10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 31, 2006

Commission File Number 000-31989

CONVERA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	54-1987541
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1921 Gallows Road, Suite 200, Vienna, Virginia	22182
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (703) 761 - 3700

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No ü 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YesNo ü

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days. Yes ü No __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer   Accelerated Filer ü   Non-Accelerated Filer 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo ü

The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 31, 2005 (based on the closing sales price as reported on the NASDAQ National Market System) was $201,536,203.

The number of shares outstanding of the registrant's Class A common stock as of March 22, 2006 was 52,269,750.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2006 Annual Meeting of Shareholders are incorporated by reference into Part III.

The Index to Exhibits begins on Page 36

CONVERA CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED JANUARY 31, 2006

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	1
Item 1A.	Risk Factors	12
Items 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purcdhases of Equity Securities	20
Item 6.	Selected Financial Data	21
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	33
Item 9A.	Controls and Procedures	33
Item 9B.	Other Information	33
	PART III
Item 10.	Directors and Executive Officers of the Registrant	34
Item 11.	Executive Compensation	34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13.	Certain Relationships and Related Transactions	34
Item 14.	Principal Accounting Fees and Services	34
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	35

PART I

Item 1.Business

FORWARD-LOOKING STATEMENTS

The statements contained in this report that are not purely historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements about the expectations, beliefs, intentions or strategies regarding the future of Convera Corporation (“Convera” or the “Company.”) Words such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions are used to identify these forward-looking statements. These include, among others, statements relating to the Company's future expectations, performance, plans, and prospects, as well as assumptions about future events. All forward-looking statements included in this report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The forward-looking statements contained herein involve risks and uncertainties discussed under the heading “Risk Factors” below. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of such factors, including those set forth in this report.

Overview

Convera designs, develops, markets, implements and supports 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. Convera believes its enterprise solution, RetrievalWare, offer 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. Convera also offers professional services for its software solutions to ensure Convera products integrate seamlessly into customer environments. Training, consulting and maintenance services are also provided to facilitate optimal use of its technologies.

Convera maintains a portfolio of patented and proprietary technologies. Its 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 (“APRP”) 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. The Company’s most recent software release, RetrievalWare 8, includes technical advancements such as categorization, dynamic classification, profiling and distributed indexing capabilities. In addition, the Company has 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 (the “Web”). This next-generation search technology, called Excalibur, achieved its initial development milestone in October 2004 by creating an “Alpha” stage, search platform for open-source Web content. On November 1, 2005 the Company announced that the Excalibur Web offering was commercially available as the technology had advanced to then contain more than 4 billion documents in the index and a redundant hosting environment was established with AT&T.

As of January 31, 2006 and 2005, Allen Holding, Inc., together with Allen & Company Incorporated, Herbert A. Allen and certain related parties (collectively “Allen & Company”) beneficially owned approximately 47% and more than 50% of the voting power of Convera, and would therefore in each instance be able to effectively control the outcome of matters requiring a stockholder vote. RetrievalWare and Screening Room are registered trademarks of Convera Corporation or its subsidiaries in the United States and other countries.

The Company can be contacted via email at invest@convera.com and visited at its web site, www.convera.com. On our web site, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement on Form 14A related to our annual stockholder’s meeting and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) of 15(d) of the Securities Exchange Act of 1934, as amended. All such filings on our web site are available free of charge. Information on the Convera web site is not part of this Form 10-K.

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Business Strategy

The Company licenses its software products directly to government agencies and commercial enterprises throughout North America, Europe and other parts of the world. The Company also distributes its software products through license agreements with systems integrators, Original Equipment Manufacturers (“OEMs”), value-added resellers, and other strategic partners. The Company’s technology may also be customized to meet the specific needs of its customers. Further, the Company continues to focus a substantial amount of resources on further penetration of the national security, defense, law enforcement and intelligence gathering community with the United States and its allies, while limiting its selling and marketing efforts to commercial customers for the RetrievalWare enterprise application. The Company has also increased its efforts with regard to its Excalibur Web offering. Convera has begun focusing much of its selling and marketing resources on establishing distribution channels for Excalibur. The Company is again targeting the government marketplace, as well as the media and publishing sectors for Excalibur at this time. This strategy is expected to capitalize on customer requirements within these market segments seeking both Intranet and Web-based search and categorization technologies to manage the vast amounts of content within their environments. The Company may elect to seek additional and/or alternative market segments for the Excalibur offering over the coming quarters.

Convera continues to conduct international sales activities through Convera Technologies International, Limited (“CTIL”), its wholly owned subsidiary in the United Kingdom.

Convera Products

Products

Convera develops, markets, licenses, services and supports its enterprise software product RetrievalWare, which offers customers mission-critical search and categorization solutions powering a broad range of applications including enterprise portals, knowledge management, intelligence gathering, profiling, corporate policy compliance, regulatory compliance, and customer service. These applications are utilized within corporate intranets, Internet e-commerce, online publishing and OEM market segments.

Convera’s products are designed to address the search and categorization needs of a diverse customer base within government agencies and commercial enterprises on a global basis. From supporting the most demanding requirements of the intelligence and law enforcement communities within government agencies, to providing the enterprise search backbone of Fortune 500 companies, Convera products are often a critical part of customers’ information management infrastructure.

RetrievalWare is a secure, highly scalable software platform for mission-critical, search and categorization applications. The RetrievalWare distributed architecture provides a high performance, high scalability infrastructure for indexing, searching, categorizing and linking information across a broad range of content sources.

Convera products are best suited for organizations that face the following challenges:

·   Searching a large collection of unstructured information assets distributed in information silos across the enterprise;

·   Dealing with large volumes of incoming unstructured data on a daily basis;

·   Searching disparate collections of documents and records regardless of their format, including scanned paper, text, audio, video, images and relational databases;

·   Tightly integrating the search solution as part of the corporate security infrastructure;

·   Providing a robust, scalable and highly available information discovery platform; and

·   Searching information that exists in multiple languages.

With the release of RetrievalWare 8, Convera enhanced its software product offering with new categorization and classification capabilities, as well as tools for developing and deploying taxonomies, and architectural enhancements

that allow RetrievalWare to easily fit within J2EE and Web Services environments.

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Convera’s Categorization and Dynamic Classification software introduced with RetrievalWare 8 allows enterprises and government agencies to more easily search and browse unstructured information from diverse user perspectives and roles. It also allows organization to more easily discover hidden information that is most relevant to queries against large repositories of information.

Convera’s Cartridge and Classification Workbench allows enterprises to develop, import, change and integrate various taxonomies and semantic networks that may be used for organizing and accessing an enterprise’s unstructured content. This new suite of tools also helps enterprises measure the quality of the taxonomies being used to organize their information assets. This provides predictive insight into the user’s satisfaction that will result from the search and categorization solution being deployed.

RetrievalWare 8 was built using the modern Application Server Architecture, effectively supporting those customers who have chosen to adopt the Service Oriented Application Architecture within their enterprises. The support of open Application Programming Interfaces (“APIs”) like Java Services and Web Services APIs allows RetrievalWare 8 to be integrated into a variety of enterprise applications with relative ease.

The RetrievalWare 8 product line includes:

RetrievalWare® Search (Base Product)

Optional Components:

RetrievalWare® Categorization and Dynamic Classification;

RetrievalWare® Profiling;

RetrievalWare® Cartridge & Classification Workbench

Language Cartridges;

Domain Cartridges;

Taxonomy Cartridges;

RetrievalWare® Synchronizers;

Internet Spider;

RetrievalWare® FileRoom;

Screening Room®;

Screening Room® Capture;

RetrievalWare® SDK;

Screening Room® API’s; and

Visual RetrievalWare®.

RetrievalWare® Search (Base Product)

RetrievalWare provides a secure, scalable information retrieval and knowledge discovery infrastructure utilizing advanced indexing, search and categorization technology. The RetrievalWare distributed process architecture enables government agencies and commercial enterprises to integrate information assets into a single point of access, to navigate that information and to collaborate on retrieved information to achieve mission-critical objectives. By utilizing multi-mode searching built around Convera’s proprietary semantic network technologies, pattern matching (APRP) and Boolean search, RetrievalWare empowers users to securely access and retrieve mission critical information assets across multiple data types.

With Convera’s semantic networks and natural language processing, users can easily find needed information without having to specify exact keywords. RetrievalWare incorporates syntax, morphology and the actual meaning of words in its search algorithms. The baseline semantic network in the English language version of RetrievalWare gives users a built-in knowledge base of approximately 500,000 word meanings, 50,000 language idioms and 1.6 million word associations. Users submit plain English queries that are automatically expanded to include related terms and concepts, thereby increasing the likelihood that highly relevant content will be retrieved. RetrievalWare also supports domain specific semantic networks to further enhance search precision and recall in specific fields of interest, including: Biology, Chemistry, Computers, Electronics, Finance, Food Science, Geography, Geology, Health Sciences, Information Science, Law, Mathematics, Medical, Military, Petroleum, Natural Gas & Petrochemicals, Pharmaceutical, Pharmacology, Physics, Plastics, Rubber and Telecommunications. Other disciplines can be supported through the use of Convera tools that enable the development of enterprise-specific semantic networks.

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APRP identifies patterns in digital information. In text applications, it allows users to retrieve relevant information regardless of spelling errors contained in queries or the existence of inconsistencies in the searched data that may be caused by errors in optical character recognition processes. The software works at high speed and supports the rapid development of multi-language text-retrieval systems.

RetrievalWare supports more than 200 document formats stored on file servers, in groupware systems, relational databases, document management systems, intranets and the Internet. RetrievalWare provides real time profiling which enables users to automatically receive incoming documents of interest. The RetrievalWare Profiling Server filters, stores and distributes incoming data from many sources including real-time news feeds, relational databases, paper repositories and the RetrievalWare Internet Spider.

Convera provides what it believes was the industry’s first enterprise search product to offer multimedia and cross-lingual search as off-the-shelf product features. By providing users with a single product that simultaneously searches and organizes all data types (such as text, video, image and audio files) in multiple languages from a single user interface, customers do not have to buy and piece together several disparate systems to manage multiple data types and languages.

RetrievalWare provides access to both unstructured and structured information across enterprise networks, workgroup LANs, and intranets. The software may be deployed on a single server or across any number of distributed physical servers. RetrievalWare server solutions can be run on multiple platforms including leading UNIX, LINUX and Windows platforms.

The RetrievalWare 8 product line includes the following optional components:

Categorization and Dynamic Classification

The RetrievalWare Categorization and Dynamic Classification solution enables enterprises to bring consistency and scalability to the organization and access of information assets through the use of stable, industry standard taxonomies. RetrievalWare uses one or more taxonomies to extract concepts and context from information assets. These assets can then be organized into specific views that reflect the personalized knowledge requirements, roles and perspectives of each user. This approach to organizing information facilitates knowledge discovery and collaboration among knowledge workers.

Profiling

RetrievalWare Profiling automatically detects, routes and stores relevant documents in user-defined profiles, thus accelerating the timely discovery of relevant information as it enters the RetrievalWare environment.

Cartridge & Classification Workbench

Convera’s Cartridge & Classification Workbench enables the use of manual and automated tools to streamline taxonomy classification development, benchmarking, and deployment. These tools reduce taxonomy development and deployment times as well as maintenance costs.

Language, Domain and Taxonomy Cartridges

RetrievalWare provides highly accurate and relevant search and categorization results based upon its linguistic processing capability. Through the use of robust semantic networks and taxonomies that cover many languages and domain specific fields of interest, RetrievalWare recognizes and processes words, phrases and concepts in the context in which they exist. The result is a comprehensive search and retrieval solution enabling basic keyword search, advanced natural language and conceptual search, as well as information categorization in many languages and fields of interest. Language, Domain and Taxonomy Cartridges are provided as pre-packaged optional components to RetrievalWare. Convera also provides development tools that allow customers, partners or integrators to develop, edit and customize cartridge content for specific business solutions.

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Synchronizers

RetrievalWare Synchronizers provide document-level secure access for users to search multiple native repositories from a single point of access. Supported repositories include Lotus Notes, Microsoft Exchange, Documentum, FileNET Panagon, native file systems and major relational database management systems including Microsoft SQL Server, Oracle, DB2, Sybase, Informix, Teradata and any ODBC-compliant database.

Internet Spider

Internet Spider is a multimedia, high-performance Web spider/crawler for augmenting the retrieval capabilities of RetrievalWare, for stand-alone use, or for integration with other applications. In addition to HTML-based Web pages, Internet Spider retrieves word processing, PDF and multimedia assets including audio, video and images. It is highly configurable and multi-threaded and can provide deep, broad and repetitive crawling. Users who want immediate notification when items of interest arrive can post Agent Profiles to pull links to related documents to their desktops. Components can be deployed on multiple machines for optimum performance and bandwidth.

FileRoom

RetrievalWare FileRoom is an optional component that allows loading, indexing, viewing and managing scanned documents, images and text. Users access FileRoom through a hierarchy consisting of FileRoom documents, where each tier in the hierarchy is a container for storing documents. Users can directly view the scanned image of a retrieved document from FileRoom. Graphs, diagrams, handwritten notations and signatures in the retrieved document are immediately accessible. Document-level security lets organizations control user access at the FileRoom (library), cabinet, drawer, folder and document level.

Screening Room®

Screening Room is an optional product to RetrievalWare Search that enables a comprehensive solution for video asset management. It provides scalable access, search and retrieval of video assets, both analog and digital, from any desktop. Used in conjunction with RetrievalWare Search, it provides for real-time capturing, encoding, analyzing, cataloging, browsing, searching and retrieving of video, as well as related captured text (closed captions or speech-to-text conversions) and metadata, over corporate intranets/extranets. Designed to manage video content in Internet portal and corporate intranet environments, Screening Room also supports media, broadcast and entertainment video asset management solutions. It enables users to easily capture analog or digital video, automatically create an intelligent video storyboard, and play it back in any of the industry’s standard video file formats. Screening Room users then can automatically browse, search and retrieve precisely what video clips they are looking for without having to play or watch the video in its entirety.

Screening Room consists of four components: Screening Room Capture, Screening Room Metadata Edit, Screening Room Explorer and Screening Room Video Asset Server. Screening Room Capture ingests, analyzes and storyboards analog or digital video assets, including live feeds. It also extracts, indexes and searches associated metadata such as captured text (both closed-caption text and spoken audio content converted to text), keyframe images of significant scenes and annotations. Screening Room Metadata Edit enables users to browse, search, edit and annotate storyboards. In addition, users can select and compile clips from multiple video assets to create new derivative works, export files and metadata in industry-standard XML format or output rough-cut edit segments to Edit Decision Lists (“EDLs”) for import into high-end offline editing systems. Screening Room Explorer allows user access to catalogs of video assets through any standard Web browser. The Video Asset Server indexes and stores captured video assets for instantaneous browsing, or search and retrieval via RetrievalWare.

Screening Room Capture (Stand-alone)

Screening Room Capture (Stand-alone) can be deployed as a stand-alone product. It provides the ability to log, analyze and encode video, and save the data and video assets in a non-proprietary (XML) format. Screening Room Capture does not require purchase of the entire RetrievalWare or Screening Room system, enabling loading of video assets and metadata into a third party database or content management system, or otherwise re-purposing the asset. Screening Room Capture is also a suitable component for sale to OEM customers.

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RetrievalWare SDK

The RetrievalWare SDK (Software Developer’s Kit) is a comprehensive set of tools for building advanced search-based solutions. At its core is highly scalable, distributed client/server architecture. Independent server processes maximize the efficiency and reliability of document loading, indexing and query handling, and support security and encryption/decryption features. Dedicated server processes enable integration of text search and relational database storage capabilities through an open database management system (“DBMS”) gateway. The client environment is optimized for the development of graphical interfaces using industry standard tools such as Java and Visual Basic. RetrievalWare delivers Visual Basic custom controls, remote procedure calls and open server capabilities, as well as engine-level, high-level and client/server application program interfaces (“APIs”). These features speed the development of systems that can support thousands of users and contain custom functionality.

Screening Room and Screening Room Capture APIs

The Screening Room and Screening Room Capture APIs enable developers to integrate and control the Screening Room components from other programs and applications.

Visual RetrievalWare

Leveraging the APRP technology, Visual RetrievalWare is a visual retrieval engine and a comprehensive image-processing library that enables the development of client/server systems for indexing and retrieving digital images. Users can search for visual information directly from their intranet, a corporate database, the Internet, or other sources using images or video clips as clues. Visual data is reduced to a searchable index that is typically less than 10% of the size of the original image and is automatically recognized based on its shape, color and texture. Users submit queries using examples of visual data or by authoring a visual clue with a graphical product. Based on the shape, color and texture of the visual clue, a list of similar or exact matches is returned. The product delivers its advanced retrieval capabilities in an open, scalable and secure architecture designed for ease of implementation, integration or extension.

Excalibur Web Offering

During fiscal year 2005, the Company initiated a research and development project aimed at applying portions of the Company’s existing technology to searching and indexing contextually relevant information on the World Wide Web. This next-generation search technology achieved its initial development milestone in October 2004 by creating an “Alpha” stage search platform for open-source or Web-based content. As of February 1, 2005 the Company’s efforts advanced to “Beta” stage as the technology contained more than 1 billion documents in the index. On November 1, 2005 the Company announced that the Excalibur Web offering was commercially available as the technology had advanced to then contain more than 4 billion documents in the index and a redundant hosting environment was established with AT&T.

The Excalibur Web offering has been developed 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. Excalibur may be used in concert with RetrievalWare, Convera’s enterprise search solution, or with an organization’s existing internal applications to create an integrated portal offering “blended” results from both Intranet and Web-based searches.

The Excalibur Web offering utilizes advanced semantic analysis in combination with broad and deep knowledge resources to better understand the meaning of Web content as well as the user query. It has incorporated a large set of commercially recognized taxonomies in addition to privately compiled taxonomies and thesauri to create a large and very granular Web index. These two core design features enable Excalibur to draw dynamic connections between topically or contextually related content resulting in a better understanding of the nature of the query along with the relevancy of the content.

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The Excalibur Web Search platform offers blended results - incorporating information from the web at large, as well as from multiple proprietary sources - enabling content providers and web portals to readily consolidate relevant content and information. End users are presented with relevant search results in a comprehensive, consolidated manner, regardless of the repository source. Search results may be further personalized in the form of “profiles” in which users can choose and save the particular elements they would like to use in a particular search or situation. The profiles can be triggered to create an “event” or send an “alert” when new or relevant information is received. All results can be presented to the user through an integrated, intuitive and dynamic page layout that is designed, controlled and branded by the website or portal owner.

Convera owns and operates the Excalibur Web offering infrastructure as either a hosted search service deployed at one or more Tier 1 co-location facilities, or under a software licensing model. The Excalibur Web search service is expected to be delivered through partnerships with Web sites, Web portals and other customer relationships in which high quality, advanced Web search is a priority. Excalibur Web search is offered as an unbranded search capability offering site owners' greater control over viewers and Web “stickiness”, along with the opportunity to develop, deliver and control their own content and advertising channels.

Excalibur is planned to provide a multi-lingual Web index of over 4 billion pages. Layered on top of this index are additional knowledge resources, described below, which enable Excalibur to dynamically identify connections between topically and contextually related content. Excalibur delivers search results that are vertical, personal and focused.

Knowledge Resources

Taxonomies- Excalibur uses a collective taxonomic resource of more than 5 million categories (or taxonomic nodes) covering commercial, technical and social realms of both vertical and general interest. This taxonomic knowledge base comprises much publicly available as well as privately compiled taxonomy augmented by the Company’s years of information retrieval and knowledge management expertise involving thousands of large-scale search projects worldwide. All of these taxonomic resources are used to index the Web providing data organization and precision of response.

Entities - Excalibur identifies and extracts entities (people, places, things) using large-scale, proprietary resources of known entities in addition to dynamic entity detection rules that identify and extract likely entities. For example, Excalibur recognizes that “George Bush” is the 43^rd President of the United States and not just a proper noun, two adjacent terms, or a shrub that might be named George. The Company believes that the breadth, depth and sophistication of Excalibur’s entity recognition are some of the factors driving improved accuracy and relevance of results.

Ontologies - An ontology provides a powerful semantic model that logically groups and represents related information. Excalibur employs ontologic representations to define connections between topically related content and then to dynamically present relevant content in the context most closely related to a user’s search. An entertainment focused ontology would understand that celebrities have biographical information, official web sites, discographies, gossip, awards, events and so on. A sports oriented ontology would understand that a given sport has teams, rosters, game schedules, news, gossip, fantasy teams, scores and results, and so. For each case, the ontology helps to define the various types of information that would interest a user on a given subject.

Facets - Excalibur utilizes hundreds of pre-defined facets to identify relevant aspects of different subject areas or ontological groupings that are likely to be of interest to a broad cross section of users. For example, facets chosen to define the context for a music celebrity might include: news, controversy (or scandal), books, CDs, DVDs, biography, film clips and so on. Alternatively, facets defining a context for a politician might include: news, poll results, blogs, events and biographical information. Facets are linked through one or more ontologies and are triggered when conceptually related results are found in response to a Web search. Facets may be dynamically personalized to create a specific user profile or customized to search for a particularly focused and comprehensive set of results.

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Verticalization - Excalibur results are vertically oriented, allowing users to achieve a very focused yet comprehensive search result. For example, a search for thyroid disease should return results that include information about diagnosis, research, experts, news and so on. Thyroid disease should also be understood as an “endocrine disease” with many related terms and concepts, both more general and more specific. This breadth of information can only be represented through the incorporation of large-scale vertically oriented taxonomies. By employing deep taxonomic analysis, Excalibur understands scientific and technical subject matter at a level of granularity and specificity that is unique when compared to existing Web-scale analysis.

Personalization - Excalibur strives to solve the enormous and complex task of consolidating billions of pages of Web content and independent information sources to find and present the most relevant results in a compelling and personalized manner. It does this by understanding what is actually intended by the query and returning not just the most relevant list of results, but also information originated by related facets. Presenting information in this way provides the user with a broader, but better focused view of information that is more informative and easier to digest. Because these facets can be individually selected, mixed and matched for a specific search, web masters or end users can create highly personalized profiles and alert mechanisms at will. The profiles can be easily defined through the Excalibur GUI (graphical user interface) or its web services interface. In this way, users can define and update the profiles most useful to them. They can also define the timing and sequence of alerting mechanisms that will keep them abreast of events and news most relevant to them. Excalibur’s ontology and faceting mechanism can be exposed through personalization tools that allow personalization and customization at various levels. For example, if a user wanted a specific profile to find information related to vacationing and dining in New York, they could select relevant facets for Reviews, Opinions, Events, FAQ’s and associate these with a stored search for “restaurants” in “New York, NY”. Running this profile or setting an alert would allow the user to locate the latest information regarding dining out in New York, including content from the Web as well as any number of related third party content sources.

Authority - One of Excalibur’s features is its use of content analysis and authority determination mechanisms. This analysis attempts to comprehend the editorial quality of content and its embedded meaning in a manner that is more insightful and less subject to manipulation that existing ranking methods. These ranking mechanisms eliminate low-value or low-quality content and return content with the highest possible quality regardless of its popularity or obscurity. Multiple elements including source, author, genre, density and specificity are collectively weighed to determine authority and value.

Blending - Excalibur’s blending mechanism is supported through direct and indirect access to non-Web and proprietary content sources, including valued thirdparty content channels, content partners and advertisers. This is useful to organizations that wish to combine search results from the general Internet along with information residing within specific controlled datasets or datasets they license from content producers and aggregators. Leveraging these sources in a process that is transparent to the user, Excalibur can return “blended” results, enabling content providers or users to comb for the best, most relevant information using the terms and contexts most familiar to them. At the same time, Excalibur safeguards “protected” data by building in a number of tunable access restrictions, insuring that only designated users or websites can search these data repositories and that the data will not be readily distributed across the worldwide web.

Multi-Lingual - The same set of knowledge resources and language processing capabilities that power Excalibur search over English language content, is planned to be extended and optimized to other languages including Spanish, French, German, Dutch, Portuguese, Chinese, Japanese, Korean and so on. This is facilitated through a large-scale translation operation that translates concepts and terminology into their cross-lingual equivalents. This means that the millions of categories and related semantic resources applied to understanding content in one language are reproduced and consistently applied to understanding the content of other languages - uniformly and reliably delivering authoritative results across multiple languages.

Localization - Excalibur Web search enables global localization services. It uses a large set of consolidated geographical and geospatial resources totaling more than five million unique data points. These resources are used during indexing and results generation to correlate content with locations worldwide. Geographic reference data might include: country, city, population, place names, longitude, latitude, ZIP codes (where applicable), and so on. Collectively, these resources allow Excalibur to provide results localization with enhanced granularity.

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Multimedia Search - Excalibur incorporates multimedia search of images and video. Convera’s “Screening Room” functionality facilitates this full-scale video indexing and search capability. Screening Room ingests video to create a storyboard of key frames and associated metadata including time/date/source along with cctext. Screening Room also incorporates manually created metadata - such as clip notes or frame notes. Excalibur’s multimedia image crawler also identifies images and associated descriptive information (meta data) to enable highly relevant search results across various media types available on the Web. This capability insures that Excalibur can retrieve and display relevant information from news or video archives, as well as other multimedia repositories.

Mining On-Demand - Excalibur optionally provides a set of mining and analysis tools designed to provide greater insight and perspective over the search processes. This set of tools enable users to dynamically classify content into various views according to their own unique requirements. The tools provide timeline analysis, storyboarding, clustering, and itinerary generation tools to connect information, people and events across time and space.

Technical Support, Professional Services and Education

Convera provides technical support and maintenance to customers through its technical support personnel located in the Company’s Columbia, Maryland; Carlsbad, California; and through certain product distributors. Technical support consists of bug fixes, telephone support and upgrades or enhancements of particular software product releases when and if they become generally available. Technical support typically is provided to customers under a renewable annual contract. All Convera service plan customers have access to the Convera Online Technical Support Web site that provides the latest product information, general service updates and Web forums for technical discussions. The Web site also provides electronic forms for opening technical support cases and suggesting product, service and Company enhancements.

The Company also provides on-site consulting services to its customers through employees and independent consultants who have been trained and certified by the Company. Consulting services are offered as a package or on a time-and-materials or fixed price basis. The Company conducts training seminars at its offices in Vienna, Virginia; Carlsbad, California; and Bracknell, United Kingdom, as well as on-site training for its customers and distribution channel partners. Training customers typically pay on a per-course basis for regularly scheduled classes and on a per-day basis for on-site or dedicated courses.

Marketing and Distribution

The Company’s sales and marketing strategy focuses on the licensing of Convera products to customers both through a direct sales force and through distribution partners and OEMs. Members of the North American direct sales team are primarily located throughout the United States, and the majority of the international direct sales team is located in the United Kingdom. Distribution throughout the Europe, Middle East, Africa and Asia Pacific regions is also covered by a network of reseller partners. The Company typically licenses its RetrievalWare products to end-users as either an enterprise-wide or work-group level solution. The Excalibur Web offering may be sold as a hosted service in addition to the license model.

The Company generally has three license types: OEM, reseller and end-user. Each of these license types generally includes the same standard terms regarding such things as confidentiality, infringement, indemnification and limitations of liability. OEM licenses generally stipulate royalties due to the Company based on the sale of the OEM customer’s product incorporating the Company’s technology. OEM contracts generally require the customer to pay some of the royalties in advance of the sale of their integrated product. Reseller licenses generally include a predetermined discount or margin that the reseller is required to pay the Company based on their sales of the Company’s products to their customers. Reseller agreements are occasionally structured to include minimum amounts due from the resellers in advance of their sales to end user customers. This is generally in consideration for some type of exclusivity arrangement in a particular territory. Generally, arrangements with OEM customers and resellers are structured as term licenses ranging from two to five years. This provides future revenue opportunities to the Company through term renewals. End-user license agreements are generally structured as perpetual software licenses for a specific number of users and/or for use on a specific number of servers. Payment terms generally tend to be shorter on end user perpetual licenses compared to those of OEM licenses. Hosted service arrangements, specifically for the Excalibur Web offering, will utilize similar standard terms as noted above regarding such things as confidentiality, infringement, indemnification and limitations of liability and theses contracts are also expected to be primarily structured based on a combination of usage and/or documents thresholds.

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Convera focuses its sales and marketing efforts on enterprises that have large, rapidly changing content collections in diverse formats and have large numbers of knowledge workers. In that regard, the Company concentrates a significant amount of sales and marketing resources on vertical markets such as government agencies and media & publishing concerns. In addition, the Company has begun to adopt a direct selling model with respect to its Excalibur Web offering while also exploring the prospect of strategic partners or resellers who may provide increased distribution, access to incremental human resources and possible hosting facility alternatives.

Marketing efforts focus on building brand awareness and establishing demand for the Company’s products and include public relations, trade show participation, electronic marketing campaigns, and advertising and telemarketing/lead management activities. The Company’s web site, www.convera.com, is an integral part of its marketing and sales efforts, but information on the Company's Web site is not a part of this Form 10-K. Through the web site, prospective customers can learn about Convera’s suite of products and services and view online demonstrations. Existing customers can enroll in training courses and access password-protected areas for technical and other customer support.

Product Development and Advanced Research

The Company’s research and development program focuses on enhancing and expanding the capabilities of its products and services to address emerging markets and customer requirements. Over time and as the technology evolves, RetrievalWare is expected to remain the basic building block of a modular suite of products as previously described for enterprise customers over the near-term. In addition to providing seamless access to both structured and unstructured data in the enterprise, this modular approach simplifies system administration for the customer and makes it easier for Convera to update existing features and add new components such as support for new data types and taxonomies for specific vertical markets. The Excalibur Web offering is an open-source search technology, capable of searching and indexing Web-based content, however, it may also evolve to offer certain internal search and categorization features similar to that of RetrievalWare.

Certain elements of the Company’s software products are supplied to the Company by other independent software vendors under license agreements with varying terms. Pursuant to these agreements, the Company makes periodic royalty payments generally based on either actual or anticipated revenues or units. The technologies acquired by the Company in this manner include word processing filters, optical character recognition engines, dictionaries, language analyzers, spider and thesauri in electronic form, image and audio processing, and face and speech recognition technologies.

Protection of Proprietary Technology

The Company regards its software as proprietary and relies primarily on a combination of patents, copyright, trademark and trade secret laws of general applicability, employee confidentiality and invention assignment agreements, software distribution protection agreements and other intellectual property protection methods to safeguard its technology and software products. The Company holds one patent related to its current business strategy. This patent, which concerns multimedia document retrieval, expires on August 24, 2018. The Company owns several other patents and patent applications unrelated to its current business strategy.  The Company is actively engaged in seeking additional patents specifically related to its Excalibur Web offering. The Company has undertaken to protect all significant marks used to identify the Company's core software products and related services. The Company owns U.S. trademark registrations or pending applications for its material trademarks, including CONVERA, RETRIEVALWARE, SCREENING ROOM and EXCALIBUR.  Renewals are due at various dates between July 2008 and August 2013. In addition, the Company owns numerous foreign applications and registrations for its material trademarks.

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Competition

Competition in the information technology industry in general and the software development industry in particular, is intense. Convera competes primarily in the search and categorization software market which all Convera products and services address. Within this market, there are current and potential competitors who are larger and more established than Convera and have significantly greater financial, technical, marketing and other resources.

Convera considers its principal competitive advantages to be an environment that: (1) is scalable due to the distributed-processing architecture, (2) provides more accurate results due to the semantic network and APRP technologies, (3) provides more comprehensive results due to its ability to manage and retrieve information in multiple languages and in rich media file formats and (4) offers the ability to provide “blended” search results involving data derived from an organization’s internal data repositories with open source or Web-based content through the use of the Company’s Excalibur Web offering.

There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competition will not materially affect the Company’s operating results and financial condition in an adverse manner.

Government Regulation

The Company’s activities currently are subject to no particular regulation by governmental agencies other than those routinely imposed on corporate businesses and no such regulation is now anticipated.

Segment Information

At the conclusion of fiscal 2005, the Company determined that it had two reportable segments. Management viewed the core software products business (e.g., RetrievalWare) separately from its Excalibur Web offering. Substantially all of the Company’s revenues for fiscal 2006 were derived from third party customers from within the core software products business. For fiscal year 2006, revenues earned from the Excalibur Web offering totaled approximately $20,000.

Revenues derived from contracts and orders issued by agencies of the U.S. Government were approximately $11.3 million, $11.6 million and $15.2 million, respectively, in the fiscal years ended January 31, 2006, 2005 and 2004. These revenues, expressed as a percentage of total revenues for the aforementioned fiscal years, were approximately 54%, 45% and 52%, respectively.

Financial information is located in the consolidated financial statements beginning on page F-4. Additional information related to segment reporting can be found in Note 13 to the consolidated financial statements contained herein.

Employees

The Company had 179 employees at January 31, 2006, of whom 89 were in research and development; 30 in sales and marketing; 27 in finance and administration, 18 in technical support, professional services and training and 15 in web hosting operations. The employees are not covered by collective bargaining agreements, and the management of the Company considers relations with employees to be good. Competition for qualified personnel within the Company’s industry is intense. There can be no assurance that the Company will be able to continue to attract, hire or retain qualified personnel, and the inability to do so could have a material adverse effect upon the Company’s operating results and financial condition.

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Item 1A. Risk Factors

An investment in our common stock involves substantial risks and uncertainties and our actual results and future trends may differ materially from our past performance due to a variety of factors, including, without limitation, the risk factors identified below.The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition would suffer. In that event, the trading price of our common stock could decline, and our stockholders may lose part or all of their investment in our common stock. The discussion below and elsewhere in this report also includes forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements as a result of the risks discussed below.

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. 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 as we continue to invest in Excalibur and these other programs and, 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.

We have expended significant financial resources, as well as management attention, on Excalibur 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, our Web offering. The degree of market acceptance of Excalibur will depend upon a number of factors, including:

·   the advantages of Excalibur over competing products;

·   our ability to innovate and develop new features for Excalibur;

·   customer needs for search products;

·   the price and cost-effectiveness of Excalibur; and

·   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 March 15, 2006, our balances of cash, cash equivalents and short-term investments were approximately $65.4 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:

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· to fund our operations, including sales, marketing and research and development programs including the Excalibur Web offering;

· to fund any growth we may experience;

· to enhance and/or expand the range of products and services we offer;

· to increase our promotional and marketing activities; or

· 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.

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 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:

·   the ability of Excalibur, our new Web offering to achieve market acceptance;

·   the downturn in capital spending by customers as a result of general economic conditions;

·   the level of customer demand for our products and services, including Excalibur;

·   the delay or deferral of customer implementations;

·   the budget cycles of our customers;

·   seasonality of individual customer buying patterns;

·   an increase in competition in the software and search industries;

·   the size and timing of individual transactions;

·   the timing of new software introductions and software enhancements by us and our competitors;

·   changes in operating expenses and personnel;

·   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;

·   the overall trend towards industry consolidation; and

·   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 one customer accounted for approximately 14% of our total revenues in fiscal year 2006. 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.

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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.

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 year ended January 31, 2006, total revenues derived from sales to agencies of the U.S. Government were approximately $11.3 million, representing 54% of total revenues. For the year ended January 31, 2005, revenues derived from sales to agencies of the U.S. Government were approximately $11.6 million, or 45% 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.

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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, andany 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 year ended January 31, 2006, total revenues derived from international sales were approximately $5.2 million, representing approximately 25% of total revenues. For the year ended January 31, 2005, revenues derived from international sales were approximately $7.5 million, representing approximately 29% 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 January 31, 2006, approximately 6% and 11% 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:

· potentially adverse tax consequences;

· difficulties in complying with regulatory requirements and standards;

· trade restrictions and changes in tariffs;

· import and export license requirements and restrictions; and

· 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.

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.

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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:

· pending patent applications may not be issued;

· intellectual property laws may not protect our intellectual property rights;

· third parties may challenge, invalidate, or circumvent any patent issued to us;

· rights granted under patents issued to us may not provide competitive advantages to us;

· unauthorized parties may attempt to obtain and use information that we regard as proprietary despite our efforts to protect our proprietary rights;

· others may independently develop similar technology or design around any patents issued to us; and

· 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.

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.

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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. 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:

· future announcements concerning us or our competitors;

· quarterly variations in our operating results;

· actual or anticipated announcements of technical innovations or new product developments by us or our competitors;

· general conditions in our industry;

· developments concerning litigation; and

· 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

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, ownership 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.

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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 March 1, 2006, Allen Holding Inc., together with Allen & Company Incorporated, Herbert A. Allen and certain related parties (collectively “Allen & Company”) 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 & Company may have interests which are different than the interests of our other stockholders.

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Item 1B.Unresolved Staff Comments

There are no material unresolved SEC staff comments as of the date of this report.

Item 2.Properties

The Company’s corporate headquarters facility is occupied under a lease agreement that expires in December 2007 for a total of approximately 13,200 square feet of space in an office building located at 1921 Gallows Road, Vienna, Virginia 22182.

The Company’s principal development and customer support centers are located in Carlsbad, California and Columbia, Maryland. The Company leases additional space in Montreal, Canada, and Bracknell, United Kingdom. During fiscal 2006 the Company closed its office in Frankfurt, Germany.

The Company believes that its facilities are maintained in good operating condition and are adequate for its operations.

Item 3.Legal Proceedings

On November 1, 2001, DSMC, Incorporated ("DSMCi") filed a complaint against the Company in the U.S. District Court for the District of Columbia in which it alleged that the Company misappropriated DSMCi's trade secrets, and engaged in civil conspiracy with the NGT Library, Inc. ("NGTL"), an affiliate of the National Geographic Society, to obtain access to DSMCi's trade secrets, and was unjustly enriched by the Company's alleged access to and use of such trade secrets. In its complaint, DSMCi seeks $5 million in actual damages and $10 million in punitive damages from the Company. DSMCi subsequently amended its complaint to add copyright infringement-related claims. NGTL intervened in the litigation as a co-defendant with Convera, and filed counterclaims against DSMCi. Convera moved to compel arbitration of DSMCi's claims; the District Court denied the motion, and Convera filed an interlocutory appeal. The D.C. Circuit, in November 2003, ruled that it did not have jurisdiction to consider the appeal. During December 2005 DSMCi and NGTL entered into a Settlement Agreement and Release.  The U.S. District Court dismissed claims against NGTL on December 23, 2005. The litigation between the Company and DSMCi is currently in the summary judgment phase in the District Court.The Company has investigated the claims and continues to believe that the claims are without merit.

In connection with this litigation, the Company brought an arbitration claim against NGTL on September 13, 2005, seeking indemnification for its defense costs and potential liability pursuant to an indemnity provision in a service agreement between NGTL and the Company. In response, NGTL brought a cross claim against the Company under the same contract provision for indemnification of NGTL’s respective costs and liability. This arbitration is in its early stage.

In addition, from time to time, the Company is a party to various legal proceedings, claims, disputes and litigation arising in the ordinary course of business, including that noted above. The Company believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse affect on its financial position, operations or cash flow. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions or future actions be unfavorable, Convera’s financial position, operations and cash flows could be materially adversely affected.

Item 4.Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's Class A common stock is traded in the over--the-counter market and is listed on the National Market System of the NASDAQ Stock Market under the symbol “CNVR.”  

The following table sets forth the high and low sale prices for Convera common stock for the period from February 1, 2004 through January 31, 2006, as reported by the National Market System of NASDAQ. The number of shareholders of record as of January 31, 2006 was 928. The Company has never declared or paid dividends on its common stock and anticipates that, for the foreseeable future, it will not pay dividends on its common stock.

	High		Low
Fiscal 2006 (February 1, 2005 - January 31, 2006)
First Quarter	$	6.06	$	4.37
Second Quarter		8.83		3.92
Third Quarter		15.00		8.71
Fourth Quarter		20.20		7.85
Fiscal 2005 (February 1, 2004 - January 31, 2005)
First Quarter	$	5.40	$	2.87
Second Quarter		3.40		2.16
Third Quarter		4.47		2.17
Fourth Quarter		5.05		3.70

The following table sets forth, as of January 31, 2006, information with respect to the Company’s equity compensation plans:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (1) (b)	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders:
1. Convera Stock Option Plan	9,695,022	$5.25	334,348
2. Convera Employee Stock Purchase Plan		-	674,353
Equity compensation plans not approved by security holders:	None	Not Applicable	Not Applicable

(1) For purposes of calculating the weighted-average exercise price, deferred shares have been excluded because there is no exercise price.

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Item 6.Selected Financial Data

The selected financial data presented below have been derived from the Company’s consolidated financial statements. The balance sheet data as of January 31, 2006 and 2005, and the statement of operations data for the fiscal years ended January 31, 2006, 2005 and 2004 should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

	Fiscal Years Ended January 31,
	2006			2005			2004			2003			2002
Statement of Operations Data:	(in thousands, except per share data)
Revenues	$	21,008		$	25,698		$	29,251		$	23,614		$	34,228
Operating expenses:
Cost of revenues (1)		7,267			6,708			8,570			10,697			22,307
Sales and marketing		8,190			14,476			18,124			20,018			33,747
Research and product development		8,346			13,801			11,981			11,639			22,500
General and administrative		11,113			9,764			10,564			8,642			10,214
Amortization of goodwill (2)		-			-			-			-			86,291
Amortization of other intangible assets (2)		-			-			-			-			9,088
Amortization of Capitalized R&D costs		1,012			-			-			-			-
Incentive bonus payments to employees		-			-			-			(138	)		6,681
Restructuring (recoveries) charges		(57	)		944			621			2,337			8,128
Reduction in goodwill		-			-			-			-			675,896
Reduction in other long-lived assets		-			-			-			-			78,528
Acquired in-process research and development		-			-			-			126			-
		35,871			45,693			49,860			53,321			953,380
Operating loss		(14,863	)		(19,995	)		(20,609	)		(29,707	)		(919,152	)
Other income, net		602			175			2,550			636			4,191
Net loss before income taxes		(14,261	)		(19,820	)		(18,059	)		(29,071	)		(914,961	)
Income tax benefit		-			-			-			-			4,452
Net loss	$	(14,261	)	$	(19,820	)	$	(18,059	)	$	(29,071	)	$	(910,509	)
Net loss per common share - basic and diluted	$	(0.33	)	$	(0.56	)	$	(0.57	)	$	(1.01	)	$	(20.08	)
Weighted-average number of common shares outstanding - basic and diluted		43,088			35,433			31,486			28,854			45,349
Balance Sheet Data (at end of period)
Cash and cash equivalents	$	37,741		$	17,766		$	30,530		$	10,412		$	17,628
Working capital		35,240			15,550			26,737			24,363			51,691
Total assets		64,217			36,294			45,695			49,139			78,106
Long-term obligations		4,115			9			-			-			-
Accumulated deficit		(1,070,706	)		(1,056,445	)		(1,036,625	)		(1,018,540	)		(989,429	)
Total shareholders’ equity (3)		50,841			25,149			31,368			32,372			57,876

(1)   FY06 amount excludes amortization of capitalized R&D costs shown separately below.

(2)   Amortization for the 2002 fiscal year primarily related to the business combination with Intel’s IMS division.

(3)   No dividends have been declared or paid on the Company’s common stock.

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company principally earns revenues from the licensing of its software products and the provision of services in deployment of the Company’s technology to government agencies and commercial businesses throughout North America, Europe and other parts of the world. The Company licenses its software to end users directly and also distributes its software products through license agreements with value-added resellers, system integrators, original equipment manufacturers and other strategic partners. Revenues are generated from software licenses with customers and from the related sale of product maintenance, training and professional services. Additions to the number of authorized users, licenses issued for additional products and the renewal of product maintenance arrangements by customers pursuant to existing licenses also provide revenues to the Company. Under software maintenance contracts, customers are typically entitled to receive telephone support, software bug fixes and upgrades or enhancements of particular software products when and if they are released. With respect to the Company’s Excalibur Web offering, revenues may be derived from either a license model as described, or from a hosted service offering.

The Company believes its RetrievalWare product has unique capabilities supporting the needs of customers within government agencies that will enable it to capitalize on current market opportunities and achieve its operational goals. Going forward, the Company expects to focus a substantial amount of resources on further penetration of the national security, defense, law enforcement and intelligence gathering community with the United States and its allies. An important objective in this market is to upgrade existing installations of older versions of RetrievalWare to the RetrievalWare 8 platform that includes technical advancements such as categorization, dynamic classification, profiling and distributed indexing software capabilities.

Further, the Company expects to increase its development, selling & marketing efforts with regard to its Excalibur Web offering. Excalibur is an advanced effort aimed at applying portions of the Company’s existing technology to searching and indexing contextually relevant information on the Web. The Company launched the Excalibur platform on November 1, 2005 and has begun to focus on creating distribution channels for this new technology. In concert with the Excalibur Web offering, Convera has entered into a hosting facility agreement with AT&T and as of January 31, 2006, has established two hosting centers (San Diego, CA and Dallas, TX). The Company will look to focus a majority of its selling and marketing efforts on the government and intelligence gathering community as well as the media and publishing sector for the Excalibur Web offering. This selling and marketing strategy is designed to capitalize on the alignment between customer requirements seeking both Intranet and Web-based search and categorization technologies. Operating costs for this advanced development effort totaled approximately $8.1 million for fiscal 2006, while capital expenditures totaled approximately $6.6 million for the year ended January 31, 2006. Going-forward, cash outlays will be limited to equipment, personnel and general operating costs, including marketing activities. The Company expects to continue to increase its investment in Excalibur and may also elect to seek additional funding sources for this effort. The Company may also elect to seek additional and/or alternative market segments for the Excalibur offering over the coming quarters.

Management’s primary objective is to achieve profitability and positive cash flow from operations without hampering development, sales and marketing efforts. The Company is committed to investing in the enhancement of its products to meet the needs of its customers and prospects. To achieve its main objective, the Company continually evaluates revenue opportunities to determine the market sectors in which the Company should concentrate its sales and marketing efforts. The Company’s business environment and the search software industry in general are characterized by intense competition, rapid technological changes, changes in customer requirements and emerging new market segments. The Company competes within the commercial sector where its market position has not been as strong as it has been within the government sector. As such, the Company has elected to focus the majority of its efforts within the commercial setting on the media and publishing sectors. The Company believes this segment may afford greater opportunities when compared to addressing a wide array of commercial market segments. The Company’s competitors include many companies that are larger and more established and have substantially more resources. 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 the Company’s business, financial condition or results of operations. To address the competition, the Company will continue to invest in research and development to advance its leadership position in linguistic analysis, scalability, performance, and taxonomy development and deployment. The Company may also make additional investments in specific product features to better serve the needs of customers looking for online customer service and support solutions and with regard to the Excalibur Web offering, may elect to create a public search portal.

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In 2002 and 2003, the Company’s results of operations were impacted by the general downturn in the economy, which resulted in a lengthier sales cycle, particularly in the commercial marketplace. Further, reduced information technology budgets and customer cash constraints caused by the difficult business environment negatively impacted our business. Through a number of reorganizations during fiscal years 2002 through 2005, the Company aligned its resources in an effort to ensure it continued to capitalize on markets that have been consistently successful, including the federal government, and to focus its resources on those areas of the commercial sector that present vertical market opportunities. The reorganizations, which are described in this section and elsewhere in this Form 10-K, were intended to streamline the professional services, customer support and sales organizations by reducing the number of employees, improve the productivity of each of those organizations and reduce management personnel and other overhead costs in the marketing, development and administrative organizations within the Company.

On August 18, 2004, the Company announced that it further streamlined its expense structure. As part of the restructuring, the Company reduced its personnel related costs, eliminated certain marketing programs, renegotiated real estate obligations and decreased other general operating expenses. The Company recorded a restructuring charge of $518,000 during the third quarter of fiscal 2005 related to this effort. Further, on December 10, 2004 the Company announced an additional re-alignment of its operational infrastructure. This action included a general workforce reduction (including the transfer of certain resources to the Company’s Excalibur Web offering), facility consolidations, reduced marketing related expenses and decreased other general operating costs. As part of this restructuring, the Company also announced that it would increase its focus on accelerating its Excalibur development activities and would seek to advance the Company’s existing presence in the high-end search market, specifically within the government and intelligence gathering community as well as the media and publishing sectors. The Company recorded a net restructuring charge of $426,000 during the fourth quarter of fiscal 2005 related to this effort. The Company will continue to invest in its Excalibur Web offering, such that on a consolidated basis, the Company is expected to remain in a net loss position until such time as Excalibur is accepted into the commercial marketplace and certain levels of revenue are attained. A detailed review of the numerous risks and challenges facing the Company is contained in the Risk Factors section beginning on page 12.

Critical Accounting Policies

Convera’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. For a comprehensive discussion of the Company’s accounting policies, see Note 2 in the accompanying consolidated financial statements included in this Form 10-K. Convera does not have any material ownership interest in any entities that are not wholly owned and consolidated subsidiaries of the Company. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases those estimates, including those related to bad debts, goodwill and other intangible assets, restructuring costs, income taxes and litigation, on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Convera believes the following accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s financial condition and results of operations.

Revenue Recognition

Convera’s recognition of revenues requires judgment, particularly in the areas of collectibility and whether the fee is fixed and determinable at the time the sales are made. The Company bases its judgment on a variety of factors, including the payment and other terms of the individual customer contracts, credit history of the customer, prior dealings with specific customers, and certain other factors. If the Company determines that the price under the contract is fixed and determinable, and that collectibility is reasonably assured, then the Company recognizes revenue related to the software license at the time of sale. To the extent the Company determines that the price of a sales agreement is not fixed, the Company delays revenue recognition until payments under the contract become due. Alternatively, to the extent the Company determines that the collection of payments under the contract is not reasonably assured, the Company delays revenue recognition until the payments under the contract are received. Thus, the assessment as to whether the fee is fixed and determinable at the time of sale and that the fees are collectible is critical in determining the extent of the revenue recognized in a given period.

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The revenue associated with other elements of the contract, such as maintenance, training and professional services, are deferred and recognized as those elements are delivered. Generally, the Company receives payments for maintenance fees in advance and they are non-refundable. Maintenance revenues are recognized ratably over the term of the applicable maintenance agreement, which is typically twelve months.

Customization work is sometimes required to ensure that the Company’s software functionality meets the requirements of its customers. In those instances where the Company’s revenues are generated from fixed price contracts related to this customization work, then revenue is generally recognized using the percentage of completion method based on the relationship of actual costs incurred to total costs estimated over the duration of the contract. These cost estimates underlie the Company’s determinations as to overall contract profitability and the timing of revenue recognition. Further, the Company believes that this method of recognition is closely aligned with the evolution of the work product as defined. If the Company does not accurately estimate the resources required or the scope of the work to be performed, or does not manage its projects properly within the planned periods of time or satisfy its obligations under the contracts, then actual results may differ from projected results and losses on contracts may need to be recognized.

Hosted service revenues associated with the Excalibur Web offering are recognized straight-line over the term of the applicable service agreement.

Provision for Doubtful Accounts

Convera maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. A considerable amount of judgment is required in assessing the ultimate realization of individual accounts receivable balances. The allowance for doubtful accounts is determined based on an analysis of the Company’s historical collection experience and the Company’s portfolio of customers taking into consideration the general economic environment as well as the industry in which the Company operates. To the extent Convera does not recognize deterioration in its customers’ financial condition in the period it occurs, or to the extent Convera does not accurately estimate its customers’ ability to pay, the amount of bad debt expense recognized in a given reporting period will be impacted.

Goodwill and Other Intangible Assets

Convera’s prior acquisitions of other companies resulted in the acquisition of certain intangible assets and goodwill. Goodwill resulting from these acquisitions is associated with the Company’s core software products reporting segment. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, the impairment of goodwill is assessed on an annual basis or whenever changes in circumstances indicate that the fair value of the Company is less than the carrying value. This assessment is performed by comparing the market value of the Company’s outstanding common stock with the carrying amount of the Company’s net assets. If the market value exceeds the carrying amount of the Company’s net assets, impairment of goodwill does not exist. If the market value is less than the carrying amount of the Company’s net assets, the Company will perform further analysis and may be required to record an impairment.

The Company evaluates all of its long-lived assets, including intangible assets other than goodwill, for impairment in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets and intangible assets other than goodwill be evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. Should events indicate that any of the Company’s assets are impaired; the amount of such impairment will be measured as the difference between the carrying value and the fair value of the impaired asset and recorded in earnings during the period of such impairment.

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Deferred Taxes

Convera records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. Realization of the deferred tax assets is principally dependent upon the achievement of projected future taxable income. If the estimates and related assumptions change in the future, the Company may be required to adjust its valuation allowance against its deferred tax assets, resulting in a benefit or a charge to income in the period such determination is made. As of January 31, 2006, the Company has recorded a full valuation allowance against the net deferred tax asset.

Stock-Based Compensation

SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), allows companies to account for stock-based compensation either under the provisions of SFAS No. 123 or under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), as amended by FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25).” The Company has elected to account for its stock-based compensation in accordance with the provisions of APB 25. Stock options originally granted under the Company’s stock option plans have an exercise price equal to the market value of the underlying common stock on the date of grant, and accordingly no employee compensation cost related to the initial grant of options is included in expenses. Stock option modifications associated with a change in employee status to a nonemployee have been accounted for as a new award and measured using the intrinsic value method under APB 25, resulting in the inclusion of compensation expense in the January 31, 2004 consolidated statement of operations. Nonvested shares of stock (referred to as deferred stock) granted under the Company’s stock option plan are measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company’s common stock. Such value is recognized as compensation expense over the corresponding service period. If an employee leaves the Company prior to the vesting of the deferred stock, the estimate of compensation expense recorded in previous periods is adjusted by decreasing compensation expense in the period of forfeiture.

Results of Operations

For the fiscal year ended January 31, 2006, total revenues were $21.0 million, a decrease of 18% compared to revenues of $25.7 million in fiscal year 2005. The net loss for fiscal year 2006 was $14.3 million, or $0.33 per common share, compared to $19.8 million, or $0.56 per common share, in the prior year. For the fiscal year ended January 31, 2005, total revenues decreased 12% from total revenues of $29.3 million in fiscal year 2004. The net loss for fiscal year 2004 was $18.1 million, or $0.57 per common share.

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The following charts summarize the components of revenues and the categories of expenses, including the amounts expressed as a percentage of total revenues, for each of the three fiscal years in the period ended January 31, 2006 (dollars in thousands):

	Components of Revenue and Expenses																	Increase (Decrease) from 2005 to 2006		Increase (Decrease) from 2004 to 2005
	Fiscal years ended January 31,
	2006						2005						2004
Revenues:	$			%			$			%			$			%		%		%
License	$	10,573			50	%	$	14,360			56	%	$	18,322		63	%	-26	%	-22	%
Services		2,399			12	%		3,746			15	%		4,338		15	%	-36	%	-14	%
Maintenance		8,036			38	%		7,592			29	%		6,591		22	%	6	%	15	%
Total revenues	$	21,008			100	%	$	25,698			100	%	$	29,251		100	%	-18	%	-12	%
Expenses:
Cost of license revenue	$	1,383			6	%	$	1,658			6	%	$	1,822		6	%	-17	%	-9	%
Cost of services revenue		4,903			23	%		3,332			13	%		4,715		16	%	47	%	-29	%
Cost of maintenance revenue		981			5	%		1,718			7	%		2,033		7	%	-43	%	-15	%
Total cost of revenues (1)		7,267			34	%		6,708			26	%		8,570		29	%	8	%	-22	%
Sales & marketing		8,190			39	%		14,476			56	%		18,124		62	%	-43	%	-20	%
Research and product development		8,346			40	%		13,801			54	%		11,981		41	%	-40	%	15	%
General and administrative		11,113			53	%		9,764			38	%		10,564		36	%	14	%	-8	%
Amortization of capitalized R&D costs		1,012			5	%		-			-			-		-		-		-
Restructuring charges		(57	)		-			944			4	%		621		2	%	-106	%	52	%
Total expenses	$	35,871			171	%	$	45,693			178	%	$	49,860		170	%	-21	%	-8	%
Operating loss	$	(14,863	)				$	(19,995	)				$	(20,609	)			-26	%	-3	%
Other income, net		602						175						2,550
Net loss before income taxes	$	(14,261	)				$	(19,820	)				$	(18,059	)
Income tax benefit		-						-						-
Net loss	$	(14,261	)				$	(19,820	)				$	(18,059	)

(1) FY06 total excludes amortization of capitalized R&D costs shown separately below

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Revenues

License revenues for the year ended January 31, 2006 decreased 26% to $10.6 million from $14.4 million in fiscal year 2005 and decreased 22% in fiscal year 2005 from $18.3 million in fiscal year 2004. The average deal size for fiscal year 2006 was approximately $164,000 representing a 26% increase when compared to the prior fiscal year. Approximately 63 license transactions were realized during fiscal year 2006, a 42% decrease compared to approximately 109 for fiscal year 2005. The average deal size in fiscal year 2004 was approximately $110,000 and was comprised of approximately 165 total deals closed. The decrease in total license revenues in fiscal year 2006 compared to fiscal year 2005 is primarily attributed to three factors: 1) A shift in marketing and selling efforts towards the recently released Excalibur Web offering, 2) A decrease in international transactions due primarily to a large compliance related transaction recognized during the first quarter of fiscal 2005 and the absence of a like-sized transaction in fiscal 2006, and 3) A decrease in the commercial RetrievalWare business segment due to management’s prior decision to temper its selling and marketing activities within this market segment. Federal license revenues increased slightly compared to the prior fiscal year. The decrease in total license revenues for fiscal year 2005 compared to fiscal year 2004 is primarily attributable to a $3.4 million federal enterprise transaction recognized during the third quarter of fiscal 2004 and the absence of a like-sized transaction in fiscal 2005 coupled with lengthier sales cycles.

Services revenues, which include professional services, training, and hosted Web services were $2.4 million for the year ended January 31, 2006, a 36% decrease when compared to services revenues of $3.7 million for fiscal year 2005. Services revenues for fiscal 2005 decreased 14% versus services revenues of $4.3 million for fiscal year 2004. The decline in fiscal year 2006 services revenues versus fiscal year 2005 was due primarily to a decline in professional services revenues in our federal and commercial business segments resulting from the conclusion of two major engagements. Those declines were offset by improvements in professional services revenues in our international operations. The decline in fiscal year 2005 professional services revenues versus fiscal year 2004 was primarily due to the completion of two major contracts from within the Company’s international operation, which was partially offset by one U.S. commercial engagement. Federal professional services revenues for fiscal year 2005 mirrored fiscal year 2004.

Maintenance revenues were $8.0 million for the year ended January 31, 2006, compared to $7.6 million and $6.6 million for fiscal years 2005 and 2004. The increase in maintenance revenues during the prior two fiscal years can be attributed tothe fiscal year 2005 implementation of new maintenance renewal processes and a continued emphasis on identifying lapsed renewals from within the existing customer base.

Revenues from international operations are generated from software licenses with various European commercial and government customers and a well-established European reseller network. The Company's international sales operation, Convera Technologies International, Ltd. (“CTIL”), is headquartered in the United Kingdom. CTIL satellite offices in Paris, France and Munich, Germany were closed during fiscal year 2005. International revenues from CTIL decreased 30% to $5.2 million in fiscal year 2006 from $7.5 million in fiscal year 2005 due to a decrease in license revenues as a result of the aforementioned large compliance related transaction recognized during the first quarter of fiscal 2005 and the absence of a like-sized transaction in fiscal 2006. In fiscal year 2005, international revenues increased 4% from $7.2 million in fiscal year 2004 due to increases in license and maintenance revenue offset by a decline in services revenue.

Revenues derived from contracts and orders issued by agencies of the U.S. Government were approximately 54%, 45%, and 52%, of total revenues for fiscal years 2006, 2005, and 2004, respectively. In fiscal year 2006 one customer accounted for approximately 14% of revenues. One reseller customer accounted for approximately 17% of revenues in fiscal year 2005.

Operating Expenses

Cost of Revenues

Cost of license revenues decreased 17% to $1.4 million for the year ended January 31, 2006, and decreased 9% to $1.7 million in fiscal year 2005. As a percentage of license revenues, cost of license revenues was 13% for fiscal year 2006, 12% for fiscal year 2005, and 10% for fiscal year 2004. The decrease in cost of license revenues over the last three fiscal years can be primarily attributed to a decrease in third party royalty obligations.

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Cost of services revenues increased 47% to $4.9 million for the year ended January 31, 2006 from $3.3 million in fiscal year 2005. Cost of services revenues decreased 29% in fiscal year 2005 from $4.7 million in fiscal year 2004. The increase in cost of services revenues during fiscal 2006 as compared to fiscal 2005 is attributed to costs associated with the management of two AT&T hosting facilities from the period of November 1, 2005 (attainment of commercial availability) through January 31, 2006 for the Excalibur Web offering. Cost of professional services revenues for fiscal year 2006 was consistent with the prior year. The decrease in cost of services revenues in fiscal year 2005 versus 2004 is attributable to a reduction in the overall number of employees responsible for the management and delivery of professional services.

Cost of maintenance revenues for the year ended January 31, 2006 decreased 43% to $1.0 million from fiscal 2005 and decreased 15% to $1.7 million in fiscal year 2005 when compared to fiscal year 2004. As a percentage of maintenance revenues, cost of maintenance revenues was 12%, 23%, and 31% in fiscal years 2006, 2005, and 2004 respectively. The decrease in cost of maintenance revenues in fiscal years 2006 and 2005 is attributed to lower personnel-related costs resulting from the restructuring actions undertaken in fiscal year 2005.

Sales & Marketing

Sales and marketing expenses decreased 43% to $8.2 million for the year ended January 31, 2006 from $14.5 million in fiscal year 2005. In fiscal year 2005, sales and marketing expenses decreased 20% to $14.5 million from $18.1 million in fiscal year 2004. As a percentage of total revenues, sales and marketing expenses were 39%, 56%, and 62% in fiscal years 2006, 2005, and 2004 respectively. The decrease in sales and marketing expenses for fiscal year 2006 is attributed to lower personnel-related costs stemming from the fiscal 2005 restructurings that resulted in a 47% year-over-year decrease in average monthly headcount, and lower marketing programs costs. The decrease in sales and marketing expenses for fiscal year 2005 is attributed to lower personnel costs stemming from the aforementioned restructurings, a decreased emphasis on the commercial enterprise sector for the RetrievalWare product line, reduced marketing program costs (e.g., trade shows, advertising, etc.) and a decrease in bad debt expense.

Research and Development

Reported research and product development costs decreased 40% to $8.3 million for the year ended January 31, 2006 from $13.8 million in fiscal year 2005, representing 40% and 54% of total revenues respectively. As previously disclosed, the Company adopted FAS 86 during the first quarter of fiscal 2006, resulting in the capitalization of approximately $8.1 million of research and development costs for the first three quarters of fiscal year 2006. Absent the adoption of FAS 86, gross research and development costs grew 19% in fiscal year 2006 when compared to $13.8 million for fiscal year 2005. This increase is attributed to costs associated with the establishment and management of two AT&T hosting facilities and certain consulting fees for the period of February 1, 2005 (attainment of technological feasibility) through October 31, 2005 for the Excalibur Web offering. For fiscal year 2005, research and product development costs increased 15% from $12.0 million as reported in fiscal year 2004. The increase in fiscal year 2005 research and development expenses was due to increased personnel-related costs associated with Excalibur Web activities, which accounted for approximately $4.2 million of fiscal year 2005 costs.

General and Administrative

General and administrative expenses grew by 14% to $11.1 million for the year ended January 31, 2006 from $9.8 million in fiscal year 2005, representing 53% and 38% of total revenues, respectively. In fiscal year 2005, general and administrative expenses decreased 8% from $10.6 million in fiscal year 2004. The increase in fiscal year 2006 general and administrative costs is due to higher accountancy fees associated with the Company’s required Section 404 compliance efforts under the Sarbanes-Oxley Act. The decrease in fiscal year 2005 general and administrative costs is due to reduced employee-related costs resulting from the restructurings as implemented across the year and reduced other general operating costs.

Amortization of capitalized research & product development costs

For the year ending January 31, 2006, the Company amortized approximately $1.0 million of previously capitalized research and product development costs in accordance with FAS 86 associated with the Excalibur Web offering. With commercial availability of the Excalibur Web offering being achieved on November 1, 2005, amortization of the previously capitalized research & product development costs totaling approximately $8.1 million commenced. This amortization is expected to continue over a 24-month period, and as such, each of the next seven quarters is expected to incur a similar $1 million amortization charge.

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Restructuring charges

During fiscal year 2006 the Company recorded a $57,000 restructuring credit to account for the reversal of previously accrued utilities expense for the Hillsboro, Oregon facility. The early termination of that lease caused this reversal.

During fiscal year 2005 the Company effected a re-alignment of its operational infrastructure to align its expense structure with expected future revenue streams. Restructurings in both the third and fourth quarters of fiscal 2005 totaling $0.9 million were implemented to reduce operating expenses through general workforce reductions, facility consolidations, reduced marketing related expenses and decreased other general operating costs. In connection with these restructurings, the Company reduced its workforce by 77 employees worldwide, including 23 employees from within the engineering group, 30 from the sales and marketing group, 19 from the professional services group, and five from the general and administrative group.

The Company paid approximately $0.8 million, $1.6 million, and $1.9 million against the restructuring reserve in the fiscal years ended January 31, 2006, 2005 and 2004, respectively. As of January 31, 2006, there are no outstanding severance obligations. As of January 31, 2005 unpaid amounts of $0.1 million representing employee severance benefits and $0.7 million representing facility-related charges, had been classified as a current restructuring reserve in the accompanying consolidated balance sheet.

Other income

Other income increased to $0.6 million in fiscal year 2006 from $0.2 million in fiscal year 2005 due to a higher average quarterly cash balance and higher interest yields. Other income decreased to $0.2 million in fiscal year 2005 from $2.6 million in fiscal year 2004.

29

Contractual Obligations

The Company has obligations under certain contractual arrangements to make future payments for goods and services. These contractual obligations secure the future rights to various assets and services to be used in the normal course of operations. For example, the Company is contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting rules, the future rights and obligations pertaining to firm commitments such as operating lease obligations and certain purchase obligations under contracts are not reflected as assets or liabilities on the accompanying consolidated balance sheet.

As of January 31, 2006, the Company had the following contractual obligations associated with its lease commitments, debt facility and other contractual obligations for the periods indicated below:

Contractual Obligations	Payments Due By Fiscal Period (in thousands)
	Total		2007		2008-2009		2010-2011		2012 and thereafter
Operating leases	$	2,417	$	1,570	$	847	$	-	$	-
Debt facility		5,750		1,604		3,712		434		-
Other contractual obligations		808		638		170		-		-
Total	$	8,975	$	3,812	$	4,729	$	434	$	-

·   Operating lease obligations — represents the minimum lease rental payments under non-cancelable leases, primarily for the Company’s office space and operating equipment in various locations around the world.

·   Debt facility - represents the required amounts of principal and interest payments due.

·   Other contractual obligations — represents the principal amounts due on outstanding contractual obligations relating to hosting agreements between the Company and AT&T related to the Excalibur Web offering

Liquidity and Capital Resources

The Company’s combined balance of cash, cash equivalents and short-term investments at January 31, 2006 as compared to January 31, 2005 is summarized below (in thousands).

	January 31, 2006		January 31, 2005		Change
Cash and cash equivalents	$	37,741	$	17,766	$	19,975
Investments		71		71		-
Total	$	37,812	$	17,837	$	19,975

As of January 31, 2006, the Company’s balances of cash, cash equivalents and short-term investments were $37.8 million. The Company believes that its current balance of cash, cash equivalents, investments, funds generated from operations, if any, and the proceeds from its February 2006 private placement (see note 17 to the financial statements, Subsequent Events) will be sufficient to fund the Company's current projected cash needs for at least the next twelve months. Historically the Company has primarily been financed by sales of its common stock. If the actions taken by management are not effective in achieving profitable operating results, the Company may be required to pursue additional expense reductions and/or external sources of financing in the future to support its operations and capital requirements. There can be no assurances that external sources of financing will be available if required, or that such financing will be available on terms acceptable to the Company.

On March 23, 2005 the Company secured a $5 million term loan from Silicon Valley Bank, the primary subsidiary of Silicon Valley Bancshares (NASDAQ: SIVB). The four-year, term facility provided financing for capital purchases including those for its Excalibur Web offering. The loan was retired on February 28, 2006, concurrent with the private placement completed on February 28, 2006 (see note 17 to the financial statements, Subsequent Events).

30

Cash Flows Used in Operating Activities

In fiscal year 2006, the Company’s operating activities utilized $8.4 million of net cash and cash equivalents, compared to $19.9 million in fiscal year 2005. Net cash used in operating activities was $15.5 million in fiscal year 2004. The fiscal year 2006 net loss of $14.3 million was offset by non-cash charges totaling approximately $5.7 million, consisting primarily of depreciation of $2.9 million, equity compensation expense of $1.6 million and amortization of $1.3 million. A reduction to accounts receivable provided $2.0 million. Cash was also provided from a reduction in prepaid expenses and other of $0.7 million and an increase to deferred revenues of $0.1 million. Decreases to accounts payable, accrued expenses, accrued bonuses used cash of $2.0 million while paydown of the restructuring reserve used net cash of $0.8 million. The fiscal year 2005 net loss of $19.8 million was offset by non-cash charges totaling $2.8 million, consisting primarily of depreciation of $1.6 million, equity compensation expense of $1.4 million and amortization of developed technologies of $0.3 million. A reversal to the provision for doubtful accounts and a non-cash restructuring credit reduced the non-cash charges by $0.4 million and $0.1 million, respectively. Cash was provided from a reduction in prepaid expenses and other of $0.9 million and an increase to deferred revenues of $0.5 million. An increase to accounts receivable used cash of $0.6 million. Decreases to accounts payable, accrued expenses, accrued bonuses and the restructuring reserve used net cash of $2.1 million. A decrease to other long-term liabilities used $1.6 million. The fiscal year 2004 net loss of $18.1 million was offset by non-cash charges totaling $2.8 million, consisting primarily of depreciation of $1.7 million, equity compensation expense of $0.8 million and amortization of developed technologies of $0.3 million. Cash was provided from a reduction in accounts receivable of $1.5 million and a decrease in prepaid expense and other of $1.0 million. A decrease in accounts payable, accrued expense and accrued bonuses and an increase in other long-term liabilities used net cash of $2.3 million. A decrease in the restructuring reserve used $1.3 million, while an increase in deferred revenues contributed $0.9 million of net cash.

Cash Flows Used in Investing Activities

In fiscal year 2006 cash flows from investing activities used $15.0 million, consisting of $6.9 million for purchases of equipment and leasehold improvements and $8.1 million for capitalized software development costs required under FAS 86. Of the $6.9 million used for purchases of equipment and leasehold improvements, approximately $6.6 million was related to the Excalibur Web offering. In fiscal year 2005 cash flows from investing activities used $5.0 million for purchases of equipment and leasehold improvements. Of this, $4.1 million was related to the Excalibur Web offering. Cash flows from investing activities provided the Company $19.5 million of cash in fiscal year 2004. Net cash provided from the maturity of U.S. Treasury bills provided cash of $20.0 million, while purchases of equipment and leasehold improvements used cash of $0.5 million

Cash Flows Provided by Financing Activities

Financing activities provided cash of $43.4 million during the fiscal year ended January 31, 2006. Approximately $28.8 million of net proceeds were received through a July 2005 private placement of 6,555,556 newly-issued shares of common stock to two investors. The Company sold 5,555,556 shares directly to the Legg Mason Opportunity Trust, a series of Legg Mason Investment Trust, Inc., a registered investment company, at $4.50 per share. The other 1 million shares were purchased by an affiliate of Herbert A. Allen, a significant stockholder and director of the Company, at $4.84 per share, the market price at the time of the sale. An additional $5.0 million was secured from a March 2005, four-year, term loan financing from Silicon Valley Bank. The exercise of employee stock options provided approximately $9.7 million while approximately $215,000 was provided by the issuance of stock under the employee stock purchase plan offset by the repurchase of shares totaling $225,000. Financing activities provided cash of $12.2 million in fiscal year 2005. A private placement of 3,433,333 newly-issued shares of common stock to several investors, including affiliates of Allen & Company Incorporated, a significant stockholder of the company, and certain directors resulted in net proceeds of $10.3 million. The shares were priced on September 7, 2004 at $3.00 per share, representing a premium to the $2.80 closing market price on such date. Additionally, cash of approximately $0.2 million was provided by the issuance of stock under the employee stock purchase plan offset by the repurchase of shares totaling $121,000. Cash of $1.8 million was provided from the exercise of employee stock options. Financing activities provided approximately $16.8 million of cash in fiscal year 2004, including net proceeds of $16.0 million from a private placement and proceeds of $0.8 million from the issuance of stock under the employee stock purchase plan, the issuance of warrants and the exercise of stock options

31

Other Factors

Inflation

The Company believes that inflation has not had a material effect on the results of its operations to date.

Recent Pronouncements

On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123(R)"), which is a revision of SFAS No. 123. SFAS No. 123(R) Supersedes APB No. 25, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123; however, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values. Pro forma disclosure is no longer an alternative upon adopting SFAS No. 123(R). The Company will adopt SFAS No. 123(R) on February 1, 2006. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods: i. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123(R) for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date. ii. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company will implement SFAS No. 123(R) in the first quarter or fiscal year 2007 and intends to use the modified prospective method.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company's market risk is principally confined to changes in foreign currency exchange rates and potentially adverse effects of differing tax structures. International revenues from CTIL, the Company's foreign sales subsidiary located in the United Kingdom were approximately 25% of total revenues in fiscal year 2006. International sales are made predominantly from the Company's foreign subsidiary and are typically denominated in British pounds, EUROs or U.S. Dollars. As of January 31, 2006, approximately 6% and 11% of total consolidated accounts receivable were denominated in British pounds and EUROs, respectively. The majority of these receivables are due within 90 days of the end of fiscal year 2006, and all receivables are due within one year. Additionally, the Company is exposed to potential foreign currency gains or losses resulting from intercompany accounts that are not of a long-term nature. The Company is also exposed to foreign exchange rate fluctuations as the financial results of CTIL are translated into U.S. dollars in consolidation. As exchange rates vary, those results when translated may vary from expectations and adversely impact overall expected profitability.

As of January 31, 2006, less than one percent of the Company’s cash and cash equivalents were denominated in British pounds and EUROs, respectively. Cash equivalents consist of funds deposited in money market accounts with original maturities of three months or less. Short-term investments consist primarily of U.S. Government treasury bills and are carried at amortized cost. The Company also has a certificate of deposit for $71,000, which is pledged to collateralize a letter of credit required for a leased facility. Given the relatively short maturity periods of cash equivalents and short-term investments, the cost of these investments approximates their fair values and the Company’s exposure to fluctuations in interest rates is limited.

32

Financial statements and supplementary data of the Company are submitted as a separate section of this Form 10-K.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.Controls and Procedures

(a)   Evaluation of Disclosure Controls

As of the end of the period covered by this Annual Report on Form 10-K, the Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, and that material information relating to the Company and its consolidated subsidiaries is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)   Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of January 31, 2006.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of January 31, 2006, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

(c)   Changes in Internal Controls

There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of fiscal 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.Other Information

None

33

PART III

Item 10.Directors and Executive Officers of the Registrant

Information regarding directors and executive officers of the Company will be included in the Company's definitive Proxy Statement for the 2006 Annual Meeting of Shareholders and is incorporated in this report by reference.

The Company has adopted a written code of conduct and ethics (the "Code") which is applicable to all of the Company's officers, directors and employees, including the Company's Chief Executive Officer and Chief Financial Officer (collectively, the "Senior Officers"). In accordance with the rules and regulations of the Securities and Exchange Commission and the rules of the NASDAQ Stock Market, a copy of the Code has been posted on the Company's website at www.convera.com. The Company intends to disclose any changes in or waivers from the Code applicable to any Senior Officers on its website or by filing a Form 8-K.

Item 11.Executive Compensation

Information regarding executive compensation will be included in the Company’s definitive Proxy Statement for the 2006 Annual Meeting of Shareholders and is incorporated in this report by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management and related stockholder matters will be included in the Company’s definitive Proxy Statement for the 2006 Annual Meeting of Shareholders and is incorporated in this report by reference.

Item 13.Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions, if any, will be included in the Company’s definitive Proxy Statement for the 2006 Annual Meeting of Shareholders and is incorporated in this report by reference.

Item 14.Principal Accounting Fees and Services

Information regarding principal accounting fees and services will be included in the Company’s definitive Proxy Statement for the 2006 Annual Meeting of Shareholders and is incorporated in this report by reference.

34

PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)Documents filed as part of Form 10-K

1.Financial Statements:

The following financial statements of the Company are submitted in a separate section pursuant to the requirements of Form 10-K, Part I, Item 8 and Part IV, Items 14(a) and 14(d):

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Shareholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

2.Schedules Supporting Financial Statements:

All schedules are omitted because they are not required, are inapplicable, or the information is otherwise shown in the consolidated financial statements or notes to the consolidated financial statements.

             3.  Exhibits:

See Exhibit Index on the following page.

35

Exhibit Index

Exhibit No.	Exhibit Title	Incorporated by Reference from the Following Documents
3.1	Amended and Restated Certificate of Incorporation of Convera	Form S-4 (Registration No. 333-50172), November 17, 2000
3.2	By-laws of Convera (Amended and Restated)	Form 10-K, April 30, 2003
3.3	Amendment to By-Laws	Filed Herewith
10.1	1995 Incentive Plan, dated November 1995	Proxy Statement dated October 16, 1995 for Annual Meeting of Shareholders
10.2	Convera Stock Option Plan	Form 8-K, May 3, 2000
10.3	Office Lease (1808 Aston Avenue, Carlsbad, California) commencing November 1, 2001	Form 10-K, April 30, 2002
10.4	Amended and Restated Convera Corporation 1996 Employee Stock Purchase Plan	Definitive Form 14C, December 18, 2001
10.5	Employment Agreement with John R. Polchin, dated April 1, 2004	Form 10-Q, June 14, 2004
10.6	Office Lease Amendment (1921 Gallows Road, Vienna Virginia) commencing October 6, 2004	Form 10-Q, December 12, 2004
10.7	AT&T Master Agreement dated August 24, 2004	Form 10-K, April 1, 2005
10.8	Office Lease (Radius Court, London Road, Bracknell, Berkshire United Kingdom) commencing March 21, 2005	Filed Herewith
10.9	Office Sublease (Sublandlord - MWH Americas, 6760 Alexander Bell Drive, Columbia Maryland) commencing June 1, 2005	Filed Herewith
10.10	Office Lease (6760 Alexander Bell Drive, Columbia Maryland) commencing August 20, 2005	Filed Herewith
10.11	Employment Agreement with Kurt Gastrock dated October 25, 2005	Filed Herewith
10.12	Employment Agreement with Patrick C. Condo dated October 24, 2005	Filed Herewith
21.01	Subsidiaries of Convera	Form 10-K, April 30, 2004
23.01	Consent of Independent Registered Public Accounting Firm	Filed Herewith
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)	Filed Herewith
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)	Filed Herewith
32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith
32.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith

36

SIGNATURES

Pu   Persuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

             CONVERA CORPORATION

             By: /s/Patrick C. Condo

             Patrick C. Condo

             President and Chief Executive Officer

Date: March 30, 2006

Pu   Persuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/Patrick C. Condo	President, Chief Executive Officer, and Director	March 30, 2006
Patrick C. Condo	(Principal Executive Officer and Principal Financial and Accounting Officer)
/s/Ronald J. Whittier	Chairman of the Board	March 30, 2006
Ronald J. Whittier
/s/Herbert A. Allen	Director	March 30, 2006
Herbert A. Allen
/s/Herbert A. Allen, III	Director	March 30, 2006
Herbert A. Allen, III
/s/Stephen D. Greenberg	Director	March 30, 2006
Stephen D. Greenberg
/s/Eli S. Jacobs	Director	March 30, 2006
Eli S. Jacobs
/s/Donald R. Keough	Director	March 30, 2006
Donald R. Keough
/s/Ajay Menon	Director	March 30, 2006
Ajay Menon
/s/ Sidney Pollack	Director	March 30, 2006
Sidney Pollack
/s/ Carl J. Rickertson	Director	March 30, 2006
Carl J. Rickertson
/s/ Jeffrey White	Director	March 30, 2006
Jeffrey White

37

Index to Consolidated Financial Statements	Page
Management’s report on Internal Control over Financial Reporting	F-1
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets As of January 31, 2006 and 2005	F-4
Consolidated Statements of Operations and Comprehensive Loss For the fiscal years ended January 31, 2006, 2005 and 2004	F-5
Consolidated Statements of Shareholders' Equity For the fiscal years ended January 31, 2006, 2005 and 2004	F-6
Consolidated Statements of Cash Flows For the fiscal years ended January 31, 2006, 2005 and 2004	F-7
Notes to Consolidated Financial Statements	F-8

38

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Convera Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is a process designed under the supervision of the Company’s principal executive, principal financial and principal accounting officers, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management of the Company conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2006 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO Framework”). Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of January 31, 2006.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2006, has been audited by Ernst & Young LLP, the registered public accounting firm that audited the Company’s consolidated financial statements, as stated in their report, a copy of which is included in this Annual Report on Form 10-K.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Convera Corporation

We have audited the accompanying consolidated balance sheets of Convera Corporation as of January 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Convera Corporation at January 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 31, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Convera Corporation’s internal control over financial reporting as of January 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 21, 2006 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

McLean, Virginia

March 21, 2006

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Convera Corporation

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Convera Corporation maintained effective internal control over financial reporting as of January 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Convera Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Convera Corporation maintained effective internal control over financial reporting as of January 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Convera Corporation maintained, in all material respects, effective internal control over financial reporting as of January 31, 2006, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Convera Corporation as of January 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 31, 2006 of Convera Corporation and our report dated March 21, 2006 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

McLean, Virginia

March 21, 2006

F-3

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	As of January 31,
ASSETS	2006			2005
Current Assets:
Cash and cash equivalents	$	37,741		$	17,766
Short term investments		71			71
Accounts receivable, net of allowance for doubtful accounts of $218 and $537, respectively		4,364			6,530
Prepaid expenses and other		2,396			2,390
Total current assets		44,572			26,757
Equipment and leasehold improvements, net of accumulated depreciation of $15,683 and $13,940, respectively		9,152			5,145
Other assets		819			1,551
Capitalized research and development costs		7,102			-
Goodwill		2,275			2,275
Other intangible assets, net of accumulated amortization of $1,049 and $780, respectively		297			566
Total assets	$	64,217		$	36,294
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		1,367			1,967
Accrued expenses		2,680			4,055
Restructuring reserve		-			835
Deferred revenues		3,931			4,279
Current maturities of long-term debt		1,283			-
Total current liabilities		9,261			11,136
Deferred revenues - long-term		398			9
Long-term debt, net of current portion		3,717			-
Total liabilities		13,376			11,145
Commitments and Contingencies
Shareholders' Equity:
Common stock Class A, $0.01 par value, 100,000,000 shares authorized; 47,803,186 and 38,740,215 shares issued, respectively; 47,128,833 and 38,013,807 shares outstanding, respectively		477			387
Treasury stock at cost, 674,353 and 726,408 shares, respectively		(1,558	)		(1,678	)
Additional paid-in-capital		1,124,068			1,084,269
Accumulated deficit		(1,070,706	)		(1,056,445	)
Accumulated other comprehensive loss		(1,440	)		(1,384	)
Total shareholders' equity		50,841			25,149
Total liabilities and shareholders' equity	$	64,217		$	36,294

See accompanying notes.

F-4

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

	For the Fiscal Years Ended January 31,
	2006			2005			2004
Revenues:
License	$	10,573		$	14,360		$	18,322
Services		2,399			3,746			4,338
Maintenance		8,036			7,592			6,591
		21,008			25,698			29,251
Operating expenses:
Cost of revenues (excluding amortization of capitalized research and development costs shown separately below):
License		1,383			1,658			1,822
Services		4,903			3,332			4,715
Maintenance		981			1,718			2,033
Sales and marketing		8,190			14,476			18,124
Research and product development		8,346			13,801			11,981
General and administrative		11,113			9,764			10,564
Amortization of capitalized research and development costs		1,012			-			-
Restructuring (recoveries) charges		(57	)		944			621
Total operating expenses		35,871			45,693			49,860
Operating loss		(14,863	)		(19,995	)		(20,609	)
Other income, net		602			175			2,550
Net loss before income taxes		(14,261	)		(19,820	)		(18,059	)
Income tax benefit		-			-			-
Net loss	$	(14,261	)	$	(19,820	)	$	(18,059	)
Basic and diluted net loss per common share	$	(0.33	)		(0.56	)		(0.57	)
Weighted-average number of common shares outstanding - basic and diluted		43,088,677			35,432,754			31,486,032
Comprehensive loss:
Net loss		(14,261	)		(19,820	)		(18,059	)
Foreign currency translation adjustment		(56	)		(29	)		(539	)
Comprehensive loss	$	(14,317	)	$	(19,849	)	$	(18,598	)

See accompanying notes.

F-5

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share data)

	Common Stock							Treasury Stock						Additional Paid-in			Accumulated			Accumulated Other Compre- hensive Income
	Shares		Amount		Warrants			Shares			Amount			Capital			Deficit			(Loss)			Total
Balance, January 31, 2003		29,880,217	$	299		-			(877,155	)	$	(2,026	)	$	1,053,455		$	(1,018,540	)	$	(816	)	$	32,372
Private placement		4,714,111		47		-			-			-			15,978			-			-			16,025
Issuance of common stock upon exercise of options		61,016		1		-			-			-			250			-			-			251
Issuance of treasury stock for Employee Stock Purchase Plan		-		-		-			63,898			147			26			(26	)		-			147
Issuance of warrants to third party		-		-		137,711			-			-			383			-			-			383
Amortization of deferred stock compensation expense		-		-		-			-			-			788			-			-			788
Foreign currency translation adjustment		-		-		-			-			-			-			-			(539	)		(539	)
Net loss		-		-		-			-			-			-			(18,059	)		-			(18,059	)
Balance, January 31, 2004		34,655,344	$	347		137,711			(813,257	)	$	(1,879	)	$	1,070,880		$	(1,036,625	)	$	(1,355	)	$	31,368
Private placement		3,433,333		34		-			-			-			10,266			-			-			10,300
Issuance of common stock upon exercise of options		465,469		5		--			-			-			1,835			-			-			1,840
Issuance of treasury stock for Employee Stock Purchase Plan		-		-		-			86,849			201			(6	)		-			-			195
Exercise of warrants by third party		84,744		-		(137,711	)		-			-			-			-			-			-
Amortization of deferred stock compensation expense		-		-		-			-			-			1,416			-			-			1,416
Stock compensation		101,325		1		-			-			-			(122	)		-			-			(121	)
Foreign currency translation adjustment		-		-		-			-			-			-			-			(29	)		(29	)
Net loss		-		-		-			-			-			-			(19,820	)					(19,820	)
Balance, January 31, 2005		38,740,215	$	387		-			(726,408	)	$	(1,678	)	$	1,084,269		$	(1,056,445	)	$	(1,384	)	$	25,149
Private placement…….		6,555,556		65		-			-			-			28,700			-			-			28,765
Issuance of common stock upon exercise of options		2,406,090		24		--			-			-			9,646			-			-			9,670
Issuance of treasury stock for Employee Stock Purchase Plan		-		-		-			52,055			120			95			-			-			215
Amortization of deferred stock compensation expense		-		-		-			-			-			1,584			-			-			1,584
Stock compensation		101,325		1		-			-			-			(226	)		-			-			(225	)
Foreign currency translation adjustment		-		-		-			-			-			-			-			(56	)		(56	)
Net loss		-		-		-			-			-			-			(14,261	)		-			(14,261	)
Balance, January 31, 2006		47,803,186	$	477		-			(674,353	)	$	(1,558	)	$	1,124,068		$	(1,070,706	)	$	(1,440	)	$	50,841

See accompanying notes.

F-6

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the Fiscal Years Ended January 31,
	2006			2005			2004
Cash Flows from Operating Activities:
Net loss	$	(14,261	)	$	(19,820	)	$	(18,059	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		2,903			1,584			1,660
(Benefit) provision for doubtful accounts		(10	)		(401	)		80
Amortization		1,281			269			269
Stock compensation expense		1,584			1,416			788
Non-cash restructuring credit		(57	)		(137	)		-
Changes in operating assets and liabilities:
Accounts receivable		2,038			(560	)		1,470
Prepaid expenses and other		718			860			984
Accounts payable, accrued expenses and accrued bonuses		(1,968	)		(1,471	)		(3,904	)
Restructuring reserve		(776	)		(533	)		(1,313	)
Deferred revenues		118			526			903
Other long-term liabilities		-			(1,647	)		1,647
Net cash used in operating activities		(8,430	)		(19,914	)		(15,475	)
Cash Flows from Investing Activities:
Purchase of investments		-			-			(14,960	)
Proceeds from maturities of investments		-			-			34,942
Purchases of equipment and leasehold improvements		(6,915	)		(4,959	)		(470	)
Capitalized research and development costs		(8,095	)		-			-
Net cash (used in) provided by investing activities		(15,010	)		(4,959	)		19,512
Cash Flows from Financing Activities:
Proceeds from borrowings of long-term debt		5,000			-			-
(Payments for the purchase) proceeds from the issuance of common stock, net		(10	)		73			147
Proceeds from the private placement of stock, net		28,765			10,300			16,025
Proceeds from the issuance of warrants		-			-			383
Proceeds from the exercise of stock options		9,670			1,840			251
Net cash provided by financing activities		43,425			12,213			16,806
Effect of exchange rate changes on Cash and Cash Equivalents		(10	)		(104	)		(725	)
Net increase (decrease) in Cash and Cash Equivalents		19,975			(12,764	)		20,118
Cash and Cash Equivalents, beginning of year		17,766			30,530			10,412
Cash and Cash Equivalents, end of year	$	37,741		$	17,766		$	30,530

See accompanying notes.

F-7

CONVERA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(1)THE COMPANY

Operations and Organization

Convera Corporation (“Convera” or the “Company”) was established through the combination on December 21, 2000 of the former Excalibur Technologies Corporation (“Excalibur”) and Intel Corporation’s (“Intel”) Interactive Media Services (“IMS”) division (the “Combination”).

As of January 31, 2006 Allen Holding, Inc., together with Allen & Company Incorporated, Herbert A. Allen and certain related parties (collectively “Allen & Company”) beneficially owned approximately 47% of the voting power of Convera. As of January 31, 2005 and 2004, Allen & Company beneficially owned more than 50% of the voting power of Convera.

Convera principally earns revenues from the licensing of its software products and the provision of services in deployment of the Company’s technology to government agencies and commercial businesses throughout North America, Europe and other parts of the world. The Company licenses its software to end users directly and also distributes its software products through license agreements with system integrators, original equipment manufacturers, resellers and other strategic partners. Revenues are generated from software licenses with customers and from the related sale of product maintenance, training and professional services. Further, during fiscal year 2005, the Company embarked on an advanced Web indexing development effort focused on applying portions of the Company’s existing technology to also locate contextually relevant information on the World Wide Web (the “Web”). On November 1, 2005 the Company announced that the Excalibur Web offering was commercially available as the technology had advanced to then contain more than 4 billion documents in the index and a redundant hosting environment was established with AT&T. The Company began focusing much of its selling and marketing resources on establishing distribution channels for this technology. The Company is targeting both the commercial and the government sectors for the Excalibur Web offering at this time. Excalibur revenues may be derived from either a license model as described, or from a hosted service offering.

The Company’s operations are subject to certain risks and uncertainties including, but not limited to, the effect of general business and economic trends; the ability to continue funding operating losses and achieve profitability; the ability of Excalibur to gain market acceptance; the availability of additional capital financing on terms acceptable to the Company, if at all; fluctuations in operating results including impacts from reduced corporate IT spending and lengthier sales cycles; reduced customer demand for the Company’s products and services; continued success in technological advances and development including the Excalibur Web offering; the delay or deferral of customer software implementations; the potential for U.S. Government agencies from which the Company has historically derived a significant portion of its revenues to be subject to budget cuts; a dependence on international sales; actual and potential competition by entities with greater financial resources, experience and market presence than the Company; reliance on third party hosting facilities for our Excalibur Web offering; changes in software and hardware products that may render the Company’s products incompatible with these systems; the potential for errors in its software products that may result in loss of or delay in market acceptance and sales; the dependence on proprietary technology licensed from third parties; possible adverse changes to the Company’s intellectual property which could harm its competitive position; the need to retain key personnel; the ability of the Company to use net operating loss carryforwards; and the present ownership structure of the Company which includes Allen Holdings Inc. and related parties who exercise voting control of the Company such that other shareholders will not have an effective say in any matters upon which its shareholders vote. Although management believes that its current cash position is sufficient to sustain operations through January 31, 2007, should cash needs dictate, additional cost saving measures could be enacted to conserve cash.

F-8

(2)SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Convera Corporation and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with American Institute of Certified Public Accountants’ Statement of Position 97-2, Software Revenue Recognition, as amended by Statement of Position 98-9, Software Revenue Recognition, with respect to certain transactions.

Revenue from the sale of software licenses is recognized upon shipment of product, provided that the fee is fixed and determinable, persuasive evidence of an arrangement exists and collection of the resulting receivable is considered probable. Historically, the Company has not experienced significant returns or exchanges of its products.

Revenue from training and professional services is recognized when the services are performed. Such services are sold as part of a bundled software license agreement as well as separately to customers who have previously purchased software licenses. When training or professional services that are not essential to the functionality of the software are sold as part of a bundled license agreement, the fair value of these services, based on the price charged for the services when sold separately, is deferred and recognized when the services are performed.

To the extent that a discount exists in a multiple element or “bundled” arrangement that includes a software license, the Company attributes that discount entirely to the delivered elements utilizing the residual method as described in paragraph 12 of SOP 97-2 as amended by SOP 98-9. The Company generally utilizes the residual methodology for recognizing revenue related to multi-element software agreements. Under the residual methodology, the Company recognizes the arrangement fee as follows: (a) the total fair value of the undelivered elements, as indicated by vendor-specific objective evidence, is deferred and (b) the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. This assumes that (a) all other applicable revenue recognition criteria in SOP 97-2 are met and (b) the fair value of all of the undelivered elements is less than the arrangement fee.

Certain of the Company’s customers are Original Equipment Manufacturers (OEMs) and resellers. OEM contracts generally stipulate prepaid royalties due at varying dates as well as royalties due to the Company on the sale of the customer's integrated product over a specified contract term, generally ranging from two to five years.  With prepaid royalties, the Company recognizes revenue upon shipment of the software and/or software developer's kit, as appropriate, provided the payment terms are considered normal and customary for these types of arrangements, the fee is considered fixed and determinable, and all other criteria within SOP 97-2 have been met.  To the extent the OEM product sales exceed the level provided for by the guaranteed prepaid royalty and additional royalties are due, the Company generally recognizes the additional royalties as the sales occur and are reported to the Company. Reseller contracts generally stipulate royalties due to the Company on the resale of the Company's products and call for a guaranteed minimum royalty payment in exchange for the right to sell the Company's products within a specified territory over a specified period of time.  The Company recognizes the prepaid royalties as revenue upon delivery of the initial copy of the software, provided the payment terms are considered normal and customary for these types of arrangements, the fee is considered fixed and determinable, and all other criteria within SOP 97-2 have been met. To the extent the reseller's product sales exceed the level provided for by the guaranteed minimum royalty and additional royalties are due, the Company generally recognizes the additional royalties as the reseller sales occur and are reported to the Company.

F-9

Customization work is sometimes required to ensure that the Company’s software functionality meets the requirements of its customers. Under these circumstances, the Company’s revenues are derived from fixed price contracts and revenue is recognized using the percentage of completion method based on the relationship of actual costs incurred to total costs estimated over the duration of the contract. Further, the Company believes that this method of recognition is closely aligned with the evolution of the work product as defined. Estimated losses on such contracts are charged against earnings in the period such losses are identified.

Maintenance revenue related to customer support agreements is deferred and recognized ratably over the term of the respective agreements. Customer support agreements generally include bug fixes, telephone support and product release upgrades on a when and if available basis. When the Company provides a software license and the related customer support arrangement for one bundled price, the fair value of the customer support, based on the price charged for that element when sold separately, is deferred and recognized ratably over the term of the respective agreement.

Deferred revenue consists of deferred training and professional services revenues, deferred maintenance revenues and deferred license revenues.

Hosted service revenues associated with the Excalibur Web offering are recognized straight-line over the term of the applicable service agreement.

The Company incurs shipping and handling costs which are recorded in cost of license revenues.

Research and Development Costs

Software development costs are included in research and development and are expensed as incurred. Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed” requires the capitalization of certain software development costs once technological feasibility is established, which for the Company generally occurs upon completion of a working model. Capitalization ceases when the products are available for general release to customers, at which time amortization of the capitalized costs begins on a straight-line basis over the estimated product life, or on the ratio of current revenues to total projected product revenues, whichever is greater. Historically, the period between achieving technological feasibility and the general availability of the Company’s core software products has been short, and software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs related to its core software products, that being the RetrievalWare product suite. The Company’s new Excalibur Web offering encountered a longer period between technological feasibility and the attainment of commercial availability. The Excalibur Web offering was determined to have reached technological feasibility as of January 31, 2005. As a result, the Company began capitalizing software development costs related to the Excalibur Web offering during the first quarter of fiscal year 2006 and continued to do so until such time as “commercial availability” was determined. Effective November 1, 2005, based on commercial availability, capitalization of software development costs associated with the Excalibur Web offering ceased and amortization of previously capitalized software development costs for this offering commenced. This amortization is expected to continue over a twenty-four month period, the estimated useful life of the existing product.

Advertising

Advertising costs are expensed as incurred and included with sales and marketing in the consolidated statements of operations and comprehensive loss. The Company incurred approximately $55, $197 and $449 in advertising costs for the years ended January 31, 2006, 2005 and 2004, respectively.

Stock-based Compensation

SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), allows companies to account for stock-based compensation either under the provisions of SFAS No. 123 or under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), as amended by FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25).” The Company has elected to account for its stock-based compensation in accordance with the provisions of APB 25. Stock options originally granted under the Company’s stock option plans have an exercise price equal to the market value of the underlying common stock on the date of grant, and accordingly no employee compensation cost related to the initial grant of options is included in expenses. Stock option modifications associated with a change in employee status to a nonemployee have been accounted for as a new award and measured using the intrinsic value method under APB 25, resulting in the inclusion of compensation expense in the January 31, 2004 consolidated statement of operations. Nonvested shares of stock (referred to as deferred stock) granted under the Company’s stock option plan are measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company’s common stock. Such value is recognized as compensation expense over the corresponding service period. If an employee leaves the Company prior to the vesting of the deferred stock, the estimate of compensation expense recorded in previous periods is adjusted by decreasing compensation expense in the period of forfeiture.

F-10

Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for awards made under the respective plans in fiscal years 2006, 2005 and 2004 consistent with the method of SFAS No. 123, the Company’s net loss and basic and diluted net loss per common share would have been increased to the pro forma amounts indicated below.

	2006			2005			2004
Net loss, as reported	$	(14,261	)	$	(19,820	)	$	(18,059	)
Stock-based compensation, as reported		1,419			1,416			788
Total stock-based compensation determined under fair value based method for all awards		(5,539	)		(6,274	)		(6,773	)
Pro forma net loss	$	(18,381	)	$	(24,678	)	$	(24,044	)
Basic and diluted net loss per common share, as reported		($0.33	)		($0.56	)		($0.57	)
Basic and diluted net loss per common share, pro forma		($0.43	)		($0.70	)		($0.76	)

The pro forma net loss after applying the provisions of SFAS No. 123 is not necessarily representative of the effects on reported net loss for future years due to, among other things, vesting period of the stock options and the fair value of additional options in future years.

The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model. The following table shows the assumptions used for the grants that occurred in each fiscal year.

	2006	2005	2004
Expected volatility	80%	90%	96%
Risk free interest rates	3.9% to 4.4%	3.1% to 3.8%	2.5% to 3.3%
Dividend yield	None	None	None
Expected lives	5 years	5 years	5 years

The weighted average fair value per share for stock option grants that were awarded in fiscal years 2006, 2005 and 2004 was $4.40, $3.20 and $3.01, respectively. See Note 11 for additional information related to the Company’s stock compensation plans.

During fiscal year 2004, pursuant to the Company’s 2000 Stock Option Plan, several senior officers of the Company were awarded an aggregate of 1,800,000 shares of deferred stock with a five-year cliff vesting provision. Pursuant to a May 2003 deferred stock agreement as amended in May 2004, Mr. Condo was awarded 600,000 deferred shares of the Company's common stock. Under the amended agreement, 150,000 shares of common stock vest on each consecutive one-year anniversary of the date of grant as long as Mr. Condo remains continuously employed with the Company through such vesting date. Notwithstanding such vesting schedule, all of the deferred shares will vest on the earlier occurrence of Mr. Condo's termination of employment without cause, death or disability or a change of control of the Company. On May 20, 2004, and 2005, in accordance with the terms of the amended deferred stock agreement, tranches totaling 150,000 shares each vested. On both of these vest dates the Company withheld 48,675 of the shares at a cost of approximately $121,000 and $225,000, respectively, to fulfill Mr. Condo’s tax obligation with respect to the award. The deferred stock covering the remaining 700,000 shares, which is held by several senior officers, has a five-year cliff vesting provision, or vests immediately upon a change in control. The weighted-average fair value of the awards granted in fiscal year 2004 was $4.84 per share, based on the market price of the Company’s stock on the date of award. Compensation cost for Mr. Condo’s stock award is expensed on a straight-line basis over the four-year vesting period. Compensation cost for the remaining 700,000 shares is expensed on a straight-line basis over the five-year vesting period. In October 2005 an additional 200,000 shares of deferred stock were awarded to a new senior officer. This grant also carries a five-year cliff vesting provision, or vest immediately upon a change in control followed (a) by the officer’s continuous employment for a period of 12 months or (b) within 12 months by a termination of employment without cause, or a substantial diminution of the officer's duties and responsibilities compared to that immediately prior to the change of control. The fair value of the awards granted in October 2005 was $12.76 per share, based on the market price of the Company’s stock on the date of the award. Compensation expense, net of reversals for terminated employees, recorded by the Company in fiscal year 2006 was $1.4 million. Compensation expense of $979 and $440 is included in general and administrative costs and research and development costs, respectively, in the accompanying consolidated statements of operations and comprehensive loss. As of January 31, 2006, an aggregate of 1,200,000 shares of deferred stock were outstanding.

F-11

Net Loss Per Common Share

The Company follows SFAS No. 128, “Earnings Per Share,” for computing and presenting net loss per share information. Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per common share excludes common stock equivalent shares and unexercised stock options as the computation would be anti-dilutive. A reconciliation of the net loss available to common stockholders and the number of shares used in computing basic and diluted net loss per share is in Note 10.

Translation of Foreign Financial Statements

The functional currency of the Company’s foreign subsidiaries is their local currency. Accordingly, assets and liabilities of the Company’s foreign subsidiary are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average rates for the period. Foreign currency translation adjustments are accumulated in a separate component of shareholders’ equity. Foreign currency transaction (losses) gains recorded in operating expenses were ($56), $81 and $741 for the years ended January 31, 2006, 2005 and 2004, respectively.

Financial Instruments

The carrying value of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, approximates their fair value.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and accounts receivable. Management believes that the Company’s investment policy limits the Company’s exposure to concentrations of credit risk. The Company sells its products primarily to government agencies and to major corporations, including distributors that serve a wide variety of U.S. and foreign markets. The Company extends credit to its corporate customers based on an evaluation of the customer’s financial condition, generally without requiring a deposit or collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains an allowance for anticipated losses. The allowance for doubtful accounts is determined based on an analysis of the Company’s historical collection experience and the Company’s portfolio of customers taking into consideration the general economic environment as well as the industry in which the Company operates.

F-12

Valuation Accounts

	Balance at Beginning of Period		Charged (Credited) to Costs and Expenses			Uncollectible Accounts Written Off, Net of Recoveries			Balance at End of Period
Year Ended January 31, 2006:
Deducted from asset accounts:
Allowance for doubtful accounts	$	537	$	(10	)	$	(309	)	$	218
Year Ended January 31, 2005:
Deducted from asset accounts:
Allowance for doubtful accounts	$	1,793	$	(401	)	$	(855	)	$	537
Year Ended January 31, 2004:
Deducted from asset accounts:
Allowance for doubtful accounts	$	1,569	$	80		$	144		$	1,793

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of funds deposited in money market accounts. Consequently, the carrying amount of cash and cash equivalents approximates this fair value. Substantially all cash and cash equivalents are on deposit with two major financial institutions.

Short Term Investments

Highly liquid investments with maturities of one year or less at the time of purchase are classified as short-term investments. Short-term investments as of January 31, 2006 and January 31, 2005 consist of a certificate of deposit for $71, which is pledged to collateralize a letter of credit required for a leased facility

Income Taxes

Deferred taxes are provided utilizing the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes at the tax rates expected to be in effect when the differences reverse. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company provided a full valuation allowance against its net deferred tax assets as of January 31, 2006.

Equipment and Leasehold Improvements

Office furniture and computer equipment are recorded at cost. Depreciation of office furniture and equipment is provided on a straight-line basis over the estimated useful lives of the assets, generally three to five years. Amortization of leasehold improvements and leased assets are provided on a straight-line basis over the shorter of the term of the applicable lease or the useful life of the asset.

Expenditures for normal repairs and maintenance are charged to operations as incurred. The cost of property and equipment retired or otherwise disposed of and the related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is reflected in current operations.

F-13

Goodwill and Other Intangible Assets

Convera’s prior acquisitions of other companies resulted in the acquisition of certain intangible assets and goodwill. Goodwill resulting from such acquisitions is associated with the Company’s core software products segment. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, the impairment of goodwill is assessed on an annual basis or whenever changes in circumstances indicate that the fair value of the Company is less than the carrying value.. This assessment is performed by comparing the market value of the Company’s outstanding common stock with the carrying amount of the Company’s net assets, including goodwill. If the market value exceeds the carrying amount of the Company’s net assets, impairment of goodwill does not exist. If the market value is less than the carrying amount of the Company’s net assets, the Company will perform further analysis and may be required to record an impairment. The Company continues to amortize intangible assets that are deemed to have a finite useful life, and amortization is being charged to income on a straight-line basis over the periods estimated to benefit. Acquired developed technology is being amortized on a straight-line basis over five years.

Impairment of Long-Lived Assets

The Company evaluates all of its long-lived assets, including intangible assets other than goodwill, for impairment in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets and intangible assets other than goodwill be evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. Should events indicate that any of the Company’s assets are impaired, the amount of such impairment will be measured as the difference between the carrying value and the fair value of the impaired asset and the impairment will be recorded in earnings during the period of such impairment.

Reclassifications

Certain amounts presented in the prior year’s financial statements have been reclassified to conform to the fiscal year 2006 presentation.

Other Income

For the year ended January 31, 2006 other income consisted of $908 of net interest income offset by interest expense of $306. In fiscal year 2005 other income consisted entirely of net interest income of $175. For the year ended January 31, 2004 other income consisted of $204 in interest income offset by interest expense of $17, plus a reversal of $2,363 of accrued expenses resulting from a settlement agreement reached between the Company and another party in fiscal year 2004. As a result of the settlement, the Company’s liability was reduced from $5.6 million to $3.2 million, and the previously recorded accruals were reversed into other income.

Recent Pronouncements

On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123(R)"), which is a revision of SFAS No. 123. SFAS No. 123(R) Supersedes APB No. 25, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123; however, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values. Pro forma disclosure is no longer an alternative upon adopting SFAS No. 123(R). The Company will adopt SFAS No. 123(R) on February 1, 2006. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods: i. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123(R) for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date. ii. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company will implement SFAS No. 123(R) in the first quarter of fiscal year 2007 and intends to use the modified prospective method.

F-14

(3) RESTRUCTURING CHARGES

In fiscal years 2004 and 2005 the Company effected a re-alignment of its operational infrastructure by adopting a restructuring plan to reduce operating costs and increase efficiencies. These restructuring programs were composed entirely of workforce reductions. As a result of these restructuring programs, in conformity with SEC Staff Accounting Bulletin (SAB) No. 100, Restructuring and Impairment Charges, and EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity Including Certain Costs incurred in a Restructuring, the Company recorded restructuring charges during the years ended January 31, 2005 and 2004. In the years ended January 31, 2006 and 2005 the Company recorded restructuring adjustments related to restructurings that originated in fiscal years 2002 through 2005.

Workforce Reductions

In connection with the restructuring programs in fiscal years 2005 and 2004 the Company reduced its workforce by 105 employees worldwide, including 20 individuals from the professional services group, 33 from engineering, 27 from sales, 14 from marketing and 11 from the general and administrative group. During the fiscal years ended January 31, 2005 and 2004 the Company recorded restructuring charges related to terminated employee severance costs of $1,081 and $621, respectively.

Changes in Estimates and Adjustments

During the years ended January 31, 2006 and 2005 the company recorded adjustments to previous restructuring programs of ($57) and ($137), respectively. The fiscal year 2005 adjustment reflects the reversal of fiscal year 2002 restructuring charge related to a facility closing. The adjustment in fiscal year 2006 consisted of a reversal of $51 related to the aforementioned facility closing in fiscal year 2002 and a $6 reversal of employee termination benefits related to the restructuring in fiscal year 2005.

Restructuring costs and adjustments recorded are summarized as follows (in thousands):

	Year Ended January 31,
	2006			2005			2004
Employee termination costs	$	-		$	1,081		$	621
Change in estimates and assumptions		(57	)		(137	)		-
Total	$	(57	)	$	944		$	621

The Company paid an aggregate of approximately $776, $1,616 and $1,934 against the restructuring reserve in the fiscal years ended January 31, 2006, 2005, and 2004, respectively. As of January 31, 2006 all restructuring obligations have been fully settled.

(4)ACCOUNTS RECEIVABLE

Accounts receivable, net of allowances, consist of the following as of January 31, (in thousands):

	2006			2005
Billed	$	4,215		$	6,455
Unbilled		367			612
		4,582			7,067
Less: allowance for doubtful accounts		(218	)		(537	)
	$	4,364		$	6,530

The unbilled total represents the recognized sales value of performance and such amounts that had not been billed and were not billable to customers as of the balance sheet date. The billing is customarily determined by the delivery of milestones as set forth in the contract.

F-15

(5)EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements at January 31, 2006 and 2005 consisted of the following:

	2006			2005
Computer equipment	$	21,407		$	15,426
Office furniture		2,831			2,918
Leasehold improvements		597			741
		24,835			19,085
Less accumulated depreciation		(15,683	)		(13,940	)
	$	9,152		$	5,145

Equipment and leasehold improvements are recorded at cost. Depreciation is calculated on the straight-line method over three years for computer equipment, five years for office furniture and over the shorter of the depreciable life or the life of the related lease for leasehold improvements. Depreciation expense for fiscal years 2006, 2005 and 2004 was $2,903, $1,584 and $1,660, respectively.

(6)GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other acquisition-related intangibles at fiscal year ends were as follows:

	2006			2005
Goodwill	$	2,275		$	2,275
Developed technologies	$	1,346		$	1,346
Less accumulated amortization		(1,049	)		(780	)
	$	297		$	566

Amortization expense for fiscal years 2006, 2005 and 2004 was $269, $269 and $269, respectively. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding 5 years is as follows: 2007 - $269; 2008 - $28; --none thereafter.

(7)ACCRUED EXPENSES

Accrued expenses at January 31, 2006 and 2005 consisted of the following:

	2006		2005
Accrued payroll and bonuses	$	1,325	$	1,552
Accrued facility costs		-		1,625
Other		1,355		878
	$	2,680	$	4,055

F-16

(8)INCOME TAXES

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consisted of:

	For the Fiscal Years Ended January 31,
	2006					2005					2004
Federal benefit at statutory rate	$	(4,300	)	(35	)%	$	(6,937	)	(35	)%	$	(6,321	)	(35	)%
Effect of:
State benefits, net of federal benefits		(369	)	(3	)%		(595	)	(3	)%		(542	)	(3	)%
Expiration of NOL carryforward		1,168		10	%		621		3	%		-		0	%
Effect of stock option exercises		(4,582	)	(37	)%		(12	)	0	%		(14	)	0	%
Other		(569	)	(5	)%		657		3	%		177		1	%
Valuation allowance		8,652		70	%		6,266		32	%		6,700		37	%
Net deferred tax assets	$	-		0	%	$	-		0	%	$	-		0	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The Company’s net deferred tax assets at January 31, 2006 and 2005 were as follows:

	2006			2005
Deferred tax assets:
Net operating loss carryforwards,not yet utilized	$	70,720		$	61,627
Capitalized research & development costs		14,576			14,862
Restructuring reserve		-			325
Other		2,289			2,119
Total deferred tax assets		87,585			78,933
Valuation allowance		(87,585	)		(78,933	)
Net deferred tax assets	$	-		$	-

At January 31, 2006 the Company had net operating loss carryforwards (“NOLs”) of approximately $185 million that expire at various dates through fiscal year 2025. The use of these NOLS may be limited by Section 382 of the Internal Revenue Code as a result of the Combination or other equity transactions. Approximately $26,880 of the NOLs relate to stock option exercises, and $17,425 and $1,470 relate to UK and Canada operations, respectively. The tax benefit associated with the stock option exercises will be credited to equity when and if realized.

As of January 31, 2006, the Company’s deferred tax assets exceeded the deferred tax liabilities. As the Company has not generated earnings and no assurance can be made of future earnings needed to utilize these assets, a valuation allowance in the amount of the net deferred tax assets has been recorded.

F-17

(9)CAPITALIZATION

The authorized capital stock of Convera consists of 100 million shares of Class A voting common stock, par value $0.01 per share, 40 million shares of Class B non-voting common stock, par value $0.01 per share, and five million shares of cumulative convertible preferred stock, par value $0.01 per share.

In the second quarter of fiscal year 2006, the Company completed a private placement of 6,555,556 newly issued shares of its Class A common stock to two investors. The Company sold 5,555,556 shares directly to the Legg Mason Opportunity Trust at a purchase price of $4.50 per share. The remaining 1 million shares were purchased by an affiliate of Herbert A. Allen, a significant stockholder and director of the Company, at a purchase price of $4.84 per share. Net proceeds to the Company of approximately $28.8 million were and will continue to be used for the continued funding of activities related to the Excalibur Web offering and for general corporate purposes. Allen & Company LLC, a company affiliated with the majority shareholder, acted as placement agent for the private placement and was paid a commission of 4% on the shares purchased directly by the Legg Mason Opportunity Trust.

In the third quarter of fiscal year 2005, the Company completed a private placement of 3,433,333 newly-issued shares of Class A common stock to several investors, including affiliates of Allen & Company Incorporated, a significant stockholder of the Company, and certain directors. The shares were priced on September 7, 2004 at $3.00 per share, representing a premium to the $2.80 closing market price on such date. Net proceeds to the Company of approximately $10.3 million were used to finance ongoing operations and for general corporate purposes, including potential acquisitions.

In the second quarter of fiscal year 2004, the Company completed a private placement of 4,714,111 shares of its Class A common stock to a group of unaffiliated institutional investors. The Company sold the shares at a purchase price of $3.60 per share, resulting in net proceeds to the Company of approximately $16.0 million. In connection with this private placement, the Company has incurred expenses of approximately $946, which have been recorded in equity as an offset against the proceeds. The Company used the net proceeds to finance ongoing operations and for general corporate purposes, including potential acquisitions. Allen & Company LLC, a company affiliated with the majority shareholder, acted as placement agent for the private placement and was paid a commission of 5%, which is included in the offering expenses above.

No shares of the Company’s Class B common stock are issued or outstanding at January 31, 2006.

(10)NET LOSS PER COMMON SHARE

The following table sets forth the computation of basic and diluted net loss per common share:

	For the Fiscal Years Ended January 31,
	2006			2005			2004
Numerator:
Net loss	$	(14,261	)	$	(19,820	)	$	(18,059	)
Denominator:
Weighted average number of common shares outstanding - basic and diluted		43,088,677			35,432,754			31,486,032
Basic and diluted net loss per common share	$	(0.33	)	$	(0.56	)	$	(0.57	)

Using the treasury stock method the following equity instruments were not included in the computation of diluted net loss per common share because their effect would be anti-dilutive:

	For the Fiscal Years Ended January 31,
	2006		2005		2004
Stock options		3,761,226		712,682		199,901
Deferred stock		616,613		182,597		40,694
Stock warrants		-		-		71,551

F-18

(11)EMPLOYEE BENEFIT PLANS

Stock Options

The Convera 2000 Stock Option Plan authorizes the granting of stock options and other forms of incentive compensation to purchase up to 11.25 million shares of the Company’s Class A common stock in order to attract, retain and reward key employees. In addition, at the closing of the Combination, Convera assumed Excalibur’s existing stock option plans. The various plans are administered by a Committee appointed by the Board of Directors, which has the authority to determine which officers, directors and key employees are awarded options and other stock based compensation pursuant to the plans and the terms and option exercise prices of the stock options. Of the total number of shares authorized for stock based compensation, options or warrants to purchase 8,495,022 shares and 1,200,000 deferred shares were outstanding as of January 31, 2006. The Company had a total of 334,348 shares of Class A common stock reserved for the issuance of warrants, deferred shares and options under the plans as of January 31, 2006.

Each qualified incentive stock option granted pursuant to the plans has an exercise price as determined by the Committee but not less than 100% of the fair market value of the underlying common stock at the date of grant, a ten-year term and typically a four-year vesting period.

A non-qualified option granted pursuant to the plans may contain an exercise price that is below the fair market value of the common stock at the date of grant and/or may be immediately exercisable. The term of non-qualified options is usually five or ten years.

The following table summarizes the Company's activity for all of its stock option awards:

	Number of Options			Range of Exercise Prices		Weighted-Average Exercise Price
Balance, January 31, 2003	8,813,654			$	1.45 - 52.75	$	5.25
Granted		480,310			3.40 - 4.95		4.09
Exercised		(61,016	)		1.70 - 4.75		4.11
Canceled		(2,031,592	)		2.43 - 39.63		5.02
Balance, January 31, 2004		7,201,356		$	1.45-52.75	$	5.24
Granted		3,937,150			2.24 - 5.31		3.20
Exercised		(465,469	)		1.45 - 4.75		3.95
Canceled		(1,398,211	)		1.45 - 52.75		4.44
Balance, January 31, 2005		9,274,826		$	1.60 -46.06	$	4.55
Granted		2,684,000			4.19 - 16.09		6.88
Exercised		(2,406,090	)		1.60 - 10.38		4.02
Canceled		(1,057,714	)		1.80 - 35.50		6.06
Balance, January 31, 2006		8,495,022		$	1.70 -46.06	$	5.25

Options to purchase 3,971,846, 5,324,042 and 4,830,097 shares of the Company’s common stock were vested and exercisable at January 31, 2006, 2005 and 2004, respectively, at weighted-average exercise prices of $5.16, $5.44 and $5.64 per share, respectively.

F-19

The following table summarizes additional information about stock options outstanding at January 31, 2006:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
$1.70 to $ 4.07		1,701,255		8.13 years	$	2.68		406,285	$	3.13
$4.14 to $ 5.09		5,650,527		7.13		4.54		3,168,699		4.43
$5.31 to $8.13		203,628		3.35		7.03		173,250		7.19
$8.19 to $16.09		819,562		8.89		12.33		103,562		10.42
$20.52 to $46.06		120,050		3.01		23.77		120,050		23.77
		8,495,022		7.35 years	$	5.25		3,971,846	$	5.16

Employee Stock Purchase Plan

The Company’s employee stock purchase plan (“ESPP”) is available for all active employees and provides that participating employees may purchase common stock each plan quarter at a purchase price equal to the lesser of 85% of the closing price on the date of purchase or 85% of the closing price on the date of grant. Payment for the shares is made through authorized payroll deductions of up to 10% of eligible annual compensation.

Of the 250,000 shares of Class A common stock that were reserved for issuance, 73 and 152,778 shares were purchased by employees in fiscal years 2003 and 2002, respectively.

During the fourth quarter of the fiscal year ended January 31, 2002, the Convera shareholders approved an amendment to the ESPP authorizing an additional 1,000,000 shares to be reserved for issuance under the plan. These shares were included as treasury stock as of January 31, 2002 and are released from the treasury as employees purchase the shares through the ESPP. During the fiscal years 2006, 2005, 2004 and 2003, 52,055, 86,849, 63,898 and 122,845 shares were purchased by the employees, respectively, leaving 674,353 shares in treasury as of January 31, 2006.

Employee Savings Plan

The Company has an employee savings plan that qualifies under Section 401(k) of the Internal Revenue Code. Under the plan, participating eligible employees in the United States may defer up to 100 percent of their pre-tax salary, but not more than statutory limits. The plan was amended in the fiscal year ended January 31, 2001 to allow the Company to match $0.50 on every dollar up to the maximum of 8% of the employee’s contribution on total compensation.

For the fiscal years ended January 31, 2006, 2005 and 2004, the Company contributed approximately $424, $483 and $477, respectively, to the employee savings plan.

F-20

(12)COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company conducts its operations using leased facilities. The leases terminate at various dates through fiscal year 2009 with options to renew. Certain leases provide for scheduled rent increases and obligate the Company to pay shared portions of the operating expenses such as taxes, maintenance and repair costs. The Company also has operating leases for equipment and its foreign subsidiary has operating leases for automobiles that are included in the figures below. Future minimum rental payments under non-cancelable operating leases as of January 31, 2006 are as follows:

Year Ending January 31,
2007	$	1,570
2008		756
2009		91
2010 and beyond		-
	$	2,417

Total rental expense under operating leases was approximately $1,805, $2,743 and $2,982 for fiscal years 2006, 2005 and 2004, respectively.

Contingencies

On November 1, 2001, DSMC, Incorporated ("DSMCi") filed a complaint against the Company in the U.S. District Court for the District of Columbia in which it alleged that the Company misappropriated DSMCi's trade secrets, and engaged in civil conspiracy with the NGT Library, Inc. ("NGTL"), an affiliate of the National Geographic Society, to obtain access to DSMCi's trade secrets, and was unjustly enriched by the Company's alleged access to and use of such trade secrets. In its complaint, DSMCi seeks $5 million in actual damages and $10 million in punitive damages from the Company. DSMCi subsequently amended its complaint to add copyright infringement-related claims. NGTL intervened in the litigation as a co-defendant with Convera, and filed counterclaims against DSMCi. Convera moved to compel arbitration of DSMCi's claims; the District Court denied the motion, and Convera filed an interlocutory appeal. The D.C. Circuit, in November 2003, ruled that it did not have jurisdiction to consider the appeal. During December 2005 DSMCi and NGTL entered into a Settlement Agreement and Release.  The U.S. District Court dismissed claims against NGTL on December 23, 2005. The litigation between the Company and DSMCi is currently in the summary judgment phase in the District Court.The Company has investigated the claims and continues to believe that the claims are without merit.

In connection with this litigation, the Company brought an arbitration claim against NGTL on September 13, 2005, seeking indemnification for its defense costs and potential liability pursuant to an indemnity provision in a service agreement between NGTL and the Company. In response, NGTL brought a cross claim against the Company under the same contract provision for indemnification of NGTL’s respective costs and liability. This arbitration is in its early stage.

In addition, from time to time, the Company is a party to various legal proceedings, claims, disputes and litigation arising in the ordinary course of business, including that noted above. The Company believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse affect on its financial position, operations or cash flow. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions or future actions be unfavorable, Convera’s financial position, operations and cash flows could be materially and adversely affected.

F-21

(13)SEGMENT REPORTING

The Company is engaged in the design, development, marketing and support of search, retrieval and categorization solutions. All of the Company’s revenues result from the sale of the Company’s software products and related services for all fiscal year’s presented. During fiscal year 2005, the Company embarked on an advanced development effort focused on applying portions of its existing core technology to also locate contextually relevant information on the World Wide Web. This development effort has resulted in the Excalibur Web offering. Accordingly, as of January 31, 2006 the Company considers itself to have two reportable segments, specifically the license, implementation and support of its core software products business as well as the Web indexing segment. The Company’s chief operating decision-making group reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues, expenses and relevant balance sheet items for both product segments and by geographic region for purposes of making operating decisions and assessing financial performance.

The following table reconciles the Company’s segment activity to its consolidated results of operations for the years ended January 31, 2006, 2005 and 2004.

	Fiscal Years Ended January 31,
	2006			2005			2004
Revenues and expenses
Core Software Products (RetrievalWare)
Revenues	$	20,988		$	25,698		$	29,251
Expenses, excluding depreciation		(27,108	)		(40,032	)		(48,200	)
Depreciation		(630	)		(1,267	)		(1,660	)
Net operating loss	$	(6,750	)	$	(15,601	)	$	(20,609	)
Web Indexing (Excalibur)
Revenues	$	20		$	-		$	-
Expenses, excluding depreciation		(5,859	)		(4,063	)		-
Depreciation		(2,274	)		(331	)		-
Net operating loss	$	(8,113	)	$	(4,394	)	$	-
Reconciliation to consolidated net loss
Net operating loss-both reporting segments	$	(14,863	)	$	(19,995	)	$	(20,609	)
Other income, net (unallocated)		602			175			2,550
Net loss before income taxes		(14,261	)		(19,820	)		(18,059	)
Income tax benefit		-			-			-
Net loss	$	(14,261	)	$	(19,820	)	$	(18,059	)

F-22

The following table reconciles each segments total assets to the Company’s consolidated total assets for the years ended January 31, 2006 and 2005.

	Fiscal Years Ended January 31,
	2006		2005
Core Software Products (RetrievalWare)
Equipment and leasehold improvements, net of accumulated depreciation	$	934	$	1,353
All other assets		47,964		31,149
Total assets for segment	$	48,898	$	32,502
Web Indexing (Excalibur)
Equipment and leasehold improvements, net of accumulated depreciation	$	8,218	$	3,792
All other assets		7,101		-
Total assets for segment	$	15,319	$	3,792
Consolidated total assets	$	64,217	$	36,294

Operations by Geographic Area

The following table presents information about the Company’s operations by geographical area:

	Fiscal Years Ended January 31,
	2006		2005		2004
Sales to customers:
United States	$	15,767	$	18,171	$	21,896
United Kingdom		4,472		6,608		2,815
All Other		769		919		4,540
	$	21,008	$	25,698	$	29,251
Long-lived assets:
United States	$	18,983	$	9,350	$	6,671
All Other		661		187		423
	$	19,644	$	9,537	$	7,094

Major Customers

Revenues derived from contracts and orders issued by agencies of the U.S. Government were approximately $11,310 $11,600 and $15,200, respectively, in the fiscal years ended January 31, 2006, 2005 and 2004. These revenues, expressed as a percentage of total revenues for each such fiscal year, were approximately 54%, 45% and 52%, respectively. For the fiscal year ended January 31, 2006 one customer accounted for approximately 14% of the Company’s total revenues. One reseller customer accounted for approximately 17% of the Company’s total revenues for the fiscal year ended January 31, 2005 and one customer accounted for 12% of the Company’s total revenues for the fiscal year ended January 31, 2004.

(14)SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

	For the Fiscal Years Ended January 31,
	2006		2005		2004
Supplemental Disclosures of Non-cash Investing and Financing Activities:
Stock options exercised under deferred compensation arrangements	$	225	$	121	$	25

F-23

(15)SELECTED QUARTERLY INFORMATION (UNAUDITED)

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
2006:
Revenues	$	5,078		$	7,804		$	4,512		$	3,613
Operating loss		(2,495	)		(100	)		(2,732	)		(9,536	)
Restructuring charges		(56	)		-			(1	)		-
Other income		-			-			-			-
Net loss		(2,469	)		(25	)		(2,491	)		(9,276	)
Basic and diluted loss per common share	$	(0.06	)	$	(0.00	)	$	(0.05	)	$	(0.20	)
2005:
Revenues	$	8,170		$	5,067		$	6,130		$	6,331
Operating loss		(4,796	)		(7,079	)		(4,563	)		(3,557	)
Restructuring charges		-			-			518			426
Other income		-			-			-			-
Net loss		(4,759	)		(7,049	)		(4,518	)		(3,494	)
Basic and diluted loss per common share	$	(0.14	)	$	(0.21	)	$	(0.13	)	$	(0.09	)

(16)LONG-TERM DEBT

On March 23, 2005 the Company secured a $5 million term loan from Silicon Valley Bank (“SVB”), the primary subsidiary of Silicon Valley Bancshares (NASDAQ: SIVB). The four-year, term facility was secured to provide financing for capital purchases including those for the Excalibur Web offering. The loan bears interest at 7% per annum and is secured by a first lien on all corporate assets, excluding intellectual property. Scheduled monthly payments of interest only are due through March 2006. The balance is scheduled to be paid in 36 monthly installments of approximately $155 including principal and interest. Additionally, a balloon interest payment of $125 is due in March 2009. The note includes certain financial covenants including cash to debt ratios. The agreement also requires the Company to maintain a cash balance with SVB equal to twice the amount of the loan outstanding. During the fiscal year ended January 31, 2006 the Company recorded interest expense of $306. As of January 31, 2006, the Company was in compliance will all required covenants. The Company retired this facility on February 28, 2006.

(17)SUBSEQUENT EVENTS

On February 28, 2006 the Company completed a private placement of 5,103,333 newly-issued shares of common stock to a group of institutional investors resulting in net proceeds of approximately $36.7 million. The shares were sold at a price of $7.50 per share, which represented a 6.58% discount to the Company’s trailing 10-day average closing price preceding the date of Board approval. Allen & Company LLC, a company affiliated with the majority shareholder, acted as placement agent for the private placement and was paid a commission of 4%.

Concurrent with this private placement, the Company retired the Silicon Valley Bank term loan facility. The remaining balance of the private placement proceeds, which totaled approximately $31.6 million are to be used for general corporate purposes, including the Excalibur Web offering.

F-24

EX-3.3

Amendment to Convera Corporation By-Laws Effective February 16, 2006

As approved at a meeting of the Board of Directors of Convera Corporation on February 16, 2006, the first sentence of Section 2.02 of Article II of the By-Laws is amended and restated to read as follows:

The number of Directors shall be fixed by resolution of the Board of Directors and may be increased or decreased from time to time by action of the Board of Directors.

EX-10.8

DATED06-Sept-2005

LIVERPOOL VICTORIA FRIENDLY SOCIETY LIMITED

and

CONVERA TECHNOLOGIES INTERNATIONAL

LIMITED

and

CONVERA CORPORATION

LEASE

relating to part ground floor, Radius Court, London Road,

Bracknell, Berkshire

Nabarro Nathanson

1 South Quay

Victoria Quays

Sheffield S2 5SY

Tel: 0114 279 4000

L1585/02465/2675172 v.4

CONTENTS

ClauseSubject matterPage

1.DEFINITIONS 1

2.INTERPRETATION 5

3.DEMISE AND TERM 7

4.PAYMENT OF RENT 7

5.OTHER FINANCIAL MATTERS 7

6.THIRD PARTY RIGHTS OVER THE PREMISES 9

7.INSURANCE 10

8.STATE AND CONDITION OF THE PREMISES 12

9.USE OF THE PREMISES 14

10.ALIENATION 15

11.LEGAL REQUIREMENTS 17

12.SERVICE CHARGE 20

13.LANDLORD'S COVENANTS 22

14.FORFEITURE 22

15.LIMITS ON LANDLORD'S LIABILITY 24

16.NOTICES IN CONNECTION WITH THIS LEASE 24

17.TENANT'S OPTION TO DETERMINE 25

18.LANDLORD'S OPTION TO DETERMINE 25

19.JURISDICTION 25

20.NEW OR OLD LEASE 26

21.INDEMNITY 26

22.GENERAL 26

23.GUARANTOR'S COVENANTS 29

THE FIRST SCHEDULE 31

THE SECOND SCHEDULE :32

THE THIRD SCHEDULE 33

THE FOURTH SCHEDULE 34

L1585/02465/2675172

LEASE

DATE06-Sept-2005

PARTIES

(1)   LNERPOOL VICTORIA FRIENDLY SOCIETY LIMITED a friendly society incorporated under the Friendly Societies Act 1992, the registered office of which is at County Gates, Bournemouth BN1 2NF (the "Landlord");

(2)   CONVERA TECHNOLOGIES INTERNATIONAL LIMITED (registered number 02703837) whose registered office is at Amberley Place, 107-111 Peascod Street, Windsor, Berkshire SL4 1TE (the "Tenant"); and

(3)   CONVERA CORPORATION of 1921 Gallows Road, Suite 200, Vienna, Virginia 22181 (the "Guarantor").

IT IS AGREED AS FOLLOWS:

1. DEFINITIONS

In this Lease:

"Building"

means Radius Court, London Road, Bracknell;

"Conducting Media"

means the sewers, drains, mains, pipes, wires, cables, ducts, watercourses, channels and conduits serving the Building;

"Common Parts"

)

means any entrance hall, corridors, passages, fire escapes, lobbies, landings, staircases, lifts, pedestrian ways, courtyards, forecourts, and any other amenities in, or forming part of, the Building which are or may from time to time be provided or designated by the Landlord (acting reasonably) for common use by the tenants and occupiers of the Building such occupiers to include the Landlord and all persons expressly or by implication authorised by such tenants and occupiers but excluding the Exclusively Occupiable Areas;

L1585/02465/2675172 v.4

"End of the Term"

means the expiry of the Term by effluxion of time or the determination of the Term by forfeiture, surrender, merger, notice or in any other way;

"Excluded Risks"

means any risk against which the Landlord does not insure because insurance cover for that risk is either not ordinarily available in the London insurance market, or is available there only at a premium or subject to conditions which in the Landlord's discretion are unacceptable;

"Exclusively Occupiable Areas"

means those parts of the Building intended to be used exclusively by the Landlord or capable of being leased to occupational tenants;

"Financial Year"

means a period of 12 months ending on each year;

"Group"

means a group of companies within the meaning of section 42 of the Landlord and Tenant Act 1954;

"Guarantor"

means the third party to this Lease and any person who has entered into a guarantee or an authorised guarantee agreement pursuant to this Lease and their respective successors in title;

"Insurance Rent"

means the cost to the Landlord (before any commission) of insuring:

[Missing Graphic Reference]

(a) the Premises against the Insured Risks for their full reinstatement cost, including the costs of demolition and site clearance, temporary works, compliance with local authority requirements in connection with any works of repair or reinstatement, architects', surveyors' and other professional fees and other incidental expenses, and in each case with due allowance for inflation and value added tax ;

against loss of the Rent (having regard to the provisions for the review of the Rent) for a period of three years or such longer period as the Landlord reasonably considers appropriate; and

against public liability of the Landlord in connection with any matter relating to the Premises or the occupation or use of the Premises by the

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Tenant or anyone at the Premises with the express or implied authority of the Tenant;

"Insured Risks" means:

(a)  fire, explosion, lightning and earthquake;

(b) flood, storm, bursting or overflowing of water tanks, pipes, or other water or heating apparatus;

(c) impact, aircraft (other than hostile aircraft) and things dropped from such aircraft;

(d) riot, civil commotion and malicious damage; and

    (e) such other risks as the Landlord may from time to time insure against,

but to the extent that any risk is for the time being an Excluded Risk, it will not to that extent and for that time be an Insured Risk;

"Interest Rate"

means four per cent above the base rate for the time being of HSBC Bank plc or if that rate is no longer published then the rate of interest which the landlord reasonably considers to be most closely comparable to a minimum lending rates generally applicable in the UK from time to time;

"Landlord"

the first party to this deed and its successors in title and the persons for the time being entitled to the reversion immediately expectant on the end of the Term;

"Landlord's Surveyor"

means a chartered surveyor appointed by the Landlord who may be an individual or a firm or company of chartered surveyors, or an employee of the Landlord or a company which is in the same Group as the Landlord;

"Landlord's Works"

means the creation of a new lobby at ground floor level including a set of double doors and a new partition wall dividing the ground floor into two suites as shown on Plan 3;

"Permitted Use"

means offices within use class Bl(a) of the Town & Country Planning (Use Classes) Order 1987;

"Plan 1" "Plan 2" "Plan 3"

means the plans attached hereto and so marked;

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"Planning Acts"

means the Town and Country Planning Act 1990, the Planning (Listed Building and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990 and the Planning and Compensation Act 1991;

"Premises"

means the premises comprising an area approximately 5875 square feet situate and forming part of the ground floor of the Building shown for identification purposes edged red on Plan 1 annexed and every part of it which includes for the purposes of obligation as well as grant:

(a)   the plaster or other rendering and decorative covering of the walls thereof and (in the case of non-structural walls only) the inner half thereof severed medially;

(b)the floor screed Out not the slab beneath the same);

(c)the ceiling thereof (but not the beams above the same);

(d)   all doors and windows other than external to the Building fitted in the walls bounding such area and their respective frames and fixings;

(e)   all light fittings and electrical circuits, sockets and switches within and exclusively serving the Premises;

(0 all carpets and floor coverings within and all other Landlord's fixtures and fittings in, on or forming part of such area and exclusively serving the same;

"Private Car Parking Spaces"

means the 26 car parking spaces in the car park as shown edged green on Plan 2 or such alternative 26 car parking spaces in the car park adjoining the Building as may be allocated by the Landlord from time to time such alternative car parking spaces to be no less beneficial to the Tenant and including three car parking spaces for use by visitors to the Premises;

"Quarter Days"

means 25 March, 24 June, 29 September and 25 December in every year;

"Rent"

means one hundred and eleven thousand six hundred and twenty five pounds (£111,625) per annum plus VAT;

"Rent Commencement Date"

means 21 March 2005;

"Services"

means the services set out in the Third schedule hereto;

"Service Media"

means conduits and equipment used for the reception generation passage and/or storage of Utilities;

"Structure"

means the foundations, external walls (including the windows and window frames therein), load bearing walls, supporting columns, stanchions, beams, supports, timbers and girders, floors, roofs and other structural parts of the Building;

"Supplemental Document"

means any deed, agreement, licence, memorandum or other document which is supplemental to this Lease;

"Tenant"

includes the Tenant's successors in title;

"Term"

means the term granted by this Lease and any continuation or extension of it or any holding over;

"Utilities"

means electricity, gas, water, foul water and surface drainage, heating, ventilation and air conditioning smoke and fumes, signals, telecommunications, satellite and data communications and all other utilities;

"Working Day"

means a day (other than a Saturday or a Sunday) on which banks are usually open for business in England and Wales.

2. INTERPRETATION 2.1In this Lease:

2.1.1the table of contents and clause headings are for reference only and do not affect its construction;

2.1.2the words "include" and "including" are deemed to be followed by the words "without limitation";

2.1.3 general words introduced by the word "other" do not have a restrictive meaning by reason of being preceded by words indicating a particular class of acts, things or matters, and

2.1.4obligations owed by or to more than one person are owed by or to them jointly and severally.

L1585/02455/2675172 v.

2.2In this Lease, unless otherwise specified:

2.2.1 a reference to legislation is a reference to all legislation having effect in the United Kingdom at any time during the Term, including directives, decisions and regulations of the Council or Commission of the European Union, Acts of Parliament, orders, regulations, consents, licences, notices and bye-laws made or granted under any act of Parliament or directive, decision or regulation of the Council or Commission of the European Union, or made or granted by a local authority or by a court of competent jurisdiction and any approved Codes of Practice issued by a statutory body;

2.2.2 a reference to particular legislation is a reference to that legislation as amended, consolidated or re-enacted from time to time and to all subordinate legislation made under it from time to time;

2.2.3a reference to a person includes an individual, corporation, company, firm, partnership or government body or agency, whether or not legally capable of holding land; and

2.2.4a reference to a clause is a reference to a clause or sub-clause of this Lease.

2.3In this Lease:

2.3.1an obligation of the Tenant not to do something includes an obligation not to cause or allow that thing to be done;

2.3.2 a reference to any act or to any act or omission of the Tenant includes any act or any act or omission of any other person at the Premises with the Tenant's express or implied authority;

2.3.3 the rights of the Landlord under any clause are without prejudice to the rights of the Landlord under any other clause or Supplemental Document or other instrument entered into in connection with this Lease;

2.3.4 the obligations of or restrictions on the Tenant or a Guarantor under any clause, Supplemental Document or other instrument entered into in connection with this Lease, are without prejudice to the obligations of or restrictions on the Tenant or Guarantor, or to the rights of the Landlord under any other clause, Supplemental Document or other instrument entered into in connection with this Lease;

2.3.5a reference to the consent or approval of the Landlord means the prior consent in writing of the Landlord, signed by or on behalf of the Landlord;

2.3.6 where a matter in this Lease is subject to the consent or approval of the Landlord, it is also, where required, subject to the written consent of any superior landlord or mortgagee of the Landlord;

2.3.7references to any adjoining property of the Landlord include any property adjoining or near the Premises owned, leased or occupied by the Landlord from time to time;

2.3.8references to the end of the Term are to the end of the Term whether before, at or after the end of the term of years granted by this Lease;

2.3.9references to a fair proportion of any sum are to the whole or a proportion of that sum which is fair and reasonable in the circumstances as reasonably determined by the

L1585/02455/2675172 v.

Landlord's Surveyor, whose decision shall be final and binding (save in the event of manifest error or illegality);

2.3.10the perpetuity period is 80 years from the date of this deed;

2.3.11where a sum is expressed to be payable on demand, it will become payable, unless otherwise specified, five Working Days after the demand has been made; and

2.3.12unless otherwise specified, references to the Premises include any part of the Premises.

3.DEMISE AND TERM

The Landlord lets the Premises to the Tenant together with the rights specified in the First schedule hereto and except and reserving the rights and easements specified in the Second schedule hereto for a term of three years from and including 21 March 2005 and expiring on 20 March 2008.

4.   PAYMENT OF RENT The Tenant shall pay throughout the Term:

4.1 the Rent to be paid clear of all deductions counterclaims or set-offs whatsoever by equal quarterly payments in advance on the Quarter Days in each year the first payment in respect of the period from the Rent Commencement Date until (but excluding) the next following Quarter Day and to be calculated on a daily basis by reference to a calendar year of 365 days to be paid on the Rent Commencement Date;

4.2 if required in writing by the Landlord the Tenant shall make such quarterly payments by banker's order (as the Landlord shall require) to any bank account in the United Kingdom as the Landlord may nominate;

4.3the Insurance Rent;

4.4the Service Charge pursuant to clause 12 of this Lease; and

4.5all other sums due under this Lease.

5.OTHER FINANCIAL MATTERS 5.1Utilities

The Tenant shall pay all charges, including connection and hire charges, relating to the supply of Utilities to the Premises and will comply with all present or future requirements and recommendations of the suppliers of Utilities to the Premises.

5.2Common facilities

The Tenant shall pay on demand a fair proportion of any costs incurred or payable by the Landlord in respect of any land or Service Media not forming part of, but used in connection with, the Premises.

5.3Rates and taxes

5.3.1 The Tenant shall pay and indemnify the Landlord against all present and future rates, duties and assessments of any nature charged on or payable in respect of the Premises whether payable by the landlord, owner, occupier or tenant of the Premises and whether of a capital or income, recurring or non-recurring nature except any income or corporation tax imposed on the Landlord in respect of:

(a)the grant of this deed; or

(b)the receipt of the rents reserved by this Lease; or

(c)any dealing or disposition by the Landlord with its interest in the Premises.

5.3.2 The Tenant shall not make any claim for relief from any of the charges referred to above which could result in the Landlord not being entitled (during or after the end of the Term) to that relief in respect of the Premises.

5.4Payments relating to the Premises and other property

Where any of the charges payable under clause 5.2 relates to other property as well as the Premises, the amount to be paid by the Tenant will be a fair proportion of the whole of the amount charged or payable.

5.5Landlord's costs

The Tenant shall pay to the Landlord, on demand, and on an indemnity basis, the fees, costs and expenses charged, incurred or payable by the Landlord, and its advisors or bailiffs in connection with:

5.5.1 any steps taken in contemplation of, or in relation to, any proceedings under section 146 or 147 of the Law of Property Act 1925 or the Leasehold Property (Repairs) Act 1938, including the preparation and service of all notices, and even if forfeiture is avoided (unless it is avoided by relief granted by the court);

5.5.2 preparing and serving schedules of dilapidations at any time during the Term (or after the Term in respect of dilapidations arising during the Term), and supervising any works undertaken to remedy such dilapidations;

5.5.3 recovering (or attempting to recover) any arrears of Rent or other sums due to the Landlord under this Lease, including any costs associated with the Landlord's remedies of distress or execution;

5.5.4any investigations or reports carried out to determine the nature and extent of any breach by the Tenant of its obligations in this Lease;

5.5.5any steps taken to procure that a breach by the Tenant of its obligations under this Lease is remedied; and

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5.5.6 any application for a consent of the Landlord (including the preparation of any documents) which is needed by virtue of this Lease, (whether or not such consent is granted).

5.6Value added tax

5.6.1 Where the Tenant is to pay the Landlord for any supply made to the Tenant by the Landlord, the Tenant shall also pay any value added tax which may be payable in connection with that supply.

5.6.2 Where the Tenant is to pay the Landlord the costs of any supplies made to the Landlord, the Tenant shall also pay the Landlord any value added tax payable in connection with that supply, except to the extent that the Landlord is able to obtain a credit for the value added tax from HM Customs and Excise.

5.7Interest

5.7.1 If the Rent is not paid to the Landlord on the due date or if any other sums payable under this Lease to the Landlord are not paid within five Working Days of the due date for payment the Tenant shall pay interest to the Landlord at the Interest Rate for the period from and including the due date until payment (both before and after any judgment).

5.7.2 If the Landlord refuses to accept any Rent or other sum due under this Lease, when the Tenant is, or may be, in breach of any of its obligations in this Lease so as not to prejudice the Landlord's rights to re-enter the Premises and forfeit this Lease, the Tenant shall pay interest on such sum to the Landlord at the Interest Rate for the period from and including the date such sum became due until the date the payment is accepted by the Landlord.

5.7.3 Interest under this Lease wi11 accrue on a daily basis, compounded with quarterly rests

on the Quarter Days and will be payable immediately on demand.

5.8Exclusion of statutory compensation

Any statutory right of the Tenant, or any undertenant, to claim compensation from the Landlord or any superior landlord on leaving the Premises is excluded to the extent that the law allows.

6. THIRD PARTY RIGHTS OVER THE PREMISES

6.1There are expected from this deed and this Lease is granted subject to:

6.1.1 all existing rights which belong to other property, or are enjoyed by other property over the Premises or any land or Service Media over which rights are granted by the Landlord to the Tenant by this Lease; and

6.1.2 the matters contained or referred to in the property and changes registers of title number

BK324723 as at the date of this deed.

6.2 The Tenant shall comply with the matters contained or referred to in the register referred to

in clause 6.1 so far as they relate to the Premises and the rights granted by this Lease.

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6.3The Tenant shall:

6.3.1not permit any third party to acquire any right over the Premises or to encroach upon the Premises;

6.3.2give the landlord immediate written notice of any attempt to do this;

6.3.3take any steps which the Landlord may reasonably require to prevent the acquisition of any right over or encroachment on the Premises; and

6.3.4 preserve for the benefit of the Premises and the Landlord's interest in them all existing rights which belong to the Premises and are enjoyed over adjoining or neighbouring property.

6.3.5The Tenant shall not block or obstruct any window or ventilator at the Premises.

6.3.6The Tenant shall not grant any right or licence to a third party relating to the airspace at the Premises.

7. INSURANCE

7.1Landlord's obligations relating to insurance

7.1.1The Landlord shall insure the Premises, other than any part of the Premises installed by the Tenant or any other occupier, against the Insured Risks.

7.1.2 The insurance taken out by the Landlord shall be through an agency chosen by the Landlord and subject to any exclusions, excesses and conditions as may be usual in the insurance market at the time or required by the insurers, or reasonably required by the Landlord.

7.1.3 The Landlord shall, at the request of the Tenant, and on payment by the Tenant of a reasonable fee, produce details of the terms of the current insurance policy and evidence of the payment of the current premium.

7.2Reinstatement

7.2.1If the Premises are damaged or destroyed by an Insured Risk, then:

(a)   unless payment of any insurance monies is refused because of any act or omission of the Tenant and the Tenant has failed to comply with clause 7.3.8;

(b)subject to the Landlord being able to obtain any necessary consents; and

(c)subject to the necessary labour and materials being and remaining available,

the Landlord shall use the insurance monies received by the Landlord, except monies received for loss of rent, in repairing and reinstating the Premises (other than any part which the Landlord is not obliged to insure) or in building a Comparable Building as soon as reasonably possible. A "Comparable Building" is a building of premises generally similar to the Premises in design, function size and location, but may differ in these aspects from the Premises having regard to the principles of good estate management and building design.

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7.2.2 The Landlord shall use reasonable endeavours to obtain the necessary labour, materials and consents to repair or reinstate the Premises, but will not be obliged to appeal against any refusal of a consent.

7.3Tenant's obligations relating to insurance

The Tenant shall:

7.3.1pay the Insurance Rent in accordance with this Lease;

7.3.2 pay on demand any increase in the insurance premium for any adjoining property of the Landlord which is attributable to the use of the Premises, or anything done or omitted to be done on the Premises by the Tenant or any other occupier of the Premises;

7.3.3 pay on demand the costs incurred or payable by the Landlord in connection with the Landlord obtaining any valuation of the Premises for insurance purposes, as long as such valuation is made at least three years after any previous such valuation;

7.3.4comply with the requirements of the insurers relating to the Premises;

7.3.5 not do or omit to do anything which may make the insurance of the Premises or of any adjoining property of the Landlord, taken out by the Landlord or any superior landlord, void or voidable, or which would result in an increase in the premiums for such insurance;

give the Landlord immediate written notice of any damage to or destruction of the Premises by an Insured Risk;

pay the Landlord on demand the amount of any excess required by the insurers in connection with that damage or destruction;

pay the Landlord on demand an amount equal to any amount which the insurers refuse to pay, following damage or destruction by an Insured Risk, because of any act or omission of the Tenant;

if requested by the Landlord, remove its fixtures and effects from the Premises to allow the Landlord to repair or reinstate the Premises;

pay the Landlord on demand the costs incurred by the Landlord in preparing and settling any insurance claim relating to the Premises arising from any insurance taken out by the Landlord; and

7.3.11 not take out any insurance of the Premises against the Insured Risks in its own name other than in respect of any part of the Premises installed by or on behalf of the Tenant or any undertenant, and if the Tenant has the benefit of any such insurance, the Tenant shall hold all money receivable under that insurance upon trust for the Landlord.

7.4Suspension of rent

7.4.1 If the whole of the Premises or any part which the Landlord is obliged to insure, are damaged or destroyed by an Insured Risk so as to make the Premises or any part which the Landlord is obliged to insure, unfit for occupation or use, the Rent (or a due proportion of it according to the nature and extent of the damage) will be suspended from the date of damage or destruction for a period equivalent to the period for which loss of rent insurance has been effected being not less than three years, or, if sooner, until the Premises, or such part, have been made fit for occupation and use.

7.4.2 The Rent will not be suspended to the extent that any loss of rent insurance has been made ineffective, or payment of it has been refused by the insurers because of any act or omission by the Tenant.

7.4.3The Rent will not be suspended unless and until any arrears of Rent or other sums due under this Lease have been paid by the Tenant in full.

7.4.4Any dispute relating to this clause 7.4 will be referred to arbitration.

7.5Insurance monies

All insurance monies payable will belong to the Landlord.

7.6Termination of the Lease where damage is caused by Insured Risks

If the whole or substantially the whole of the Premises is made unfit for occupation or use by damage or destruction by an Insured Risk then either the Landlord or the Tenant may terminate this Lease by giving written notice to the other such that this Lease will terminate on the date specified in the notice such termination will be without prejudice to any claim which the Landlord or Tenant may have against the other for any earlier breach of their respective obligations in this Lease.

8. STATE AND CONDITION OF THE PREMISES 8.1Repair

8.1.1The Tenant shall repair the Premises and keep them in good and substantial repair and condition.

8.1.2 The Tenant shall keep all plant and machinery at the Premises in good condition and working order, and replace any items of plant or machinery which become beyond repair with new ones of a type and quality reasonably satisfactory to the Landlord.

8.1.3 The Tenant shall enter into and maintain contracts for the maintenance of plant and machinery at the Premises, with contractors approved by the Landlord (such approval not to be unreasonably withheld).

8.1.4 The Tenant shall carry out all works and treatments to the Premises as are necessary for the proper repair and maintenance of the Premises and to ensure the health and safety of people working at or visiting the Premises.

8.1.5The Tenant shall keep any outside parts of the Premises clean and tidy.

8.1.6The Tenant shall regularly clean the inside and outside of the windows at the Premises.

8.1.7The Tenant will not be liable under this clause 8.1 to the extent that the Landlord is obliged to carry out the relevant repair works under clause 7.2 (Reinstatement) or to the extent that the Landlord is prevented from carrying them out by reason of the matters referred to in paragraph (b) or (c) of clause 7.2.1.

8.2Alterations

8.2.1The Tenant shall not:

(a)   construct any new building or structure or install any additional Service Media on the Premises;

  (b)make any structural alterations or additions to the Premises; or

(c)   make any alterations or additions to the outside parts or exterior of the Premises, including any alterations to their appearance.

8.2.2The Tenant shall not without the consent of the Landlord, such consent not to be unreasonably withheld:

(a)make any alterations to the Service Media which form part of the Premises; or

(b)make any internal, non-structural alterations or additions to the Premises.

8.2.3 The Tenant shall fit out the Premises with fittings of a type and quality which are (in the Landlord's discretion exercised reasonably) commensurate with the nature, location and use of the Premises.

8.2.4 The Tenant may erect and relocate internal demountable partitioning without the Landlord's consent provided that two sets of revised plans and associated specifications are supplied to the Landlord by the Tenant within two months of any such partitioning being installed or relocated.

8.2.5 On any application for consent to make alterations or additions the Tenant shall give the Landlord three copies of a specification and detailed drawings identifying the proposed works, and any further copies required by a superior landlord.

8.2.6 Unless otherwise required by the Landlord, the Tenant shall, at the end of the Term, remove any alterations or additions made to the Premises by the Tenant during the Term (and make good any damage caused by that removal to the reasonable satisfaction of the Landlord) and shall reinstate the Premises to their original layout and condition.

8.3Decoration

The Tenant shall redecorate the inside of the Premises in the last six months of the Term in colours and materials approved by the Landlord such approval not to be unreasonably withheld or delayed.

8.4Signs and reletting notices

8.4.1 The Tenant shall not display any signs or notices at the Premises which can be seen from outside the Premises, except one external sign giving the name and business of the Tenant (or other authorised occupier), the size, style and position of which have been approved by the Landlord.

8.4.2At the end of the Term the Tenant shall remove any signs at the Premises and will make good any damage caused by that removal to the reasonable satisfaction of the Landlord.

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8.4.3The Tenant shall permit the Landlord to place a sign on the Premises:

(a)   at any time advertising the sale of the Landlord's interest (or any superior interest) in the Premises; and

(b)during the last six months of the Term for the reletting of the Premises,

as long as such signs do not unreasonably restrict the access of light or air to the Premises.

9. USE OF THE PREMISES

9.1The Permitted Use

The Tenant shall not use the Premises except for the Permitted Use. 9.2Obstructions

The Tenant shall not obstruct any pavement, footpath or roadway adjoining or serving the Premises.

9.3Restrictions on use The Tenant shall not:

9.3.1 leave the Premises unoccupied for a period of more than one month without first notifying the Landlord in writing, nor for more than three months without the consent of the Landlord, but the Tenant will not by virtue of this clause be required to trade from the Premises;

9.3.2do anything on the Premises which is illegal or immoral;

9.3.3 do anything on the Premises which would cause a nuisance or inconvenience or any damage or disturbance to the Landlord or any owner or occupier of any other property adjoining or near the Premises;

9.3.4carry out any acts at the Premises which are noisy, noxious, dangerous or offensive;

9.3.5store dangerous or inflammable materials at the Premises unless they are:

(a)   of a type usually kept by persons carrying on the same business as the Tenant (or other occupier) or are necessary for the operation of any plant or machinery;

(b)kept in reasonable quantities; and

(c)   stored safely and in accordance with the requirements and recommendations of the insurers of the Premises;

9.3.6allow waste to accumulate at the Premises;

9.3.7allow any material which is deleterious, polluting or dangerous (to persons or property) to enter any Service Media or any adjoining property; nor

9.3.8overload or obstruct any Service Media which serve the Premises.

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9.4Use of machinery

The Tenant shall not use any machinery on the Premises in a manner which causes or may cause:

9.4.1any damage to the fabric of the Premises or any strain on the structure of the Premises beyond that which it is designed to bear; or

9.4.2any undue noise, vibration or other inconvenience to the Landlord or the owners or occupiers of any property adjoining or near to the Premises.

9.5Fire and security precautions

The Tenant shall comply with the requirements and recommendations of the fire authority and with any reasonable requirements of the Landlord relating to fire prevention and the provision of fire fighting equipment at the Premises and the reasonable requirements of the Landlord in relation to the security of the Premises while they are vacant.

9.6Exclusion of warranty

The Landlord does not warrant or represent that the Premises may be used for the Permitted Use or for any other purpose.

10. ALIENATION

10.1.1 The Tenant shall not to deal with or dispose of its interest in this Lease or part with possession of the whole or any part of that interest or permit any other person to occupy the Premises (as the case may be) except as permitted by clause 10.2 and except by way of:

(a)an assignment of the whole of its interest in the Premises; or

(b)a sub-lease of the whole of the Premises,

which may, in any event, only be made with the Landlord's consent such consent not to be unreasonably withheld or delayed.

10.1.2 The Landlord and the Tenant agree that, for the purposes of section 19(1A) of the Landlord and Tenant Act 1927, the Landlord may refuse its consent to an assignment in any of the following circumstances:

(a)if the Tenant has not paid all rents and other sums due under this Lease;

(b)   if in the reasonable opinion of the Landlord the assignment would have an adverse effect on the value of the Landlord's reversion to the Premises, assuming the Landlord wished to sell its reversion in the open market on the day following completion of the assignment;

(c)   if, where the obligations of the Tenant have been guaranteed by a member of the same Group as the Tenant, the assignee is another member of that Group;

(d)   if the assignee (being a body corporate) is not incorporated within the UK, unless its proposed guarantor (and if more than one then all of them) (being a body corporate) is (or are) incorporated within the UK.

10.1.3 The Landlord and Tenant agree that, for the purposes of section 19(1A) of the Landlord and Tenant Act 1927, the Landlord may give its consent to an assignment subject to all or any of the following conditions:

(a)   that the Tenant enters into an authorised guarantee agreement no later than the date of the assignment, which agreement is to be by deed, is to provide for a guarantee of all the obligations of the assignee under this Lease from the date of the assignment until the assignee is released by virtue of the Landlord and Tenant (Covenants) Act 1995, and which provides for all the matters permitted by section 16(5) of that Act and which is otherwise in accordance with section 16 of that Act and in a form reasonably required by the Landlord;

(b)   that, where reasonably required by the Landlord, the assignee shall procure a guarantor or guarantors, which if a body corporate is to be incorporated within the UK, acceptable to the Landlord, to enter into a full guarantee and indemnity of the assignee's obligations under the Lease, such guarantee and indemnity to be by deed and contain the obligations set out in the Fourth schedule hereto (with such additions an amendments as are necessary to reflect the fact that the guarantee and indemnity is being entered into after the date of this Lease and by means of a separate document) together with any additional provisions reasonably required by the Landlord;

(c)   that if, at any time before the assignment the circumstances set out in clause 6.3.2 apply, the Landlord may revoke its consent to the assignment by written notice to the Tenant;

(d)that the assignment is completed within two months of the consent;

(e)   that the proposed assignee enters into a covenant with the Landlord to comply with the obligations of the Tenant in this Lease from the date the assignment of the Lease is completed throughout the term of this Lease and (where applicable) any continuation of the tenancy created by this Lease or until the assignee of this Lease is released by virtue of the Landlord and Tenant (Covenant) Act 1995, if sooner.

10.1.4 Clauses 10.1.2 and 10.1.3 do not limit the right of the Landlord to refuse consent to and assignment on any other reasonable ground or to impose any other reasonable condition to its consent.

10.1.5 Any document to be entered into by an assignee of the Tenant in fulfilment of a condition of consent to the assignment shall be in a form reasonably required by the Landlord.

10.1.6 The Tenant shall not underlet the whole of the Premises without first obtaining from the undertenant a covenant by the sub-undertenant with the Landlord to comply with the terms of this Lease on the part of the tenant, other than as to the payment of any rent or other sums reserved as rent by this Lease, and to comply with the obligations on the undertenant in the lease throughout the term of the lease and (where applicable) any continuation of the tenancy created by the lease or until the undertenant is released by virtue of the Landlord and Tenant (Covenants) Act 1995, if sooner.

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10.1.7Any underlease of the whole of the Premises shall be granted:

(a)   at a rent which is not less than the then open market rental value of the whole of the Premises;

(b)without a fine or premium; and

(c)with the underlease rent payable not more than one quarter in advance. 10.1.8The Tenant shall not grant an underlease unless:

(a)   before the undertenant enters into the underlease or becomes contractually bound to do so the underlease is validly excluded from the operation of sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in accordance with the provisions of section 38A of that Act and the relevant schedules of the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003; and

(b)   the Tenant shall supply the Landlord with a copy (certified by solicitors as a true copy of the original for this purpose) of the notice served by it and the undertenant's statutory declaration or declaration (as appropriate) pursuant to section 38A of that Act.

10.2Group sharing of occupation

The Tenant may share occupation of the Premises with one or more other companies which are within its Group on the following conditions:

 10.2.1 the Tenant promptly notifies the Landlord in writing of the beginning and the end of the arrangement;

10.2.2 no relationship of landlord and tenant is created by the arrangement; and

10.2.3 the other companies vacate the Premises immediately if any of them ceases to be a member of the same Group as the Tenant.

10.3 Charging

10.3.1 The Tenant shall not charge or agree to charge any part of the Premises (as distinct from the whole).

10.3.2 The Tenant shall not charge or agree to charge the whole of the Premises without the consent of the Landlord, such consent not to be unreasonably withheld or delayed.

11. LEGAL REQUIREMENTS

11.1 Legislation

The Tenant shall:

 11.1.1 comply with all legislation affecting the Premises, their use and occupation and the health and safety of persons working at or visiting the Premises, whether the legislation requires the owner, landlord, tenant or   occupier to comply;

 11.1.2carry out any works to the Premises which are required by legislation;

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11.1.3     11.1.4 obtain all licences and consents which are required under any legislation to use the Premises or carry out any works or other activity at the Premises;   at the end of the Term pay the Landlord a fair proportion of any compensation which the Tenant has received or which is receivable by the Tenant because of any restriction placed on the use of the Premises under any legislation.

11.1.5not do or omit to do anything at the Premises which would result in:

(a)   any other property owned or occupied by the Landlord failing to comply with any legislation; or

(b)the Landlord incurring any cost, penalty or liability under any legislation.

11.2Notices relating to the Premises

The Tenant shall:

11.2.1 give the Landlord a copy of any notice received by the Tenant, relating to the Premises or any occupier of them, or to the Landlord's interest in them, within 5 Working Days of having received it (or immediately if there are shorter time limits in the notice);

11.2.2 whether the notice requires compliance by the owner or occupier of the Premises, but subject to clause 11.2.3, comply with the terms of any such notice in a manner approved by the Landlord, but the Landlord's approval of any particular manner will not imply that the Tenant has discharged its obligation to comply with the terms of the notice;

11.2.3at its own cost, make, or join the Landlord in making, any objection or appeal against such notice, which the Landlord may reasonably require.

11.3Planning

11.3.1The Tenant shall comply with the Planning Acts.

11.3.2The Tenant shall pay any charge imposed under the Planning Acts in respect of the use of the Premises, or any works carried out at the Premises.

11.3.3 The Tenant shall not apply for planning permission or make any other application under the Planning Acts nor implement any planning permission affecting the Premises without the consent of the Landlord.

11.3.4 The Landlord may withhold consent to implementation if the Tenant has applied for the planning permission in breach of an obligation in this Lease, or if any time limit in the permission, or the inclusion or omission of any condition in or from the permission would, or would be likely to, prejudice the Landlord's interest in the Premises or any adjoining property of the Landlord.

11.3.5 In giving its consent to the Tenant implementing a planning permission, the Landlord may, as a condition of that consent, require the Tenant to comply with all the conditions contained in the permission before the end of the term of years granted by this Lease, whether or not the permission imposes such time limits and, where reasonable, require the Tenant to provide security satisfactory to the Landlord for its compliance with the conditions in the permission (as modified by the above condition). The Tenant shall not implement the permission until that security is supplied.

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11.3.6 If reasonably required by the Landlord and at the Landlord's expense, the Tenant shall appeal against a refusal of planning permission or any condition contained in a permission applied for by or on behalf of the Tenant.

11.4Environmental requirements

11.4.1In this clause the following definitions apply:

"Dangerous Substances"

means any substance (whether in the form of a solid, liquid, gas or vapour) the generation, keeping, transportation, storage, treatment, use or disposal of which gives rise to a risk of causing harm to humans or to any other living organism, or causing damage to the Environment and includes any controlled, special, hazardous, toxic, radioactive or dangerous waste;

"Environment"

means the environment as defined in section 1(2) of the Environmental Protection Act 1990;

"Environmental Law"

means any legal rule, regulation or obligation, whether or not having effect at the date of this Lease, and whether or not having retrospective effect, concerning the protection of human health or the Environment or Dangerous Substances.

11.4.2The Tenant shall ensure that all Environmental Laws relating to:

(a) the Premises;

(b) the carrying out of any operations on the Premises;

(c) or the use of the Premises,

are complied with and shall not do anything on the Premises or cause to be present on the Premises any matter or thing, which may cause loss to the Landlord by reason of any Environmental Law.

11.5The Construction (Design and Management) Regulations 1994

11.5.1 In this clause "Regulations" means the Construction (Design and Management) Regulations 1994 and "File" means the Health and Safety file for the Premises and works carried out to it, required by the Regulations.

11.5.2 In respect of any works carried out by or on behalf of the Tenant or any undertenant or other occupier of the Premises (including any works of reinstatement which may be carried out after the end of the Term) to which the Regulations apply, the Tenant shall:

(a)   comply in all respects with the Regulations and procure that any person involved in carrying out such works complies with the Regulations; and

(b)   act as the only client in respect of those works and where required by the Landlord serve a declaration to that effect on the Health and Safety Executive pursuant to regulation 4 of the Regulations and give a copy of it to the Landlord.

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11.5.3The Tenant shall:

(a) maintain and make the File available to the Landlord for inspection at all times;

(b) on request provide copies of the whole or any part of the File to the Landlord; and

(c) hand the File to the Landlord at the end of the Term.

11.5.4 The Tenant shall obtain all copyright licences which are needed for the Tenant to comply lawfully with this clause 11.5.

11.5.5 The copyright licences obtained by the Tenant shall:

(a)be granted with full title guarantee;

(b)   allow the Landlord and any superior landlord and anyone deriving title through or under them to take further copies of the File or any part of it;

(c)be obtained without cost to any such person;

(d)allow any such person to grant sub-licences on similar terms; and

(e)be irrevocable.

11.6Local Authority requirements

The Tenant shall comply with all local authority requirements and recommendations relating to the loading and unloading of goods at the Premises and collection of refuse from the Premises.

11.7Defective Premises Act 1972

11.7.1 The Tenant shall give the Landlord written notice of any defect in the Premises which may make the Landlord liable to do, or not to do, any act to comply with the duty of care imposed by the Defective Premises Act 1972.

11.7.2The Tenant shall display any notices at the Premises needed to enable the Landlord to comply with the Defective Premises Act 1972.

11.8No additional rights

The Landlord will not be obliged to grant any additional rights to the Tenant or waive any of the Landlord's rights under this Lease in connection with the obligations of the Tenant in this clause 11.

12. SERVICE CHARGE

12.1 The Tenant shall pay as additional rent a sum (the "Service Charge") representing 18.57 per cent of the reasonable and proper cost to the Landlord (the "Expenses") of complying during the Term with its obligations contained in clause 13.2 of this Lease or providing any other service that the Landlord reasonably considers desirable for the efficient use or occupation of the Building and which is in the interests of the occupiers thereof as a class provided that the Landlord shall be at liberty in its reasonable discretion to vary such proportion of the Expenses to such other proportion as shall be fair and reasonable (including, if appropriate, the attribution of the whole or none of any particular expenditure to the Premises) having regard to the relative benefit of any relevant Services enjoyed or capable of being enjoyed by the Tenant, and the Landlord will have due regard to any representations made by the Tenant with respect to the variation of the proportion and the reasonableness of such attribution.

12.2 The amount of the Expenses pertaining to any Financial Year shall be certified by the Landlord and shall include all professional fees in connection with the preparation of such certificate (the "Certificate").

12.3 On account of the Service Charge the Tenant shall pay to the Landlord on each Quarter Day of the Term of one quarter of the Landlord's reasonable estimate of the Expenses for the relevant financial year provided that such estimate shall be provided to the Tenant in writing prior to the First Quarter Day in any Financial Year together with explanatory information in relation to any change to the proportion of the Expenses and any additional item included in the Expenses.

12.4 Following the delivery of the Certificate the Landlord shall submit to the Tenant an account for the Service Charge for the relevant Financial Year due credit being given for any payments made by the Tenant and forthwith the Tenant shall pay the balance outstanding the Landlord shall repay to the Tenant any amount which may have been overpaid.

12.5 Notwithstanding anything contained elsewhere in this Lease including (without limitation) in this clause 12 the Tenant shall have no liability for the following and the Landlord shall not be entitled to claim Service Charge from the Tenant in relation to the following items:

12.5.1 any costs incurred by the Landlord in relation to the review of rent of any unit of accommodation within the Building which is let (or intended by the Landlord to be let) as an occupation unit or the letting or reletting of any such unit;

12.5.2 any costs incurred by the Landlord in carrying out works to any part of the Building to reinstate the same following damage or destruction by an Insured Risk unless the policy of insurance has been prejudiced by the act or default of the Tenant;

12.5.3 any costs, liabilities or expenses in respect of or attributable to any occupational unit(s) in the Building which are from time to time unlet or in respect of which the Landlord has granted the occupier a concessionary period free or reduced service charge liability as an inducement to occupy such unit(s);

12.5.4 any improvements to the Building or any part thereof and any replacement or renewal of the facilities plant and machinery servicing the same save where such items are beyond economic repair;

12.5.5 any capital expenditure on the Building (save in relation to routine usual repair and maintenance) which it is unreasonable to expect the Tenant to contribute to having regard to the length of the term granted by this Lease.

12.6 The Landlord shall retain and the Tenant shall be entitled to inspect all invoices, receipts, vouchers and other documentation and information relating to the cost of or payment for the delivery of any of the Services (or any of them) and the Tenant shall be entitled to take copies of such material.

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12.7 The Certificate shall contain an accurate account of all the Expenses for the relevant Financial Year and shall be delivered within two months of the expiry of such Financial Year.

13.   LANDLORD'S COVENANTS The Landlord hereby covenants with the Tenant:

13.1 if the Tenant pays the rent and performs and observes the covenants by the Tenant and the conditions contained in this Lease the Tenant may peaceably and quietly hold and enjoy the Premises during the Term without any lawful interruption by the Landlord or any person claiming under or in trust for the Landlord;

13.2 subject to the Tenant paying all rent and other sums due under this Lease to use all reasonable endeavours to provide the Services provided that the Landlord shall not be liable for any breach of this covenant where the breach arises from any cause beyond the reasonable control of the Landlord;

13.3 to provide swipe cards to the Tenant to enable the Tenant to use Landlord's security system to obtain access to the Building and/or the Premises and (subject to the capabilities from time to time of the Landlord's security system) in relation thereto to programme or otherwise prepare the same in accordance with the Tenant's reasonable requirements from time to time, with each swipe card to be provided at a cost of ten pounds (£10) or such greater sum as the Landlord acting reasonably may consider necessary.

13.4 The Landlord covenants to carry out the Landlord's works with all due diligence and speed in a good and workmanlike fashion within three months of the date hereof using proper materials fit for their purpose and in accordance with all statutory and other requirements and in carrying out these works the Landlord shall cause as little inconvenience and disturbance to the Tenant and occupiers and visitors to the Premises and the Tenant's use of the Premises as is reasonably practicable and so as not to prevent access to or use or enjoyment of the Premises during office hours.

14.FORFEITURE 14.1Landlord's right of re-entry

If any event set out in clause 14.2 occurs, the Landlord may forfeit this Lease and re-enter the Premises. The Term will then end, but without prejudice to any claim which the Landlord may have against the Tenant or a Guarantor for any failure to comply with the terms of this Lease.

14.2Events giving rise to the Landlord's right of re-entry

14.2.1The Rent or any other sum payable under this Lease has not been paid 15 working days after it became due, whether formally demanded or not.

14.2.2The Tenant or any Guarantor has failed to comply with the terms of this Lease.

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14.2.3 The Tenant or any Guarantor changes intentionally or otherwise, and whether or not by reason of its own actions or omissions or by the actions or omissions of others, its "centre of main interest" from England contrary to clause 23 and/or 24.16 of this Lease.

14.2.4The Tenant or any Guarantor, if an individual (or if more than one individual then any one of them):

(a)   is the subject of a bankruptcy petition or an interim receiver is appointed of his property or a bankruptcy order is made against him;

(b)   is the subject of an application for an interim order under part VIII of the Insolvency Act 1986 (as amended);

(c)   enters into any composition, scheme, compromise, moratorium or other similar arrangement with its creditors or any of them, whether or not under the Insolvency Act 1986 (as amended);

(d)   suffers the appointment of a Law of Property Act 1925, court appointed or other receiver or receiver manager, or similar officer appointed over or in relation to the whole of its undertaking, property, revenue or assets, or any part thereof, or any person holding security over all or any of its undertaking, property, revenue or assets takes possession of them or any part of them; or

(e)   is or becomes subject to, takes or has taken against it or in relation to it, or any or all of its assets, any equivalent, analogous, corresponding or similar finding, steps, process or proceeding in any other jurisdiction, whether or not any finding, step, process or proceeding has been taken against or in relation to it, or any or all of its assets in England and Wales.

14.2.5In relation to a Tenant or any Guarantor which is a company (or if more than one company then any one of them):

(a)   a proposal for a voluntary arrangement is made under part I of the Insolvency Act 1986 (as amended) or the directors of the Tenant or Guarantor resolve to make such a proposal;

(b)   a petition for an administration order is presented under part II of the Insolvency Act 1986 or the directors of the Tenant or Guarantor resolve to present such a petition or an administrator of the Tenant or Guarantor is appointed by the holder of a qualifying floating charge (as that term is defined in Schedule 16 of the Enterprise Act 2002);

(c)   suffers the appointment of a Law of Property Act 1925, court appointed or other receiver or receiver manager, or similar officer appointed over or in relation to the whole of its undertaking, property, revenue or assets or any part thereof, or any person holding security over all or any of its undertaking, property, revenue or assets takes possession of them or any part of them; or

(d)   a resolution for its voluntary winding up is passed under part IV of the Insolvency Act 1986 or a meeting of its creditors is called for the purpose of considering that it be wound up voluntarily (in either case, other than a voluntary winding up whilst solvent for the purposes of and followed by a solvent reconstruction or amalgamation);

a petition for its winding up is presented to the court under part IV or by virtue of part V of the Insolvency Act 1986 (as amended) or a resolution is passed that it be wound up by the court;

an application is made under section 425 of the Companies Act 1985 (as amended) or a proposal is made which could result in such an application;

enters or proposes to enter into any composition, compromise, moratorium, scheme or other similar arrangement with its creditors or any of them, whether or not under the Insolvency Act 1986 (as amended);

is dissolved, or is removed from the Register of Companies, or ceases to exist (whether or not capable of reinstatement or reconstitution) save that in the case of the Guarantor such provisions shall not apply where it is subject to a bona fide merger or other similar reorganisation and when the merged entity enters into a guarantee on the same terms with the Landlord as is contained in this Lease.

15.LIMITS ON LANDLORD'S LIABILITY

15.1In this clause "Interest" means the whole of the interest in the reversion immediately

expectant on the end of the Term.

15.2 The obligations on the Landlord contained or implied in this Lease, to the extent that they relate to any time after a person has parted with its Interest, will not be binding on or enforceable against a person after that person has parted with its Interest.

15.3 To the extent that a person retains any liability for such obligations after having parted with its Interest, the Tenant agrees to release that person from such liability within four weeks of being notified in writing that such person has parted with its Interest and the release will have effect from the date of the disposal of the Interest.

16.NOTICES IN CONNECTION WITH THIS LEASE

16.1 Where a notice is to be given in connection with this Lease, it must be given in writing and signed by or on behalf of the party giving it, unless it is stated that it need not be given in writing.

16.2 Any notice to be given in connection with this Lease will be validly served if sent by first class post, or registered post or recorded delivery and addressed to or personally delivered to:

16.2.1 the Landlord at the address given in this deed or such other address which the Landlord

has notified to the Tenant in writing;

16.2.2the Tenant at the Premises or its registered office or its last known address;

16.2.3a Guarantor at the Premises or its registered office or its last known address.

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16.3 Any notice or demand sent by post from within the UK and properly stamped and correctly addressed will be conclusively treated as having been delivered 2 Working Days after posting.

16.4The Tenant shall give the Landlord verbal notice of any matter affecting the Premises where emergency action is needed as well as written notice.

17.TENANT'S OPTION TO DETERMINE

17.1In this clause "Termination Date" means any date on or after the first eighteen months of the Term.

17.2 Subject to the pre-conditions in clause 17.3 being satisfied on the Termination Date, and subject to clause 17.4 the Tenant may determine the Term on the Termination Date by giving the Landlord not less than 6 months' written notice. The Term will then determine on the Termination Date, but without prejudice to any rights of either party against the other for any antecedent breach of its obligations under this Lease.

17.3The pre-conditions are that:

17.3.1vacant possession of the whole of the Premises is given to the Landlord; and

17.3.2the Rent up to the Termination Date has been paid in full.

17.4The Landlord may waive any of the pre-conditions set out inclause 17.3 at any time before the Termination Date by written notice to the Tenant.

17.5Time will be of the essence for the purposes of this clause.

18.LANDLORD'S OPTION TO DETERMINE

The Landlord may determine the Term at any time after the first 12 months of the Term (but effective not earlier than 18 months from the commencement of the Term) by giving not less than six months' written notice, which notice must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954. On the expiry of the notice period referred to the Term shall determine without prejudice to any rights of either party against the other for any antecedent breach of its obligations under this clause.

19.JURISDICTION

19.1 The High Court of Justice in England shall have jurisdiction to enter any action or proceeding whatsoever in respect of this Lease or any of the provisions thereof or any matter or thing arising thereunder or hereunder or by virtue of or in consequence of this Lease.

19.2 Except where otherwise provided if any dispute shall arise between the parties hereto with respect to the construction or effect of this Lease or any clause or thing in this Lease contained or the rights liabilities or duties of the parties under or by virtue of or arising out

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of or in consequence of this Lease or any rights liabilities or duties or otherwise in connection with the Premises or any proceedings instituted or prosecuted or maintained it shall be determined by the English Courts according to the Laws of England and the parties submit themselves to the jurisdiction of the English Courts.

20.NEW OR OLD LEASE

This Lease is a new tenancy for the purposes of section 1 of the Landlord and Tenant (Covenants) Act 1995.

21.INDEMNITY

The Landlord shall indemnify the Tenant against any costs claims actions and liabilities whatsoever in respect of:

21.1 the obligations on the part of the Developer (as therein defined) pursuant to a Deed dated 24 July 1992 between Chartwell Land Development Limited (1) The Royal County of Berkshire (2);

21.2 the obligations on the part of the Owner (as therein defined) pursuant to an Agreement dated 31 January 1996 between Bracknell Forest Borough Council (1) Chartwell Land Development Limited (2); and

21.3any outstanding condition in planning permission reference number 620994 dated 31 January 1996.

22.GENERAL

22.1Rights of Landlord

Reference to any right exercisable by the Landlord or any right exercisable by the Tenant in common with the Landlord shall be construed as including (where appropriate) the exercise of such right in common with all other persons having a like right.

22.2Compensation

Except where any statutory provision prohibits the Tenant's right to compensation from being excluded by agreement the Tenant shall not be entitled on quitting the Premises or any part of the Premises to claim from the Landlord any compensation under the Landlord and Tenant Act 1954.

22.3Counterparts

This Lease may be executed in counterpart and both this Lease and the counterpart taken together shall constitute one and the same deed and the Tenant may enter into this Lease by executing a counterpart.

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22.4Exclusion of the 1954 Act

22.4.1The parties confirm that before this Lease was entered into:

(a)   a notice complying with Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 which relates to this tenancy was served by the Landlord on the Tenant on 26 Apv X 2a o5 ; and

(b)   a statutory declaration dated .2Q 3,iL~ 2_C oScomplying with paragraph 8 of Schedule 2 to that Order was made by OH N P\P uCH-who the Tenant confirms was duly authorised by the Tenant to make the statutory declaration on its behalf.

22.4.2The parties agree and declare that the provisions of sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 shall not apply to the tenancy created by this deed.

22.4.3The parties confirm that there is no Agreement for lease which gives effect to this Lease.

22.5Covenant status of this Lease

This Lease is a new tenancy within the meaning of section 1 of the Landlord and Tenant (Covenants) Act 1995.

22.6Implied rights of enforcement by third parties excluded

22.6.1 Unless the right of enforcement is expressly granted, it is not intended that a third party should have the right to enforce a provision of this Lease under the Contracts (Rights of Third Parties) Act 1999.

22.6.2The parties may rescind or vary this Lease without the consent of a third party to whom an express right to enforce any of its terms has been provided.

22.7Landlord's rights to remedy default by the Tenant

22.7.1If the Tenant fails to comply with any of its obligations in this Lease, the Landlord may give the Tenant written notice of that failure, and the Tenant shall:

(a)immediately in the case of an emergency; and

(b)   otherwise as soon as practicable, but in any event within one month of such notice,

begin and then, within a reasonable time, complete remedying that failure.

22.7.2 If the Tenant does not comply with clause 22.7.1, the Landlord may enter the Premises and carry out any works or do anything else which may be needed to remedy the Tenant's failure to comply with its obligations under this Lease.

22.7.3 Any costs incurred by the Landlord by reason of clause 22.7.2 will be a debt due from the Tenant payable on demand and may be recovered by the Landlord as if it were additional rent.

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22.8Superior interests

If at any time this Lease is an underlease:

22.8.1 the Tenant shall comply with the terms of any superior lease to the extent that they relate to the Premises, other than any obligation to pay any rent and save where the provisions of the lease conflict with any superior lease then this Lease shall prevail; and

22.8.2 the Landlord shall pay any rent due under the immediate superior lease and shall comply with the provisions of such superior lease save where the Tenant is obliged to comply with them by virtue of this Lease.

22.9Tenant to provide information

22.9.1 The Tenant shall give the Landlord any information or documents which the Landlord reasonably requests to show that the Tenant is complying with its obligations in this Lease.

22.9.2The Tenant shall give the Landlord immediate written notice of any defect or default which may make the Landlord liable to the Tenant or any third party.

22.10Tenant's indemnity

The Tenant agrees to indemnify the Landlord at all times (both during and after the Term) against all charges, claims, proceedings, liabilities, damages, losses, costs and expenses arising directly or indirectly from:

22.10.1the existence, state of repair or use of the Premises;

22.10.2any works carried out at the Premises;

22.10.3any breach of any of the Tenant's obligations in this Lease; or

22.10.4any act or omission of the Tenant.

22.11Tenant's acknowledgement

The Tenant acknowledges that it has not entered into this Lease in reliance on any representation made by or on behalf of the Landlord.

22.12Guarantor

22.12.1 If at any time during the Term a Guarantor (or where a Guarantor comprises more than one person, any one of them) dies or any of the events referred to in clause 14 (Forfeiture) occurs in relation to a Guarantor, then the Tenant shall give immediate written notice to the Landlord of that event and within one month of being so required by the Landlord, procure that another person acceptable to the Landlord enters into a deed of guarantee and indemnity containing the obligations set out in the Schedule to this deed with such additions and amendments as are necessary to reflect the fact that theguarantee and indemnity is being entered into by a separate instrument and after the date of this deed.

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22.12.2 The Tenant shall procure that a Guarantor enters into any deed or document which is supplemental to this deed and which is entered into before that Guarantor is released by virtue of the Landlord and Tenant (Covenants) Act 1995.

22.13Qualification of Landlord's liability

The Landlord will not be liable to the Tenant or any other person for:

22.13.1 any damage to person or property arising from any act, omission or misfeasance by the Landlord, or its employees, agents or independent contractors, or from the state and condition of the Premises or any adjoining property of the Landlord;

22.13.2any interruption to the supply of Utilities to the Premises;

22.13.3any accidental damage to the Premises or to any property of the Tenant or any other occupier of the Premises or their employees, agents or independent contractors;

22.13.4 any accidental damage to any person occurring during the performance by or on behalf of the Landlord of any service which the Tenant or other authorised occupier of the Premises has requested the Landlord to carry out; or

22.13.5 for any failure to perform any obligation in this Lease, unless the Tenant has given the Landlord written notice of the facts giving rise to that failure and allowed the Landlord a reasonable time to remedy the matter.

22.14Sale of goods after end of Term

22.14.1 The Tenant irrevocably appoints the Landlord as its agent to store or dispose of any items left by the Tenant at the Premises more than 10 Working Days after the end of the Term.

22.14.2 The Landlord may store or dispose of such items after that time as it thinks fit and without any liability to the Tenant, other than to account to the Tenant for the proceeds of sale, after deducting any costs of sale or storage incurred by the Landlord.

22.14.3 The Tenant agrees to indemnify the Landlord against any liability incurred by the Landlord by reason of the Landlord disposing of any items left at the Premises which do not belong to the Tenant, but which the Landlord believed did belong to the Tenant, which will be presumed unless the contrary is proved.

22.15Arbitration

Where this Lease refers to a dispute being referred to arbitration, it will be referred to a single arbitrator who will act in accordance with the Arbitration Act 1996, and the referral will be a submission to arbitration in accordance with that Act.

23. GUARANTOR'S COVENANTS

In consideration of this Lease having been granted at its request, the Guarantor covenants in the terms set out in the Fourth schedule.

L1585/02465/2675172 v.4

.3

IN WITNESS of which this Lease has been executed as a Deed and has been delivered on the date hereof.

L1585/02465/2675172 v.4

THE FIRST SCHEDULE

1.The passage of services to the Premises through the Conducting Media.

2.Access to the Premises through the Common Parts at all times using a swipe card system.

3.   The right to use the toilet accommodation in the Common Parts on the ground floor and second floor of the Building.

4.In case of emergency the right to use any fire escape serving the Building.

5.   The exclusive right to use the Private Car Parking Spaces for the parking of motor cars or motor cycles.

6.   The right to install signs showing the name of the Tenant andlor companies within the Tenant's Group of a size and design to be approved by the Landlord such approval not to be unreasonably withheld or delayed being located as to one sign in the Common Parts on the ground floor of the Building as reasonably designated by the Landlord.

7.   The right in common with the Landlord to use the refuse bins in the area edged yellow on Plan 2 or such other location as the Landlord may reasonably designate.

8.   The right for the Premises of support and protection from the remainder of the Building as is provided as at the date hereof.

9.   The right to install maintain and use Conducting Media serving the Premises along routes (previously approved by the Landlord such approval not to be unreasonably withheld) passing through the Common Parts and any risers which serve or which are capable of serving the Premises.

10.   The right to enter other parts of the Building (other than the Premises) for the purpose of complying with the Tenant's covenants herein or exercising the Tenant's rights granted herein provided that such entry is made upon reasonable notice (save in case of emergency) and the Tenant makes good all damage thereby occasioned.

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THE SECOND SCHEDULE

1.   The passage of services to and from the Building or any adjoining or neighbouring property through the Conducting Media on or serving the Premises at any time.

2.   The right to enter after reasonable notice on the Premises at reasonable times for the purpose of cleaning, repairing, replacing, altering or constructing either the Conducting Media of the Building or any adjoining or neighbouring property and including the right to erect and use scaffolding or other appropriate equipment on or outside the Premises, the person or persons exercising such rights causing as little inconvenience as reasonably possible and making good in a reasonable manner all damage to the Premises thereby occasioned.

3.   The right to carry out or consent to the carrying out by any person of any construction or other works to the Building or to any adjoining or neighbouring Premises notwithstanding any diminution in the light or air enjoyed by the Premises.

4.The right of access through the Premises in case of fire or other emergency.

5.   The right of access to the Premises upon reasonable notice (save in case of emergency) in order to comply with the Landlord's obligations pursuant to the Lease.

6.   The right to use the Patch Panel contained in the Premises and the right to enter the Premises upon reasonable notice (save in the case of emergency) in order to use and carry out any repairs thereto.

L1585/02465/2675172 v.4

THE THIRD SCHEDULE

To keep in good and substantial repair condition and decoration the whole of the Building (including the Structure but excluding the Exclusively Occupiable Areas).

2.   To keep clean tidy and properly lighted the Common Parts and at all times to keep the toilet accommodation which the Tenant is entitled to use in a clean and properly maintained state.

3.   To clean the outside of the windows in the Building when the Landlord (acting reasonably) considers it necessary.

4.   To maintain in good working order and repair and to renew where necessary the Conducting Media, all plant and machinery serving any heating or ventilation systems, the lifts and lift gear, electric lighting appliances and any fire alarm or security devices in the Common Parts but excluding nevertheless any which exclusively serve the Premises or the Exclusively Occupiable Areas.

5.   To pay all rates, taxes and other outgoings relating to those parts of the Building which are not the Exclusively Occupiable Areas.

6.   To maintain at all times an adequate supply of hot and cold water in the toilet accommodation situate in the Building and within the hours of 6 am and 8 pm Monday to Friday to provide reasonable heat through the central heating apparatus so as adequately to heat the Premises and to provide reasonable air conditioning to those parts of the Building (including the Premises) where the Landlord considers it is appropriate to provide the same provided that the Landlord shall also provide such heating and air conditioning during such additional time or period as the Tenant shall require (it being agreed that in relation to the same the extra cost shall be met exclusively by the Tenant).

7.   To provide such caretaking and reception and security services as the Landlord (acting reasonably) considers necessary for the benefit of the occupiers of the Building as a whole.

8.   To provide such carpets, curtains, furnishings, directory boards, floral decoration and plantings to the Common Parts as the Landlord acting reasonably considers necessary.

9.   To keep clean, tidy and in good order and condition the car parks and landscaped areas around the Building.

10.   To provide and affix within the car park serving the Building (including one at the entrance to the car park) such signs as the Landlord may reasonably consider necessary identifying the location of Private Car Parking Spaces and indicating the arrangements for the use thereof and the Landlord will take into account any reasonable representation made by the Tenant in this regard.

L1585/02465/2675172 v.4

THE FOURTH SCHEDULE

1.GUARANTEE

1.1 In consideration of the Landlord giving its consent to the assignment of the Lease, the Guarantor covenants with the landlord and irrevocably and unconditionally guarantees to the Landlord that the rent and other sums due under the Lease will be duly and punctually paid, and that all the other obligations of the Tenant in the Lease will be duly performed and complied with, in either case whether during or after the end of the Term.

1.2 The Guarantor agrees that if at any time the rent or other sums due under the Lease are not paid on their due date, or any of the other obligations of the Tenant in the Lease are not duly performed and complied with, it shall, on demand, pay such sum or perform or comply with such obligation.

2.PRINCIPAL DEBTOR

As a separate and independent obligation the Guarantor agrees that if any sum or obligation expressed to be guaranteed under this schedule is not recoverable from or enforceable against the Guarantor on the basis of a guarantee (for whatever reason), the Guarantor shall be liable as sole or principal debtor in respect of such sum or obligation and which shall be paid, performed or complied with by the Guarantor on demand.

3.INDEMNITY

As a separate and independent obligation the Guarantor agrees to indemnify the Landlord and keep the Landlord indemnified against any costs, loss, expense or liability resulting from:

3.1the failure of the Tenant under the lease to duly and punctually to pay the rent and other sums due under the Lease or to perform and comply with its obligations in the Lease;

3.2any of the obligations on the Tenant in the Lease being or becoming void, voidable or unenforceable by the Landlord against the Tenant or any other person who is liable;

3.3the Lease (or the Tenant's obligations under it) being disclaimed;

3.4the Lease being surrendered by a liquidator or trustee in bankruptcy of the Tenant, or becoming forfeited;

3.5 the Tenant or any other person who is liable entering into any arrangement or composition with any of its creditors (whether or not such arrangement or composition binds or is expressed to bind the Landlord); or

3.6 the Tenant (being a body corporate) ceasing to exist (whether or not capable of reconstitution or reinstatement), and to pay on demand to the Landlord the amount of such cost, loss, expense or liability, whether or not the Landlord has sought to enforce any rights against the Tenant or any other person who is liable.

L1585/02465/2675172 v.4

4. NO DISCHARGE OF GUARANTOR

  4.1   4.2   4.3   Without prejudice to section 18(3) of the Landlord and Tenant (Covenants) Act 1995 (Effect of variations on guarantors), the Guarantor's liability under this clause will remain in full force and effect and will not be released, nor will the rights of the Landlord be prejudiced or affected by any of the following:   any time, indulgence or concession granted by the Landlord to the Tenant or to any other person who is liable;   the Landlord dealing with, exchanging, varying or failing to perfect or enforce any of its rights or remedies against the Tenant or any other person who is liable;   the existence of or dealing with, varying or failing to perfect or enforce any other rights of security which the Landlord may have or acquire against the Tenant or any other person who is liable in respect of its obligations under the Lease;

4.4 any variation of, addition to or reduction from, the terms of the Lease whether or not the same is substantial or confers only a personal right or obligation provided the same is not prejudicial to the Guarantor;

4.5 any non-acceptance of the rent or other sums due from the Tenant under the Lease, in circumstances where the Landlord has reasonable cause to suspect a breach of its obligations in the Lease;

4.6the occurrence of any of the events set out in clause 14 of the Lease (Forfeiture);

4.7a surrender of part of the Premises, except that the Guarantor will have no liability in relation to the surrendered part in respect of any period after the date of the surrender;

4.8any incapacity, disability or change in the constitution, status or name of the Tenant or the Landlord;

4.9any amalgamation, merger or reconstruction by the Landlord with any other person or the acquisition of the whole or any part of its assets or undertaking by any other person;

4.10 any voluntary arrangement entered into by the Tenant or any other person who is liable with all or any of its creditors (whether or not such arrangement binds or is expressed to bind the Landlord);

4.11 any other act or thing by virtue of which, but for this provision, the Guarantor would have been released or discharged from its obligations under this clause, or the rights of the Landlord would have been prejudiced or affected, other than a release by deed, entered into by the Landlord, in accordance with the terms of such deed,

and the parties acknowledge that each of the matters listed above is separate and independent and is not to be interpreted in the light of any other.

L1585/02465/2675172 v.4

5.WAIVER BY GUARANTOR OF ITS RIGHTS

5.1 Until all the liabilities expressed to be guaranteed by the Guarantor under this clause have been paid, discharged or satisfied irrevocably and in full, the Guarantor agrees not, without the consent of the Landlord, to:

5.1.1exercise any of its rights in respect of the liabilities expressed to be guaranteed under this clause against the Tenant or any other person who is liable;

5.1.2 demand or accept any security from the Tenant or any other person who is liable in respect of the obligations of the Guarantor under this clause or in respect of any indebtedness due to the Guarantor from the Tenant or any other person is liable, and any security received by the Guarantor in breach of the above or any such security held by the Guarantor at the date of this deed shall be held by the Guarantor on trust for the Landlord and delivered to the Landlord on demand;

5.1.3claim any legal or equitable set-off or counterclaim against the Tenant or any other person who is liable; or

5.1.4 claim or prove in competition with the Landlord in the liquidation or bankruptcy or in any administration or receivership of the Tenant or any other person who is liable, or have the benefit of or share in any payment or distribution from or composition or arrangement with the Tenant or any other person who is liable, and any money or other property received by the Guarantor in breach of this provision shall be held by the Guarantor on trust for the Landlord and delivered to the Landlord on demand.

5.2The obligations of the Guarantor may be enforced by the Landlord against the guarantor:

5.2.1 at its discretion and without first enforcing or seeking to enforce its rights against the Tenant or any other person who is liable or exercising its rights under any other security or resorting to any other means of payment; and

5.2.2as primary obligations and not merely as obligations of a surety.

6.PAYMENTS IN GROSS

All dividends, compositions and moneys received by the Landlord from the Tenant or any other person which are capable of being applied by the Landlord in satisfaction of the liabilities expressed to be guaranteed under this clause, wi11 be regarded for all purposes as payments in gross, and will not prejudice the right of the Landlord to recover from the Guarantor the ultimate balance which, after receipt of such dividends, compositions and moneys, may remain owing or expressed to be owing to the Landlord.

7.GUARANTOR TO TAKE A NEW LEASE 7.1In this schedule a "Relevant Event" is:

7.1.1the surrender or disclaimer of the Lease, or the Tenant's obligations under it by a liquidator or trustee in bankruptcy of the Tenant;

L1585/02465/2675172 v.4

7.1.2the disclaimer of the Lease after it has become bona vacantia;

7.1.3the forfeiture of the Lease; or

7.1.4 the Tenant (being a body corporate) ceasing to exist (whether or not capable of being

reconstituted or reinstated).

7.2 If a Relevant Event occurs the Guarantor agrees, at the request of the Landlord made within nine months following the Landlord having notice of the Relevant Event, to take a new lease of the Premises from the Landlord.

7.3Such new lease shall:

7.3.1 be for a term commencing on the date of the Relevant Event and be equal to the unexpired residue of the term of years granted by the Lease (or the residue which would be unexpired but for the Relevant Event) as at the date of the Relevant Event;

7.3.2 reserve a rent equal to the rent reserved by the Lease immediately before the Relevant

Event and otherwise be on the same terms as the Lease (other than this clause); and

7.3.3take effect from the date of the Relevant Event.

7.4 The new lease will take effect subject to the Lease, if and to the extent that it is still

subsisting, and subject to any Lease or other interest created or permitted by the Tenant.

7.5 The Guarantor shall pay the Landlord's reasonable and proper costs in connection with the grant of such new lease and shall execute, deliver and pay the stamp duty on a counterpart of it to the Landlord.

7.6 If the Landlord does not require the Guarantor to take a new lease of the Premises, the Guarantor shall nevertheless pay on demand to the Landlord a sum equal to the rent and other sums due under the Lease which would have been payable but for the Relevant Event in respect of the period from the date of the Relevant Event until nine months after it or, if sooner, the date the Premises are re-let.

8. SUPPLEMENTARY PROVISIONS

8.1 In this schedule a reference to "this schedule" is a reference to the whole of this Fourth

schedule.

8.2 This guarantee and indemnity is in addition to any other security or any other right or

remedy held by or available to the Landlord from time to time.

8.3 As and when called upon to do so by either the Landlord or the Tenant, the Guarantor shall enter into any Supplemental Document (by deed if required) for the purpose of consenting to the Tenant entering into such Supplemental Document and confirming that, subject only to section 18(3) of the Landlord and Tenant (Covenants) Act 1995 (Effect of variations on guarantors), all the obligations of the Guarantor will remain in full force and effect in respect of the Lease.

L1585/02465/2675172 v.4

8.4 The Guarantor agrees to pay to the Landlord on demand, and on an indemnity basis, all legal and other costs and charges which may be properly payable by the Landlord in relation to the enforcement of the Guarantor's obligations in this clause.

8.5 The Guarantor agrees to pay interest on each amount demanded of it under this clause, at the Default Interest Rate until payment (both before and after any judgement), except that where the sum demanded from the Guarantor is interest due from the Tenant at that rate and is paid by the Guarantor immediately on demand, the Guarantor will not be liable to pay further interest on that sum.

8.6 Each of the provisions of this clause is distinct and severable from the others, and if at any time one or more such provisions is or becomes illegal, invalid or unenforceable (either wholly or to any extent), the validity, legality and enforceability of the remaining provisions (or the same provision to any other extent) will not be affected or impaired.

8.7 The rights of the Landlord under this clause will enure for the benefit of the Landlord and

its successors in title without any need for any express assignment of them.

8.8The parties confirm that before this Lease was entered into:

8.8.1 A notice complying with Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 which relates to the tenancy to be entered into by the Guarantor pursuant to paragraph 7 of this Fourth schedule was served by the Landlord

on the Guarantor on zot2oOS

8.8.2A statutory declaration dated 2 \S complying with paragraph 8 of

Schedule 2 to that Order was made by N (PO'Crtt tom! , who the Guarantor confirms was duly authorised by the Guarantor to make the statutory declaration on its behalf.

8.8.3 The parties agree and declare that the provisions of section 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 shall not apply to any tenancy entered into by the Guarantor pursuant to paragraph 7 of this Fourth schedule.

Executed as a Deed by LIVERPOOL) VICTORIA FRIENDLY SOCIETY LIMITED )

acting by:)

EX-10.9

SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENTis entered into as of May 18, 2005, between Convera Corporation, a Delaware corporation (“Subtenant”) and MWH Americas, Inc., a California corporation (“Tenant”).

WHEREAS,Gateway 44, LLC (“Landlord”), by an Agreement of Lease which commenced March 17, 2003 (“Lease”), leased to Tenant the premises known as Suite 150 consisting of approximately 5,024 rentable square feet of space in the building located at 6760 Alexander Bell Drive, Columbia, Maryland 21046 as shown on the attached Exhibit “A” (the “Premises”); and

WHEREAS,Tenant desires to sublease the Premises to Subtenant and Subtenant desires to take the Premises by sublease from Tenant under all of the terms and conditions of this Sublease;

NOW, THEREFORE, in consideration of the sublease of the Premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties agree as follows:

1.   Sublease. The Tenant hereby subleases to the Subtenant the

Premises comprised of approximately 5,024 rentable square feet of space located in real property leased by the Tenant from the Landlord at 6760 Alexander Bell Drive, Suite 150, Columbia, Maryland 21046.

2.Term of Sublease. The term of this Sublease shall commence on June 1, 2005 and shall terminate on June 30, 2008.

3.Rent. The Subtenant shall pay rent to the Tenant for the Premises at the rate of $18.00 per rentable square foot per year for the first year in monthly increments of $7,536.00. Rent for June and July, 2005 shall be abated. Beginning June 1, 2006, rent shall increase by $.75 per rentable square foot per year and on June 1st of each year, thereafter. The first month’s rent (for August 2005) shall be paid at the time of execution of this Sublease. Subsequent rent payments shall be due without notice on the first day of each and every month commencing on September 1, 2005 and continuing to and including June, 2008. All rent shall be paid to the Tenant and shall be remitted to Landlord so that the rent is received on or before the first day of each and every month. Late payments shall be subject to fees called for in Section 6.6 of the Lease.

4. Security Deposit. The Subtenant shall pay the Tenant a Security Deposit

of $22,608.00, said deposit to be paid at the time of execution of this Sublease. Provided Subtenant is not in default, Tenant shall refund $7,536.00 on June 1, 2006 and $7,536.00 on June 1, 2007.

5.Operating Expenses and Taxes. There shall be no pass through of increases in Operating Expenses and Taxes during the Sublease term.

6.Parking. Subtenant is granted the same parking rights and privileges afforded Tenant as defined in the Lease. Tenant represents to Subtenant that Tenant and its employees, agents and invitees are allowed to park in the building parking lot, in common with other occupants of the Building (as defined in the Lease). The Lease does not provide for a charge for parking.

7.Assignment and Subletting. Subtenant shall not have the right to assign, sublease, or in any way encumber all or any portion of the Premises without Landlord and Tenant’s prior approval.

8.Landlord’s Consent; New Direct Lease. This Sublease is conditional on, and shall not become effective until (a) the written approval of this Sublease by Landlord; and (b) mutual execution by Subtenant and Landlord of a direct lease for approximately 2364 square feet on the second floor of the “Building” as defined in the Lease. Tenant agrees to use reasonable efforts to obtain the consent of Landlord referenced in clause (a) above.

9.   Obligation to Comply With Lease. Subtenant shall perform and hereby

agrees to perform, all of the covenants, conditions and agreements to be performed by Tenant under the Lease, insofar as they pertain to the sublet Premises. Subtenant shall be and is bound by each and every covenant, condition and agreement contained in the Lease except that (i) rent payable to Tenant by Subtenant shall be the rent set forth in Section 3 and Section 5 hereof and payments shall be made as prescribed in Section 3; (ii) Subtenant shall have no right to renew or extend this Sublease; (iii) Subtenant will make no alterations, changes, improvements, repairs, replacements or physical additions in or to the Premises without prior written consent of Tenant and the Landlord; (iv) the cost of any such alterations, changes, improvements, repairs, replacements or physical additions to the Premises shall be borne by Subtenant and (v) with respect to Section 13 of the Lease, Subtenant shall add Tenant as an additional insured in addition to Landlord’s requirements provided in this section and provide evidence of insurance coverage to Tenant prior to occupancy. A true and correct copy of the Lease is attached hereto as Exhibit “D”.

10.Default by the Subtenant. If the Subtenant fails to perform or observe any of its covenants under this Sublease and such failure continues for five days after written notice from Tenant in the case of a monetary default, or twenty days after such written notice in the case of a nonmonetary default, the Tenant may immediately: (a) terminate or cancel this Sublease by notifying the Subtenant, and upon such termination or cancellation, the Subtenant shall be liable to the Tenant for all damages sustained by Tenant by reason of the Subtenant’s breach of covenant and of the termination or cancellation; or (b) re-enter the Premises without notice and upon reentry lease all or any part thereof as agent for the Subtenant. If the Premises are leased in accordance with the provisions of (b), the Tenant may receive the rent, applying it first to the payment of any expenses the Tenant incurs in entering and releasing the Premises, and then to the payment of the rent and the fulfillment of the Subtenant’s covenants hereunder. Subtenant shall be responsible for any shortfall between such payments and the rent owed under this Sublease, including the Tenant’s reasonable expenses referenced herein. If the Subtenant defaults, it shall pay and be liable for all rent that would under this Sublease become due should the demised Premises remain vacant in whole or in part during the remainder of the term. Notwithstanding the foregoing, Tenant will make a reasonable effort to mitigate its damages in the event of such a default by Subtenant.

11.Furniture and Phone System. Rental of the Premises includes use of the furniture listed in Exhibit B attached hereto and incorporated by reference (the “Furniture”). Tenant makes no representations to Subtenant regarding the Furniture and Phones. Subtenant accepts the Furniture and Phones “as is” without any warranty of merchantability, fitness for a particular purpose or any other express or implied warranty. At the natural expiration of the Sublease term, title to the Furniture shall not be transferred to Subtenant. Subtenant agrees to maintain this property in good order and condition during the Subleased Premises Term, normal wear and tear excepted. Tenant and Subtenant agree that Subtenant shall purchase the Phone System listed in Exhibit C attached hereto and incorporated by reference (the “Phones”). A Bill of Sale shall be executed by both parties along with the execution of this Sublease.

12.Broker Participation.

Subtenant warrants and represents that, other than The Ezra Company representing Subtenant and MacKenzie Commercial Real Estate Services and Trammell Crow Company representing Tenant, no real estate broker has a claim for brokerage commission or finder’s fees in connection with this Sublease. Tenant is responsible for payment of all brokerage commission due in connection with the transaction hereunder.

13.Attorney's Fees. If Tenant or Subtenant shall commence an action against the other arising out of or in connection with this Sublease, the prevailing party shall be entitled to recover its costs of suit and reasonable attorney's fees.

14.Notices. All notices and demands which may or are to be required or permitted to be given by either party on the other hereunder shall be in writing. All notices and demands by the Tenant to Subtenant shall be sent either by United States Mail, postage prepaid, or by overnight express mail addressed to the Subtenant at the address herein below, or to such other place as Subtenant may from time to time designate in a written notice to the Tenant. All notices and demands by the Subtenant to Tenant shall be sent either by United States Mail, postage prepaid, or by overnight express mail addressed to the Tenant at the address set forth herein, and to such other person or place as the Tenant may from time to time designated in a written notice to the Subtenant.

To Subtenant:

Convera Corporation

1921 Gallows Road, Suite 200

Vienna, VA 22182

Phone: 703 761 3700

FAX 703 761 1990

with a copy to:

To Tenant:

MWH Americas, Inc.

370 Interlocken Boulevard, Suite 300

Broomfield, CO 80021

Attn: Real Estate Manager

Phone: 303-410-4000

FAX: 303-410-4196

IN WITNESS WHEROF, each party to this Sublease Agreement has caused it to be executed on the date indicated below.

Tenant: MWH Americas, Inc., a California corporation

By: _____________________________________________

Title: ____________________________________________

Date: ____________________________________________

Subtenant: Convera Corporation, a Delaware corporation

By: ______________________________________________

Title: _____________________________________________

Date: _____________________________________________

EXHIBIT “A”

PREMISES

EXHIBIT “D”

LEASE

EX-10.10

[Missing Graphic Reference] CORPORATE OFFICE PROPERTIES

Corporate Office Properties Trust 8815 Centre Park Drive, Suite 400 Columbia, Maryland 21045 Telephone 410-730-7536 Facsimile 410-992-7534

Date:June 13, 2005

To:Distribution

Re:Gateway 44, 6760 Alexander Bell Drive, Suite 260 Convera Corporation

Agreement of Lease

Please find attached a copy of the referenced document dated 6/10/05.

DISTRIBUTION: Sue Sheridan

Jennifer Eckel Stephanie Potter Sam Keeton

George Marcia Carl Nelson

Dave Norfolk

Barbara Crago Cathy Ward

Jeff Marquma Andrea Koesters Tori Williams Patty Feick

Susan Perkins (w/o attachment)

Tracy Shore (w/o attachment)

Annette Bohrer (w/o attachment)

Connie Epperlein (w/o attachment)

Lender code: 21.2T0

AGREEMENT OF LEASE

by and between

GATEWAY 44, LLC

Landlord

and

CONVERA CORPORATION

Tenant

(6760 AlexanderBell Drive, Suite 260)

1

convera.lease 4/29/05

ibw

AGREEMENT OF LEASE

GATEWAY 44, LLC (^"LANDLORD")

CONVERA CORPORATION (^"TENANT")

TABLE OF CONTENTS

1. Definitions and Attachments	3
2. Demise	5
3. Term	5
4. Security Deposit and Advance Rent	6
5. Use	6
6. Rent	7
7. Requirements of Aplicable Law	10
8. Certificate of Occupancy	11
9. Contest-Statute, Ordinance, Etc	11
10. tenant's Improvements	11
11. Repairs and Maintenance	11
12. Conduct on Premises	13
13. Insurance	13
14. Rules and Regulations	14
15. Mechanics' Liens	14
16. Tenant's Failure to Repair	14
17. Property - Loss, Damage	15
18. Destruction - Fire or Other Casualty	15
19. Eminent Domain	15
20. Assignment	15
21. Default; Remedies; Bankruptcy of Tenant	16
22. Damages	18
23. Services and Utilities	18
24. Electric Current	19
25. Telephone and Telecommunications	20
26. Acceptance of Premises	20
27. Inability to Perform	20
28. No Waivers	21
29. Access to Premises and Change in Services	21
30. Estoppel Certificates	21
31. Subordination	21
32. Attomment	21
33. Notices	22
34. Intentionally Deleted	22
35. Tenant's Space	22
36. Quiet Enjoyment	22
37. Vacation of Premises	23
38. Members' Liability	23
39. Separability	23
40. Indemnification	23
41. Captions	24
42. Brokers	24
43. Recordation	24
44. Successors and Assigns	24
45. Integration of Agreements	24
46. Hazardous Material; Indemnity	25
47. Americans With Disabilities Act	25
48. Several Liability	26
49. Financial Statements	26
50. Definition of Day and Days	26

2

AGREEMENT OF LEASE

GATEWAY 44, LLC ("LANDLORD")

CONVERA CORPORATION ("TENANT")

AGREEMENT OF LEASE

THIS AGREEMENT OF LEASE (this "Lease") made this 10th day of June, 2005, by and between GATEWAY 44, LLC (the ^"Landlord") and CONVERA CORPORATION (the "Tenant"), witnesseth that the parties hereby agree as follows:

WLTNESSETH:

THAT FOR AND IN CONSIDERATION of the mutual covenants and agreements herein contained, the parties hereto do hereby covenant and agree as follows:

1.Definitions and Attachments.

1 1Certain Defined Terms.

1 1.1 "Project" means the subdivided lot located in the Columbia Gateway development of Howard County, Maryland, which contains 15.262 acres and is more fully described on Exhibit A-1 attached hereto and made a part hereof, which contains four (4) multi-tenant office buildings located at 6760, 6750, 6740 and 6716 Alexander Bell Drive.

1.1.2 ^"Building" means the office building located at 6760 Alexander Bell Drive, Columbia, Maryland 21046, which is located within Howard County, Maryland.

1.1.3 "Rentable Area of the Building" means 37,248 rentable square feet, subject to adjustment in accordance with BOMA standards.

1.1.4 ^"Rentable Area of the Project" means 229,736 rentable square feet, subject to adjustment as described in Section 6.2.6 of this Lease.

1.1.5 ^"Premises" means that the Initial Premises and the Remaining Premises. "Initial Premises" shall mean that portion of the Building located on the second floor designated as Suite 260 described on the schedule attached hereto as Exhibit "A" and made a part hereof. "Remaining Premises" shall mean that portion of the Building located on the first floor designated as Suite 150 described on the schedule attached hereto as Exhibit "A".

1.1.6 ^"Rentable Area of the Premises" means 8,388 rentable square feet; consisting of 2,364 rentable square feet in the Initial Premises and 5,024 rentable square feet in the Remaining Premises.

1.1.7 "Initial Term" means a period of three (3) years plus the part of a month mentioned in Section 3.1, commencing on the Initial Premises Commencement Date and ending as provided in Section 3.1.

	1.1.8 "Annual Baso Rent" means the amount set forth on the following schedule:
A.For the Initial Premises:
Rental Year	PSF	Annual Base Rent	Monthly Installments Of Annual Base Rent
1	$23.00	$54,372.00	$4,531.00
2	$23.69	$56,003.16	$4,666.93
3	$24.40	$57,683.25	$4,806.94

B.For the Remaining Premises:

Remaining Premises Commencement Date

- Lease Year 3*$24.40$122,585.60$10,215.47

* Assumes a Remaining Premises Commencement Date occurring in Lease Year 3. If the Remaining Premises Commencement Date occurs in a Lease Year prior to Lease Year 3, then the Base Rent shall be the Per Square Foot number used in such Lease Year in the Initial Premises Base Rent schedule above multiplied by the Rentable Area of the Remaining Premises.

1.1.10 "Target Date" means August 1, 2005.

1.1.11 ^"Advance Rent" means the sum of $4,531.00. See Section 4.2. 1.1.12 ^"Security Deposit" means the sum of $4,531.00. See Section 4.1.

1.1.13 "Tenant Notice Address" means

1921 Gallows Road, Suite 200 Vienna, VA 22182-3900

Attn:

Telephone (703) 761-3700 Telecopier (703) 761-1990

1.1.14 ^"Base Year Building Expenses" shall mean the actual Building Expenses per rentable square foot incurred by Landlord for the 2006 calendar year.

1.1.15 "Base Year Taxes" shall mean the actual Taxes incurred by Landlord in connection with the Project per rentable square foot for the 2006 calendar year.

1.1.16 "Broker" means The Ezra Company.

1.2Additional Defined Terms.

The following additional terms are defined in the places in this Lease noted below: TermSection

	47
"Applicable Laws"	7
"Building Expenses"	6.2.2
"Commencement Date"	3.1
"Common Areas"	6.2.4
"Cost of Building Expenses Per Square Foot"	6.4.1
"Cost of Taxes Per Square Foot"	6.3.1
"Default Rate"	6.6
"Hazardous Material"	46
"HVAC"	23
"Landlord's Notice"	3.3
"Lease Year"	6.2.5
"Mortgagee"	31
"Normal Business Hours"	23
"Property"	6.2.1
"Substantially Complete"	3.2
"Successor"	32
"Tenant Improvements"	35
"Term" 1.3Attachments.	3.4

The following documents are attached hereto, and such documents, as well as all drawings and documents prepared pursuant thereto, shall be deemed to be a part hereof:

Exhibit "A" - Floor Plan

Exhibit "B" - Rules and Regulations

Exhibit "C" - Schedule of Tenant Improvements

Exhibit "D" Exhibit "E" Exhibit "F" Exhibit "G" - Estoppel Certificate -Subordination, Attornment and Non-Disturbance Agreement -Guaranty -Commencement Date Agreement

2.Demise. Landlord hereby leases unto Tenant, and Tenant does hereby rent from Landlord the Premises. In addition thereto, Tenant shall have the right to use, on a non-exclusive basis, and in common with the other tenants of the Building the Common Areas of the Building (as that term is defined in Section 6.2.4 hereof).

3.Term.

3.1 Commencement Date and Term. This Lease shall commence on the ^"Initial Premises Commencement Date" (as herein defined) and shall be for the Initial Term, plus the portion of a calendar month, if any, from the Commencement Date to the last day of the calendar month in which such Commencement Date occurs. As used in this Lease, the term ^"Initial Premises Commencement Date", as advanced or postponed pursuant to the terms hereof, shall be defined as the earlier to occur of (a) the date on which Tenant takes possession and occupancy of the Initial Premises, or (b) the date which is fifteen (15) days following that date which is the first on which all of the following events have occurred, namely (i) the Initial Premises is ^"substantially completed", as defined in Section 3.2 following, (ii) Landlord has given Tenant written notice that the Initial Premises is ^"substantially completed", and (iii) the "Target Date" as defined in Section 3.2 has arrived. Within fifteen (15) days after request from Landlord, Tenant shall execute and deliver the Commencement Date Agreement in substantially the form attached hereto as Exhibit ^"G". As used in this Lease, the term ^"Remaining Premises Commencement Date" shall mean that day immediately following the expiration or sooner termination of the Sublease between MWH Americas, Inc. dated May 31, 2005 for the Remaining Premises, provided MWH Americas, Inc. does not elect to extend the term of the lease for the Remaining

Premises.

3.2 Substantial Completion. Subject to the provisions of Section 35, Landlord shall use its reasonable efforts to ^"substantially complete" the Initial Premises by the Target Date, provided that the Target Date shall be extended for the number of days that Tenant fails to satisfy its obligations under Section 35. "Substantially complete" means that: (i) the construction of the improvements described in Section 35 has been completed so that Tenant can use the Initial Premises for its intended purposes without material interference to Tenant conducting its ordinary business activities, (ii) the Initial Premises has been approved for occupancy by governmental authorities having jurisdiction, (iii) Tenant has ready access to the Building and Initial Premises through the lobby, hallways and elevators, and (iv) the Initial Premises is ready for installation of any equipment, furniture, fixtures or decoration that Tenant will install. Landlord shall keep Tenant advised as to its progress with regard to ^"substantially completing" the Initial Premises by the Target Date. Notwithstanding the foregoing, the requirements of subsection (ii) shall be deemed satisfied if all of the other subsections have been satisfied and the government approval is delayed as a result of the installation of furniture, fixtures or equipment which is not included within the scope of Landlord's responsibilities under Section 35 below.

3.3 Option to Extend Lease Term. Provided Tenant is not in default of any term, covenant or condition of this Lease, Tenant shall have the option to extend the Initial Term of this Lease for one (1) additional period of three (3) years (the "Renewal Term") to commence immediately upon the expiration of the Initial Term.

Tenant's rental of the Premises during the Renewal Term shall be upon the same terms, covenants and conditions contained in this Lease, except that Tenant shall pay to Landlord as Base Rent that amount equal to the "Prevailing Market Rate" for the Premises for the Renewal Term as hereinafter defined (including annual adjustments). For purposes of this Section 3.3, the term "Prevailing Market Rate" shall mean the then prevailing market rate being charged for comparable space in comparable office buildings within a ten (10) mile radius of the Premises, with consideration given for construction allowances, commissions, free rent, and other concessions or premiums. In order to exercise its option granted herein, Tenant shall notify Landlord in writing of its intent to renew not less than one hundred eighty (180)days prior to the expiration of the Initial Term. Within thirty (30) days following the exercise by Tenant of its option to extend the Lease for the Renewal Term, Landlord shall notify Tenant in writing of its determination of the Prevailing Market Rate for the Renewal Term as reasonably determined by Landlord ("Landlord's Notice"). Within ten (10) days after receipt of Landlord's Notice, Tenant shall notify Landlord in writing of Tenant's acceptance or rejection of such rate. If Tenant shall accept such Prevailing Market Rate, Landlord and Tenant shall enter into an amendment to this Lease acknowledging such renewal and setting forth any terms at variance with the terms of this Lease. If within the ten (10) day period, Tenant shall reject such Prevailing Market Rate as determined by Landlord for the Renewal Term, then within twenty (20) days thereafter, Landlord and Tenant shall meet at a mutually acceptable time and place and shall use their reasonable efforts to agree upon the Prevailing Market Rate. If Landlord and Tenant shall fail to agree upon such Prevailing Market Rate within the twenty (20) day period, Landlord and Tenant shall each appoint an independent commercial leasing broker licensed in the Maryland area within the next ten (10) days (the ^"Brokers"). Such Brokers shall deliver their respective estimates of the Prevailing Market Rate within ten (10) days after being appointed. If the estimates of the Prevailing Market Rate as quoted by the Brokers are within ten percent (10%) of each other, the Prevailing Market Rate shall be deemed to be the average of the estimates presented by the Brokers. If the estimates of the Prevailing Market Rate as quoted by the Brokers differ by more than ten percent (10%), then Landlord and Tenant shall jointly appoint a third independent commercial leasing broker licensed in the Maryland area within ten (10) days after the receipt of the initial brokers' estimates (the "Third Broker") who shall deliver its estimate of the Prevailing Market Rate within ten (10) days after being appointed and such estimate shall be deemed to be the Prevailing Market Rate. Tenant shall notify Landlord within ten (10) days after receipt of the estimate of the Prevailing Market Rate (whether as resulting from the average of the Brokers or from the Third Broker, as applicable), whether Tenant shall accept such Prevailing Market Rate, whereupon Landlord and Tenant shall enter into an amendment to this Lease acknowledging such renewal and setting forth any terms at variance with the terms of this Lease. If (i) Tenant shall fail to respond to Landlord's Notice as provided above, (ii) Tenant shall fail to deliver the requisite notice exercising its option to extend by the date prescribed above, (iii) Tenant does not respond within ten (10) days following receipt of Landlord's Notice or (iv) Tenant does not accept the Prevailing Market Rate within ten (10) days following Landlord's notification of the Prevailing Market Rate, as determined either by the average of the Brokers or from the Third Broker, as applicable, then Tenant's option to extend this Lease for the Renewal Term shall be void and inoperable. Landlord and Tenant shall each pay the fee of the broker designated by them originally and shall split the fees of the Third Broker.

3.4Definition of "Term". As used herein, the word "Term" shall refer to the Initial Term and the Renewal Term, if applicable.

4.Security Deposit and Advance Rent.

4.1 Security Deposit. Tenant has this day paid to Landlord the Security Deposit to be held by Landlord as security for the performance by Tenant of all obligations imposed on Tenant hereunder. If Tenant shall perform all such obligations, the Security Deposit shall be refunded to Tenant, without interest, at the end of the Term. If Tenant shall default in any such obligation, Landlord shall be entitled to apply the Security Deposit, pro tanto, toward Landlord's damages and Tenant shall replenish the Security Deposit to the full amount within ten (10) days after receipt of a written notice from Landlord which sets forth the amount to be replenished. If the Security Deposit is not fully restored, it shall constitute an Event of Default (as defined in Section 21) under the terms of this Lease, and Landlord shall have the benefit of all remedies permitted pursuant to the terms of this Lease and the laws of the State of Maryland.

4.2 Advance Rent. Upon execution of this Lease, Tenant shall pay Landlord the Advance Rent to be held as advance rent and security and which Landlord shall be entitled to retain, without limitation of other remedies, for any defaults of this Lease by Tenant occurring prior to the commencement of the Term. If no such defaults occur, the Advance Rent shall be applied by Landlord against first installments of Base Rent payable by Tenant hereunder.

5. Use. Tenant shall use and occupy the Premises continuously during the Term of this Lease solely for general office purposes in accordance with applicable zoning regulations and for no other purpose. Tenant acknowledges that (a) violation of the foregoing continuous occupancy and use covenant shall be a material breach of this Lease, and (b) Landlord considers such continuous use and occupancy covenant a valuable contractual interest with which no other landlord should interfere by attempting to induce Tenant to move to another building. Tenant recognizes that its occupancy of the Premises continuously throughout the Term of this Lease provides Landlord a significant benefit in the perception of the Building by other prospective tenants who will negotiate with Landlord for space in the Building in the future as well as the perception of other existing tenants who will be negotiating with Landlord to renew their leases and remain in the Building.

6.Rent.

6.1 Base Rent. Commencing on the Initial Premises Commencement Date, as rent for the Initial Premises during each year of the Term, Tenant shall pay to Landlord an Annual Base Rent, in equal monthly installments, in advance on the first day of each calendar month during the Term, and without deduction, setoff or demand in accordance with the schedule set forth in Section 1.1.8.A above. Commencing on the Remaining Premises Commencement Date, as rent for the Remaining Premises during each year of the Term, Tenant shall pay to Landlord an Annual Base Rent, in equal monthly installments, in advance on the first day of each calendar month during the Term, and without deduction, setoff or demand in accordance with the schedule set forth in Section 1.1.8.B above. In addition to the Base Rent, if the Term for the Initial Premises should commence on or if the Remaining Premises Commencement Date should fall on a day other than the first day of a calendar month, Tenant shall pay to Landlord upon the Initial Premises Commencement Date or the Remaining Premises Commencement Date, as thecase may be, a sum equaling that percentage of the applicable monthly rent installment which equals the percentage of such calendar month falling within the Term.

6.2 Definitions. For the purposes hereof, the following definitions shall apply:

6.2.1 ^"Property" shall mean the Building, the land upon which same is situated and all fixtures and equipment thereon or therein, all commonly owned or shared appurtenances,

including but not limited to, parking areas, walkways, landscaping and utilities, whether located on the land upon which the Building is situated or elsewhere.

6.2.2 "Building Expenses" shall be all those expenses paid or incurred by Landlord in connection with the owning, maintaining, operating and repairing of the Property or

any part thereof, in a manner deemed reasonable and appropriate by Landlord and shall include, without limitation, the following:

6.2.2.1 All costs and expenses of operating, repairing, lighting, cleaning, and insuring (including liability for personal injury, death and property damage and workers'

compensation insurance covering personnel) the Property or any part thereof, as well as all costs incurred in removing snow, ice and debris therefrom and of policing and regulating traffic with respect thereto, and depreciation of all machinery and equipment used therein or thereon,

replacing or repairing of pavement, parking areas, curbs, walkways, drainage, lighting facilities, landscaping (including replanting and replacing flowers and other planting);

6.2.2.2 Electricity, steam and fuel used in lighting, heating, ventilating and air conditioning and all costs, charges, and expenses incurred by Landlord in connection with

any change of any company providing electricity service, including, without limitation,

maintenance, repair, installation and service costs associated therewith, as well as all expenses associated with the installation of any energy or cost savings devices;

6.2.2.3 Maintenance and repair of mechanical and electrical equipment including heating, ventilating and air conditioning equipment;

6.2.2.4 Window cleaning and janitor service, including equipment, uniforms, and supplies and sundries;

6.2.2.5 Maintenance of elevators, stairways, rest rooms, lobbies, hallways and other Common Areas;

6.2.2.6 Repainting and redecoration of all Common Areas;

6.2.2.7 Repair and maintenance of the parking areas, including without limitation, the resurfacing and striping of said areas;

6.2.2.8 Sales or use taxes on supplies or services;

6.2.2.9 Management fees, wages, salaries and compensation of all persons engaged in the maintenance, operation or repair of the Property and the provision of amenities to

all tenants in the Property (including Landlord's share of all payroll taxes) but only to the extent they are so engaged;

6.2.2.10 Legal, accounting and engineering fees and expenses, except for

those related to disputes with tenants or which are a result of andlor are based on Landlord's negligence or other tortious conduct;

6.2.2.11 Costs and expenses that may result from compliance with any

governmental laws or regulations that were not applicable to the Common Areas at the time same were originally constructed; and

6.2.2.12 All other expenses which under generally accepted accountingprinciples would be considered as an expense of maintaining, operating, or repairing the

Property. Notwithstanding the foregoing, all expenses (whether or not such expenses are enumerated on items 1 through 11 of this Section 6.2.2) which would be considered capital in nature under generally accepted accounting principles shall be excluded from "Building

Expenses" unless same are amortized in accordance with generally accepted accounting principles.

6.2.3 ^"Taxes" shall mean all real property taxes including currently due installments of assessments, sewer rents, ad valorem charges, water rates, rents and charges, front foot benefit charges, and all other governmental impositions in the nature of any of the foregoing in connection with the Project. Excluded from Taxes are (i) federal, state or local income taxes, (ii) franchise, gift, transfer, excise, capital stock, estate or inheritance taxes, and (iii) penalties or interest charged for late payment of Taxes. If at any time during the Term the method of taxation prevailing at the commencement of the Term shall be altered so as to cause the whole or any part of the items listed in the first sentence of this subparagraph to be levied, assessed or imposed, wholly or partly as a capital levy, or otherwise, on the rents received from the Project, wholly or partly in lieu of imposition of or in addition to the increase of taxes in the nature of real estate taxes issued against the Project, then the charge to Landlord resulting from such altered additional method of taxation shall be deemed to be within the definition of ^"Taxes." Tenant acknowledges and agrees that the Project is located on a single lot and the real property taxes pertain to the entire Project and are not limited to the Building or the Property.

6.2.4 ^"Common Areas" shall mean those areas and facilities which may be from time to time furnished to the Building by Landlord for the non-exclusive general common use of tenants and other occupants of the Building, their officers, employees, and invitees, including (without limitation) the hallways, stairs, parking facilities, washrooms, and elevators.

6.2.5 ^"Lease Year" shall mean the first twelve (12) month period following the Commencement Date and each succeeding twelve (12) month period thereafter up to the end of the Term; provided, however, that if the Commencement Date shall occur on a day other than the first day of a calendar month, then the first Lease Year shall include that portion of a calendar

month in which the Commencement Date occurs in addition to the first twelve (12) month period.

6.2.6 ^"Rentable Area of the Project" shall have the mean the rentable area of any improvements in the Project as of the date that Tenant is required to make any payments hereunder. Landlord and Tenant shall enter into a written amendment to this Lease which

memorializes the Rentable Area of the Project when any additional improvements are completed in the Project.

6.3Rent Adjustments for Taxes.

6.3.1 Commencing with the third Lease Year, on or before April 30 of each Lease Year, Landlord shall total the Taxes and shall allocate such Taxes to the Rentable Area of the Building in the following manner: Taxes for the foregoing calendar year shall be totaled and such total shall be divided by the total rentable square feet in the Project thereby deriving the "Cost of Taxes Per Square Foot" of rentable area.

6.3.2 In the event that the Cost of Taxes Per Square Foot assessed for any calendar year which is wholly or partly within the Term are greater than the Base Year Taxes, Tenant shall pay to Landlord, as additional rent at the time such Taxes are due and payable, the amount of such excess times of Rentable Area of the Premises. Any additional rent due Landlord under this Section shall be due and payable within thirty (30) days after Landlord shall have submitted a written statement to Tenant showing the amount due. For Tenant's obligation for such additional rent at the beginning or end of the Lease, see Section 6.5. Landlord may, in its discretion, make a reasonable estimate of such additional rent with respect to Taxes, and require Tenant to pay each month during such year 1/12 of such amount, at the time of payment of monthly installments of Base Rent. In such event, Tenant shall pay, or Landlord shall refund or credit to Tenant's account, any underpayment or overpayment of such additional rent within thirty (30) days of Landlord's annual written statement of Taxes due. Tenant shall have the right to examine, at Tenant's sole expense, Landlord's records with respect to any such increases in additional rent; provided, however, that unless Tenant shall have given Landlord written notice of exception to any such statement within sixty (60) days after delivery thereof, the same shall be conclusive and binding on Tenant. No credit shall be given to Tenant if the cost of Taxes Per Square Foot are less than the Base Year Taxes.

All reasonable expenses incurred by Landlord (including attorneys', appraisers' and consultants' fees, and other costs) in contesting any increase in Taxes or any increase in the assessment of the Project shall be included as an item of Taxes for the purpose of computing additional rent due hereunder.

6.4 Rent Adjustments for Building Expenses.

6.4.1 Commencing with the third Lease Year, on or before April 30 of each Lease Year, Landlord shall compute the Building Expenses for the prior Lease Year and shall allocate such costs to the Rentable Area of the Building in the following manner: Building Expenses shall be totaled and such total shall be divided by the total Rentable Area of the Building thereby de-riving the "Cost of Building Expenses Per Square Foot" of rentable area. If Landlord incurs an extraordinary, uncontrollable expense during the Base Year to determine Building Expenses (e.g., excessive snow or blizzard), such extraordinary expenses shall not be included in the computation of Base Year Building Expenses, but such item shall be included in Base Year Building Expenses in an amount equal to the average amount of ordinary expenses for such item by averaging the three (3) prior years' expenses for such item.

6.4.2 In the event that the Cost of Building Expenses Per Square Foot of rentable area for any year which is wholly or partly within the Term are greater than the Base Year Building Expenses, Tenant shall pay to Landlord, as additional rent, the amount of such excess times the number of square feet of Rentable Area of the Premises, as set forth inSection 1 above. Any such additional rent shall be due within thirty (30) days after Landlord has submitted a written statement to Tenant showing the amount due. Landlord may, in its discretion, make a reasonable estimate of such additional rent with respect to any calendar year, and require Tenant to pay each month during such year 1/12 of such amount, at the time of payment of monthly installments of Base Rent. In such event, Tenant shall pay, or Landlord shall refund or credit to Tenant's account, any underpayment or overpayment of such additional rent within thirty (30) days after Landlord has submitted a written statement of actual Building Expenses for the calendar year. Tenant, at Tenant's sole expense, shall have the right to examine Landlord's records with respect to any such increases in additional rent; provided, however, that unless Tenant shall have given Landlord written notice of exception to any such statement within sixty (60) days after delivery thereof, the same shall be conclusive and binding on Tenant. No credit shall be given to Tenant if the cost of Building Expenses Per Square Foot are less than the Base Year Building Expenses. Notwithstanding anything to the contrary contained herein, Landlord shall use diligent efforts to keep Building Expenses at reasonable amounts, while maintaining the Building as a first class office building. Tenant acknowledges that with regard to certain Building Expenses, some tenants may be paying various fees directly to the service provider (including, without limitation, janitorial services and electricity charges), in which event the computation of Cost of Building Expenses Per Square Foot for such items shall be determined by using the total rentable square footage of the Building reduced by the rentable square footage of the tenants who are paying such fees directly to the service provider. If occupancy of the Building during any calendar year, including the Base Year for Building Expenses, is less than ninety-five percent (95%), then Building Expenses for that calendar year shall be ^"grossed up" to that amount of Building Expenses that, using reasonable projections, would normally be expected to be incurred during the calendar year in question if the Building was ninety-five percent (95%) occupied during the applicable calendar year period, as determined under generally accepted accounting principles; it being understood that the written statement submitted to Tenant shall provide a reasonably detailed description of how the Building Expenses were grossed up and that only those component expenses that are affected by variations in occupancy levels shall be grossed up. Such additional rent shall be computed on a year-to-year basis.

Landlord shall use its reasonable efforts to obtain separate invoices for Building Expense items which pertain to each of the buildings comprising the Project, as compared to the entire Project. Notwithstanding anything herein to the contrary, if for any reason, Landlord is not able to obtain a separate invoice for any Building Expense item which is limited to the Property or the Building, as compared to the entire Project and such item does in fact benefit the entire Project, Landlord shall have the right to invoice Tenant for Tenant's proportionate share of such amount by using the Tenant's proportionate share of the Project (which shall be calculated using the Rentable Area of the Premises as the numerator and the rentable area of the Project as the denominator), as of the date of the invoice; provided, however, that Landlord shall give Tenant a credit for the amount which Tenant would have paid for such item, if any, during the Base Year for Building Expenses. Landlord's invoice shall include reasonable supporting documentation for such amount; Tenant shall pay such amounts within thirty (30) days after receipt of an invoice.

6.5 Additional Rent Payments. Tenant's obligation to pay any additional rent after the first Lease Year accruing during the Term pursuant to Sections 6.3 and 6.4 hereof shall apply pro rata to the proportionate part of a calendar year as to Taxes and Building Expenses, in which this Lease begins or ends, for the portion of each such year during which this Lease is in effect. Such obligation to make payments of such additional rent shall survive the expiration or sooner termination of the Term.

6.6 Payments. All payments or installments of any rent hereunder and all sums whatsoever due under this Lease (including but not limited to court costs and attorneys' fees) shall be deemed rent and shall be paid to Landlord at the address designated by Landlord. If any amount of Annual Base Rent or additional rent shall remain unpaid for five (5) calendar days after such payment becomes due, Tenant shall pay Landlord, without notice or demand, a late charge equal to the greater of (i) $35.00 and (ii) five percent (5%) of the such overdue amount to partially compensate Landlord for its administrative costs in connection with such overdue payment; which administrative costs Tenant expressly acknowledges are reasonable and do not constitute a penalty. In addition, such overdue amounts shall bear interest at the rate of 18% per annum (but not more than the maximum allowable legal rate applicable to Tenant) (the "Default Rate") until paid. Additionally, if any of Tenant's checks for payment of rent or additional rent are returned to Landlord for insufficient funds, Tenant shall pay to Landlord as additional rent the greater of (i) $50.00 or (ii) the amount of actual charges incurred by Landlord, for each such check returned for insufficient funds, and if two or more of Tenant's checks in payment of rent or additional rent due hereunder are returned for insufficient funds in any calendar year, Landlord reserves the right upon ten (10) days advance written notice to Tenant to thereafter require Tenant to pay all rent and additional rent and other sums whatsoever due under this Lease in cash, by money order or by certified check or cashier's check. If an attorney is employed to enforce Landlord's rights under this Lease, Tenant shall pay all fees and expenses of such attorney whether or not legal proceedings are instituted by Landlord. Time is of the essence in this Lease.

7.Requirements of Applicable Law. Landlord warrants that on the Commencement Date, the Premises shall comply with all applicable laws, ordinances, rules and regulations of governmental authorities having jurisdiction over the Property ("Applicable Laws"). Tenant, at its sole cost and expense, shall thereafter comply promptly with all Applicable Laws now in force or which may hereafter be in force, which impose any duty upon Landlord or Tenant with respect to the use, occupancy or alteration of the Premises or any part thereof and for the prevention of fires; provided, however, that Landlord and not Tenant shall correct all structural defects in the Building necessary to comply with Applicable Laws, and make all repairs, changes or alterations necessary because the Building was not constructed in compliance with any of the Applicable Laws.

8.Certificate of Occupancy. Tenant shall not use or occupy the Premises in violation of any certificate of occupancy, permit, or other governmental consent issued for the Building. If any governmental authority, after the commencement of the Term, shall contend or declare that the Premises is being used for a purpose which is in violation of such certificate of occupancy, permit, or consent, then Tenant shall, upon five (5) days' notice from Landlord, immediately discontinue such use of the Premises. If thereafter the governmental authority asserting such violation threatens, commences or continues criminal or civil proceedings against Landlord for Tenant's failure to discontinue such use, in addition to any and all rights, privileges and remedies given to Landlord under this Lease for default therein, Landlord shall have the right to terminate this Lease forthwith. Tenant shall indemnify and hold Landlord harmless of and from any and all liability for any such violation or violations.

9.Contest-Statute, Ordinance, Etc. Tenant may, after notice to Landlord, by appropriate proceedings conducted promptly at Tenant's own expense in Tenant's name and whenever necessary in Landlord's name, contest in good faith the validity or enforcement of any such statute, ordinance, law, order, regulation or requirement and may similarly contest any assertion of violation of any certificate of occupancy, permit, or any consent issued for the Building. Tenant may, pending such contest, defer compliance therewith if, in the opinion of counsel for Landlord, such deferral shall not subject either Landlord or the Premises or the Property (or any part thereof) to any penalty, fine or forfeiture, and if Tenant shall post a bond with corporate surety approved by Landlord sufficient, in Landlord's opinion, fully to indemnify Landlord from loss.

10.Tenant's Improvements. Except to the extent that Landlord is responsible for making improvements to the Premises pursuant to Section 35 of this Lease, Tenant shall make such non-structural improvements to the Premises as it may deem necessary at its sole cost and expense. Tenant shall not make any alterations, decorations, installations, additions or improvements to the Premises, including but not limited to, the installation of any fixtures, amenities, equipment, appliances, or other apparatus, without Landlord's prior written consent, and then only by contractors or mechanics employed or approved by Landlord. All such work, alterations, decorations, installations, additions or improvements shall be done at Tenant's sole expense and at such times and in such manner as Landlord may from time to time designate. Landlord's consent to and/or approval of Tenant's plans and specifications for the aforesaid improvements shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. All alterations, decorations, installations, additions or improvements made by either of the parties hereto upon the Premises, except movable office furniture put in at the expense of Tenant and other items as mutually agreed upon in writing, shall be the property of Landlord and shall remain upon and be surrendered with the Premises at the termination of this Lease without molestation or injury. Upon request by Landlord, Tenant, at Tenant's expense, shall remove any and all special improvements to the Premises or Common Areas made by or on behalf of Tenant, including, without limitation, supplemental HVAC and raised flooring.

11.   Repairs and Maintenance. 11.1 Tenant's Care of the Premises and Building. During the Term Tenant shall:

(i)keep the Premises and the fixtures, appurtenances and improvements therein in good order and condition;

   (ii)make repairs and replacements to the Premises required because of Tenant's misuse or primary negligence, except to the extent that the repairs or replacements are covered by Landlord's insurance as required hereunder;

(iii)repair and replace special equipment or decorative treatments installed by or at Tenant's request and that serve the Premises only, except to the extent the repairs or replacements are needed because of Landlord's misuse or primary negligence, and are not covered by Tenant's insurance as required hereunder;

(iv)pay for all damage to the Building, its fixtures and appurtenances, as well as all damages sustained by Tenant or occupants of the Building due to any waste, misuse or neglect of the Premises, its fixtures and appurtenances by Tenant, except to the extent that the repair of such damage is covered by Landlord's insurance as required hereunder to the extent that Landlord actually receives proceeds therefrom; and

   (v)not commit waste.

In addition Tenant shall not place a load upon any floor of the Premises exceeding the floor load per square foot area which such floor was designed to carry and which may be allowed under Applicable Laws. Landlord reserves the right to prescribe the weight and position of all heavy equipment brought onto the Premises and prescribe any reinforcing required under the circumstances, all such reinforcing to be at Tenant's expense.

11.2 Landlord's Repairs. Except for the repairs and replacements that Tenant is required to make pursuant to Section 11.1 above, Landlord shall make all other repairs and replacements to the Premises, Common Areas and Building (including Building fixtures and equipment) as shall be reasonably deemed necessary to maintain the Building in a condition comparable to other first class suburban office buildings in the Baltimore-Washington corridor area. This maintenance shall include the roof, foundation, exterior walls, interior structural walls, all structural components, and all systems such as mechanical, electrical, multi-tenant HVAC, and plumbing. The costs associated with such repairs shall be deemed a part of Building Expenses; provided, however, that costs of all of such repairs which would be considered capital in nature under generally accepted accounting principles shall be paid by Landlord. There shall be no allowance to Tenant for a diminution of rental value, no abatement of rent, and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making any repairs or performing maintenance as provided for herein.

11.3 Time for Repairs. Repairs or replacements required pursuant to Section 11.1 and 11.2 above shall be made within a reasonable time (depending on the nature of the repair or replacement needed - generally no more than fifteen (15) days) after receiving notice or having actual knowledge of the need for a repair or replacement.

11.4 Surrender of the Premises. Upon the termination of this Lease, without the need for prior notice from Landlord, Tenant shall surrender the Premises to Landlord in the same broom clean condition that the Premises were in on the Commencement Date except for:

   (i)ordinary wear and tear;

(ii)damage by the elements, fire, and other casualty unless Tenant would be required to repair under the provisions of this Lease;

(iii) damage arising from any cause not required to be repaired or replaced by Tenant; and

(iv)alterations as permitted by this Lease unless consent was conditioned on their removal.

On surrender Tenant shall remove from the Premises its personal property, trade fixtures and any alterations required to be removed pursuant to the terms of this Lease and repair any damage to the Premises caused by this removal. Any items not removed by Tenant as required above shall be considered abandoned. Landlord may dispose of abandoned items as Landlord chooses and bill Tenant for the cost of their disposal.

12.Conduct on Premises. Tenant shall not do, or permit anything to be done in the Premises, or bring or keep anything therein which shall, in any way, increase the rate of fire insurance on the Building, or invalidate or conflict with the fire insurance policies on the Building, fixtures or on property kept therein, or obstruct or interfere with the rights of Landlord or of other tenants, or in any other way injure or annoy Landlord or the other tenants, or subject Landlord to any liability for injury to persons or damage to property, or interfere with the good order of the Building, or conflict with Applicable Laws, or the Maryland Fire Underwriters Rating Bureau. Tenant agrees that any increase of fire insurance premiums on the Building or contents caused by the occupancy of Tenant and any expense or cost incurred in consequence of negligence or carelessness or the willful action of Tenant, Tenant's employees, agents, servants, or invitees shall, as they accrue be added to the rent heretofore reserved and be paid as a part thereof^., and Landlord shall have all the rights and remedies for the collection of same as are conferred upon Landlord for the collection of rent provided to be paid pursuant to the terms of this Lease.

13.Insurance.

13.1 Tenant's Insurance. Tenant shall keep in force at its own expense, so long as this Lease remains in effect, (a) public liability insurance, including insurance against assumed or contractual liability under this Lease, with respect to the Premises, to afford protection with limits, per person and for each occurrence, of not less than Two Million Dollars ($2,000,000), combined single limit, with respect to personal injury and death and property damage, such insurance to provide for only a reasonable deductible, (b) all-risk property and casualty insurance, including theft, written at replacement cost value and with replacement cost endorsement, covering all of Tenant's personal property in the Premises and all improvements and installed in the Premises by or on behalf of Tenant whether pursuant to the terms of Section 35, Section 10, or otherwise, such insurance to provide for only a reasonable deductible, (c) if, and to the extent, required by law, workmen's compensation or similar insurance offering statutory coverage and containing statutory limits (d) shall insure all plate and other interior glass in the Premises for and in the name of Landlord and (e) business interruption insurance in an amount sufficient to reimburse Tenant for loss of earnings attributable to prevention of access to the Building or the Premises for a period of at least twelve (12) months. Such policies shall be maintained in companies and in form reasonably acceptable to Landlord and shall be written as primary policy coverage and not contributing with, or in excess of, any coverage which Landlord shall carry. Tenant shall deposit the policy or policies of such required insurance or certificates thereof with Landlord prior to the Commencement Date, which policies shall name Landlord or its designee and, at the request of Landlord, its mortgagees, as additional insured and shall also contain a provision stating that such policy or policies shall not be canceled except after thirty (30) days' written notice to Landlord or its designees. All such policies of insurance shall be effective as of the date Tenant occupies the Premises and shall be maintained in force at all times during the Term of this Lease and all other times during which Tenant shall occupy the Premises. In addition to the foregoing insurance coverage, Tenant shall require any contractor retained by it to perform work on the Premises to carry and maintain, at no expense to Landlord, during such times as contractor is working in the Premises, a non-deductible (i) comprehensive general liability insurance policy, including, but not limited to, contractor's liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement and contractor's protective liability coverage, to afford protection with limits per person and for each occurrence, of not less than Two Hundred Thousand Dollars ($200,000.00), combined single limit, with respect to personal injury and death and property damage, such insurance to provide for no deductible, and (ii) workmen's compensation insurance or similar insurance in form and amounts as required by law. In the event of damage to or destruction of the Premises and the termination of this Lease by Landlord pursuant to Section 18 herein, Tenant agrees that it shall pay Landlord all of its insurance proceeds relating to improvements made in the Premises by or on behalf of Tenant whether pursuant to the terms of Section 35,Section 10, or otherwise. If Tenant fails to comply with its covenants made in this Section, if such insurance would terminate or if Landlord has reason to believe such insurance is about to be terminated, Landlord may at its option cause such insurance as it in its sole judgment deems necessary to be issued, and in such event Tenant agrees to pay promptly upon Landlord's demand, as additional rent the premiums for such insurance.

13.2 Landlord's Insurance. Landlord shall keep in force at its own expense (a) contractual and comprehensive general liability insurance, including public liability and property damage, with a minimum combined single limit of liability of Two Million Dollars ($2,000,000.00) for personal injuries or death of persons occurring in or about the Building and Premises, and (b) all-risk property and casualty insurance written at replacement cost value covering the Building and all of Landlord's improvements in and about same.

13.3 Waiver of Subrogation. Each party hereto waives claims arising in any manner in its favor and against the other party and agrees that neither party hereto shall be liable to the other party or to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage to the Building, the Premises or other tangible property, or any resulting loss of income, or losses under worker's compensation laws and benefits, or against liability on or about the Building, even though such loss or damage might have been occasioned by the negligence of such party, its agents or employees if any such loss or damage is covered by insurance benefiting the party suffering such loss or damage as was required to be covered by insurance carried pursuant to this Lease. Landlord shall cause each insurance policy carried by it insuring against liability on or about the Building or insuring the Premises and the Building or income resulting therefrom against loss by fire or any of the casualties covered by the all-risk insurance carried by it hereunder to be written in such a manner as to provide that the insurer waives all right of recovery by way of subrogation against Tenant in connection with any loss or damage covered by such policies. Tenant shall cause each insurance policy carried by it insuring against liability or insuring the Premises (including the contents thereof and Tenant's Improvements installed therein by Tenant or on its behalf) against loss by fire or any of the casualties covered by the all-risk insurance required hereunder to be written in such a manner as to provide that the insurer waives all right of recovery by way of subrogation against Landlord in connection with any loss or damage covered by such policies.

14.Rules and Regulations. Tenant shall be bound by the rules and regulations set forth on the schedule attached hereto as Exhibit "B" and made a part hereof. Landlord shall have the right, from time to time, to issue additional or amended rules and regulations regarding the use of the Building, so long as the rules shall be reasonable and non-discriminatory between tenants. When so issued the same shall be considered a part of this Lease and Tenant covenants that the additional or amended rules and regulations shall likewise be faithfully observed by Tenant, the employees of Tenant and all persons invited by Tenant into the Building, provided, that the additional or amended rules are made applicable to all office tenants similarly situated as Tenant. Landlord shall not be liable to Tenant for the violation of any of the rules and regulations, or the breach of any covenant or condition in any lease, by any other tenant in the

Building.

15.Mechanics' Liens. Tenant shall not do or suffer to be done any act, matter or thing whereby Tenant's interest in the Premises, or any part thereof, may be encumbered by any mechanics' lien. Tenant shall discharge or bond off, within ten (10) days after the date of filing, any mechanics' liens filed against Tenant's interest in the Premises, or any part thereof, purporting to be for labor or material furnished or to be furnished to Tenant. Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and no mechanics' or other lien for labor or materials shall attach to or affect the reversionary or other estate or interest of Landlord in and to the Premises, or the Property.

16.Tenant's Failure to Repair. In the event that Tenant fails after reasonable prior written notice from Landlord, to keep the Premises in a good state of condition and repair pursuant to Section 11 above, or to do any act or make any payment required under this Lease or otherwise fails to comply herewith, Landlord may, at its option (but without being obliged to do so) immediately, or at any time thereafter and without notice, perform the same for the account of Tenant, including the right to enter upon the Premises at all reasonable hours to make such repairs, or do any act or make any payment or compliance which Tenant has failed to do, and upon demand, Tenant shall reimburse Landlord for any such expense incurred by Landlord including but not limited to any costs, damages and counsel fees. Any moneys expended by Landlord, as aforesaid, shall be deemed additional rent, collectible as such by Landlord. All rights given to Landlord in this Section shall be in addition to any other right or remedy of Landlord herein contained.

17.Property -- Loss, Damage. Landlord, its agents and employees shall not be liable to Tenant for (i) any damage or loss of property of Tenant placed in the custody of persons

employed to provide services for or stored in or about the Premises and/or the Building, unless such damage or loss is the result of the negligence of Landlord, (ii) any injury or damage to persons, property or the business of Tenant resulting from a latent defect in or material change in

the condition of the Building, and (iii) interference with the light, air, or other incorporeal hereditaments of the Premises.

18.Destruction -- Fire or Other Casualty. In case of partial damage to the Premises by fire or other casualty insured against by Landlord, Tenant shall give immediate notice thereof to Landlord, who shall thereupon cause damage to all property owned by it to be repaired with reasonable speed at expense of Landlord, due allowance being made for reasonable delay which may arise by reason of adjustment of loss under insurance policies on the part of Landlord and/or Tenant, and for reasonable delay on account of "labor troubles" or any other cause beyond Landlord's control, and to the extent that the Premises is rendered unten=able the rent shall proportionately abate from the date of such casualty, provided the damage above mentioned occurred without the fault or neglect of Tenant, Tenant's servants, employees, agents or visitors. If such partial damage is due to the fault or neglect of Tenant, or Tenant's servants, employees, agents, or invitees, the damage shall be repaired by Landlord to the extent of Landlord's insurance coverage, but there shall be no apportionment or abatement of rent. In the event the damage shall be so extensive to the whole Building as to render it uneconomical, in Landlord's reasonable opinion, to restore for its present uses and Landlord shall decide not to repair or rebuild the Building, this Lease, at the option of Landlord or Tenant, upon written notice to the other party, shall be terminated upon written notice to Tenant and the rent shall, in such event, be paid to or adjusted as of the date of such damage, and the terms of this Lease shall expire by lapse of time and conditional limitation upon the third day after such notice is mailed, and Tenant shall thereupon vacate the Premises and surrender the same to Landlord, but no such termination shall release Tenant from any liability to Landlord arising from such damage or from any breach of the obligations imposed on Tenant hereunder, or from any obligations accrued hereunder prior to such termination.

19.Eminent Domain. If (1) the whole or more than fifty percent (50%) of the floor area of the Premises shall be taken or condemned by Eminent Domain for any public or quasi-public use or purpose, and either party shall elect, by giving written notice to the other, or (2) more than twenty-five percent (25%) of the floor area of the Building shall be so taken, and Landlord shall elect, in its sole discretion, by giving written notice to Tenant, any written notice to be given not more than sixty (60) days after the date on which title shall vest in such condemnation proceeding, to terminate this Lease, then, in either such event, the Term of this Lease shall cease and terminate as of the date of title vesting. In case of any taking or condemnation, whether or not the Term of this Lease shall cease and terminate, the entire award shall be the property of Landlord, and Tenant hereby assigns to Landlord all its right, title and interest in and to any such award, except that Tenant shall be entitled to claim, prove and receive in the proceedings such awards as may be allowed for moving expenses, loss of profit and fixtures and other equipment installed by it which shall not, under the terms of this Lease, be or become the property of Landlord at the termination hereof, but only if such awards shall be made by the condemnation, court or other authority in addition to, and be stated separately from, the award made by it for the Property or part thereof so taken.

20.Assignment. So long as Tenant is not in default of any of the terms and conditions hereof, after the giving of all required notices and the expiration of all cure periods, Landlord shall not unreasonably withhold its consent to an assignment of this Lease or sublease of the Premises for any of the then remaining portion of the unexpired Term provided: (i) the net assets of the assignee or sublessee shall not be less than the net assets of Tenant at the time of the signing of this Lease; (ii) in the event of an assignment, such assignee shall assume in writing all of Tenant's obligations under this Lease; (iii) in the event of a sublease, such sublease shall in all respects be subject to and in conformance with the terms of this Lease; (iv) the proposed assignee or sublessee shall not be occupying other space in the Building, nor shall it be a prospective tenant either then negotiating with Landlord or having negotiated with Landlord for premises within the prior six (6) month period; and (v) in all events Tenant continues to remain liable on this Lease for the performance of all terms, including but not limited to, payment of all rent due hereunder. Landlord and Tenant acknowledge and agree that it shall not be unreasonable for Landlord to withhold its consent to an assignment if in Landlord's sole business judgment, the assignee lacks sufficient business experience or net worth to successfully operate its business within the Premises in accordance with the terms, covenants and conditions of this Lease. If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, subtenant or occupant and apply the net amount collected to the rent herein reserved, but no such collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further observance and performance by Tenant of the covenants herein contained. Fifty percent (50%) of any profit or additional consideration or rent in excess of the Base Rent or additional rent payable by Tenant hereunder which is payable to Tenant as a result of any assignment or subletting shall be paid to Landlord as additional rent when received by Tenant. No assignment or sublease, regardless of whether Landlord's consent has been granted or withheld, shall be deemed to release Tenant from any of its obligations nor shall the same be deemed to release any person guaranteeing the obligations of Tenant hereunder from their obligations as guarantor.

Notwithstanding the foregoing, without the consent and approval of Landlord, Tenant shall have the right to assign or sublease the Premises or any portion thereof without Landlord's consent (however, Tenant shall endeavor to provide ten (10) days' prior written notice thereof along with a true and complete copy of the sublease or assignment document) to any subsidiary or affiliate of Tenant or in the event of a merger or a sale of all or substantially all of the Tenant's assets, and in any event shall notify Landlord in writing within thirty (30) days of the effective date of such assignment or sublease. For the purposes hereof, "affiliate" shall mean an entity or individual which controls, is controlled by or is under the common control with Tenant. Tenant shall remain liable under the terms hereof if Tenant exercises its rights under this paragraph to the extent it survives such corporate event.

21. Default; Remedies; Bankruptcy of Tenant. Any one or more of the following events shall constitute an "Event of Default" hereunder, at Landlord's election: (a) the sale of Tenant's interest in the Premises under attachment, execution or similar legal process or, the adjudication of Tenant as a bankrupt or insolvent, unless such adjudication is vacated within thirty (30) days; (b) the filing of a voluntary petition proposing the adjudication of Tenant (or any guarantor of Tenant's obligations hereunder) as a bankrupt or insolvent, or the reorganization of Tenant (or any such guarantor), or an arrangement by Tenant (or any such guarantor) with its creditors, whether pursuant to the Federal Bankruptcy Code or any similar federal or state proceeding, unless such petition is filed by a party other than Tenant (or any such guarantor) and is with-drawn or dismissed within thirty (30) days after the date of its filing; (c) the admission, in writing, by Tenant (or any such guarantor) of its inability to pay its debts when due; (d) the appointment of a receiver or trustee for the business or property of Tenant (or any such guarantor), unless such appointment is vacated within thirty (30) days of its entry; (e) the making by Tenant (or any such guarantor) of an assignment for the benefit of its creditors, or if, in any other manner, Tenant's interest in this Lease shall pass to another by operation of law; (f) the failure of Tenant to pay any rent, additional rent or other sum of money when due and such failure continues for a period of ten (10) days after receipt of written notice that the same is past due hereunder; (g) if Tenant fails to pay any rent or additional rent when due after Landlord shall have given Tenant written notice with respect to such non-payment twice in any twelve (12) month period as provided in subsection (f) above; (h) Tenant shall fail to move into or take possession of the Premises within thirty (30) days after commencement of the Term or having taken possession shall thereafter abandon and/or vacate the Premises; and (i) the default by Tenant in the performance or observance of any covenant or agreement of this Lease (other than a default involving the payment of money), which default is not cured within thirty (30) days after the giving of notice thereof by Landlord, unless such default is of such nature that it cannot be cured within such thirty (30) day period, in which case no Event of Default shall occur so long as Tenant shall commence the curing of the default within such thirty (30) day period and shall thereafter diligently prosecute the curing of same.

Upon the occurrence and continuance of an Event of Default, Landlord, with such notice to Tenant as provided for by law or as expressly provided for herein, may do any one or more of the following: (a) sell, at public or private sale, all or any part of the goods, chattels, fixtures and other personal property belonging to Tenant which are or may be put into the Premises during the Term, whether or not exempt from sale under execution or attachment (it being agreed that the property shall at all times be bound with a lien in favor of Landlord and shall be chargeable for all rent and for the fulfillment of the other covenants and agreements herein contained), and apply the proceeds of such sale, first, to the payment of all costs and expenses of conducting the sale or caring for or storing the property; second, toward the payment of any indebtedness, including, without limitation, indebtedness for rent, which may be or may become due from Tenant to Landlord; and third, to pay Tenant, on demand in writing, any surplus remaining after all indebtedness of Tenant to Landlord has been fully paid; (b) perform, on behalf and at the expense of Tenant, any obligation of Tenant under this Lease which Tenant has failed to perform and of which Landlord shall have given Tenant notice, the cost of which performance by Landlord, together, with interest thereon at the rate of eighteen percent (18%) per annum, from the date of such expenditure, shall be deemed additional rent and shall be payable by Tenant to Landlord upon demand; (c) elect to terminate this Lease and the tenancy created hereby by giving notice of such election to Tenant, and on notice reenter the Premises, by summary proceedings or otherwise, and remove Tenant and all other persons and property from the Pre-mises, and store such property in a public warehouse or elsewhere at the cost and for the account of Tenant, without resort to legal process and without Landlord being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby; and also the right, but not the obligation, to re-let the Premises for any unexpired balance of the Term, and collect the rent therefor. In the event of such re-letting by Landlord, the re-letting shall be on such terms, conditions and rental as Landlord may deem proper, and the proceeds that may be collected from the same, less the expense of re-letting (including reasonable leasing fees and commissions and reasonable costs of renovating the Premises), shall be applied upon Tenant's rental obligation as set forth in this Lease for the unexpired portion of the Term. Tenant shall have no further right of possession of the Premises; and (d) exercise any other legal or equitable right or remedy which it may have at law or in equity. Notwithstanding the provisions of clause (b) above and regardless of whether an Event of Default shall have occurred, Landlord may exercise the remedy described in clause (b) without any notice to Tenant if Landlord, in its good faith judgment, believes it would be materially injured by the failure to take rapid action, or if the unperformed obligation of Tenant constitutes an emergency.

To the extent permitted by law, Tenant hereby expressly waives any and all rights of redemption, granted by or under any present or future laws in the event of Tenant's being evicted or dispossessed for any cause, or in the event of Landlord's obtaining possession of the Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease, or otherwise. Landlord and Tenant hereby expressly waive trial by jury in any action or proceeding or counterclaim brought by either party hereto against the other party on any and every matter, directly or indirectly arising out of or with respect to this Lease, including, without limitation, the relationship of Landlord and Tenant, the use and occupancy by Tenant of the Premises, any statutory remedy andlor claim of injury or damage regarding this Lease.

Any costs and expenses incurred by Landlord (including, without limitation, reasonable attorneys' fees) in enforcing any of its rights or remedies under this Lease shall be deemed to be additional rent and shall be repaid to Landlord by Tenant upon demand.

Notwithstanding any of the other provisions of this Lease, in the event Tenant shall voluntarily or involuntarily come under the jurisdiction of the Federal Bankruptcy Code and thereafter Tenant or its trustee in bankruptcy, under the authority of and pursuant to applicable provisions thereof, shall have the power and so using same determine to assign this Lease, Tenant agrees that (i) Tenant or its trustee shall provide to Landlord sufficient information enabling it to independently determine whether Landlord will incur actual and substantial detriment by reason of such assignment and (ii) "adequate assurance of future performance" under this Lease, as that term is generally defined under the Federal Bankruptcy Code, shall be provided to Landlord by Tenant and its assignee as a condition of the assignment.

Notwithstanding anything to the contrary contained herein, Tenant shall be considered in "Habitual Default" of this Lease upon (a) Tenant's failure, on two (2) or more occasions during any twelve month period to pay when due any installment of Base Rent, additional rent or any other sum required by the terms of this Lease, or upon (b) Tenant's failure, on two (2) or more occasions during any twelve month period to comply with any term, covenant or condition of this Lease after written notice by Landlord to Tenant. Upon the occurrence of an event of Habitual Default on the part of Tenant, then without limiting any other rights or remedies to which Landlord may be entitled as a result of such defaults: (i) Tenant shall immediately be deemed to have relinquished any and all rights of renewal, rights to terminate, rights of first offer or rights of first refusal or similar rights granted or to be granted under the terms of this Lease or any amendment hereto ; and (ii) in the event of a monetary event of Habitual Default, Tenant shall thereafter pay all Base Rent and additional rent and other sums whatsoever due under this Lease in cash, by money order or by certified check or cashier's check.

22.Damages. If this Lease is terminated by Landlord pursuant to Section 21, Tenant shall, nevertheless, remain liable for all rent and damages which may be due or sustained prior to such termination, and all reasonable costs, fees and expenses including, but not limited to, attorneys' fees, costs and expenses incurred by Landlord in pursuit of its remedies hereunder, or in renting the Premises to others from time to time and additional damages (the ^"Liquidated Damages"), which shall be an amount equal to the total rent which, but for termination of this Lease, would have become due during the remainder of the Term, less the amount of rent, if any, which Landlord shall receive during such period from others to whom the Premises may be rented (other than any additional rent received by Landlord as a result of any failure of such other person to perform any of its obligations to Landlord), in which case such Liquidated Damages shall be computed and payable in monthly installments, in advance on the first day of each calendar month following termination of the Lease and continuing until the date on which the Term would have expired but for such termination, and any suit or action brought to collect any such Liquidated Damages for any month shall not in any manner prejudice the right of Landlord to collect any Liquidated Damages for any subsequent month by a similar proceeding.

If this Lease is terminated pursuant to Section 21, Landlord may relet the Premises or any part thereof, alone or together with other premises, for such term(s) which may be greater or less than the period which otherwise would have constituted the balance of the Term and on such terms and conditions (which may include concessions, free rent and/or alterations of the Premises) as Landlord, in its sole discretion, may determine, but Landlord shall not be liable for, nor shall Tenant's obligations hereunder be diminished by reason of, any failure by Landlord to relet the Premises or any failure by Landlord to collect any rent due upon such reletting.

23.Services and Utilities. Landlord shall provide the following listed services and utilities, namely:

(a)heating, ventilation, and air conditioning (^"HVAC") for the Premises during^"Normal Business Hours" (as defined below) to maintain temperatures for comfortable use and occupancy;

(b)electric energy in accordance with Section 24 following;

 (c)automatic passenger elevators providing adequate service leading to the floor on which the Premises is located;

(d)evening, unescorted janitorial services to the Premises including removal of trash;

(e)hot and cold water sufficient for drinking, lavatory toilet and ordinary cleaning purposes from fixtures either within the Premises (if provided pursuant to this Lease) or on the floor on which the Premises is located;

 (f)replacement of lighting tubes, lamp ballasts and bulbs;

  (g)extermination and pest control when and if necessary; and

(h)maintenance of Common Areas in a manner comparable to other first class suburban office buildings in the Baltimore-Washington corridor.

Notwithstanding the foregoing, if at any time during the Term, Landlord shall, after reasonable investigation determine that trash and similar waste generated by Tenant and/or emanating from the Premises is in excess of that of other standard office tenants within the Building leasing a premises of the same or similar size to that of the Premises, Landlord shall bill Tenant and Tenant shall pay to Landlord as additional rent hereunder within thirty (30) days of the date of Landlord's invoice for the same, those costs and expenses of trash removal which are reasonably attributable to such excess trash and similar waste generated by Tenant and/or emanating from the Premises. ^"Normal Business Hours" as used herein is defined from 8:00 a.m. to 6:00 p.m. on business days and from 8:00 a.m. to 1:00 p.m. on Saturdays. Landlord shall have no responsibility to provide any services under (a) above except during Normal Business Hours unless arrangements for after-hours services have been made pursuant to terms and conditions acceptable to Landlord and embodied in a separate written agreement between Landlord and Tenant. Landlord reserves the right to require Tenant, at Tenant's expense, to install separate meters to monitor electrical consumption if Landlord determines, in its reasonable discretion that such monitoring is necessary based on Tenant's electrical usage. Landlord reserves the right to stop service of the HVAC, elevator, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for repairs, alterations, replacements, or improvements, which in the judgment of Landlord are desirable or necessary to be made, until the repairs, alterations, replacements, or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply HVAC, elevator, plumbing, cleaning, and electric service, during the period when prevented from so doing by laws, orders, or regulations of any Federal, State, County or Municipal authority or by strikes, accidents or by any other cause whatsoever beyond Landlord's control. Landlord's obligations to supply HVAC are subject to applicable laws and regulations as to energy conservation and other such restrictions. Landlord acknowledges that Tenant will require supplemental HVAC for the Premises, which may be installed subject to the following conditions: 1) any maintenance repair and/or replacement required for such supplemental service shall be performed by Landlord but the cost of such maintenance repair and/or replacement (including labor and materials) shall be paid by Tenant as additional rent; (2) the supplemental units shall be installed by Landlord and submetered, both at Tenant's sole cost and expenses; and

(3)the submeter will be read by Landlord and billed back to Tenant, which Tenant shall pay, as additional rent, within thirty (30) days of Tenant's receipt therefore.

24. Electric Current. Throughout the Term Landlord shall furnish Tenant without additional charge during Normal Business Hours (as defined in Section 23) a reasonable amount of electric current at 110 volts (^"Normal Usage Amount") for lighting purposes within the Premises and the powering of a normal amount of office equipment and appliances. "Normal Usage Amount" is defined for purposes of this Lease to mean electric power supplied at the rate of three (3) watts per square foot of Premises. In this regard Tenant agrees as follows:

(1)If Landlord reasonably determines based upon engineering studies of electrical load consumed that Tenant is materially exceeding the Normal Usage Amount Tenant shall pay

to Landlord such amounts as additional rent as will equitably reimburse Landlord for the cost of the extra electric power so consumed by Tenant;

(2)If Tenant shall desire to place and install in the Premises electric equipment or appliances other than normal and typical to general office usage it shall pay for such installations including any additional electric lines and facilities required and shall pay for the electric power used in such equipment if same exceeds Normal Usage Amount.

Landlord has advised Tenant that present Baltimore Gas & Electric ("Electric Service Provider") is the utility company selected by Landlord to provide electricity to the Building. Notwithstanding the foregoing, if permitted by law, Landlord shall have the right at any time and from time to time during the Term to either contract for service from a different company or companies providing electricity service (each such company shall hereinafter be referred to as an "Alternative Service Provider") or continue to contract for service from the Electric Service Provider.

Tenant shall cooperate with Landlord, the Electric Service Provider and any Alternate Service Provider at all times and, as reasonably necessary, shall allow Landlord, the Electric Service Provider, and any Alternative Service Provider reasonable access to the Building's electric lines, feeders, risers, wiring and any other machinery within the Premises, provided that

Landlord shall use its reasonable efforts to minimize its interference with Tenant's business in the Premises.

25.Telephone and Telecommunications. Landlord has arranged for the installation of telephone service within the Building to the ground floor telephone utility closet and conduit to the ground floor telephone and electrical riser closets. Tenant shall be responsible for contacting the utility company supplying the telephone service and arranging to have such telephone facilities as it may desire to be extended and put into operation in the Premises, including without limitation, obtaining a low voltage permit for phone and data wiring. Tenant acknowledges and agrees that all telephone and telecommunications services desired by Tenant shall be ordered and utilized at the sole expense of Tenant. All costs related to installation and the provision of such service shall be borne and paid for directly by Tenant. Upon request by Landlord, Tenant, at Tenant's expense, shall remove the telephone facilities at the expiration or sooner termination of the Term. Tenant shall obtain the requisite permit and complete the ceiling work in cooperation with Landlord in order not to interfere with or delay the completion of the Tenant Improvements by Landlord pursuant to Section 35, including, without limitation, the closing of the ceiling and the carpet installation, if applicable. Landlord will allow Tenant access for wiring, including electric, data and telecom, within the Building's public areas and designated chases, but will not guarantee access of the wiring through another tenant's space. Tenant, at Tenant's expense, shall be responsible for the relocation and its associated costs, if requested, of any data, telecom or electrical wiring that runs through another tenant's space, including the plenum area or otherwise.

In the event Tenant wishes to utilize the services of a telephone or telecommunications provider whose equipment is not servicing the Building at such time Tenant wishes to install its telecommunications equipment serving the Premises (^"Provider"), no such Provider shall be permitted to install its lines or other equipment without first securing the prior written consent of Landlord, which consent shall not be unreasonably withheld. Prior to the commencement of any work in or about the Building by the Provider, the Provider shall agree to abide by such rules and regulations, job site rules, and such other requirements as reasonably determined by Landlord to be necessary to protect the interest of the Building and Property, the other tenants and occupants of the Building and Landlord, including, without limitation, providing security in such form and amount as reasonable determined by Landlord. Each Provider must be duly licensed, insured and reputable. Landlord shall incur no expense whatsoever with respect to any aspect of Provider's provision of its services, including without limitation, the costs of installation, materials and service.

In addition, Landlord reserves exclusively to itself and its successors and assigns the right to install, operate, maintain, repair, replace and remove fiber optic cable and conduit and associated equipment and appurtenances within the Building and the Premises so as to provide telecommunications service to and for the benefit of tenants and other occupants of the Building.

26.Acceptance of Premises. Tenant shall have reasonable opportunity, provided it does not thereby interfere with Landlord's work, to examine the Premises to determine the condition thereof. Upon taking possession of the Premises, Tenant shall be deemed to have accepted same as being satisfactory and in the condition called for hereunder, except for latent defects and punch list items previously noted to Landlord.

27.Inability to Perform. This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on the part of Tenant to be per-formed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or to supply, or is delayed in supplying, any service to be supplied by it under the terms of this Lease or is unable to make, or is delayed in making any repairs, additions, alterations, or decorations or is unable to supply, or is delayed in supplying, any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strikes or labor troubles or any outside cause whatsoever including, but not limited to, governmental preemption in connection with a National Emergency, or by reason of any rule, order or regulation of any department or subdivision of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. Similarly, Landlord shall not be liable for any interference with any services supplied to Tenant by others if such interference is caused by any of the reasons listed in this Section. Nothing contained in this Section shall be deemed to impose any obligation on Landlord not expressly imposed by other sections of this Lease.

 Notwithstanding anything herein to thecont, aryif (i) the services or utilities described inSection 23 hereof are interrupted for a period of more than seven (7) consecutive business days, (ii) such interruption is not the result of strikes, unavailability of parts or other materials, or any other cause beyond Landlord's reasonable control, and (iii) such interruption renders a material portion of the Premises unusable by Tenant, then Tenant shall be entitled to a pro rata abatement of rent beginning on the eighth (8th) consecutive business day that such portion of the Premises

are unusable and continuing until the use of all or a substantial portion of the Premises is restored to Tenant.

28.   No Waivers. The failure of Landlord to insist, in any one or more instances, upon a strict performance of any of the covenants of this Lease, or to exercise any option herein contained, shall not be construed as a waiver, or a relinquishment for the future, of such covenant or option, but the same shall continue and remain in full force and effect. The receipt by Landlord of rent, with knowledge of the breach of any covenant hereof, shall not be deemed a waiver of such

breach, and no waiver by Landlord of any provision hereof shall be deemed to have been made unless expressed in writing and signed by Landlord.

29.Access to Premises and Change in Services. Landlord shall have the right, without abatement of rent, to enter the Premises at any hour to examine the same, or to make such repairs and alterations as Landlord shall deem necessary for the safety and preservation of the Building, and also to exhibit the Premises to be let; provided, however, that except in the case of emergency such entry shall only be after notice first given to Tenant. If, during the last month of the Term, Tenant shall have removed all or substantially all of Tenant's property therefrom, Landlord may immediately enter and alter, renovate and redecorate the Premises, without elimination or abatement of rent, or incurring liability to Tenant for any compensation, and such acts shall have no effect upon this Lease. Nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever, for the care, supervision or repair, of the Building or any part thereof, other than as herein elsewhere expressly provided. Landlord shall also have the right at any time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, stairs, toilets, elevators, or other public parts of the Building, and to change the name by which the Building is commonly known and/or its mailing address.

30.Estoppel Certificates. Tenant agrees, at any time and from time to time, upon not less than ten (10) days' prior request by Landlord to execute, acknowledge and deliver to Landlord an estoppel certificate substantially in the form attached hereto as Exhibit "D" or such other reasonable form requested by Landlord which certifies that this Lease is unmodified and in full force (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications) and the dates through which the rent and other charges have been paid in advance, if any, and stating whether or not to the best knowledge of the signer of such certificate Landlord is in default in performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the signer may have

knowledge, it being intended that any such statement delivered hereunder may be relied upon by third parties not a party to this Lease.

31.Subordination. Tenant accepts this Lease, and the tenancy created hereunder, subject and subordinate to any mortgages, overleases, leasehold mortgages or other security interests now or hereafter a lien upon or affecting the Building or the Property or any part thereof. Tenant shall, at any time hereafter, within ten (10) days after request from Landlord, execute a Subordination, Non-Disturbance Agreement substantially in the form of Exhibit "E" attached hereto and made a part hereof or any instruments or leases or other documents that may be required by any mortgage or mortgagee or overlandlord (herein a ^"Mortgagee") for the purpose of subjecting or subordinating this Lease and the tenancy created hereunder to the lien of any such mortgage or

mortgages or underlying lease, and the failure of Tenant to execute any such instruments, releases or documents shall constitute a default hereunder.

32.Attomment. Tenant agrees that upon any termination of Landlord's interest in the Premises, Tenant shall, upon request, attorn to the person or organization then holding title to the reversion of the Premises (the ^"Successor") and to all subsequent Successors, and shall pay to the Successor all of the rents and other monies required to be paid by Tenant hereunder and perform all of the other terms, covenants, conditions and obligations in this Lease contained; provided, however, that if in connection with such attornment Tenant shall so request from such Successor in writing, such Successor shall execute and deliver to Tenant an instrument wherein such Successor agrees that as long as Tenant performs all of the terms, covenants and conditions of this Lease, on Tenant's part to be performed, Tenant's possession under the provisions of this Lease shall not be disturbed by such Successor.

33.Notices. All notices and other communications to be made hereunder shall be in writing and shall be delivered to the addresses set forth below by any of the following means: (a) personal service or receipted courier service; (b) telecopying (if confirmed in writing sent by the methods specified in clauses (a), (c) or (d) of this Section), (c) registered or certified first class mail, return receipt requested, or (d) nationally-recognized overnight delivery service. Such addresses may be changed by notice to the other parties given in the same manner as provided above. Any notice or other communication sent pursuant to clause (a) or (b) hereof shall be deemed received upon such personal service or upon dispatch by electronic means, if sent pursuant to subsection (c) shall be deemed received five (5) days following deposit in the mail and/or if sent pursuant to subsection (d) shall be deemed received the next succeeding business day following deposit with such nationally recognized overnight delivery service.

If to Landlord:GATEWAY 44, LLC

c/o Corporate Office Properties, L.P. 8815 Centre Park Drive, Suite 400 Columbia, Maryland 21045

Attn: General Counsel

Telecopier: 410-740-1174

If to Tenant:At the Premises and to Tenant's Notice Address.

Any party may designate a change of address by written notice to the above parties, given at least ten (10) days before such change of address is to become effective.

34.Intentionally Deleted.

35.Tenant's Space. Attached hereto as Exhibit "C" is a copy of Landlord's "Tenant Improvements," specifying the materials and manner in which Landlord shall finish the Premises. The first $7500 of the cost of completing the Tenant Improvement shall be payable by Tenant to Landlord, and the remaining costs thereof shall be Landlord's. Landlord shall cause all work necessary to complete the Premises in accordance with Exhibit "C" to be commenced with reasonable promptness after the signing of the Lease and thereafter duly completed.

Tenant agrees to furnish Landlord, within fifteen (15) days from the date hereof, such specifications reasonably acceptable to Landlord as may be required to enable Landlord to prepare plans and specifications and the construction drawings for the work to be performed, including, without limitation, specifications for Tenant's electrical, special equipment needs and finishes and any other information required for Landlord to complete the construction drawings required to accompany the permit application. Landlord shall deliver such plans and specifications to Tenant for review and approval within fourteen (14) days after receipt from Tenant of all of the information described in the immediately preceding sentence. Such plans and specifications shall be deemed accepted by Tenant unless Tenant shall have given written notice to the contrary to Landlord within ten (10) days of Tenant's receipt thereof, stating the respects in which same fail to conform with Tenant's requirement. When Landlord and Tenant have agreed upon the plans and specifications or the ten (10) day comment period has expired, Landlord shall apply for any required permits, diligently prosecute the issuance of the permits and then finish or cause the Premises to be finished in accordance therewith.

The cost of any work which is not described as Tenant Improvements shall include all costs of labor and materials incurred by Landlord in the performance of such work, plus ten percent (10%) for overhead and ten percent (10%) for profit. At Tenant's request, Landlord shall fully cooperate with Tenant to establish the costs or estimates in advance of performing the work which is not included as the Tenant Improvements.

36.Quiet Enjoyment. Tenant, upon the payment of rent and the performance of all the terms of this Lease, shall at all times during the Term peaceably and quietly enjoy the Premises without any disturbance from Landlord or any other person claiming through Landlord.

37.Vacation of Premises. Tenant shall vacate the Premises at the end of the Term. If Tenant fails to vacate at such time there shall be payable to Landlord an amount equal to one hundred fifty percent (150%) of the monthly Base Rent stated in Section 1.1.8 paid immediately prior to the holding over period for each month or part of a month that Tenant holds over, plus all other payments provided for herein, and the payment and acceptance of such payments shall not constitute an extension or renewal of this Lease. In event of any such holdover, Landlord shall also be entitled to all remedies provided by law for the speedy eviction of tenants, and to the payment of all attorneys' fees and expenses incurred in connection therewith.

38.Members' Liability. It is understood that the Owner of the Building is a Maryland limited liability company. All obligations of the Owner hereunder are limited to the net assets of the Owner from time to time. No member of Owner, or of any successor partnership, whether now

or hereafter a member, shall have any personal responsibility or liability for the obligations of Owner hereunder.

39.Separability. If any term or provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term or provision of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be

affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

40.Indemnification.

40.1 Tenant's Indemnification. Tenant shall indemnify and hold harmless Landlord and all of its and their respective members, partners, directors, officers, agents and employees from any and all liability, loss, cost or expense arising from all third-party claims resulting from or in connection with:

40.1.1 the conduct or management of the Premises or of any business therein, or any work or thing whatsoever done, or any condition created in or about the Premises during the Term of this Lease or during the period of time, if any, prior to the Commencement Date that

Tenant may have been given access to the Premises if a result of acts covered by Section 40.1.2 below;

40.1.2 any act, omission or negligence of Tenant or any of its subtenants or licensees or its or their partners, directors, officers, agents, employees, invitees or contractors; 40.1.3 any accident, injury or damage whatever occurring in, at or upon the

Premises other than those items covered under Landlord's indemnity as described in Section40.2;

40.1.4 any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease together with all costs and expenses reasonably incurred or paid in connection with each such claim or action or proceeding brought thereon, including, without limitation, all reasonable attorney's fees and expenses.

In case any action or proceeding is brought against Landlord and/or any of its and their respective partners, directors, officers, agents or employees and such claim is a claim from which Tenant is obligated to indemnify Landlord pursuant to this Section, Tenant, upon written notice from Landlord shall resist and defend such action or proceeding (by counsel reasonably satisfactory to Landlord). The obligations of Tenant under this Section shall survive termination of this Lease.

40.2 Landlord's Indemnification. Landlord shall indemnify and hold harmless Tenant and all of its and their respective members, partners, directors, officers, agents and employees from any and all liability, loss, cost or expense arising from all third-party claims resulting from or in connection with:

40.2.1 the conduct or management of the Building or of any business therein, or any work or thing whatsoever done, or any condition created in or about the Building during the Term of this Lease; and

40.2.2 any act, omission or negligence of Landlord or any of its subtenants or licensees or its or their partners, directors, officers, agents, employees, invitees or contractors; and together with all costs and expenses reasonably incurred or paid in connection with each such claim or action or proceeding brought thereon, including, without limitation, all reasonable attorney's fees and expenses.

In case any action or proceeding is brought against Tenant and/or any of its and their respective partners, directors, officers, agents or employees and such claim is a claim from which Landlord is obligated to indemnify Tenant pursuant to this Section, Landlord, upon written notice from Tenant shall resist and defend such action or proceeding (by counsel reasonably satisfactory to Tenant). The obligations of Landlord under this Section shall survive termination of this Lease.

41.Captions. All headings anywhere contained in this Lease are intended for convenience or reference only and are not to be deemed or taken as a summary of the provisions to which they pertain or as a construction thereof

42.Brokers. Tenant represents that Tenant has dealt directly with, only with, the Broker as broker in connection with this Lease, and Tenant warrants that no other broker negotiated this Lease or is entitled to any commissions in connection with this Lease. Landlord shall pay the Broker pursuant to the terms of a separate written agreement by and between Landlord and Broker.

43.Recordation. Tenant covenants that it shall not, without Landlord's prior written consent, which consent may be withheld in Landlord's sole and absolute discretion, record this Lease or any memorandum of this Lease or offer this Lease or any memorandum of this Lease for recordation. If at any time Landlord or any mortgagee of Landlord's interest in the Premises shall require the recordation of this Lease or any memorandum of this Lease, such recordation shall be at Landlord's expense. If at any time Tenant shall require the recordation of this Lease or any memorandum of this Lease, such recordation shall be at Tenant's expense. If the recordation of this Lease or any memorandum of this Lease shall be required by any valid governmental order, or if any government authority having jurisdiction in the matter shall assess and be entitled to collect transfer taxes or documentary stamp taxes, or both transfer taxes and documentary stamp taxes on this Lease or any memorandum of this Lease, Tenant shall execute such acknowledgments as may be necessary to effect such recordations and pay, upon request of Landlord, one half of all recording fees, transfer taxes and documentary stamp taxes payable on, or in connection with this Lease or any memorandum of this Lease or such recordation.

44.Successors and Assigns. The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant, and their respective heirs, personal representatives, successors and assigns (subject, however, to the terms of Section 20 hereof).

45.   Integration of Agreements. This writing is intended by the Parties as a final expression of their agreement and is a complete and exclusive statement of its terms, and all negotiations, considerations and representations between the Parties are incorporated. No course of prior dealings between the Parties or their affiliates shall be relevant or admissible to supplement, explain, or vary any of the terms of this Lease. Acceptance of, or acquiescence to, a course of performance rendered under this Lease or any prior agreement between the Parties or their affil-iates shall not be relevant or admissible to determine the meaning of any of the terms or covenants of this Lease. Other than as specifically set forth in this Lease, no representations, understandings, or agreements have been made or relied upon in the making of this Lease.

46.Hazardous Material; Indemnity. Tenant shall not cause or permit any Hazardous Material (as hereinafter defined) to be brought upon, kept, or used in or about the Premises by Tenant, its agents, employees, contractors or invitees, without the prior written consent of Landlord (which Landlord shall not unreasonably withhold as long as Tenant demonstrates to Landlord's reasonable satisfaction that such Hazardous Material is necessary or useful to Tenant's business and shall be used, kept and stored in a manner that complies with all laws regulating any such Hazardous Material so brought upon or used or kept in or about the Premises). If Tenant breaches the obligations stated in the preceding sentence, or if the presence of Hazardous Material on the Premises caused or permitted by Tenant results in contamination of the Premises, the Building and/or the Property, or if contamination of the Premises, the Building and/or the Property by Hazardous Material otherwise occurs, for which Tenant is legally liable to Landlord for damage resulting therefrom, then Tenant shall indemnify, defend and hold Landlord and its Mortgagee(s) harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises, the Building and/or the Property, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, the Building and/or the Property, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Term as a result of such contamination. This indemnification of Landlord and its Mortgagee(s) by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water on or under the Building. Without limiting the foregoing, if the presence of any Hazardous Material on the Premises, the Building and/or the Property caused or permitted by Tenant results in any contamination of the Premises, the Building and/or the Property, Tenant shall promptly take all actions at its sole expense as are necessary to return the Premises, the Building and/or the Property to the condition existing prior to the introduction of any such Hazardous Material to the Premises, the Building and/or the Property; provided that Landlord's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Building.

As used herein, the term "Hazardous Material" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of Maryland or the United States Government. The term "Hazardous Material" includes, without limitation, any material or substance that is (i) defined as a "hazardous substance" under the laws of the State of Maryland, (ii) petroleum, (iii) asbestos, (iv) designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1321), (v) defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq. (vi) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq., or (vii) defined as a "regulated substance" pursuant to Subchapter IX, Solid Waste Disposal Act (Regulation of Underground Storage Tanks), 42 U.S.C. §§ 6991 et seq.

47.Americans With Disabilities Act. Notwithstanding any other provisions contained in this Lease and with the purpose of superseding any such provisions herein that might be construed to the contrary, it is the intent of Landlord and Tenant that at all times while this Lease shall be in effect that the following provisions shall be deemed their specific agreement as to how the responsibility for compliance (and cost) with the Americans With Disabilities Act and amendments to same ("ADA"), both as to the Premises and the Property, shall be allocated between them, namely:

47.1 Landlord and Tenant agree to cooperate together in the initial design, planning and preparation of specifications for construction of the Premises so that same shall be in compliance with the A. Any costs associated with assuring that the plans and specifications for the construction of the Premises are in compliance with the ADA shall be borne by the party whose responsibility it is hereunder to bear the cost of preparation of the plans and specifications. Similarly those costs incurred in the initial construction of the Premises so that same are built in compliance with the ADA shall be included within Tenant's Improvements and handled in the manner as provided for in other Sections of this Lease.

 47.2 Subject to Section 47.4, modifications, alterations and/or other changes required to and within the Common Areas which are not capital in nature shall be the responsibility of Landlord to perform and the cost of same shall be considered a part of the Building Expenses and treated as such.

47.3 Subject to Section 47.4, modifications, alterations and/or other changes required to and within the Common Areas which are capital in nature shall be the responsibility of Landlord and at its cost and expense.

47.4 Modifications, alterations and/or other changes required to and within the Common Areas, whether capital in nature or not, which are required as a result of Tenant's specific use of the Premises, as compared to office uses generally, shall be paid by Tenant within thirty (30) days after receipt of an invoice from Landlord, together with reasonable supporting documentation.

47.5 Modifications, alterations and/or other changes required to and within the Premises (after the initial construction of same), whether capital in nature or non-capital in nature, shall be the responsibility of Tenant and at its cost and expense; unless the changes are structural in nature and result from the original design of the Building, in which instance they shall be the responsibility of Landlord and at its cost and expense.

Each party hereto shall indemnify and hold harmless the other party from any and all liability, loss, cost or expense arising as a result of a party not fulfilling its obligations as to compliance with the ADA as set forth in this Section 47.

48.Several Liability. If Tenant shall be one or more individuals, corporations or other entities, whether or not operating as a partnership or joint venture, then each such individual, corporation, entity, joint venturer or partner shall be deemed to be both jointly and severally liable for the payment of the entire rent and other payments specified herein.

49.Financial Statements. Tenant represents and warrants to Landlord that the financial statements heretofore delivered by Tenant to Landlord are true, correct and complete in all respects, have been prepared in accordance with generally accepted accounting principles, and fairly represent the financial condition of Tenant as of the date thereof, and that no material change has thereafter occurred in the financial conditions reflected therein. Within fifteen (15) days after request from Landlord, Tenant agrees to deliver to Landlord such future financial statements and other information as Landlord from time to time may reasonably request.

50.Definition of "Day" and "Days" . As used in the Lease, the terms "day" and "days" shall refer to calendar days unless specified to the contrary; provided, however, that if the deadline established for either party's performance hereunder occurs on a Saturday, Sunday or banking holiday in the State of Maryland, the date of performance shall be extended to the next occurring business day.

IN WITNESS WHEREOF, Landlord and Tenant have respectively affixed their hands and seals to this Lease as of the day and year first above written.

converalease 4/29/05 ibw WITNESS OR ATTEST:   -LANDLORD: GATEWAY 44, LLC

____________________By:______________________(SEAL)

WITNESS OR ATTEST:TENANT:

CONVERA CORPORATION

______________________By:______________________(SEAL)Name:__________________________Title:___________________________

STATE OF MARYLAND,___________________TO WIT:

I HEREBY CERTIFY, that on this____day of, 2005, before me, the undersigned Notary Public of the State, personally appeared Roger A. Waesche, Jr., who acknowledged himself to be the Executive Vice President of GATEWAY 44, LLC, a Maryland limited liability company, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same on behalf of the corporation for the purposes therein contained as the duly authorized Executive Vice President of the corporation by signing the name of the corporation by himself as such Executive Vice President.

WITNESS my hand and Notarial Seal.-

Notary Public My Commission Expires:

STATE OF VIRGINIA______________TO WIT:

I HEREBY CERTIFY, that on this ___^'day of__________________, 2005, before me, the

undersigned Notary Public of the State, personally appeared______________known to me (or

satisfactorily proven) to be the person whose name is subscribed to the with n instrument, and

acknowledged himself/herself to be the________of CONVERA CORPORATION, a _______

corporation, and that he/she, as such __________,being authorized so to do, executed the foregoing instrument on behalf of the Corporation by himself/herself as such __________________.

WITNESS my hand and Notarial Seal.

My Commission Expires: Notary Public  

EXHIBIT "A"

to Agreement of Lease by and between

GATEWAY 44, LLC, Landlord

and CONVERA CORPORATION, Tenant

FLOOR PLAN

[Missing Graphic Reference]

EXHIBIT "A"

to Agreement of Lease by and between

GATEWAY 44, LLC, Landlord

and CONVERA CORPORATION, Tenant

FLOOR PLAN

[Missing Graphic Reference]

EXHIBIT "A-1"

to Agreement of Lease by and between

GATEWAY 44, LLC, Landlord

and CONVERA CORPORATION, Tenant

LEGAL DESCRIPTION OF PROJECT

Parcel A-1 as shown on a plat entitled "Columbia Gateway, Parcels A-1 and C-1, A Resubdivision of Parcels A and C, Plats 6766 & 6767, Sheet 1 of 2," which plat is recorded among the Land Records of Howard County, Maryland as Plat No. 7995.

EXHIBIT "B"

to Agreement of Lease by and between

GATEWAY 44, LLC, Landlord

and CONVERA CORPORATION, Tenant

RULES AND REGULATIONS

To the extent that any of the following Rules and Regulations, or any Rules and Regulations subsequently enacted conflict with the provisions of the Lease, the provisions of the Lease shall control.

1.Tenant shall not obstruct or permit its agents, clerks or servants to obstruct, in any way, the sidewalks, entry passages, corridors, halls, stairways or elevators of the Building, or use the same in any other way than as a means of passage to and from the offices of Tenant; bring in, store, test or use any materials in the Building which could cause a fire or an explosion or produce any fumes or vapor; make or permit any improper noises in the Building; smoke in the elevators, the Premises, the Building or the Common Areas except in the exterior areas specifically designated by Landlord; throw substances of any kind out of the windows or doors, or down the passages of the Building, in the halls or passageways; sit on or place anything upon the window sills; or clean the windows.

2.Waterclosets and urinals shall not be used for any purpose other than those for which they were constructed; and no sweepings, rubbish, ashes, newspaper or any other substances of any kind shall be thrown into them. Waste and excessive or unusual use of electricity or water is prohibited.

3.Tenant shall not (i) obstruct the windows, doors, partitions and lights that reflect or admit light into the halls or other places in the Building, or (ii) inscribe, paint, affix, or otherwise display signs, advertisements or notices in, on, upon or behind any windows or on any door, partition or other part of the interior or exterior of the Building without the prior written consent of Landlord which shall not be unreasonably withheld. If such consent be given by Landlord, any such sign, advertisement, or notice shall be inscribed, painted or affixed by Landlord, or a company approved by Landlord, but the cost of the same shall be charged to and be paid by Tenant, and Tenant agrees to pay the same promptly, on demand.

4.No contract of any kind with any supplier of towels, water, ice, toilet articles, waxing, rug shampooing, venetian blind washing, furniture polishing, lamp servicing, cleaning of electrical fixtures, removal of waste paper, rubbish or garbage, or other like service shall be entered into by Tenant, nor shall any vending machine of any kind be installed in the Building, without the prior written consent of Landlord, which consent of Landlord shall not be unreasonably withheld.

5.When electric wiring of any kind is introduced, it must be connected as directed by Landlord, and no stringing or cutting of wires shall be allowed, except with the prior written consent of Landlord which shall not be unreasonably withheld, and shall be done only by contractors approved by Landlord. The number and location of telephones, telegraph instruments, electric appliances, call boxes, etc., shall be subject to Landlord's approval. No tenants shall lay linoleum or other similar floor covering so that the same shall be in direct contact with the floor of the Premises; and if linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt shall be first affixed to the floor by a paste or other material, the use of cement or other similar adhesive material being expressly prohibited.

6.No additional lock or locks shall be placed by Tenant on any door in the Building, without prior written consent of Landlord. Two keys will be furnished Tenant by Landlord; two additional keys will be supplied to Tenant by Landlord, upon request, without charge; any additional keys requested by Tenant shall be paid for by Tenant. Tenant, its agents and employees, shall not have any duplicate keys made and shall not change any locks. All keys to doors and washrooms shall be returned to Landlord at the termination of the tenancy, and in the event of any loss of any keys furnished, Tenant shall pay Landlord the cost thereof.

7.Tenant shall not employ any person or persons other than Landlord's janitors for the purpose of cleaning the Premises, without prior written consent of Landlord which shall not be unreasonably withheld. Landlord shall not be responsible to Tenant for any loss of property from the Premises however occurring, or for any damage done to the effects of Tenant by such janitors or any of its employees, or by any other person or any other cause.

8.No bicycles, vehicles or animals of any kind (other than animals to assist the disabled) shall be brought into or kept in or about the Premises.

9.Tenant shall not conduct, or permit any other person to conduct, any auction upon the Premises; manufacture or store goods, wares or merchandise upon the Premises, without the prior written approval of Landlord, except the storage of usual supplies and inventory to be used by Tenant in the conduct of its business; permit the Premises to be used for gambling; make any unusual noises in the Building; permit to be played any musical instrument in the Premises; permit to be played any radio, television, recorded or wired music in such a loud manner as to disturb or annoy other tenants; or permit any unusual odors to be produced upon the Premises. Tenant shall not permit any portion of the Premises to be used for the storage, manufacture, or sale of intoxicating beverages, narcotics, tobacco in any form, or as a barber or manicure shop.

10.No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises, without the prior written consent of Landlord which consent shall not be unreasonably withheld. Such curtains, blinds and shades must be of a quality, type, design, and color, and attached in a manner reasonably approved by Landlord.

11.Canvassing, soliciting and peddling in the Building are prohibited, and Tenant shall cooperate to prevent the same.

12.There shall not be used in the Premises or in the Building, either by Tenant or by others in the delivery or receipt of merchandise, any hand trucks except those equipped with rubber tires and side guards, and no hand trucks will be allowed in passenger elevators.

13.Tenant, before closing and leaving its Premises, shall ensure that all entrance doors to same are locked.

14.Landlord shall have the right to prohibit any advertising by Tenant which in Landlord's opinion tends to impair the reputation of the Building or its desirability as a building for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising.

15.Landlord hereby reserves to itself any and all rights not granted to Tenant hereunder, including, but not limited to, the following rights which are reserved to Landlord for its purposes in operating the Building:

(a)the exclusive right to the use of the name of the Building for all purposes, except that Tenant may use the name as its business address and for no other purpose;

(b)the right to change the name or address of the Building, without incurring any liability to Tenant for so doing;

(c)the right to install and maintain a sign or signs on the exterior of the Building;

(d)the exclusive right to use or dispose of the use of the roof of the Building;

(e)the non-exclusive right to use the area above the ceiling of the Premises for the purpose of installing and maintaining telecommunications, water lines, utility lines, other conduit, sprinklers, drainlines, ductwork and HVAC connections and any other equipment necessary to provide services to any area in the Building;

(f)the right to limit the space on the directory of the Building to be allotted to Tenant;

   (g) the right to grant to anyone the right to conduct any particular business or undertaking in the Building.

16.As used herein the term "Premises" shall mean and refer to the "Premises" as defined in Section 1 of the Lease.

17.Tenant shall not operate space heaters or other heating or ventilating equipment without the express prior written consent of Landlord in each instance first obtained. Tenant shall not install or operate any electrical equipment, appliances or lighting fixtures in the Premises which are not listed and labeled by Underwriter's Laboratories or other testing organization acceptable to Landlord.

convera.lease 4/29/05

EXHIBIT "C"

to Agreement of Lease by and between

GATEWAY 44, LLC, Landlord

and CONVERA CORPORATION, Tenant

SCHEDULE OF TENANT IMPROVEMENTS

to Agreement of Lease by and between

GATEWAY 44, LLC, Landlord

and CONVERA CORPORATION, Tenant

ESTOPPEL CERTIFICATE

TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY c/o AEGON USA Realty Advisors, Inc.

Mortgage Loan Depaltment

4333 Edgewood Road N.E.

Cedar Rapids, Iowa 52499-5223

RE: Mortgage Loan to Corporate Office Properties, L.P. (the "Borrower") secured by 6716, 6740, 6750 & 6760 Alexander Bell Drive, Columbia, Maryland 21045 (the "Real Property") owned by Gateway 44, LLC, a Maryland limited liability company (the "Landlord"), and Assignment of Lease to Lender (as defined below) of a certain Lease to CONVERA CORPORATION (the "Tenant")

Dear Sir or Madam:

We are the tenant under the terms of a certain lease (together with any amendments, options, extension and renewals listed below, the "Lease") demising premises which comprise all or part of the Real Property. We understand that one of your insurance company affiliates ("Lender") has acted as the lender in connection with the funding of a commercial mortgage loan (the "Loan"). An assignment of the Lease will be part of Lender's security for the Loan.

Tenant certifies that:

(a)It occupies the premises demised by the Lease.

(b)The material business terms of the Lease are as follows:

Landlord:

Lease Date:

Lease Commencement Date:

Subleases (if any):

Amendments and Modifications (if any):

Current Monthly Base Rent:

Current Expense Reimbursement:

Square Footage:

Expiration Date:

Renewals or Options (if any):

Security or other Deposit:

Uncompleted Tenant Improvements (if any):

Unpaid Tenant Allowances (if any):

Other Financial Obligation of Landlord (if any):

(c)The Lease is Tenant's entire agreement with the Landlord.

(d)   Tenant has accepted and currently occupies the leased premises, is paying full rent under the Lease, and neither (i) presently asserts any Landlord default, claim against Landlord, matured right of setoff, or right to pay reduced rent nor (ii) knows of any fact which, with the giving of notice or the passage of time, or both, could give rise to any such default, claim or right.

(e)   Tenant neither (i) presently asserts any matured right to terminate or to cancel the Lease nor (ii) knows of any fact which, with the giving of notice or the passage of time, or both, could give rise to any such right.

(f)   Tenant does not presently intend to vacate its premises any time prior to the Lease's expiration date and knows of no fact which could give rise to any such intent.

  (g)Tenant is not the debtor in any bankruptcy or state insolvency case and is not the subject of any receivership, winding up, liquidation or similar proceeding.

Very truly yours,

Tenant: CONVERA CORPORATION

By:

Name:

Title: Date:

36

convera.lease

EXHIBIT "E"

to Agreement of Lease by and between

GATEWAY 44, LLC, Landlord

and CONVERA CORPORATION, Tenant

FORM OF

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE AGREEMENT

THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT ("Agreement") is made and entered into as of theday of 200_by and between TRANSAMERICA OCCIDENTAL LIFE INSURANCE

COMPANY("Lender"),andCONVERACORPORATION,a

("Tenant").

WHEREAS, Lender has funded a commercial mortgage loan (the "Loan") to CORPORATE OFFICE PROPERTIES, L.P., a Delaware limited partnership ("Borrower") secured by a mortgage or deed of trust (the "Mortgage") on the land described on Exhibit "A," together with present or future improvements (the "Real Property") owned by GATEWAY 44, LLC, a Maryland limited liability company and affiliate of Borrower ("Landlord"); and

WHEREAS, by a certain lease between Landlord and Tenant dated as of , 2001 (together with all amendments, options, extensions and renewals, the "Lease"), Landlord has demised to Tenant all or a portion of the Real Property; and

WHEREAS, as a condition to making the Loan, Landlord assigned its interest in the Lease to Lender as part of Lender's security; and

WHEREAS, the Tenant's execution and delivery of this Agreement and of an estoppel certificate providing the Lender with current information on the status of the Lease (the "Estoppel") are conditions precedent to Lender's obligation to fund the Loan; and

WHEREAS, Tenant desires to enter into this Agreement in order to benefit from the promises by Lender that are set forth in this Agreement;

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants herein contained, the parties agree as follows:

1.   If, upon the closing of the Loan, the Lease would not by its terms be subordinate to the lien of Lender on the Real Property, Tenant so subordinates the Lease.

2.The Tenant consents to the assignment of the Lease to Lender in support of the Loan.

3.   If Landlord defaults under the Lease and, upon notice, fails to cure its default within the cure period provided under the Lease, Tenant will notify Lender of the default and afford Lender a reasonable opportunity to cure it before terminating the Lease or exercising any self-help rights from which a right of setoff would arise.

4.   If Lender forecloses the Loan or acquires title to the Real Property by deed in lieu of foreclosure, the following terms and conditions will govern the respective rights and obligations of Tenant and Lender or other new owner of the Real Property (in either case, the "New Owner"):

(a)   The New Owner shall not disturb Tenant's quiet enjoyment and possession of its demised premises for so long as Tenant faithfully performs its obligations under the Lease and under this Agreement.

(b)   The New Owner shall not be bound by any purchase option contained in the Lease.

(c)   The New Owner shall not be required to assume any of Landlord's liabilities to Tenant under indemnification or hold harmless agreements in the Lease arising from any Landlord default, act or omission occurring prior to the date New Owner acquires title to the Real Property, or for damages caused by any Landlord default, act or omission occurring prior to date New Owner acquires title to the Real Property, and, following the acquisition of title, the New Owner's liability to the Tenant shall never exceed the value of the New Owner's interest in the Real Property.

(d)   This Agreement will not vary the terms of the Lease that condition Tenant's obligation to pay rent on Landlord's performance of its covenants under the Lease in respect of the habitability and quiet enjoyment of the Real Property, which Lender agrees shall apply to the New Owner as they have to the Landlord,provided Tenant has performed its obligation under paragraph 3 of this Agreement.

   (f)Subject to the other terms of this Agreement, Tenant will, upon notice of the transfer, attorn to the New Owner (that is, recognize the New Owner as the landlord under the Lease from the time of transfer of the Real Property forward).

              (g) The New Owner will not be bound by any modification of the Lease made without Lender's consent. The New Owner will not be bound by any rent paid more than one month in advance unless it actually receives it, or unless Lender has consented to the advance payment in writing.

(h)   In respect of security or other lease deposits it receives, the New Owner shall be bound under the terms of the Lease.

The New Owner will be bound by offset rights under the Lease that have arisen through the Tenant's exercise of its rights to cure Landlord defaults, but only if

the Tenant has performed its obligations under paragraph three of this Agreement and the default has remained uncured.

5.   No Modification. No modification shall be valid unless in writing and executed by the party against whom enforcement is sought.

6.   Notices. Any notice under this Agreement may be delivered by hand or sent by commercial delivery service or United States Postal Service express mail, in either case for overnight delivery with proof of receipt, or sent by certified mail, return receipt requested, to the following addresses:

To Tenant: CONVERA CORPORATION

To Lender:

TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY Director, Mortgage Loan Servicing

AEGON USA Realty Advisors, Inc.

4333 Edgewood Road NE

Cedar Rapids, Iowa 52499-5443

The notice shall be deemed to have been given on the date it was actually received.

7. Successors and Assigns. This Agreement shall be binding on, and shall inure to the benefit of, the parties' successors and assigns.

8. Counterparts. This Agreement may be executed and delivered in counterparts for the convenience of the parties.

TENANT:

CONVERA CORPORATION

By: Name:

Title:

LENDER:

TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY

By:

Name:

Title:

TENANT ACKNOWLEDGMENT

STATE OF	[Missing Graphic Reference]
COUNTY OF

ON THISday of, 2005, before me, the subscriber, personally appeared

____________________________, to me known, who being by me duly sworn, did depose and say that she/he is_____________________________of CONVERA CORPORATION, a, described in and which executed the within instrument; that she/he knows the seal of said; that the seal affixed to said instrumentis such corporate seal; that it was so affixed by order of the Board of Directors of saidand that she/he signed her/his name thereto by like order as the free and voluntary act and deed of said corporation.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the day and year first above written.

Notary Public

OFFICEMA\.GATEWAY44

LENDER ACKNOWLEDGMENT

STATE OF IOWA)

SS:

COUNTY OF LINK )

ON THISday of, 2001, before me, the subscriber, personally appeared

, to me known, who being by me duly sworn, did depose and say that she/he is of TRANSAMERICA OCCIDENTAL LIFE

INSURANCE COMPANY, the corporation described in and which executed the within instrument; that she/he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation and that she/he signed her/his name thereto by like order as the free and voluntary act and deed of said corporation.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the day and year first above written.

Notary Public

OFFICEMA\. GATE WAY44 V12/02

sts

EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY

EX-10.11

REVISEDOctober 25, 2005

Mr. Kurt Gastrock

9705 Meadowmere Drive

Vienna, Virginia 22182

Dear Kurt:

I am pleased to offer you the position of Executive Vice President and Chief Operating Officer of Convera Corporation (the “Company”). In this position you will report directly to Patrick Condo, President and Chief Executive Officer. This letter outlines the terms of the offer of employment. Your expected date of employment is on or about November 7, 2005.

1.Compensation.

a.Base Salary. As payment for the services to be rendered by you and subject to the provisions hereinafter stated, the Company shall pay you a base salary at an annualized rate of $300,000 per year, payable on the Company’s normal payroll schedule (the “Base Salary”).

b.Bonus. In addition to your Base Salary, you will be eligible for a bonus (the “Bonus”) up to $175,000 ($43,750 per quarter, at 100% performance against plan) paid quarterly, 25% per quarter based upon the Company’s actual operating performance, and based for Fiscal Year 2007 on successful quarterly execution of the Company’s Fiscal Year 2007 Operating Plan approved by the Company’s Board of Directors. Notwithstanding the performance nature of the Company's Bonus Plan, the Company guarantees payment of the quarterly bonus for the fourth fiscal quarter Fiscal Year 2006.

2.Employee Benefits.

a.Benefits. As a full-time employee you shall be eligible to participate in such of the Company’s benefit plans as are now generally available or later made generally available to full time employees of the Company, including 401(k) plan, medical, dental, vision, life, long-term disability insurance plans. Please refer to the Convera Summary of Benefits attached. You shall be entitled to four weeks vacation per year.

b.Expense Reimbursement. The Company agrees to reimburse you for all reasonable, ordinary and necessary travel and entertainment expenses incurred by you in conjunction with your services to the Company consistent with the Company’s standard reimbursement policies. The Company shall pay travel costs incurred by you in conjunction with your services to the Company consistent with the Company’s standard travel policy.

3.Equity Awards.

a.Stock Options. Upon the start of your employment, you will be granted options under the Company’s2000 Incentive Stock Option Plan (the “Plan”) to purchase 500,000 shares of the Company’s Class A Common Stock. These stock option grants are made at the market price at the time of grant, as determined under the Plan, and vest 12.5% every six months. The Option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Plan and the Stock Option Agreement between you and the Company, which will contain the standard terms and provisions applicable to employees generally.

b.Deferred Shares. Convera shall issue you, in accordance with and at such time as provided in Sections 3.b(i) and 3.b(ii) of the Agreement, 200,000 shares of Convera Class A Common Stock (the “Deferred Stock”). Such award will be granted pursuant to, and is subject to the terms of the Plan. You will have a nonforfeitable and vested interest in the Deferred Stock on the earliest of the following (the “Deferred Date”):

(i)   a date five years from your first date of employment provided that you remain continuously employed with the Company through such date; or

(ii)   the occurrence of a Change in Control while you are employed by the Company followed (a) by continuous employment by you at the Company or the successor to the Company for a period of 12 months or (b) within 12 months by a termination of employment without Cause (as defined below) or a substantial diminution of your duties and/or responsibilities compared to your duties and responsibilities immediately prior to the Change of Control.

For purposes of this letter, a “Change in Control” means the happening of either of the following:

A.The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or

B.The Company combines or is consolidated with, or merges with or into, any other corporation, and following such transaction a person or persons other than a person, who alone or with others, as of the date of this Agreement beneficially owns more than ten percent (10%) of the Company’s outstanding voting securities, become the beneficial owner or owners of at least fifty percent (50%) of the total voting power represented by the outstanding voting securities of the Company or the surviving entity or its parent immediately after such combination, consolidation or merger, and a majority of the Board of Directors immediately after such transaction consists of individuals other than individuals who served as directors immediately prior to such transaction.

4.Pre-Employment Conditions.

a.Proprietary Information Agreement. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company’s Employee Proprietary Information and Inventions Agreement, a copy of which is enclosed for your review and execution (the “Confidentiality Agreement”), prior to or on your Start Date.

b.Right to Work. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your Start Date, or our employment relationship with you may be terminated.

c.Verification of Information. This offer of employment is also contingent upon the successful verification of the information you provided to the Company during your application process, as well as a general background check performed by the Company to confirm your suitability for employment. By accepting this offer of employment, you warrant that all information provided by you is true and correct to the best of your knowledge, and you expressly release the Company from any claim or cause of action arising out of the Company’s verification of such information.

5.   No Conflicting Obligations.

You understand and agree that by accepting this offer of employment, you represent to the Company that your performance will not breach any other agreement to which you are a party and that you have not, and will not during the term of your employment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or the Company’s policies. You are not to bring with you to the Company, or use or disclose to any person associated with the Company, any confidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe an obligation of confidentiality under any agreement or otherwise. The Company does not need and will not use such information and we will assist you in any way possible to preserve and protect the confidentiality of proprietary information belonging to third parties. Also, we expect you to abide by any obligations to refrain from soliciting any person employed by or otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until such time as any non-solicitation obligation expires.

6.   At-Will Employment.

Your employment with the Company will be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. The Company also reserves the right to modify or amend the terms of your employment at any time for any reason. This policy of at-will employment is the entire agreement as to the duration of your employment and may only be modified in an express written agreement duly authorized by the Company’s Board of Directors.

7.Severance Benefits.

General Terms. In no way limiting the Company’s policy of employment at-will, if your employment is terminated (i) by the Company without Cause (as defined below), or (ii) terminated by you for Good Reason (as defined below), in either case, whether or not following or in connection with a Change in Control and other than as a result of your death or disability, the Company will provide you with the following:

a.   Severance - equal to one year of your then-current regular Base Salary and Bonus paid out over the Company’s regular payroll schedule following the effective date of your release. Your health and dental insurance coverage for your then-current Convera plans will be paid by Convera through the COBRA vehicle for one year unless you receive comparable coverage under another company’s plan before the end of that period at which point Convera’s payments would cease.

b.   Vesting in Deferred Stock- nonforfeitable and vested interest in the Deferred Stock equal to 20% of the total granted in Paragraph 3b above in the event that your employment is terminated without Cause prior to the one year anniversary of the commencement of employment, and 5% for any full quarter of continuous employment with Convera after the first full year of employment.

c.   Stock Options- stock options will continue to vest per the regular vesting schedule in paragraph 3a above through the duration of the severance period.

As a condition to your receipt of such benefits, you are required to comply with your continuing obligations (including the return of any Company property), resign from all positions you hold with the Company, and execute the Company’s standard form of release agreement, which provides for among other matters, the release of any claims you may have against the Company and your agreement not to solicit employees and customers.

Cause. For the purposes of this letter, “Cause” shall mean: (i) your repeated failure to perform one or more of your essential duties and responsibilities to the Company after 10 day written notice to you and a chance to cure; (ii) your failure to follow the lawful directives of the Company’s Board of Directors; (iii) your material violation of any Company policy, including any provision of a Code of Conduct or Code of Ethics adopted by the Company; (iv) your commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that in the reasonable judgment of the Board of Directors has caused or is reasonably expected to result in material injury to the Company; (v) your unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom you owe an obligation of nondisclosure as a result of your relationship with the Company; (vi) your conviction of a felony or misdemeanor (other than a traffic offense) or; (vii) your willful breach of any of your obligations under any written agreement with the Company.

Good Reason For purposes of this letter, “Good Reason” shall mean (i) the Company’s failure to make any required payment to you hereunder that remains unremedied for 10 days after you have provided written notice of such failure to the Chief Executive Officer or the Board of Directors of the Company, (ii) the substantial diminution of your duties or responsibilities, (iii) a reduction in your Base Salary or target Bonus of more than 10% unless applied to all senior executives, (iv) the Company’s willful breach of any of its obligations under any written agreement with you that remains unremedied for 10 days after you have provided notice of such breach to the Chief Executive Officer or the Board of Directors of the Company or (v) the relocation of the Company's executive offices to a site more than 50 miles from its present location, except for a relocation to, or within 50 miles of, its Carlsbad, California facilities (which the Company has no present intention of effecting). In the event of relocation, the Company will provide to you six months prior notice of any intended relocation and agrees to reimburse you for reasonable relocation expenses consistent with Convera’s prior relocation reimbursement practices for executives.

To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated original copy of the Employee Proprietary Information and Inventions Agreement. Please indicate the date on which you expect to begin work in the space provided below (the “Start Date”). This letter, together with the Confidentiality Agreement, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter will be governed by the laws of Virginia, without regard to its conflict of laws provisions, and may only be amended or modified by a writing signed by both parties and approved by the Board of Directors.

We are all delighted to be able to extend you this offer and look forward to working with you.

Very truly yours,

CONVERA CORPORATION

By:/s/Patrick C. Condo

Title: President and Chief Executive Officer

ACCEPTED AND AGREED:

KURT C. GASTROCK

/s/Kurt C. Gastrock

Signature

Date: 11/1/2005

Anticipated Start Date: 11/9/2005

Attachment A: Employee Proprietary Information and Inventions Agreement

Attachment B: Convera Summary of Benefits

EX-10.12

October 26, 2005

Mr. Patrick Condo

1013 Kimberly Court

Great Falls, VA 22066-1546

Dear Pat:

This is to confirm you employment arrangement as President and Chief Executive Officer with Convera Corporation.

1.   Compensation.

a.Base Salary. As payment for the services to be rendered by you and subject to the provisions hereinafter stated, the Company shall pay you a base salary at an annualized rate of $480,000 per year, payable on the Company’s normal payroll schedule (the “Base Salary”).

b.Bonus. In addition to your Base Salary, you will be eligible for an annual bonus (the “Bonus”) of up to $200,000 per year, calculated and paid on a quarterly basis (up to $50,000 per quarter) based upon performance targets established by the Company’s Board of Directors (or independent directors or Compensation Committee as required by the rules and regulations of Nasdaq).

2.   Employee Benefits.

a.Benefits. As a full-time employee you shall be eligible to participate in such of the Company’s benefit plans as are now generally available or later made generally available to full time employees of the Company, including 401(k) plan, medical, dental, vision, life and long-term disability insurance plans.

b.Expense Reimbursement. The Company agrees to reimburse you for all reasonable, ordinary and necessary travel and entertainment expenses incurred by you in conjunction with your services to the Company consistent with the Company’s standard reimbursement policies. The Company shall pay travel costs incurred by you in conjunction with your services to the Company consistent with the Company’s standard travel policy.

3.   At-Will Employment.

Your employment with the Company will be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. The Company also reserves the right to modify or amend the terms of your employment at any time for any reason. This policy of at-will employment is the entire agreement as to the duration of your employment and may only be modified in an express written agreement duly authorized by the Company’s Board of Directors.

4.   Severance Benefits.

General Terms. In no way limiting the Company’s policy of employment at-will, if your employment is terminated (i) by the Company without Cause (as defined below), or (ii) terminated by you for Good Reason (as defined below), in either case, whether or not following or in connection with a Change in Control and other than as a result of your death or disability, the Company will provide you with the following:

a.Severance. Equal to 18 months of your then-current regular Base Salary and Bonus paid out over the Company’s regular payroll schedule following the effective date of your release. Your health and dental insurance coverage for your then-current Convera plans will be paid by Convera through the COBRA vehicle for 18 months unless you receive comparable coverage under another company’s plan before the end of that period at which point Convera’s payments would cease.

b.Stock Options. Your stock options will continue to vest through the duration of the severance period.

As a condition to your receipt of such benefits, you are required to comply with your continuing obligations (including the return of any Company property), resign from all positions you hold with the Company, and execute the Company’s standard form of release agreement, which provides for, among other matters, the release of any claims you may have against the Company and your agreement not to complete or solicit employees or customers for a period of 18 months from termination of employment.

Cause. For the purposes of this letter, “Cause” shall mean: (i) your repeated failure to perform one or more of your essential duties and responsibilities to the Company after 10 day written notice to you and a chance to cure; (ii) your failure to follow the lawful directives of the Company’s Board of Directors; (iii) your material violation of any Company policy, including any provision of a Code of Conduct or Code of Ethics adopted by the Company; (iv) your commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that in the reasonable judgment of the Board of Directors has caused or is reasonably expected to result in material injury to the Company; (v) your unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom you owe an obligation of nondisclosure as a result of your relationship with the Company; (vi) your conviction of a felony or misdemeanor (other than a traffic offense) or; (vii) your willful breach of any of your obligations under any written agreement with the Company.

Good Reason. For purposes of this letter, “Good Reason” shall mean (i) the Company’s failure to make any required payment to you hereunder that remains unremedied for 10 days after you have provided written notice of such failure to the Board of Directors of the Company, (ii) the substantial diminution of your position or duties or responsibilities; provided, however, that removal of position or title or a reduction of duties or responsibilities shall not be Good Reason if you continue to serve on the Company’s Board of Directors, (iii) a reduction in your Base Salary or target Bonus of more than 10%, unless such reduction is applied to all senior executives, (iv) if within 18 months of a Change of Control, your duties or responsibilities are substantially reduced, (v) the Company’s willful breach of any of its obligations under any written agreement with you that remains unremedied for 10 days after you have provided notice of such breach to the Board of Directors of the Company, or (vi) the relocation of the Company's executive offices to a site more than 75 miles from its present location.

For purposes of this letter, a “Change in Control” means the happening of either of the following:

A.The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or

B.The Company combines or is consolidated with, or merges with or into, any other corporation, and following such transaction a person or persons other than a person, who alone or with others, as of the date of this Agreement beneficially owns more than ten percent (10%) of the Company’s outstanding voting securities, become the beneficial owner or owners of at least fifty percent (50%) of the total voting power represented by the outstanding voting securities of the Company or the surviving entity or its parent immediately after such combination, consolidation or merger, and a majority of the Board of Directors immediately after such transaction consists of individuals other than individuals who served as directors immediately prior to such transaction.

Limitation. Notwithstanding the foregoing, if your employment is terminated without Cause or for Good Reason and, in either case, you still continue to serve on the Company’s Board of Directors, you shall not be entitled to the severance benefits contained in this Section 4.

This letter, together with the Company’s Employee Proprietary Information and Inventions Agreement, stock option agreements related to your various stock option grants and Amended and Restated Deferred Stock Agreement, all of which will remain in full force and effect, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter will be governed by the laws of Virginia, without regard to its conflict of laws provisions, and may only be amended or modified by a writing signed by both parties and approved by the Board of Directors.

We look forward to our continuing relationship and bright future for Convera.

Very truly yours,

CONVERA CORPORATION

By:

Name: Ronald J. Whittier

Title: Chairman of the Board

ACCEPTED AND AGREED:

PATRICK C. CONDO

Signature

Date

EX-23.01

Exhibit 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Forms S-3 Nos. 333-111276 and 333-127222), of Convera Corporation and in the related Prospectuses of our reports dated March 21, 2006, with respect to the consolidated financial statements of Convera Corporation, Convera Corporation management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Convera Corporation, included in this Annual Report (Form 10-K) for the year ended January 31, 2006.

/s/ ERNST & YOUNG LLP

McLean, Virginia

March 26, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION

In connection with the Annual Report of Convera Corporation (the "Company") on Form 10-K for the period ended January 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick C. Condo, President and Chief Executive Officer of the Company, certify, pursuant to Securities Exchange Act of 1934 Rules 13a-14 and 15d-14, that:

(1)   I have reviewed this annual report on Form 10-K of Convera Corporation;

(2)   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

(3)   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

(4)   The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d)   disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5)   The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By: /s/ Patrick C. Condo

Patrick C. Condo

President and Chief Executive Officer

March 30, 2006

EX-31.2

Exhibit 31.2

CERTIFICATION

In connection with the Annual Report of Convera Corporation (the "Company") on Form 10-K for the period ended January 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Polchin, Chief Financial Officer of the Company, certify, pursuant to Securities Exchange Act of 1934 Rules 13a-14 and 15d-14, that:

(1)   I have reviewed this annual report on Form 10-K of Convera Corporation;

(2)   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

(3)   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

(4)   The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d)   disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5)   The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By: /s/ John R. Polchin

John R. Polchin

Chief Financial Officer

March 30, 2006

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Convera Corporation (the "Company") on Form 10-K for the period ended January 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick C. Condo, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/ Patrick C. Condo

Patrick C. Condo

President and Chief Executive Officer

March 30, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Convera Corporation (the "Company") on Form 10-K for the period ended January 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Polchin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/ John Polchin

John R. Polchin

Chief Financial Officer

March 30, 2006