000 -- --
Product Management 2000 180,000 68,000 18,428 (15) -- 50,000 -- --
(1) Represents options that were previously granted in fiscal year 2001 and
subsequently cancelled and replaced in fiscal year 2002.
(2) On April 5, 2001, Mr. Condo replaced Mr. Whittier as Chief Executive
Officer.
(3) Represents compensation paid from December 22, 2000, when Mr. Whittier
became CEO of the Company, through January 31, 2001.
(4) This amount includes options to purchase 775,000 shares that were
previously granted and subsequently cancelled and replacedin fiscal
year 2002.
(5) This amount includes options to purchase 370,000 shares that were
previously granted and subsequently cancelled and replaced in fiscal
year 2002.
(6) This amount includes a bonus for $500,000 that was funded through an
additional capital contribution from Intel. This bonus was contingent
upon Mr. Doyle remaining employed by Convera from the date of the
Combination through April 30, 2002.
(7) Represents options that were previously granted in fiscal year 2001 and
subsequently cancelled and replaced in fiscal year 2002.
(8) Represents compensation paid from December 22, 2000, when Mr. Doyle
became employed by Convera, through January 31, 2001.
(9) Represents expenses associated with a sales award trip, grossed up for
taxes.
(10) This amount includes options to purchase 390,250 shares that were
previously granted and subsequently cancelled and replaced in fiscal
year 2002.
(11) Represents expenses associated with a sales award trip, grossed up for
taxes.
(12) In connection with Mr. Khan's relocation from the United Kingdom,
payments of $28,169 were made by the Company on Mr. Khan's behalf for
an apartment in Virginia. The remainder of Other Annual Compensation
represents income tax consulting services, a payment made to Mr. Khan's
pension plan in the United Kingdom and expenses associated with a sales
award trip. All of the items were grossed up for taxes.
(13) This amount includes options to purchase 393,000 shares that were
previously granted and subsequently cancelled and replaced in fiscal
year 2002.
(14) Represents rental payments paid by the Company on Mr. Nunnerley's
behalf, grossed up for taxes.
(15) Represents rental payments and travel expenses paid by the Company on
Mr. Nunnerley's behalf, grossed up for taxes.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options
granted during fiscal 2002 to the Named Executive Officers.
Potential Realizable
Value at Assumed
Individual Grants Annual Rates of
% of Total Stock Price
Options Appreciation for
Granted to Exercise Option Term (3)
Options Employees in or Base Expiration ---------------
Name Granted (#) Fiscal Year (1) Price Date (2) 5% ($) 10% ($)
- ---- ----------- --------------- ----- -------- ------ -------
Ronald J. 900,000 10.5% $4.38 12/21/10 2,479,103 6,282,533
Whittier
Patrick C. 500,000 5.8% $4.38 06/07/11 1,377,279 3,490,296
Condo 175,000 2.0% $4.38 12/16/09 482,048 1,221,604
100,000 1.2% $4.38 04/28/10 275,456 698,059
James H. 130,000 1.5% $4.38 06/07/11 358,093 907,477
Buchanan 35,000 0.4% $4.38 12/16/09 96,410 244,321
100,000 1.2% $4.38 04/28/10 275,456 698,059
105,000 1.2% $4.38 12/21/10 289,229 732,962
Ciaran T. Doyle 400,000 4.7% $4.38 12/21/10 1,101,823 2,792,237
Kamran Khan 70,000 0.8% $4.38 06/07/11 192,819 488,641
15,000 0.2% $4.38 04/13/09 41,318 104,709
20,000 0.2% $4.38 12/16/09 55,091 139,612
50,000 0.6% $4.38 04/28/10 137,728 349,030
235,250 2.7% $4.38 12/21/10 648,010 1,642,184
David Nunnerley 50,000 0.6% $4.38 06/07/11 137,728 349,030
10,000 0.1% $4.38 04/13/09 27,546 69,806
40,000 0.5% $4.38 12/16/09 110,182 279,224
50,000 0.6% $4.38 04/28/10 137,728 349,030
243,000 2.8% $4.38 12/21/10 669,358 1,696,284
- -------------------------------------------
(1) All of the options contained in this table were previously granted to
the Named Executive Officers, subsequently cancelled, and replaced in
fiscal year 2002. The options that vest on June 7, 2011 were originally
granted to the Named Executive Officers in fiscal year 2002. The
replacement options retained the terms of the original option grants,
including expiration dates and vesting schedules.
(2) All of the options listed vest in equal 12-1/2% increments every six
months from the date of original grant with the exception of the options
listed with an expiration date of 4/28/10. These options vest in equal
25% increments every six months from the date of original grant.
(1) The amounts shown are hypothetical gains that would exist for the
respective options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are mandated by
rules of the Securities and Exchange Commission ("SEC") and do not
represent the Company's estimate or projection of future increases in
the price of its common stock.(3)
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth, as of January 31, 2002, the number of
options and the value of exercised and unexercised options held by the Named
Executive Officers.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options/SARS at Options/SARS at
Fiscal Year-End Fiscal Year-End
Shares (#) ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable (1)
---- ------------ ------------ ------------- -----------------
Ronald J. Whittier -- -- 225,000/675,000 --/--
Patrick C. Condo -- -- 712,500/462,500 --/--
James H. Buchanan -- -- 312,500/217,500 --/--
Ciaran T. Doyle -- -- 100,000/300,000 --/--
Kamran Khan -- -- 219,812/250,188 --/--
David Nunnerley -- -- 211,500/238,500 --/--
(1) The closing price of the Company's common stock on January 31, 2002, the
last trading day of the Company's fiscal year, was $4.00 per share.
Equity Compensation Plan Information
The following table sets forth, as of January 31, 2002, information
with respect to the Company's equity compensation plans:
Number of securities
Number of Securities to be remaining available for
issued upon exercise of Weighted average exercise future issuance on stock
Plan Category outstanding options price of outstanding options option plan
- ------------------------------ -------------------------- ---------------------------- ------------------------
Equity compensation plans
approved by security holders:
1. Convera Stock Option Plan 9,484,309 $5.77 4,280,134
2. Convera Employee Stock
Purchase Plan 249,927 $7.16 1,000,073
Report of the Board of Directors on Stock Option Exchange Program
At a meeting of the Board of Directors on June 4, 2001, the Board of
Directors considered and approved a resolution in which it was reported that the
Board of Directors and management of the Company were aware that the stock
market's disfavor over the previous several months with many technology
companies, including the Company, had affected the value of options outstanding
under existing stock option plans. One effect of the depressed market price of
the Company's common stock was the substantial differential between the equity
based incentives being realized by longer term employees with those expected to
be provided to newly hired persons. The Board of Directors felt it was important
to restore incentives and motivation for the Company's employees by offering a
voluntary stock option exchange program. In addition, the Board of Directors
also felt that such action was important in order to counteract the Company's
competitors' ability to lure the Company's valuable long-term employees with
options priced at current trading prices.
The Board of Directors believes that the future success of the Company
is partially dependent upon the Company's ability to attract, retain and
motivate its employees and that the Company's stock option plans are an
important factor in achieving those goals.
Accordingly, it was recommended that the Company's Board of Directors
approve a stock option exchange program whereby current employees and directors
of the Company could elect to cancel outstanding stock options previously
granted to them in exchange for an equal number of replacement options to be
granted at a future date. Any option holder electing to participate in the
exchange program was also required to exchange any options granted to him or her
during the six months preceding 12:00 AM Eastern Time on July 9, 2001 (the
Expiration Date), and to not receive any additional option grants until the
replacement grant date. A total of 7,241,569 options were surrendered for
exchange under this program. On January 14, 2002 (the Replacement Grant Date),
the Company granted a total of 6,248,247 shares of the replacement options at
$4.38 per share. The exercise price of the replacement options was equal to the
closing sale price of our common stock on the NASDAQ National Market on the
business day preceding the Replacement Grant Date. The exchange program was
designed to comply with FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" and did not result in any additional
compensation charges or variable plan accounting.
The following table sets forth all replacement options held by any
executive officer during the last ten completed fiscal years:
Number of Length of
Cancellation securities original option
Date of underlying Exercise price Market price of New term remaining
Original options at the time of Grant Date of stock at the time exercise at the date of
Stock exchanged cancellation Replacement of replacement price replacement
Name & Title Options (#) ($) Stock Options ($) ($) (years)
- ------------ --------- --- --- ------------- --- --- -------
Ronald J. Whittier 7/10/01 900,000 $20.52 1/14/02 $4.38 $4.38 8.9
Chairman
Patrick C. Condo 7/10/01 175,000 $15.00 1/14/02 $4.38 $4.38 7.9
President & Chief 7/10/01 100,000 $33.25 1/14/02 $4.38 $4.38 8.3
Executive Officer 7/10/01 500,000 $ 4.30 1/14/02 $4.38 $4.38 9.4
James H. Buchanan 7/10/01 35,000 $15.00 1/14/02 $4.38 $4.38 7.9
Chief Operating 7/10/01 100,000 $33.25 1/14/02 $4.38 $4.38 8.3
Officer 7/10/01 105,000 $20.52 1/14/02 $4.38 $4.38 8.9
7/10/01 130,000 $ 4.30 1/14/02 $4.38 $4.38 9.4
Christopher M. Mann 7/10/01 100,000 $20.52 1/14/02 $4.38 $4.38 8.9
Chief Financial
Officer,
Treasurer &
Assistant
Secretary
Kamran Khan, 7/10/01 15,000 $16.63 1/14/02 $4.38 $4.38 7.3
Senior Vice 7/10/01 20,000 $15.00 1/14/02 $4.38 $4.38 7.9
President 7/10/01 50,000 $33.25 1/14/02 $4.38 $4.38 8.3
Sales & Business 7/10/01 235,250 $20.52 1/14/02 $4.38 $4.38 8.9
Development 7/10/01 70,000 $ 4.30 1/14/02 $4.38 $4.38 9.4
David Nunnerley, 7/10/01 10,000 $16.63 1/14/02 $4.38 $4.38 7.3
Senior Vice 7/10/01 40,000 $15.00 1/14/02 $4.38 $4.38 7.9
President 7/10/01 50,000 $33.25 1/14/02 $4.38 $4.38 8.3
Product 7/10/01 243,000 $20.52 1/14/02 $4.38 $4.38 8.9
Management 7/10/01 50,000 $ 4.30 1/14/02 $4.38 $4.38 9.4
Ciaran Doyle, 7/10/01 400,000 $20.52 1/14/02 $4.38 $4.38 8.9
Senior Vice
President
Integration
Services
Marc S. Martin, 7/10/01 100,000 $20.52 1/14/02 $4.38 $4.38 8.9
Vice President,
General Counsel
and Secretary
Employment Agreements
In May 1998, Mr. Condo entered into an agreement with Excalibur under
which Mr. Condo would be paid an amount equal to twelve months of base salary
plus bonus compensation and continuation of his employee benefits for one year
in the event Mr. Condo's employment was terminated or he was removed from his
position as chief executive officer within six months following certain "change
of control" events relating to Excalibur. Such arrangement was approved by the
full Board of Directors. In connection with the formation of Convera, Mr. Condo
waived all rights to these payments to which he would have been entitled as a
result of the Combination. He simultaneously entered into an agreement with
Convera under which Mr. Condo will be paid an amount equal to twelve months of
base salary plus bonus compensation and continuation of his employee benefits
for one year in the event Mr. Condo's employment is terminated or he is removed
from his position as President of Convera within six months following change of
control events relating to Convera.
The offer of employment letter dated September 7, 1995 for James H.
Buchanan, Chief Financial Officer, Secretary and Treasurer of Excalibur,
stipulated that Mr. Buchanan would be paid an amount equal to twelve months of
base salary in semi-monthly installments should his employment be terminated by
the Company without cause. Convera assumed this employment agreement.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 5, 2002, information
concerning the ownership of all classes of common stock of the Company of (i)
all persons known to the Company to beneficially own 5% or more of the Company's
common stock, (ii) each director of the Company, (iii) each Named Executive
Officer and (iv) all directors and executive officers of the Company as a group.
Share ownership includes shares issuable upon exercise of outstanding options
that are exercisable within 60 days of April 5, 2002.
Amount and Nature Percent
Name and Address of Beneficial of Class
of Beneficial Owner Ownership (1) Owned
- ------------------------------- ------------- -----
Allen & Company Incorporated 4,830,846 (2) 16.7%
711 Fifth Avenue
New York, NY 10022
Allen Holding, Inc. 6,312,745 (3) 21.9%
711 Fifth Avenue
New York, NY 10022
Susan K. Allen 2,016,599 7.0%
711 Fifth Avenue
New York, NY 10022
Ronald J. Whittier 326,438 (4) 1.1%
Herbert A. Allen 4,064,847 (5) 14.1%
Herbert A. Allen III 384,120 (6) 1.3%
Robert A. Burgelman 4,166 (7) *
Stephen P. Greenberg 64,166 (8) *
Eli S. Jacobs -- --
Donald R. Keough 462,500 (9) 1.6%
William S. Reed -- --
Patrick C. Condo 802,661 (10) 2.7%
James H. Buchanan 356,227 (11) 1.2%
Ciaran Doyle 100,000 (12) *
Kamran Khan 248,571 (13) *
David Nunnerley 232,664 (14) *
All directors and executive officers 7,046,360 (15) 22.9%
as a group (13 persons)
* Represents less than one percent of the outstanding common stock.
(1) To the Company's knowledge, each person or entity listed has sole voting
and investment power as to the shares indicated, except as described below.
(2) Does not include shares owned by Mr. Herbert A. Allen or Allen Holding
Incorporated, who together with Allen & Company Incorporated may be
considered a "group," as such term is defined by Section 13(d) of the
Securities Exchange Act of 1934.
(3) Does not include shares owned by Mr. Herbert A. Allen or Allen & Company
Incorporated, who together with Allen Holding Incorporated may be
considered a "group," as such term is defined by Section 13(d) of the
Securities Exchange Act of 1934.
(4) Includes outstanding options to purchase 225,000 shares, which were
exercisable on or within 60 days of April 5, 2002.
(5) Does not include shares owned by Allen & Company Incorporated and Allen
Holding Incorporated, of which Mr. Allen is President and Chief Executive
Officer and as to which shares Mr. Allen disclaims beneficial ownership.
Amount includes outstanding options to purchase 4,166 shares, which were
exercisable on or within 60 days of April 5, 2002.
(6) Includes 383,820 shares owned by HAGC L.P., as to which Mr. Herbert Allen
III shares voting and disposition authority.
(7) Includes outstanding options to purchase 4,166 shares, which were
exercisable on or within 60 days of April 5, 2002.
(8) Includes outstanding options to purchase 4,166 shares, which were
exercisable on or within 60 days of April 5, 2002.
(9) Includes 257,000 shares held by a family trust, as to which Mr. Keough
shares voting and disposition authority.
(10) Includes outstanding options to purchase 799,999 shares, which were
exercisable on or within 60 days of April 5, 2002.
(11) Includes outstanding options to purchase 353,749 shares, which were
exercisable on or within 60 days of April 5, 2002.
(12) Represents outstanding options to purchase 100,000 shares, which were
exercisable on or within 60 days of April 5, 2002.
(13) Includes outstanding options to purchase 241,061 shares, which were
exercisable on or within 60 days of April 5, 2002.
(14) Includes outstanding options to purchase 230,249 shares, which were
exercisable on or within 60 days of April 5, 2002.
(15) Includes outstanding options to purchase 1,962,556 shares, which were
exercisable on or within 60 days of April 5, 2002.
Certain Relationships and Related Transactions
The Company's policy is that it will not make loans to, or enter into
other transactions with directors, officers or affiliates unless such loans or
transactions are approved by a majority of the Company's independent
disinterested directors, may reasonably be expected to benefit the Company, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
Mr. Herbert A. Allen is President, Chief Executive Officer, Managing
Director and a director of Allen & Company Incorporated and President and Chief
Executive Officer of Allen Holding Incorporated, which together own 38.6% of the
Company's outstanding common stock. Mr. Herbert A. Allen III is an Executive
Vice President and Managing Director, and Mr. Stephen D. Greenberg is a Managing
Director of Allen & Company Incorporated. Mr. Donald R. Keough is Chairman of
Allen & Company Incorporated.
Report of the Compensation Committee
The following is the report of the Compensation Committee of the Board
of Directors of Convera, describing the compensation policies and rationale
applicable to Convera's executive officers with respect to the compensation paid
to such executive officers for the fiscal year ended January 31, 2002. The
Compensation Committee of the Board of Directors is composed entirely of
directors who have never been employees of the Company. As members of the
Compensation Committee, it is our duty to set compensation policies applicable
to Convera's executive officers and to evaluate the performance of Convera's
executive officers. The Compensation Committee is responsible for setting and
administering the policies and programs that govern annual compensation and
long-term incentives. The foundation of the executive compensation program is
based on principles designed to align compensation with the Company's business
strategy, values and management initiatives. The program:
- integrates compensation programs which link compensation with the
Company's annual strategic planning and measurement processes;
- supports a performance-oriented environment that rewards actual
performance that is related to both strategic goals that cannot be
measured by traditional accounting tools and performance of the Company
as compared to that of the Company's annual financial objectives; and
- helps attract and retain key executives who are critical to the long-term
success of the Company.
In order to further these objectives, for fiscal year 2002 executive
officer compensation included three components: (1) base salary, (2) an annual
incentive bonus, and (3) a long-term incentive award. The compensation policy of
Convera is that a substantial portion of the annual compensation of each
executive officer should relate to and be contingent upon the performance of
Convera, as well as the individual contribution of each executive officer. In
addition, the Compensation Committee believes that the total compensation
package must be competitive with other companies in the industry to ensure that
Convera can continue to attract, retain and motivate key executives who are
critical to the long-term success of Convera. The Compensation Committee does
not employ outside consultants or utilize specific compensation surveys in
evaluating competing company compensation policies or financial performance.
Instead, the Compensation Committee members rely on their own experience and
knowledge of Convera and its industry, as well as that of management and other
board members, in evaluating such factors.
Base Salary. The Compensation Committee determines the salary ranges
for each of the executive officer positions based upon the scope, level, and
strategic impact of the position, and on the historical pay levels of the
particular executive officers, as well as information they may have for
similarly positioned executive officers in comparable companies. Annual salary
adjustments recognize sustained individual performance by the executive, with
overall salary increase funding levels sensitive to both the individual's and
the company's performance. The Compensation Committee presents the salary
recommendations for the named officers to the Board of Directors for approval.
These salary recommendations are based on the executive's contribution to the
Company, experience and expertise. There are no individual performance matrices
or pre-established weightings given to each factor.
Annual Incentive Bonus. The annual incentive bonus program provides for
cash awards based upon achievement of certain corporate and business goals set
at the beginning of the year, the individual's level of responsibility and the
individual's personal performance. Under Convera's bonus scheme, bonuses are
paid based upon Convera attaining certain sales, profitability and strategic
goals and on each officer's individual contribution to Convera's attainment of
such goals. For fiscal year 2002, except for Mr. Condo, 50% of each Named
Executive Officer's, potential bonus was based on the achievement of corporate
revenue goals; 20% was based on the achievement of corporate profitability
goals; and 30% was based on the achievement of quarterly management objectives
as determined by the Chief Executive Officer and the Chairman of the
Compensation Committee. Revenue was given the largest weighting by the
Compensation Committee as it was generally considered the most important
financial measure within Convera's industry for companies at a comparable stage
of growth. The percentage of bonus received does not directly correspond to the
percentage of the revenue target achieved. For example, Convera must meet at
least 90% of the revenue target for the officers to receive any of their revenue
bonus, and the bonus percentage received scales upward depending on the
percentage of the revenue target attained. There is a similar scale for
corporate profitability. The revenue and corporate profitability targets are
derived from the annual operating budget that is approved by the full Board of
Directors. The quarterly management objectives represent more subjective aspects
of performance such as the development and execution of strategic plans, the
development and management of employees and the exercise of leadership within
Convera. The Compensation Committee set a maximum bonus amount for each named
executive officer, which was revised downward for the second quarter through the
end of fiscal year 2002 with the opportunity to exceed the maximum up to 10%.
The actual annual incentive award was then determined based on actual results
measured by the Compensation Committee against these goals. For fiscal year
2002, the named executive officers received between approximately 41% and 61% of
their maximum revised bonus amounts.
Long-term Incentive Award. As with prior years, for fiscal year 2002,
long-term compensation for the Chief Executive Officer and other executives
consisted of stock options. Stock options provide incentive for the creation of
shareholder value over the long term since the full benefit of the compensation
package cannot be realized unless an appreciation in the price of Convera's
common stock occurs over a specified number of years. The size of previous
grants and the number of shares held by an executive generally are not
considered in determining annual award levels. Instead, the size of these grants
is based on the Compensation Committee's evaluation of the Company and
individual performance factors comparable to those discussed above for the
determination of bonus grants. Stock options are granted with an exercise price
equal to or greater than the fair market value of Convera common stock on the
day of grant, and become exercisable after the expiration of a period of time,
typically every six months over four years, and continue to be exercisable until
ten years from the date granted.
Compensation of the Chief Executive Officer. Mr. Condo's annual base
salary as of January 31, 2002 was $300,000. Mr. Condo's salary was determined
following discussions between Mr. Condo and the Compensation Committee. Mr.
Condo was paid a bonus of $183,125 for the achievement of certain fiscal year
2002 goals; 50% of Mr. Condo's quarterly potential bonus was based on the
achievement of corporate revenue goals; 20% was based on the achievement of
corporate profitability goals; and 30% was based on the achievement of quarterly
management objectives as determined by the Chief Executive Officer and the
Compensation Committee. This amount included a special bonus of $80,000 at the
end of the fiscal year representing 80% achievement against specific goals set
by the Board of Directors in May 2002. Criteria included goals that furthered
the messaging and positioning of the Company for future revenue growth. Mr.
Condo's bonus amount represented approximately 61% of the maximum bonus target
established by the Compensation Committee and reflected Convera's ability to
meet a portion, but not all, of its revenue and corporate profitability targets.
In fiscal year 2002, the Compensation Committee granted Mr. Condo an option on
500,000 shares, exercisable in 12.5% increments every six months from the date
of grant. The Compensation Committee determined that Mr. Condo's contribution
to the company's improving financial performance and strategic positioning made
this option award appropriate. All of the foregoing actions of the Compensation
Committee were ratified by the non-interested members of the Board of Directors.
This report is submitted by the members of the Fiscal Year 2002
Compensation Committee:
Herbert A. Allen (Chairman)
Mr. Stephen D. Greenberg
Report of the Audit Committee
The Audit Committee of the Board of Directors as of the date of this
report is comprised of two independent directors, Mssrs. Jacobs and Reed, and
Mr. Greenberg, who does not meet the independence standard due to his employment
by Allen and Company, Incorporated, a controlling shareholder of the Company.
The Audit Committee oversees the Company's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the Audit Committee
reviewed with management the audited financial statements in the Annual Report,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Audit Committee reviewed with Ernst & Young LLP, the independent
auditors who are responsible for expressing an opinion on the conformity of
those audited financial statements with generally accepted accounting
principles, their judgments as to the quality, not just the acceptability, of
the Company's accounting principles and such other matters as are required to be
discussed with the Audit Committee under generally accepted auditing standards
including Statement on Auditing Standards No. 61 (Communications with Audit
Committees). In addition, the Audit Committee has discussed with Ernst & Young
LLP the auditors' independence from management and the Company including the
matters in the written disclosures required by Independence Standards Board No.
1 (Independence Discussions with Audit Committees) and considered the
compatibility of nonaudit services with the auditors' independence.
The Audit Committee discussed with Ernst & Young LLP the overall scope
and plans for the audit. The Audit Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examination, their evaluation of the Company's internal controls, and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board of Directors has
approved) that the audited financial statements be included in the Annual Report
on Form 10-K for the year ended January 31, 2002 for filing with the SEC. Each
year, the Audit Committee recommends to the Board of Directors the selection of
Convera's independent auditors. The Audit Committee and the Board of Directors
have recommended the selection of Ernst & Young LLP as the Company's independent
auditors for fiscal year 2003.
This report is submitted by the members of the Fiscal Year 2002 Audit
Committee.
Mr. Stephen D. Greenberg (Chairman)
Mr. Eli S. Jacobs
Mr. William S. Reed
The following graph is a comparison of the cumulative total return to
shareholders of the Company's common stock at January 31, 2002 since January 31,
1997 to the cumulative total return over such period of (i) the NASDAQ Stock
Market-U.S., and (ii) the Standard & Poor's High Tech Composite, assuming an
investment in each of $100 on January 31, 1997 and the reinvestment of
dividends. The information contained in the Performance Graph shall not be
deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
Cumulative Total Return
---------------------------------------------
1/97 1/98 1/99 1/00 1/01 1/02
Convera Corporation 100 80 83 169 142 30
NASDAQ Stock Market (U.S.) 100 118 185 289 202 142
S & P Technology Sector 100 121 226 314 239 155
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and regulations
of the SEC thereunder require the Company's executive officers and directors,
and persons who own more that ten percent of a registered class of the Company's
equity securities, to file reports of initial ownership and changes in ownership
with the SEC. Based solely on its review of copies of such forms received by the
Company, or on written representations from certain reporting persons that no
other reports were required for such persons, the Company believes that during
or with respect to the period from February 1, 2001 to January 31, 2002 all of
the Section 16(a) filing requirements applicable to its executive officers,
directors and ten percent shareholders were complied with on a timely basis,
except for Mssrs. Buchanan, Condo, Mann and Whittier, who did not file a Form 5
in a timely manner.
Shareholder Proposals To Be Presented At Next Annual Meeting
Proposals of shareholders intended to be presented by such
shareholders at next year's Annual Meeting must be received by the Company at
its principal office no later than January 17, 2003 and must satisfy the
conditions established by the SEC for shareholder proposals to be included in
the Company's proxy statement for that meeting.
OTHER MATTERS
Expenses of Solicitation
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, and the entire cost of such solicitation will be borne
by the Company. Proxies may also be solicited by directors, officers and
employees of the Company, without additional compensation, by personal
interview, telephone and facsimile. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material and annual reports to the beneficial owners of stock held
of record by such persons, and the Company will reimburse them for reasonable
out-of-pocket and clerical expenses incurred by them in connection therewith.
Independent Auditors
Convera's Current Auditors
On the recommendation of the Audit Committee of the Board of Directors,
the Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending January 31, 2003.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting to respond to appropriate questions and to make a statement if they so
desire.
Audit Fees. Fees paid to Ernst & Young for the last annual audit were
$215,000.
Financial Information Systems Design and Implementation Fees. Ernst &
Young did not provide the company any financial information systems design and
implementation services and accordingly there were no fees.
All Other Fees. All other fees billed by Ernst & Young were $47,000,
including audit related services of $20,000 and non-audit services of $27,000.
Audit related services generally include fees for audits of the Company's
benefit plans, accounting consultations and SEC registration statements. The
Audit Committee has considered whether provision of the services described above
under the caption "Financial Information System Design and Implementation Fees"
and "All Other Fees" is compatible with maintaining the independent accountants'
independence and has determined that such services have not adversely affected
Ernst & Young's independence.
Information Concerning Prior Changes in Excalibur's Auditors
On July 14, 2000, PricewaterhouseCoopers LLP resigned in anticipation
of a conflict of interest resulting from Excalibur's proposed combination with
the IMS division of Intel and the prior existence of a business alliance between
PricewaterhouseCoopers and Intel, which PricewaterhouseCoopers concluded would
impair its auditor independence with regard to Convera.
During the fiscal years ended January 31, 1999 and January 31, 2000 and
through July 14, 2000, none of PricewaterhouseCoopers' reports on Excalibur's
financial statements contained an adverse opinion or a disclaimer of opinion, or
were qualified or modified as to uncertainty, audit scope or accounting
principles. During that reporting period, there were no matters of disagreement
with PricewaterhouseCoopers on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures
which, if not resolved to the satisfaction of PricewaterhouseCoopers, would have
caused PricewaterhouseCoopers to make a reference thereto in its report.
On July 19, 2000, Excalibur engaged Ernst & Young as its new
independent accounting firm. The decision to engage Ernst & Young was approved
by the board of directors of Excalibur on the recommendation of its audit
committee.
Discretionary Authority
The Annual Meeting is called for the specific purposes set forth in the
Notice of Meeting and discussed above, and also for the purpose of transacting
such other business as may properly come before the Annual Meeting. At the date
of this Proxy Statement, the Company does not expect that any other matters will
be submitted for consideration at the Annual Meeting other than those
specifically referred to above. If any other matters properly come before the
Annual Meeting, the proxy holders will be entitled to exercise discretionary
authority to the extent permitted by applicable law.
By Order of the Board of Directors,
Marc S. Martin
Vice President, General Counsel & Secretary
Dated: May 17, 2002
PROXY PROXY
CONVERA CORPORATION PROXY
1921 Gallows Road, Suite 200
Vienna, Virginia 22182
The undersigned holder of Common Stock of Convera Corporation (the "Company")
hereby constitutes and appoints Patrick C. Condo and Marc S. Martin, and each of
them, attorneys and proxies with full power of substitution to each, for and in
the name of the undersigned to vote the shares of Common Stock of the Company,
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders of the Company to be held at the Hyatt Regency
Reston, 1800 Presidents Street, Reston, Virginia 20190 on Tuesday, June 25, 2002
at 10:00 a.m., local time, or at any and all adjournments thereof, on all
matters as may properly come before the meeting. The undersigned hereby revokes
any and all proxies heretofore given with respect to such meetings.
Each of such attorneys and proxies present at the meeting shall and may exercise
the powers granted hereunder.
Receipt is acknowledged of the Notice of Annual Meeting of Shareholders dated
May 17, 2002 and the Proxy Statement accompanying said notice.
Said attorneys are hereby instructed to vote as specified below. If no
specification is made, this proxy will be voted FOR Item 1 below.
1. Election of the following nine (9) nominees to serve as directors until the
next Annual Meeting of Shareholders and until their successors are elected and
qualified.
Nominees: Ronald J. Whittier Herbert A. Allen Herbert A. Allen III
Robert A. Burgelman Patrick C. Condo Stephen D. Greenberg
Eli S. Jacobs Donald R. Keough William S. Reed
o FOR o WITHHELD o
--------------------------------------
For all nominees except as noted above
2. In their discretion, to vote upon such other matters as may properly come
before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Dated: , 2002
-----------------------
----------------------------
Signature
----------------------------
Signature(s) if held jointly
Please sign your name as it appears hereon. In the case of joint owners or
tenants in common, each should sign. If signing as a trustee, guardian or in any
other representative capacity or on behalf of a corporation or partnership,
please indicate your title.