SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
File No. 0-10772
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-16(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Exchange Act Rule 14a-11 or 14a-12
ESSEX CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:(1)
N/A
4) Proposed maximum aggregate value of transaction:
N/A
5) Total fee paid:
N/A
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid: 2) Form, Schedule or Registration No. 3) Filing
party: 4) appointment filed:
(1)Set forth the amount on which the filing fee is calculated and state how it
was determined.
ESSEX CORPORATION
Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders
of Essex Corporation to be held at THE GREAT ROOM AT HISTORIC SAVAGE MILL, 8600
FOUNDRY STREET, SAVAGE, MARYLAND on Tuesday, May 10, 2005 at 1:00 p.m. We invite
you to arrive at 12:00 noon to visit with Essex Management. A light lunch will
be served.
As discussed in this Proxy Statement, the matters to be acted on at the
Annual Meeting are: the election of directors, the ratification and approval of
an amendment to the 2004 Stock Incentive Plan, and the ratification of the
appointment of the independent registered public accounting firm. Additionally,
there will be a presentation reviewing the Company's performance in 2004 and
first quarter 2005. There will also be an opportunity for stockholders to
present questions to management and to a representative of the Company's
independent registered public accounting firm.
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2004, including the consolidated financial statements, is enclosed.
Such report and consolidated financial statements are not a part of this Proxy
Statement.
Whether or not you plan to attend, we request that your shares of stock
be represented and voted at the Annual Meeting. You can accomplish this by
completing, signing, dating and promptly returning your proxy in the enclosed
envelope. PLEASE MARK YOUR PROXY CARD CAREFULLY.
YOUR STOCK WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE
GIVEN IN YOUR PROXY. IF YOU ARE A STOCKHOLDER OF RECORD AND ARE PRESENT AT THE
ANNUAL MEETING, YOU MAY WITHDRAW YOUR PROXY AND CAST YOUR BALLOT IN PERSON AT
THAT TIME IF YOU SO DESIRE.
Respectfully yours,
/s/ Len
Leonard E. Moodispaw
PRESIDENT & CHIEF EXECUTIVE OFFICER
Columbia, Maryland
April 12, 2005
ESSEX CORPORATION
9150 Guilford Road
Columbia, Maryland 21046
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of Essex
Corporation (the "Company"), a Virginia corporation, will be held at 1:00 p.m.,
Tuesday, May 10, 2005, at The Great Room at Historic Savage Mill, Savage,
Maryland, for the following purposes:
1. To elect nine (9) directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
2. To ratify and approve an amendment and restatement of the Company's
2004 Stock Incentive Plan to increase the number of shares reserved for
issuance thereunder from 1,000,000 to 1,300,000 shares;
3. To ratify the appointment of independent registered public accounting
firm; and
4. To transact such other business as may properly come before the Annual
Meeting.
Your attention is directed to the accompanying Proxy Statement for
further information with respect to the matters to be acted upon at the Annual
Meeting.
The Board of Directors has fixed the close of business on March 22,
2005 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. The stock transfer books will not be
closed.
The approximate date on which the Proxy Statement and form of Proxy are
first sent or given to shareholders is April 12, 2005.
Please indicate your vote, date and sign the enclosed proxy card and
promptly return it in the enclosed pre-addressed envelope. The prompt return of
proxies will assure a quorum and reduce solicitation expenses. If you are a
stockholder of record and are personally present at the Annual Meeting and wish
to vote your shares in person, even after returning your proxy, you still may do
so.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kimberly J. DeChello
KIMBERLY J. DECHELLO
SECRETARY
Columbia, Maryland
April 12, 2005
ESSEX CORPORATION
9150 Guilford Road
Columbia, Maryland 21046
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 2005
The enclosed proxy is furnished to the holders of common stock, no par
value (the "Common Stock"), of Essex Corporation (the "Company") and is
solicited by the Board of Directors of the Company for use at the Annual Meeting
of Stockholders to be held on May 10, 2005 and at any adjournments thereof (the
"Annual Meeting"). The approximate date on which the Notice of Annual Meeting,
Proxy Statement and proxy card are first sent or given to stockholders is April
12, 2005.
The shares represented by all properly executed proxies will be voted
at the Annual Meeting in accordance with instructions thereon. If no
instructions are indicated, the proxy will be voted FOR the nominees for
director listed on the proxy and also listed under the caption "Proposal 1"
herein; FOR ratification of restatement of the Company's 2004 Stock Incentive
Plan to increase the number of shares reserved for the issuance thereunder from
1,000,000 shares to 1,300,000, "Proposal 2"; and FOR ratification of appointment
of independent registered public accounting firm, "Proposal 3". The Company's
Board of Directors recommends that the stockholders vote in favor of each of the
proposals. All valid proxies obtained will be voted at the discretion of the
Board of Directors with respect to any other business that may come before the
Annual Meeting.
The Board of Directors has fixed the close of business on March 22,
2005 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting and any
adjournment thereof.
As of the Record Date, there were outstanding 21,056,649 shares of the
Common Stock. Holders of shares of Common Stock of record as of the close of
business on the Record Date will be entitled to vote at the Annual Meeting.
Holders of Common Stock are entitled to one vote on all matters presented at the
meeting for each share held of record. The presence in person or by proxy of
holders of record of at least one-third of the shares outstanding as of the
Record Date shall be required for a quorum to transact business at the Annual
Meeting. If a quorum should not be
1
present, the Annual Meeting may be adjourned from time to time until a quorum is
obtained. The nominees to be selected as directors named in Proposal 1 must
receive a plurality of the votes cast at the Annual Meeting with respect to
Proposal 1. Proposals 2 and 3 must receive a greater number of affirmative votes
than negative votes cast at the Annual Meeting. Abstentions and broker non-votes
will have no effect on the proposals because broker non-votes will not be
considered as present or voting and abstentions will be counted only for
purposes of determining whether there is a quorum.
Proxies may be revoked before they are voted at the Annual Meeting by
giving written notice of revocation to the Secretary, by submission of a proxy
bearing a later date, or by attending the Annual Meeting in person and voting by
ballot.
The cost of preparing and mailing this Proxy Statement and the
accompanying proxy card will be borne by the Company and the Company will pay
the cost of soliciting proxies. In addition to solicitation by mail, certain
officers and regular employees of the Company and employees of the Company's
Transfer Agent may solicit the return of proxies by telephone, telegram or in
person. The Company will also reimburse brokers, nominees and other fiduciaries
for their expenses in forwarding solicitation materials to the beneficial owners
of Common Stock and soliciting them to execute proxies.
Any document referenced in this Proxy Statement is available without
charge to any stockholder of record upon request. All requests shall be made
either in writing, and directed to the Company at its main office address, 9150
Guilford Road, Columbia, MD 21046, or orally and directed to the Secretary at
301-939-7000.
VOTING SECURITIES AND PRINCIPAL HOLDERS
GENERAL
The voting securities of the Company consist of Common Stock. On the
Record Date there were 21,056,649 shares of Common Stock outstanding. Each share
of Common Stock is entitled to one vote on each matter to be acted upon at the
Annual Meeting.
2
VOTING SECURITIES
The following table and accompanying notes set forth as of March 22,
2005, information with respect to the beneficial ownership of the Company's
voting securities, which is its Common Stock, by (i) each person or group who
beneficially owns more than 5% of the voting securities, (ii) each of the
directors of the Company, (iii) each of the officers of the Company named in the
Summary Compensation Table, and (iv) all directors and executive officers of the
Company as a group.
Percentage of
Outstanding Shares of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner* Beneficial Ownership (1) Beneficially Owned
----------------------------------------- ------------------------ ---------------------
John G. Hannon (2) 1,949,498 9.3
H. Jeffrey Leonard (3) 528,609 2.5
Terry M. Turpin (4) 502,193 2.4
Leonard E. Moodispaw (5) 453,950 2.1
Joseph R. Kurry, Jr. (6) 203,031 1.0
Rudy Liskovec (7) 65,000 **
James J. Devine (8) 15,943 **
Lisa G. Jacobson (9) 20,000 **
Robert W. Hicks (10) 74,200 **
Anthony M. Johnson (11) 2,500 **
Ray M. Keeler (12) 46,000 **
Marie S. Minton (13) 15,000 **
Arthur L. Money (14) 27,500 **
The Hannon Family LLC (15) 1,438,973 6.9
GEF Management Corporation ("GEFMC") (16) 514,839 2.5
All Directors and Executive Officers
as a Group (18 persons) (17) 4,199,176 18.9
* Except as noted below, all beneficial owners are directors and/or
officers of the Company and can be reached c/o Essex Corporation, 9150
Guilford Road, Columbia, MD 21046.
** Less than 1%.
(1) The shares listed above include options and rights to acquire shares
within sixty (60) days and shares held of record by the Essex Corporation
Retirement Trust as to which shares the respective participant has
disposition and voting rights. The percentage ownership is computed based
upon the number of shares which would be outstanding if such options and
rights were exercised.
3
(2) John G. Hannon is a Director of the Company. Of the shares of Common
Stock shown as beneficially owned, 510,525 are owned directly by Mr.
Hannon. In addition, The Hannon Family LLC owns 1,438,973 shares of
Common Stock which may be deemed to be beneficially owned by Mr. Hannon.
(3) H. Jeffrey Leonard is Chairman of the Board of the Company and the
President and a director of GEFMC. Of the shares of Common Stock shown as
beneficially owned, 13,770 are owned directly by Mr. Leonard. In
addition, 514,839 shares of Common Stock Mr. Leonard has shared voting
power as described in footnotes (16) and (18) below. Mr. Leonard's
address is c/o GEF Management Corporation, 1225 Eye Street, N.W., Suite
900, Washington, DC 20005.
(4) Terry M. Turpin is a Director, Senior Vice President and Chief Scientist
of the Company. Of the shares shown as beneficially owned, 227,000
represent presently exercisable rights to acquire Common Stock through
stock options.
(5) Leonard E. Moodispaw is President, Chief Executive Officer and a Director
of the Company. Of the shares shown as beneficially owned, 395,000
represent presently exercisable rights to acquire Common Stock through
stock options.
(6) Joseph R. Kurry, Jr. is Senior Vice President and Treasurer of the
Company. Of the shares shown as beneficially owned, 116,500 represent
presently exercisable rights to acquire Common Stock through stock
options.
(7) Rudy Liskovec is Vice President of the Company. Of the shares shown as
beneficially owned, 65,000 represent presently exercisable rights to
acquire Common Stock through stock options.
(8) James J. Devine is Executive Vice President and General Manager of the
Company. Of the shares shown as beneficially owned, 2,400 represent
presently exercisable rights to acquire Common Stock through stock
options.
(9) Lisa G. Jacobson is Executive Vice President and Chief Financial Officer
of the Company. Of the shares shown as beneficially owned, 20,000
represent presently exercisable rights to acquire Common Stock through
stock options.
(10)Robert W. Hicks is a Director of the Company. Of the shares shown as
beneficially owned, 34,000 represent presently exercisable rights to
acquire Common Stock through stock options.
(11)Anthony M. Johnson is a Director of the Company. Of the shares shown as
beneficially owned, 2,500 represent presently exercisable rights to
acquire Common Stock through stock options.
(12)Ray M. Keeler is a Director of the Company. Of the shares shown as
beneficially owned, 35,000 represent presently exercisable rights to
acquire Common Stock through stock options.
(13)Marie S. Minton is a Director of the Company. Of the shares shown as
beneficially owned, 15,000 represent presently exercisable rights to
acquire Common Stock through stock options.
(14)Arthur L. Money is a Director of the Company. Of the shares shown as
beneficially owned, 27,500 represent presently exercisable rights to
acquire Common Stock through stock options.
(15)Consists of 1,438,973 shares directly held by The Hannon Family LLC. Mr.
John G. Hannon is the managing person of this entity.
(16)Consists of 514,839 shares of Common Stock directly owned by GEFMC, by
virtue of the arrangements described in footnote (18) below. GEF is a
Delaware limited liability company with its principal executive offices
located at 1225 Eye Street, N.W., Suite 900, Washington, DC 20005.
(17)Of the shares shown as beneficially owned, 1,182,800 represent presently
exercisable rights to acquire Common Stock through stock options.
(18)Based on a Form 4 filed with the SEC on March 17, 2005, GEFMC and Mr.
Leonard have shared voting power of 514,839 shares of Common Stock
directly held for the account of GEFMC.
4
THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors (the "Board") generally meet
quarterly. At such meetings, the Company's independent directors, within the
meaning of Rule 10A-3(b) under the Exchange Act of 1934, as amended, and Nasdaq
National Market Rule 4200(a)(15), who are Messrs. Hannon, Hicks, Johnson,
Keeler, Money and Ms. Minton, (collectively the "Independent Directors")
generally meet in executive session. Additionally, the By-Laws provide for
special meetings and, as also permitted by Virginia law, Board action may be
taken without a meeting upon unanimous written consent of all Directors. In 2004
the Board held four meetings; the entire membership of the Board was present at
one of the meetings, two directors were absent from two meetings and one
director was absent from one meeting.
The Board has two standing Committees: the audit committee and the
ethics committee.
AUDIT COMMITTEE. Our audit committee is established in accordance with
Section 3(a)(58)(A) of the Exchange Act of 1934 as amended, and composed of the
following three directors: Messrs. Hicks and Keeler and Ms. Minton. Messrs.
Hicks and Keeler and Ms. Minton are independent directors within the meaning of
the independence standards of audit committee members of SEC Rule 10A-3(b) under
the Securities Exchange Act of 1934 in addition to the current requirements of
the Nasdaq National Market under Rule 4200(a)(15). Ms. Minton is an audit
committee financial expert as defined by Item 401(h) of Regulation S-K of the
Securities Act of 1933, as amended.
The primary responsibilities of the audit committee are to:
o Oversee management's conduct of our financial reporting process and
systems of internal accounting and financial control;
o Monitor the independence and performance of our independent registered
public accounting firm;
o Provide an avenue of communication among the independent registered
public accounting firm, management and our board of directors;
o Make reports and recommendations to our board and our shareholders as
necessary under the rules of the Securities and Exchange Commission or
as otherwise within the scope of its functions; and
o Oversee and, where appropriate, report to our board on our review of
and response to any government audit, inquiry or investigation, as they
determine to be appropriate.
The Board has implemented all necessary changes to the audit
committee's charter to comply with Nasdaq's revised listing standards and may
consider further changes to its charter and designated responsibilities as it
deems necessary and appropriate. The Audit Committee's responsibilities are as
described in the written Charter (Appendix A) adopted by the Board. The Audit
Committee held six meetings in 2004. One member was absent from one of the six
meetings.
5
AUDIT COMMITTEE REPORT
The Audit Committee consists of Messrs. Hicks, Keeler and Ms. Minton.
Messrs. Hicks and Keeler and Ms. Minton are "independent directors" within the
meaning of the independence standards of audit committee members of SEC Rule
10A-3(b) under the Securities Exchange Act of 1934 in addition to the current
requirements of the Nasdaq National Market under Rule 4100(a)(15). Ms. Minton is
an audit committee financial expert as defined by Item 401(h) of Regulation S-K
of the Securities Act of 1933, as amended. The Audit Committee's
responsibilities are as described in a written Charter adopted by the Board of
Directors.
In performing its oversight responsibilities, the Audit Committee has
reviewed and discussed the Company's 2004 consolidated audited financial
statements with the Company's management. The Audit Committee also has discussed
with the independent registered public accounting firm, Stegman & Company, the
matters required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATIONS WITH AUDIT COMMITTEES, which include, among other items, matters
related to the conduct of the audit of the Company's consolidated financial
statements.
The Audit Committee has received written disclosures and the letter
from the independent registered pubic accounting firm required by the
Independence Standards Board Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT
COMMITTEES (which relates to the firm's independence from the corporation and
its related entities) and has discussed with the firm their independence from
the Company.
Based on these reviews and discussions, the Audit Committee recommended
to the Board of Directors that the Company's 2004 audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K.
The members of the Audit Committee are not professionally engaged in
the practice of accounting or auditing and are not experts in the fields of
accounting or auditing, including in respect of accountant's independence.
Members of the Audit Committee rely without independent verification on the
information provided to them and on the representations made by management and
the independent registered public accounting firm. Accordingly, the Audit
Committee's oversight does not provide an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions do not assure
that the audit of the Company's consolidated financial statements has been
carried out in accordance with auditing standards generally accepted in the
United States of America, that the consolidated financial statements are
presented in accordance with accounting principles generally accepted in the
United States of America or that the Company's independent registered public
accounting firm are in fact "independent."
Audit Committee
Robert W. Hicks, Chairman
Ray M. Keeler
Marie S. Minton
6
COMPENSATION. The requirements of the Nasdaq National Market allow
companies to have a separate Compensation Committee or have independent
directors of the Board vote on compensation related items. The Board agreed as a
whole to have independent directors act as the Compensation Committee beginning
March 16, 2004. The Independent Directors of the Board will recommend to the
full Board the levels of compensation paid to the Chief Executive Officer and
other executive officers. In particular, the Board based its review of the
compensation for the CEO on such subjective criteria as satisfaction of Essex'
financial goals (revenue and EPS) and completion of appropriate acquisitions. In
addition, criteria included such subjective factors as investor relations, to
include raising funds, and creation of a strong management team to support
future growth.
The Company's executive compensation program is designed to attract and
retain executives responsible for the Company's long-term success, to reward
executives for achieving both financial and strategic company goals, to align
executive and stockholder interests through long-term, equity-based plans, and
to provide a compensation package that recognizes individual contributions as
well as overall business results. As a result, a substantial portion of each
executive's total compensation is intended to be variable and to be tied closely
to the achievement of specific business objectives and corporate financial
goals, as well as the attainment of the executive's individual performance
objectives. The Company's executive compensation program also takes into account
the compensation practices of companies with whom Essex competes for executive
talent. These companies (the "peer companies") include the principal companies
included in the peer group indices in the Stock Performance Graph section of
this proxy statement and additional companies in various industries.
The three key components of the Company's executive compensation
program are base salary, variable incentive compensation, and long-term
incentive awards in the form of stock options. Overall compensation is intended
to be competitive for comparable positions at the peer companies.
ETHICS COMMITTEE. Mr. Leonard E. Moodispaw and Mr. Frank E. Manning
composed our ethics committee until April 2004. Current members are Mr. Leonard
Moodispaw and Mr. John G. Hannon. The primary responsibilities of the ethics
committee are to:
o Advise our management and the entire board of directors of
means of ensuring that we adhere to the highest ethical
standards in our day to day operations;
o Ensure that a positive working environment is created and
maintained for all our employees and that those employees are
challenged to meet such a standard;
o Provide a forum for advice to the corporate counsel, our
management and any of our employees to consider ethical
issues; and
o Recommend to our management and the entire board of directors
means of training managers and employees.
The Company has adopted a written code of ethics that is publicly
available on the Company's website (WWW.ESSEXCORP.COM).
7
DIRECTOR COMPENSATION
Non-employee members of the board of directors receive a maximum of
$1,500 for each board meeting and $750 for each board committee meeting they
attend. Such members are also reimbursed for travel expenses incurred in
connection with their attendance at board and committee meetings. Two members of
the board of directors, Arthur L. Money and Marie S. Minton, receive $1,500 per
month for serving on an informal committee of the board with Messrs. Hannon and
Leonard. The members of our board of directors who are affiliated with our
significant shareholders, GEF and The Hannon Family LLC, have waived the right
to receive any board fees. Employee directors do not receive fees for their
service on our board of directors.
In addition, non-employee members of the board of directors are
eligible to participate in our Restricted Stock Bonus Plan. Shares of restricted
stock may be issued under this plan subject to forfeiture during a restriction
period, fixed in each instance by the board of directors, whereby all rights of
the grantee to the stock terminate upon certain conditions such as cessation of
continuous membership on our board during the restriction period. Upon
expiration of the restriction period, or earlier upon the death or substantial
disability of the grantee, the restrictions applicable to all shares of
restricted stock of the grantee expire. While this plan also provides that we
may advance loans to a grantee to pay income taxes due on the taxable value of
shares granted under the plan, we have never issued any such loans. The Board of
Directors has prohibited these loans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
DIRECTOR NOMINATION PROCESS. The Company's Independent Directors
perform the nominating committee functions in lieu of a formal committee. The
Directors performing these functions are Messrs. Hannon, Hicks, Johnson, Keeler,
Money and Ms. Minton, all independent directors within the meaning of current
Nasdaq listing rules. The Board believes it is more effective for the
Independent Directors to manage the process of structuring the Board and
nominating candidates than to delegate to a committee. Because a majority of the
Board are independent, this decision saves time and cost for the entire Board.
The Independent Directors review potential candidates for the Board of
Directors and recommends any nominees to the Board of Directors for their
consideration. In reviewing potential candidates for the Board, the Independent
Directors considers among other things, the individual's experience, the needs
of the Company for an additional or replacement director, and the candidate's
interest in the business of the Company.
The Company welcomes nominations from shareholders and encourages
interested shareholders to submit candidates to the Independent Directors
through the Secretary. The Company did not receive any recommended nominees from
any shareholder in connection with the previous year's annual meeting.
Stockholders can send nominations by e-mail to kim.dechello@essexcorp.com, by
fax to (301) 953-7880 or by mail to Kim DeChello, Corporate
8
Secretary, Essex Corporation, 9150 Guilford Road, Columbia MD 21046. All
nominations are reviewed based on their qualifications and potential
contributions to Essex.
COMMUNICATION BETWEEN SHAREHOLDERS AND DIRECTORS
The Board recommends that stockholders initiate any communications with
the Board in writing and send them in care of the Corporate Secretary.
Stockholders can send communications by e-mail to kim.dechello@essexcorp.com, by
fax to (301) 953-7880 or by mail to Kim DeChello, Corporate Secretary, Essex
Corporation, 9150 Guilford Road, Columbia MD 21046. This centralized process
will assist the Board in reviewing and responding to stockholder communications
in an appropriate manner. The name of any specific intended Board recipient
should be noted in the communication. The Board has instructed the Corporate
Secretary to forward such correspondence only to the intended recipients;
however, the Board has also instructed the Corporate Secretary, prior to
forwarding any correspondence, to review such correspondence and, in her
discretion, not to forward certain items if they are deemed of a commercial or
frivolous nature or otherwise inappropriate for the Board's consideration. In
such cases, some of that correspondence may be forwarded elsewhere in the
company for review and possible response.
DIRECTOR ATTENDANCE AT ANNUAL MEETING
It is the policy of the Company and Board of Directors that all
directors attend the Annual Meeting of Shareholders and be available for
questions from the shareholders. All sitting directors nominated for election
were in attendance at the 2004 Annual Meeting of Shareholders except for
Director Minton. It is anticipated that most directors nominated for election at
the 2005 Annual Meeting of Shareholders also will be in attendance at that
meeting.
9
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid or
accrued for services rendered during the last three fiscal years by the Chief
Executive Officer and the four other most highly compensated executive officers
who served as such at the end of, or during, the last fiscal year and whose
total compensation exceeded $100,000. Ms. Jacobson is also listed due to her
position as Executive Vice President and Chief Financial Officer.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------- ------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($)(2) OPTIONS/SARS(#)
------------------------------------------- ---- ------------- --------- ------------------- --------------
Leonard E. Moodispaw 2004 255,024 100,000 12,966 --
President, CEO and Director 2003 192,556 75,000 5,777 30,000
2002 175,032 -- 5,251 30,000
Terry M. Turpin 2004 204,774 30,000 10,394 --
Senior Vice President, Chief Scientist 2003 164,706 35,000 5,269 30,000
and Director 2002 155,064 -- 4,652 20,000
Rudolf Liskovec, Jr. 2004 195,660 107,000 7,003 20,000
Vice President (3) 2003 201,845 52,000 9,418 40,000
James J. Devine 2004 177,008 50,000 8,960 50,000
Executive Vice President and General
Manager
Lisa G. Jacobson 2004 96,200 15,000 4,335 40,000
Executive Vice President and Chief
Financial Officer
Joseph R. Kurry, Jr. 2004 164,484 35,000 9,666 10,000
Senior Vice President and Treasurer 2003 140,036 35,000 4,509 15,000
2002 134,992 -- 4,050 10,000
(1) Includes amounts deferred at the election of the named executive officer
pursuant to Section 401(k) of the Internal Revenue Code ("401(k)").
(2) Represents matching 401(k) contributions made on behalf of the respective
named executive officer pursuant to Essex's Retirement Plan and Trust.
Excludes other perquisites and benefits not exceeding the lesser of $50,000
or 10% of the named executive officer's total annual salary and bonus.
(3) Mr. Liskovec was hired on May 5, 2003. Prior to that time, Mr. Liskovec was
a self employed consultant on direct program work for Essex and was paid
$4,620 in the period October - December 2002 and $90,860 in the period
January 2003 - April 2003. The amount paid in 2003 for consulting is
included in salary in the table above. Mr. Liskovec also received a non
qualified stock option for 10,000 shares in November 2002 with an exercise
price at the market price of $2.36. Mr. Liskovec was paid signing and other
bonuses in 2003 of $32,000.
(4) Mr. Devine was hired on February 9, 2004.
(5) Ms. Jacobson was hired on July 6, 2004.
10
DEFINED CONTRIBUTION RETIREMENT PLAN
The Essex Corporation Retirement Plan and Trust is a qualified defined
contribution retirement plan which includes a 401(k) salary reduction feature
for its employees. This plan calls for an employer matching contribution of up
to 4.5% of eligible employee compensation under the salary reduction feature and
a discretionary contribution as determined by the board of directors. We did not
make any discretionary contribution between 2002 and 2004. The total authorized
contribution under the matching contribution feature of this plan was
approximately $458,000 in 2004, $130,000 in 2003 and $75,000 in 2002. All
employee contributions are 100% vested at all times and our contributions, prior
to 2004, vested based on length of service. In accordance with the retirement
plan and trust, as amended in 2004, employees vested 100% in our contributions.
Vested contributions are distributable and benefits are payable only upon death,
disability, retirement or break in service. Participants may request that their
accrued benefits under the Section 401(k) portion of the plan be allocated among
various investment options established by the plan administrator.
The Company terminated the qualified defined contribution and profit
sharing retirement plan of the acquired company, Sensys Development
Laboratories, Inc., in December 2004. Under this plan, the Company recognized
the required contributions of 8% or approximately $216,000 and $154,000 and
additional contributions of 5% or approximately $135,000 and $96,000, for 2004
and for the period since acquisition, March 1, 2003 to December 28, 2003,
respectively.
The Company contributions under the Retirement Plan for the persons
referred to in the Summary Compensation Table are included in that Table.
EMPLOYEE INCENTIVE PERFORMANCE AWARD PLAN
The Company has an Employee Incentive Performance Award Plan under
which bonuses are distributed to employees. All employees are eligible to
receive such awards under flexible criteria designed to compensate for superior
division and individual performance during each fiscal year. Awards are
generally recommended annually by management and approved by the board of
directors. These awards may be constrained by our overall financial performance.
In 2004, we paid approximately $1.3 million, including the $337,000 awarded to
the persons named in the Summary Compensation Table, under this plan. In 2003,
we paid approximately $269,000, including the $197,000 awarded to three of the
persons named in the Summary Compensation Table, under this plan. We did not
make any awards under this plan in 2002.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities (the "Reporting Persons"), to file reports of ownership and changes
in ownership of equity securities of the Company with the Securities and
Exchange Commission ("SEC"). Officers, directors, and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms that they file.
11
Based solely upon a review of Forms 3 and Forms 4 furnished to the
Company pursuant to Rule 16(a)-3 under the Exchange Act during its most recent
fiscal year and Forms 5 with respect to its most recent fiscal year, the Company
believes that all such forms required to be filed pursuant to Section 16(a) of
the Exchange Act were timely filed by the Reporting Persons during the fiscal
year ended December 31, 2004.
OPTIONS TO PURCHASE SECURITIES
The Company has established several stock option and stock appreciation
rights plans. These Plans provide for the grant of options to purchase shares of
common stock of the Company, no par value per share (the "Common Stock"), which
qualify as incentive stock options ("Incentive Options") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), to persons who are
our employees, as well as non-qualified options which do not so qualify to be
issued to persons or consultants, including those who are not employees. These
Plans also provide for grants of stock appreciation rights, or SARS, in
connection with the grant of options under these Plans. The exercise price of an
Incentive Option under these Plans may not be less than the "fair market value"
of the shares of common stock at the time of grant; the exercise price of
Non-Qualified Options and the appreciation base price of SARs are determined at
the discretion of the Board of Directors except that the SAR appreciation base
price may not be less than 100% of the fair market value of a share of common
stock on the grant date with respect to awards to persons who are officers or
directors of the Company. These Plans reserve 2,472,316 shares of Common Stock
for issuance. As of March 22, 2005, there were 603,127 shares available for
future grants of options or SARs under the Plans.
The Company grants non-plan, non-qualified options from time to time
directly to certain parties. In 2003, the Company issued such options for 30,000
shares to our Chief Scientist and 10,000 shares to our Treasurer. We did not
grant any non-plan, non-qualified options in 2004 or 2002.
12
The following table shows for the fiscal year ended December 31, 2004
for the persons named in the Summary Compensation Table, information with
respect to options to purchase Common Stock granted during 2004.
STOCK OPTION GRANTS
FOR FISCAL YEAR ENDED DECEMBER 31, 2004
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------
NAME GRANTED 2004 PER SHARE DATE 5% 10%
---- ------- ---- --------- ---- -- ---
Leonard E. Moodispaw -- -- $ -- -- $ -- $ --
Terry M. Turpin -- -- $ -- -- $ -- $ --
Rudolf Liskovec 10,000 (2) 1.7 $ 7.65 03-25-14 $ 124,610 $ 198,421
10,000 (4) 1.7 $ 9.00 07-25-11 $ 126,639 $ 175,385
James J. Devine 47,600 (1) 8.3 $ 8.40 02-08-14 $ 651,297 $ 1,037,082
2,400 (1) 0.4 $ 8.40 02-08-09 $ 25,730 $ 32,468
Lisa G. Jacobson 24,000 (3) 4.2 $ 8.05 07-08-14 $ 314,702 $ 501,111
6,000 (3) 1.0 $ 8.05 07-08-09 $ 61,644 $ 77,778
10,000 (4) 1.7 $ 9.00 07-25-11 $ 126,639 $ 175,385
Joseph R. Kurry, Jr. 10,000 (4) 1.7 $ 9.00 07-25-11 $ 126,639 $ 175,385
(1) Such options became exercisable beginning February 9, 2004. (2) Such options
became exercisable beginning March 26, 2004. (3) Such options became exercisable
beginning July 9, 2004. (4) Such options became exercisable beginning July 26,
2004.
The following table shows for the fiscal year ended December 31, 2004
for the persons named in the Summary Compensation Table, information with
respect to option/SAR exercises and fiscal year end values for unexercised
options/SARs.
AGGREGATED OPTION/SAR EXERCISES AND OPTION/SAR
VALUES FOR FISCAL YEAR ENDED DECEMBER 31, 2004
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FY-END # FY-END $ (1)
ON VALUE ------------------- ------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------- ----------- ------------- ----------- -------------
Leonard E. Moodispaw -- $ -- 395,000 -- $ 7,016,300 $ --
Terry M. Turpin -- $ -- 221,450 550 $ 3,822,380 $ 9,840
Rudolf Liskovec -- $ -- 56,900 13,100 $ 903,690 $ 158,310
James J. Devine 11,151 $ 74,157 3,149 35,700 $ 37,316 $ 423,045
Lisa G. Jacobson -- $ -- 20,000 20,000 $ 239,250 $ 239,250
Joseph R. Kurry, Jr. 7,500 $ 48,375 175,500 5,000 $ 3,047,040 $ 56,250
(1) Market value of underlying securities based on the closing price of
Essex's Common Stock on December 31, 2004 (last trading day of fiscal
2004) on the Nasdaq National Market of $20.25 minus the exercise price.
13
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2004 with
respect to compensation plans under which equity securities of the Company are
authorized for issuance.
NUMBER OF SECURITIES TO WEIGHTED AVERAGE EXERCISE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND FUTURE ISSUANCE
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS (EXCLUDING COLUMN (A))
(A) (B) (C)
------------------------------- ------------------------- -------------------------- ---------------------------
EQUITY COMPENSATION PLANS
APPROVED BY SECURITY HOLDERS 1,960,119 $5.14 1,656,795
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS 453,776 $2.57 7,550
(1)(2)
------------------------- ---------------------------
TOTAL 2,413,895 1,664,345
(1) Represents shares of common stock underlying non-qualified stock
options issued outside of any formal plan. Generally, options granted
outside equity compensation plans have grant prices equal to or
greater than the fair market value of the underlying stock on the
grant date and have a term of 10 years. The Board will adjust non-plan
awards to make appropriate adjustments in the number of shares
underlying options in the event of a stock split, merger, or other
change in capital structure of the Company. Other specific conditions
of the awards, such as vesting and termination provisions, are
individually determined.
(2) Includes remaining 50,276 options issued at below market prices in
exchange for fully vested outstanding options of acquired company.
PROPOSAL 1 -- ELECTION OF DIRECTORS
At the Annual Meeting, nine (9) directors of the Company will be
elected, each to hold office until the next Annual Meeting of Stockholders or
until their respective successors shall have been duly elected and qualified.
Each of the nominees named below have consented to serve if elected. In case any
of the nominees is not a candidate for director at the Annual Meeting, an event
which management does not anticipate, it is intended that the enclosed proxy
will be voted for substitute nominee, if any, designated by the Board of
Directors and nominated by a person named in the proxy, unless the authority to
vote for the management nominee(s) is withheld in the proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ELECTION OF
EACH OF THE NOMINEES FOR DIRECTOR.
DIRECTORS
JOHN G. HANNON, age 67, was elected a Director of Essex in September
2000. From early 2000 to 2002, Mr. Hannon was the managing member of Networking
Ventures, L.L.C., a privately held company that invested in technology
companies. From 1979 to March 2000, Mr. Hannon served as the Chief Executive
Officer of Pulse Engineering, Inc. an information security and signals
processing company which was sold in March 2000. Mr. Hannon started his business
career in 1963 after serving in the United States Marine Corps. Since that time,
he has been
14
involved in numerous entrepreneurial ventures. He is a past Director of the
Armed Forces Communications and Electronics Association.
ROBERT W. HICKS, age 67, was elected a Director of Essex in August
1988. He has been an independent consultant since 1986. During this period he
was engaged for three and one-half years by the State of Maryland Deposit
Insurance Fund Corporation as Receiver of several savings and loan associations,
first as an Agent and then as a Special Representative (both court-approved
positions). He was a principal officer and shareholder in Asset Management &
Recovery, Inc., a consulting firm which primarily provided services, directly
and as a subcontractor, to the Resolution Trust Corporation and law firms
engaged by the Resolution Trust Corporation. Mr. Hicks is also a Director and
the Corporate Secretary of the Kirby Lithographic Company, Inc. In 1998 he
formed Hicks Little Company, LLC for the purpose of conducting consulting
activity.
ANTHONY M. JOHNSON, age 50, was elected a Director of Essex in April
2004. Dr. Johnson became the Director of the Center for Advanced Studies in
Photonics Research (CASPR) in 2003 and is a Professor of Physics and a Professor
of Computer Science & Electrical Engineering at the University of Maryland,
Baltimore County (UMBC). He was the Chairperson & Distinguished Professor of the
Department of Applied Physics and Professor of Electrical and Computer
Engineering at the New Jersey Institute of Technology from 1995 to 2003. Prior
to this, from 1981 until 1995, he was a Member of Technical Staff at AT&T Bell
Laboratories in Holmdel, NJ. In 2002, he served as the President of the Optical
Society of America and is a Fellow of the American Physical Society, the
American Association for the Advancement of Science, the Institute of Electrical
and Electronics Engineers, the Optical Society of America, and a Charter Fellow
of the National Society of Black Physicists. He received his B.S. in Physics
(Magna Cum Laude) in 1975 from Polytechnic Institute of New York, and his Ph.D.
in Physics from City College of New York in 1981.
RAY M. KEELER, age 73, was elected a Director of Essex in July 1989.
Since 1986, he has been an independent consultant to both industry and
government organizations in areas related to national and tactical intelligence
programs. Mr. Keeler served on the Board of Directors of SEDC from December 1987
through April 1989. From 1988 to November 1995, he was President of CRYTEC,
Inc., a service company providing management, business development and technical
support to companies involved in classified cryptologic projects. Since December
1995, he has been a consultant to companies involved in national technical
intelligence programs. From 1982 to 1986, Mr. Keeler was Director of Program and
Budget for the NSA. He received a Bachelor of Arts degree from the University of
Wisconsin-Madison in 1957.
H. JEFFREY LEONARD, age 50, was elected a Director of Essex in
September 2000 and Chairman of the Board in December 2000. Dr. Leonard is the
President and founding shareholder of Global Environment Fund, or GEF, a private
equity investment management company. Dr. Leonard serves as Chairman of the
Investment Committee for GEF's investment funds. He has extensive experience in
international private equity and project finance investments, and advanced
technology investments in the energy, environmental, applications software,
intelligent systems engineering, biological and medical fields. Dr. Leonard also
serves as a member of the board of directors of the National Cooperative Bank,
Xymetrex Corporation, Aurora Flight Sciences Corp., Athena Technologies, Sorbent
Technologies, and Global Forest Products
15
Company Limited. He has served as an advisor to the U.S. Office of Technology
Assessment and is a member of the board of directors of the National Council for
Science and the Environment. Dr. Leonard received a Bachelor of Arts degree in
1976 from Harvard College, a Master of Science degree from the London School of
Economics in 1978 and a Doctor of Philosophy degree from Princeton University in
1984. Dr. Leonard is the Chairman of the Board of Beacon House, a not-for-profit
community development and education organization assisting children and their
families in Northeast Washington D.C. He is a marathon runner and was the winner
of the 2003 Cleantech Pioneer Award from the Cleantech Venture Capital Network.
MARIE S. MINTON, age 43, was elected a Director of Essex in December
2000. In late 2003, Ms. Minton formed Transition Finance Strategies, LLC, an
investment company that invests in small businesses in the professional services
areas. From 1994 to June 2003, Ms. Minton was a Managing Director and the Chief
Financial Officer of Global Environment Fund, an international private equity
investment management firm. Before joining GEF, Ms. Minton was the Vice
President of Finance for Clean Air Capital Markets Corporation, a boutique
investment banking firm. From 1986 through 1993, Ms. Minton was an Audit Manager
in the Entrepreneurial Services Division of Ernst & Young. Ms. Minton graduated
from the University of Virginia in 1986 with a Bachelor of Science degree in
Commerce. She is a member of the Virginia Society and American Institute of
Certified Public Accountants, the Washington Society of Investment Analysts, or
WSIA, and the CFA Institute. She serves as a faculty member for the WSIA's CFA
Education Program. Ms. Minton is a Certified Public Accountant and a Chartered
Financial Analyst. Ms. Minton volunteers as a Girl Scout leader and enjoys
riding her horse, Abner.
ARTHUR L. MONEY, age 65, was elected a Director of Essex in January
2003. Mr. Money served as the Assistant Secretary of Defense for Command,
Control, Communication and Intelligence (C3I) from October 1999 to April 2001.
Prior to his Senate confirmation in that role, he was the Senior Civilian
Official, Office of the ASD (C3I) from February 1998. Mr. Money also served as
the Chief Information Officer for the Department of Defense from 1998 to 2001.
From 1996 to 1998, he served as Assistant Secretary of the Air Force for
Research, Development and Acquisition, and as CIO for the Air Force. Prior to
his government service, Mr. Money held senior management positions (including
President) with ESL Inc., a subsidiary of TRW, and the TRW Avionics and
Surveillance Group. Mr. Money serves on numerous United States Government
Panels, Boards and Commissions. He additionally serves on many U.S. Company
Boards, Advisory Boards and Advisory Groups. Mr. Money received a Bachelor of
Science degree in Mechanical Engineering from San Jose State University in 1965,
a Master of Science degree in Mechanical Engineering from University of Santa
Clara in 1970 and attended the Harvard Executive Security Program in 1985 and
the Program for Senior Executives at the Massachusetts Institute of Technology
in 1988.
LEONARD E. MOODISPAW, age 62, President, Chief Executive Officer and
Director of Essex, rejoined Essex in 1998. He held the office of Chief Operating
Officer until September 2000 when he was elected Chief Executive Officer. Mr.
Moodispaw was an employee and consultant with Essex during 1988 to 1993. From
1988 to 1993, he was President of the former Essex subsidiary, System
Engineering and Development Corporation, or SEDC, and later served as Essex
Chief Administrative Officer and General Counsel. From April 1994 to April 1998,
Mr. Moodispaw was President of ManTech Advanced Systems International, Inc., a
subsidiary of
16
ManTech International Corporation. From 1965 to 1978, Mr. Moodispaw was a senior
manager in the National Security Agency, or NSA. After leaving the NSA he was
engaged in the private practice of law. He is the Founder of the Security
Affairs Support Association that brings government and industry together to
solve problems of mutual interest. He also serves as a member of the board of
directors of Griffin Services, Inc., a subsidiary of Vosper-Thornycroft, a UK
company. He received a Bachelor of Science degree in Business Administration
from the American University in Washington, D.C. in 1965, a Master of Science
degree in Business Administration from George Washington University in
Washington D.C. in 1969 and Juris Doctor in Law from the University of
Baltimore, Maryland in 1977. He is still growing older but not up, enjoys Rock
`n' Roll, chocolate and Key West, Florida. He takes pride in accomplishing
things.
TERRY M. TURPIN, age 62, was elected a Director of Essex in January
1997, he became our Senior Vice President and Chief Scientist for Essex,
positions he has held since 1996. He joined Essex through merger with SEDC where
he was Vice President and Chief Scientist from September 1984 through June 1989.
Currently Mr. Turpin is the Chairman of the Industrial Advisory Board for the
Optoelectronic Computing Center at the University of Colorado. From December
1983 to September 1984 he was an independent consultant. From 1963 through
December 1983, Mr. Turpin was employed by the NSA. He was Chief of the Advanced
Processing Technologies Division for ten years. He holds patents for optical
computers and adaptive optical components. Mr. Turpin represented the NSA on the
Tri-Service Optical Processing Committee organized by the Under Secretary of
Defense for Research and Engineering. He received a Bachelor of Science degree
in Electrical Engineering from the University of Akron in 1966 and a Master of
Science degree in Electrical Engineering from Catholic University in Washington,
D.C. in 1970.
OFFICERS
MATTHEW S. BECHTA, age 51, was elected Vice President in October 1993.
He is currently the Manager of the Geospatial Solutions Group, responsible for
GIS and Environmental Services, Radar Systems, and Information Systems
Development. Mr. Bechta was recently the head of the Processing Systems Group,
developing and fielding world-class radar imaging solutions to National Security
problems. Mr. Bechta joined Essex in 1989 with the merger of Essex and SEDC. Mr.
Bechta was one of the founders of SEDC, where he served in various technical and
management capacities since incorporation in 1980. At SEDC he led projects for
systems engineering and development of signal processing systems for satellite
communications and reconnaissance programs. He was also responsible for the
development of applications for and sales of opto-electronic processing systems.
Prior to 1980, Mr. Bechta was employed as a project engineer with the NSA, where
he was involved in the analysis of optical storage systems, installation of
network communications systems, and the acquisition of processing systems for
satellite reconnaissance. Mr. Bechta earned a Master of Science degree in
Computer Science from the Johns Hopkins University and a Bachelor of Science
degree in Electrical Engineering from Spring Garden College. In the off-hours,
Matt is a coach with the Columbia Reds Baseball Club, President of the
Centennial High School Boosters, and a fan of University of Pennsylvania
baseball.
KIMBERLY J. DECHELLO, age 44, joined Essex in May 1987 and has served
in various administrative and management capacities. She was elected Vice
President in December 2003,
17
appointed Chief Administrative Officer in November 1997 and Corporate Secretary
in January 1998. Ms. DeChello is responsible for corporate administration, human
resources, stock/stock option administration and assists with investor
relations. Ms. DeChello received a Master of Science degree in Human Resources
Management in 2000 from the University of Maryland. Ms. DeChello also holds an
Associate of Arts degree in Accounting and a Bachelor of Science degree in
Criminal Justice/Criminology from the University of Maryland. She enjoys dancing
and bird watching. She participates in the Smithsonian's Neighborhood Nest Watch
Program where she assists in catching, banding and data collection of birds in
her backyard.
JAMES J. DEVINE, age 66, Executive Vice President and General Manager
for the Company, joined Essex in February 2004. From November 2000 through
January 2004 he was a Principal at Booz Allen Hamilton leading the Corporate
Enterprise and Mission Operations lines of business supporting the Intelligence
Community. From 1964 to 2000, Mr. Devine was a senior executive at the NSA. He
served three overseas assignments in Europe and Asia and led two of the major
NSA Directorates during his 36 year career. He holds a Bachelor of Science in
Engineering from Johns Hopkins University and a Master of Engineering
Administration from George Washington University. He is a graduate of the
National War College. He enjoys golf (despite never having broken 100), hiking,
cross country skiing, and travel.
LISA G. JACOBSON, age 46, Executive Vice President and Chief Financial
Officer (CFO) for the Company, joined Essex in July 2004. From 2000 to spring of
2004 she was CFO for ACS Government Services, Inc. (ACS-GS), a subsidiary of
Fortune 500 ACS, Inc. She continued as CFO following the acquisition of ACS-GS
by Lockheed Martin Government Services Group, Inc. in 2003 until her departure
in spring 2004. ACS-GS provided commercial solutions as well as engineering and
technology services to the U.S. Government and other customers. Annual revenue
for ACS-GS for fiscal 2003 was reported by the company to be approximately $700
million. From 1990 to November 2000, Ms. Jacobson was Director, Accounting and
Financial Management Division of the U.S. Government Accountability Office
("GAO"). From 1979 to 1987, and from 1989-90 she was at Deloitte & Touche, where
her final position was Senior Manager. She was a GAO Fellow from 1987 to 1989.
She is a Certified Public Accountant and holds a Bachelor Degree in Accounting
from Oklahoma State University.
EDWIN M. JAEHNE, age 52, joined Essex Corporation as Vice President and
Chief Strategy Officer in 2003. He is a veteran entrepreneur with over 20 years
of international experience as an executive of information technology companies.
He is experienced in creating rapid growth companies as well as in the strategic
acquisition and merger of companies to form strong solutions focused companies
in both the communications and government markets. As Chief Strategy Officer,
Mr. Jaehne is focused on the strategic growth of Essex, expanding on existing
technology and capabilities, and creating product and service lines for both the
commercial and government markets. From 1996 until 2003 he served as either
President or Chief Operating Officer of several information technology
companies, where he led many successful mergers and acquisitions. He started his
first company, Jaehne Associates, LTD (an information security consultancy), in
1983, which he sold in 1988 to ManTech International, Inc. From 1988 until 1996,
he served as President of ManTech Strategic Associates, Ltd. Mr. Jaehne has a
diverse educational background. In 1975 he earned two Bachelor of Arts degrees
(Physics and Russian) from the University of Utah. Mr. Jaehne continued at the
University of Utah to earn
18
a Master of Arts degree in Physics (1976). In 1977, he earned a Master of Arts
in the History and Philosophy of Science at the University of Toronto, Toronto,
Canada.
RONALD M. KLASH, age 42, joined Essex Corporation in November 2004 as
Vice President and Controller. From August 2003 until joining Essex in 2004, he
was CFO for ACS Educational Solutions, Inc., a subsidiary of Fortune 500 ACS,
Inc. and Senior Business Operations Manager for Lockheed Martin Government
Services Group, Inc. From 1996 to August 2003, Mr. Klash was the Corporate
Controller of ACS Government Services, Inc. (ACS-GS) and Intellisource Inc. (for
which a majority of the assets were purchased by ACS-GS). ACS-GS provided
commercial solutions as well as engineering and technology services to the U.S.
Government and other customers. Annual revenue for ACS-GS for fiscal 2003 was
reported by the company to be approximately $700 million. Prior to joining
Intellisource, Mr. Klash held various responsible positions with Raytheon STX
Corporation, U.S. Airways, Inc. and Computer Data Systems, Inc. (which was
purchased by ACS-GS). He is a certified public accountant and holds a Bachelor
of Science degree in Accounting from West Liberty State College in West
Virginia. He enjoys golfing with his son.
JOSEPH R. KURRY, JR., age 54, joined Essex Corporation in March 1985.
He is Treasurer and Senior Vice President. Mr. Kurry was controller of ManTech
International Corporation from December 1979 to March 1985. Mr. Kurry graduated
in 1972 from Georgetown University, in Washington, D.C. and is a Certified
Public Accountant.
RUDOLF (RUDY) LISKOVEC, age 52, joined Essex in 2003 as Vice President
of Essex's Technical Services Group. Mr. Liskovec provides leadership to Essex
technology professionals that support enterprise-wide, life-cycle engineering
and technical services, application development, systems integration and
business process reengineering to systems of national importance. Mr. Liskovec
has 25 years of international management and engineering experience where he has
developed a track record of excellence in organizational development,
operational and engineering management, business development, and systems
engineering. During 2002-2003, Mr. Liskovec was President/CEO of Lisk Technical
Services, LLC, a consulting firm to government contractors, including Essex.
From 2001 to 2002, Mr. Liskovec was a director for the communications and
networks group of General Dynamics and from 1993 to 2001 he was an Executive
Vice President for ManTech International. He holds a Master of Science degree
(honors) in Computer Information Systems from Boston University, a Bachelor of
Science degree (Cum Laude) in Computer Science from the University of Maryland
and a Bachelor of Science degree (Summa Cum Laude) in Business Management from
the University of Maryland.
CRAIG H. PRICE, age 55, was elected Vice President in October 1993. Dr.
Price is presently Senior Technical Advisor to the General Manager and is
responsible for fostering cross-group technology synergy within the Company.
From May 2004 through January 2005, Dr. Price was Director of the Intelligent
Systems Group in Melbourne, FL and led the integration of this operation into
the Company upon its acquisition as part of CSI in May 2004. Prior to this, Dr.
Price was Director of Optical Solutions where he was responsible for the
development of products utilizing Essex patented optical technologies. Dr. Price
joined Essex in 1989 as a result of the merger of Essex and SEDC. Dr. Price had
joined SEDC in 1985, with varied assignments in engineering, analysis and
advanced technologies. Previously, he served in numerous technical and project
positions in the U.S. Air Force during the period 1974 - 1985, ending with
service in the Secretary
19
of the Air Force Office of Special Projects, where he was awarded the
Distinguished Service Medal. Dr. Price holds a Bachelor of Science degree in
Electrical Engineering from Kansas State University, a Master of Science degree
in Electrical Engineering from Purdue University and a Doctor of Philosophy
degree in Electrical Engineering, from Stanford University.
20
PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE RETURN AMONG ESSEX
CORPORATION, COMMUNICATION EQUIPMENT COMPANIES, GOVERNMENT
IT SERVICES COMPANIES, THE S&P 500 AND THE NASDAQ COMPOSITE
(PERFORMANCE GRAPH OMITTED)
The Stock Performance graph was plotted using the following data:
Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04
-----------------------------------------------------
Essex Corporation 100.00 205.56 706.67 271.11 834.67 1,800.00
Communication Equipment Companies (1) 100.00 97.37 126.07 128.19 187.05 320.59
Government IT Services Companies (2) 100.00 101.82 196.70 182.17 259.71 316.36
S&P 500 100.00 89.86 78.14 59.88 75.68 82.49
Nasdaq Composite 100.00 60.71 47.93 32.82 49.23 53.46
(1) Communication Equipment Companies include: Applied Signal Technology Inc.,
Flir Systems Inc., Harris Corp., Sensytech Inc.
(2) Government IT Services Companies include: Anteon International Corp., CACI
International Corp., DigitalNet Holdings Inc., Dynamics Research Corp.,
ManTech International Corp., Maximus Inc., MTC Technologies Inc., SI
International Inc., SRA International Inc.
21
PROPOSAL 2 - AMENDMENT AND RESTATEMENT OF THE ESSEX
CORPORATION 2004 STOCK INCENTIVE PLAN
GENERAL
The Company's stockholders are being asked to approve an amendment and
restatement of the Company's 2004 Stock Incentive Plan (the "2004 Plan").
Approval of the proposal requires the affirmative vote of the holders of a
majority of the shares of Common Stock present or represented and entitled to
vote at the Annual Meeting. Stockholders abstaining from voting on Proposal No.
2 will be counted for purposes of determining a quorum, but will not be counted
for any other purpose. Broker non-votes will not be considered as present or
voting, and as such each will have no effect on the vote for this proposal.
Subject to stockholder approval, the Board of Directors of the Company
amended and restated the 2004 Plan in February 2005, to increase the number of
shares reserved for issuance under the 2004 Plan by 300,000 shares from
1,000,000 shares to 1,300,000 shares, subject to adjustment in the event of a
stock split, stock dividend, or other similar change in the Common Stock or
capital structure of the Company. The 2004 Plan is intended to enable the
Company to attract and retain the best available personnel for positions, to
provide additional incentive to employees, directors and consultants and to
promote the success of the Company's business. The Board believes that the
Company's long term success is dependent upon the ability of the Company to
attract and retain superior individuals who, by virtue of their ability and
qualifications, make important contributions to the Company. Capitalized terms
used in this Proposal No. 2 shall have the same meaning as in the 2004 Plan
unless otherwise indicated.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE AMENDMENT AND RESTATEMENT OF THE 2004 PLAN
A general description of the principal terms of the 2004 Plan as
amended and restated is set forth below. This description is qualified in its
entirety by the terms of the amended and restated 2004 Plan, a copy of which is
attached to this Proxy Statement as Appendix A and is incorporated herein by
reference.
GENERAL DESCRIPTION
PURPOSE. The purpose of the 2004 Plan is to provide the Company's
employees, directors and consultants, whose present and potential contributions
are important to the success of the Company, an incentive, through ownership of
the Company's Common Stock, to continue in service to the Company, and to help
the Company compete effectively with other enterprises for the services of
qualified individuals.
As of March 22, 2005, options to purchase 402,045 shares had been
granted under the 2004 Plan of which options to purchase 377,300 shares were
outstanding. As of March 22, 2005, no shares of restricted stock had been
granted under the 2004 Plan. As of March 22, 2005, the number of officers,
employees, consultants and directors of the Company and its related entities
that were eligible to receive grants under the 2004 Plan was approximately 650
persons.
22
SHARES RESERVED FOR ISSUANCE UNDER THE 2004 PLAN. If the amendment and
restatement of the 2004 Plan is approved by the stockholders, the number of
shares reserved for issuance under the 2004 Plan will be increased by 300,000
shares from 1,000,000 shares to 1,300,000 shares, subject to adjustment only in
the event of a stock split, stock dividend, or other similar change in the
common stock or capital structure of the Company. The maximum number of shares
with respect to which options and stock appreciation rights may be granted to a
participant during a fiscal year of the Company is 500,000 shares. In addition,
in connection with a participant's commencement of continuous service, a
participant may be granted options and stock appreciation rights for up to an
additional 500,000 shares which shall not count against the limit set forth in
the previous sentence. For awards of restricted stock and restricted stock units
that are intended to be performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended, the maximum number of shares
subject to such awards that may be granted to a participant during a fiscal year
of the Company is 500,000 shares.
ADMINISTRATION. The 2004 Plan is administered, with respect to grants
to employees, directors, officers, and consultants, by the plan administrator
(the "Administrator"), defined as the Board or one or more committees designated
by the Board. With respect to grants to officers and directors, the committee
shall be constituted in such a manner as to satisfy applicable laws, including
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended and
Section 162(m) of Code.
TERMS AND CONDITIONS OF AWARDS. The 2004 Plan provides for the grant of
stock options, restricted stock, restricted stock units, stock appreciation
rights and dividend equivalent rights (collectively referred to as "awards").
Stock options granted under the 2004 Plan may be either incentive stock options
under the provisions of Section 422 of the Code, or nonqualified stock options.
Incentive stock options may be granted only to employees. Awards other than
incentive stock options may be granted to employees, directors and consultants.
Under the 2004 Plan, awards may be granted to such employees, directors or
consultants who are residing in non-U.S. jurisdictions as the Administrator may
determine from time to time.
Subject to applicable laws, the Administrator has the authority, in its
discretion, to select employees, directors and consultants to whom awards may be
granted from time to time, to determine whether and to what extent awards are
granted, to determine the number of shares of the Company's Common Stock or the
amount of other consideration to be covered by each award (subject to the
limitations set forth under the above section of this Proposal 2 "SHARES
RESERVED FOR ISSUANCE UNDER THE 2004 PLAN"), to approve award agreements for use
under the 2004 Plan, to determine the terms and conditions of any award, to
construe and interpret the terms of the 2004 Plan and awards granted, to
establish additional terms, conditions, rules or procedures to accommodate the
rules or laws of applicable non-U.S. jurisdictions and to take such other action
not inconsistent with the terms of the 2004 Plan as the Administrator deems
appropriate.
Each award granted under the 2004 Plan shall be designated in an award
agreement. In the case of an option, the option shall be designated as either an
incentive stock option or a nonqualified stock option. To the extent that the
aggregate fair market value of shares of the Company's Common Stock subject to
options designated as incentive stock options which become exercisable for the
first time by a participant during any calendar year exceeds $100,000, such
excess options shall be treated as nonqualified stock options.
23
The term of any award granted under the 2004 Plan may not be for more
than seven years (or five years in the case of incentive stock options granted
to any participant who owns stock representing more than 10% of the combined
voting power of the Company or any parent or subsidiary of the Company),
excluding any period for which the participant has elected to defer the receipt
of the shares or cash issuable pursuant to the award.
The 2004 Plan authorizes the Administrator to grant options at an
exercise price not less than 100% of the fair market value of the common stock
on the date the option is granted (or 110%, in the case of incentive stock
options granted to any employee who owns stock representing more than 10% of the
combined voting power of the Company or any parent or subsidiary of the
Company). In the case of a stock appreciation right, the base amount on which
the stock appreciation is calculated shall be not less than 100% of the fair
market value of the common stock on the date of grant. The exercise price is
generally payable in cash, check, shares of common stock or with respect to
options, payment through a broker-dealer sale and remittance procedure.
The 2004 Plan provides that (a) any reduction of the exercise price of
any option awarded under the 2004 Plan shall be subject to stockholder approval
and (b) canceling any option awarded under the 2004 Plan at a time when its
exercise price exceeds the fair market value of the underlying shares in
exchange for another award shall be subject to stockholder approval.
Under the 2004 Plan, the Administrator may establish one or more
programs under the 2004 Plan to permit selected grantees the opportunity to
elect to defer receipt of consideration payable under an award. The
Administrator also may establish under the 2004 Plan separate programs for the
grant of particular forms of awards to one or more classes of grantees. The
awards may be granted subject to vesting schedules and restrictions on transfer
and repurchase or forfeiture rights in favor of the Company as specified in the
award agreements to be issued under the 2004 Plan.
TERMINATION OF SERVICE. An award may not be exercised after the
termination date of such award as set forth in the award agreement. In the event
a participant in the 2004 Plan terminates continuous service with the Company,
an award may be exercised only to the extent provided in the award agreement.
Where an award agreement permits a participant to exercise an award following
termination of service, the award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of the
award, whichever comes first. Any award designated as an incentive stock option,
to the extent not exercised within the time permitted by law for the exercise of
incentive stock options following the termination of employment, shall convert
automatically to a nonqualified stock option and thereafter shall be exercisable
as such to the extent exercisable by its terms for the period specified in the
award agreement.
TRANSFERABILITY OF AWARDS. Under the 2004 Plan, incentive stock options
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent or distribution and may
be exercised during the lifetime of the participant only by the participant.
Other awards shall be transferable only by will or by the laws of descent
24
or distribution and to the extent provided in the award agreement. The 2004 Plan
permits the designation of beneficiaries by holders of awards, including
incentive stock options.
SECTION 162(M) OF THE CODE. The maximum number of shares with respect
to which options and stock appreciation rights may be granted to a participant
during a fiscal year of the Company is 500,000 shares. In addition, in
connection with a participant's commencement of continuous service, a
participant may be granted options and stock appreciation rights for up to an
additional 500,000 shares which shall not count against the limit set forth in
the previous sentence. The foregoing limitations shall be adjusted
proportionately by the Administrator in connection with any change in the
Company's capitalization due to a stock split, stock dividend or similar event
affecting the common stock of the Company and its determination shall be final,
binding and conclusive. Under Code Section 162(m) no deduction is allowed in any
taxable year of the Company for compensation in excess of $1 million paid to a
Covered Employee. An exception to this rule applies to compensation that is paid
pursuant to a stock incentive plan approved by stockholders and that specifies,
among other things, the maximum number of shares with respect to which options
and stock appreciation rights may be granted to eligible participants under such
plan during a specified period. Compensation paid pursuant to options or stock
appreciation rights granted under such a plan and with an exercise price equal
to the fair market value of the Company's Common Stock on the date of grant is
deemed to be inherently performance-based, since such awards provide value to
participants only if the stock price appreciates. To the extent required by
Section 162(m) of the Code or the regulations thereunder, in applying the
foregoing limitation, if any option or stock appreciation right is canceled, the
cancelled award shall continue to count against the maximum number of shares of
Common Stock with respect to which an award may be granted to a participant.
For awards of restricted stock and restricted stock units that are
intended to be performance-based compensation under Section 162(m) of the Code,
the maximum number of shares subject to such awards that may be granted to a
participant during a fiscal year of the Company is 500,000 shares. In order for
restricted stock and restricted stock units to qualify as performance-based
compensation, the Administrator must establish a performance goal with respect
to such award in writing not later than 90 days after the commencement of the
services to which it relates and while the outcome is substantially uncertain.
In addition, the performance goal must be stated in terms of an objective
formula or standard. The 2004 Plan contains the following list of performance
criteria that may be considered by the Administrator when granting
performance-based awards: (i) increase in share price, (ii) earnings per share,
(iii) total stockholder return, (iv) operating margin, (v) gross margin, (vi)
return on equity, (vii) return on assets, (viii) return on investment, (ix)
operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash
flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and
depreciation, (xvi) economic value added, (xvii) market share and (xviii)
personal management objectives.
CHANGE IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of common stock covered by
outstanding awards, the number of shares of common stock that have been
authorized for issuance under the 2004 Plan, the exercise or purchase price of
each outstanding award, the maximum number of shares of common stock that may be
granted subject to awards to any participant in a fiscal year, and the like,
shall be proportionally adjusted by the Administrator in the event of (i) any
increase or decrease in the
25
number of issued shares of common stock resulting from a stock split, stock
dividend, combination or reclassification or similar event affecting the common
stock of the Company, (ii) any other increase or decrease in the number of
issued shares of common stock effected without receipt of consideration by the
Company or (iii) as the Administrator may determine in its discretion, any other
transaction with respect to common stock including a corporate merger,
consolidation, acquisition of property or stock, separation (including a
spin-off or other distribution of stock or property), reorganization,
liquidation (whether partial or complete) or any similar transaction; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator and its determination shall be
final, binding and conclusive.
CORPORATE TRANSACTION. Effective upon the consummation of a corporate
transaction (as defined in the 2004 Plan), all outstanding awards shall
terminate. However, all such awards shall not terminate to the extent the
contractual obligations represented by the award are assumed by the successor
entity. In the event an outstanding award is not assumed or replaced by the
successor entity in connection with a corporate transaction, the award shall
automatically become fully vested and exercisable for all of the shares at the
time represented by the award, immediately prior to the specified effective date
of such corporate transaction.
CHANGE IN CONTROL. In the event of a change in control (as defined in
the 2004 Plan), all outstanding awards shall automatically become fully vested
and exercisable for all of the shares at the time represented by the award,
immediately prior to the specified effective date of such change in control.
AMENDMENT, SUSPENSION OR TERMINATION OF THE 2004 PLAN. The Board may at
any time amend, suspend or terminate the 2004 Plan. The 2004 Plan will terminate
ten years from the date of its approval by the Company's stockholders, unless
terminated earlier by the Board. To the extent necessary to comply with
applicable provisions of federal securities laws, state corporate and securities
laws, the Code, the rules of any applicable stock exchange or national market
system, and the rules of any non-U.S. jurisdiction applicable to awards granted
to residents therein, the Company shall obtain stockholder approval of any such
amendment to the 2004 Plan in such a manner and to such a degree as required.
CERTAIN FEDERAL TAX CONSEQUENCES
The following summary of the federal income tax consequences of 2004
Plan transactions is based upon federal income tax laws in effect on the date of
this proxy statement. This summary does not purport to be complete, and does not
discuss non-U.S., state or local tax consequences or guidance that may be issued
by the Treasury Department under Section 409A of the Internal Revenue Code.
NONQUALIFIED STOCK OPTIONS. The grant of a nonqualified stock option
under the 2004 Plan will not result in any federal income tax consequences to
the participant or to the Company. Upon exercise of a nonqualified stock option,
the participant is subject to income taxes at the rate applicable to ordinary
compensation income on the difference between the option exercise price and the
fair market value of the shares on the date of exercise. This income is subject
to
26
withholding for federal income and employment tax purposes. The Company is
entitled to an income tax deduction in the amount of the income recognized by
the participant, subject to possible limitations imposed by Section 162(m) of
the Code and so long as the Company withholds the appropriate taxes with respect
to such income (if required) and the participant's total compensation is deemed
reasonable in amount. Any gain or loss on the participant's subsequent
disposition of the shares of common stock will receive long or short-term
capital gain or loss treatment, depending on whether the shares are held for
more than one year following exercise. The Company does not receive a tax
deduction for any such gain.
In the event a nonqualified stock option is amended, such option may be
considered deferred compensation and subject to the rules of new Section 409A of
the Code, which provide rules regarding the timing of payment of deferred
compensation. An option subject to Section 409A of the Code which fails to
comply with the rules of Section 409A, can result in an additional 20% tax
obligation, plus penalties and interest. Currently how the additional tax and
penalties and interest will be applied is unclear.
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option under
the 2004 Plan will not result in any federal income tax consequences to the
participant or to the Company. A participant recognizes no federal taxable
income upon exercising an incentive stock option (subject to the alternative
minimum tax rules discussed below), and the Company receives no deduction at the
time of exercise. In the event of a disposition of stock acquired upon exercise
of an incentive stock option, the tax consequences depend upon how long the
participant has held the shares of common stock. If the participant does not
dispose of the shares within two years after the incentive stock option was
granted, nor within one year after the incentive stock option was exercised, the
participant will recognize a long-term capital gain (or loss) equal to the
difference between the sale price of the shares and the exercise price. The
Company is not entitled to any deduction under these circumstances.
If the participant fails to satisfy either of the foregoing holding
periods, he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on the disposition and the exercise price or (ii) the difference between the
fair market value of the stock on the exercise date and the exercise price. Any
gain in excess of the amount taxed as ordinary income will be treated as a long
or short-term capital gain, depending on whether the stock was held for more
than one year. The Company, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of ordinary income recognized by the
participant, subject to possible limitations imposed by Section 162(m) of the
Code and so long as the participant's total compensation is deemed reasonable in
amount.
The "spread" under an incentive stock option -- i.e., the difference
between the fair market value of the shares at exercise and the exercise price
-- is classified as an item of adjustment in the year of exercise for purposes
of the alternative minimum tax. If a participant's alternative minimum tax
liability exceeds such participant's regular income tax liability, the
participant will owe the larger amount of taxes. In order to avoid the
application of alternative minimum tax with respect to incentive stock options,
the participant must sell the shares within the same calendar year in which the
incentive stock options are exercised. However, such a sale
27
of shares within the same year of exercise will constitute a disqualifying
disposition, as described above.
In the event an incentive stock option is amended, such option may be
considered deferred compensation and subject to the rules of new Section 409A of
the Code, which provide rules regarding the timing of payment of deferred
compensation. An option subject to Section 409A of the Code which fails to
comply with the rules of Section 409A, can result in an additional 20% tax
obligation, plus penalties and interest. Currently how the additional tax and
penalties and interest will be applied is unclear. In addition, the amendment of
an incentive stock option may convert the option from an incentive stock option
to a nonqualified stock option.
RESTRICTED STOCK. The grant of restricted stock will subject the
recipient to ordinary compensation income on the difference between the amount
paid for such stock and the fair market value of the shares on the date that the
restrictions lapse. This income is subject to withholding for federal income and
employment tax purposes. The Company is entitled to an income tax deduction in
the amount of the ordinary income recognized by the recipient, subject to
possible limitations imposed by Section 162(m) of the Code and so long as the
Company withholds the appropriate taxes with respect to such income (if
required) and the participant's total compensation is deemed reasonable in
amount. Any gain or loss on the recipient's subsequent disposition of the shares
will receive long or short-term capital gain or loss treatment depending on how
long the stock has been held since the restrictions lapsed. The Company does not
receive a tax deduction for any such gain.
Recipients of restricted stock may make an election under Section 83(b)
of the Code ("Section 83(b) Election") to recognize as ordinary compensation
income in the year that such restricted stock is granted, the amount equal to
the spread between the amount paid for such stock and the fair market value on
the date of the issuance of the stock. If such an election is made, the
recipient recognizes no further amounts of compensation income upon the lapse of
any restrictions and any gain or loss on subsequent disposition will be long or
short-term capital gain to the recipient. The Section 83(b) Election must be
made within thirty days from the time the restricted stock is issued.
STOCK APPRECIATION RIGHTS. Recipients of stock appreciation rights
("SARS") generally should not recognize income until the SAR is exercised
(assuming there is no ceiling on the value of the right). Upon exercise, the
participant will normally recognize taxable ordinary income for federal income
tax purposes equal to the amount of cash and fair market value the shares, if
any, received upon such exercise. Participants who are employees will be subject
to withholding for federal income and employment tax purposes with respect to
income recognized upon exercise of an SAR. Participants will recognize gain upon
the disposition of any shares received on exercise of an SAR equal to the excess
of (i) the amount realized on such disposition over (ii) the ordinary income
recognized with respect to such shares under the principles set forth above.
That gain will be taxable as long or short-term capital gain depending on
whether the shares were held for more than one year.
The Company will be entitled to a tax deduction to the extent and in
the year that ordinary income is recognized by the participant, subject to
possible limitations imposed by Section 162(m) of the Code and so long as the
Company withholds the appropriate taxes with respect to
28
such income (if required) and the participant's total compensation is deemed
reasonable in amount.
To the extent that an SAR is settled in cash, such SAR will be
considered deferred compensation and subject to the rules of new Section 409A of
the Code, which provide rules regarding the timing of payment of deferred
compensation. An SAR subject to Section 409A of the Code which fails to comply
with the rules of Section 409A, can result in an additional 20% tax obligation,
plus penalties and interest. Currently how the additional tax and penalties and
interest will be applied is unclear.
RESTRICTED STOCK UNITS. Recipients of restricted stock units generally
should not recognize income until such units are converted into cash or shares
of stock. Upon conversion, the participant will normally recognize taxable
ordinary income for federal income tax purposes equal to the amount of cash and
fair market value the shares, if any, received upon such conversion.
Participants who are employees will be subject to withholding for federal income
and employment tax purposes with respect to income recognized upon conversion of
the restricted stock units. Participants will recognize gain upon the
disposition of any shares received upon conversion of the restricted stock units
equal to the excess of (i) the amount realized on such disposition over (ii) the
ordinary income recognized with respect to such shares under the principles set
forth above. That gain will be taxable as long or short-term capital gain
depending on whether the shares were held for more than one year.
The Company will be entitled to a tax deduction to the extent and in
the year that ordinary income is recognized by the participant, subject to
possible limitations imposed by Section 162(m) of the Code and so long as the
Company withholds the appropriate taxes with respect to such income (if
required) and the participant's total compensation is deemed reasonable in
amount.
Restricted stock units also can be considered non-qualified deferred
compensation and subject to the rules of new Section 409A of the Code, which
provide rules regarding the timing of payment of deferred compensation. A grant
of restricted stock units that does not meet the requirements of Code Section
409A will result in an additional 20% tax obligation, plus penalties and
interest to such participant. Currently, how the additional tax, penalties and
interest will be applied is unclear.
DIVIDENDS AND DIVIDEND EQUIVALENTS. Recipients of stock-based awards
that earn dividends or dividend equivalents will recognize taxable ordinary
income on any dividend payments received with respect to unvested and/or
unexercised shares subject to such awards, which income is subject to
withholding for federal income and employment tax purposes. The Company is
entitled to an income tax deduction in the amount of the income recognized by a
participant, subject to possible limitations imposed by Section 162(m) of the
Code and so long as the Company withholds the appropriate taxes with respect to
such income (if required) and the individual's total compensation is deemed
reasonable in amount.
29
NEW PLAN BENEFITS
As of the date of this Proxy Statement, no executive officer, employee
or director, and no associate of any executive officer or director, has been
granted any options subject to stockholder approval of the amendment and
restatement of the 2004 Plan. The benefits to be received by the Company's
directors, executive officers and employees pursuant to the amended and restated
2004 Plan are not determinable at this time.
PROPOSAL 3 -- RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has, upon recommendation of the Audit Committee,
selected Stegman & Company as independent registered public accounting firm of
the Company for the fiscal year ending December 31, 2005, and has further
directed that the selection of such independent registered public accounting
firm be submitted for ratification by the stockholders at the Annual Meeting.
Stegman & Company representatives will be present at the Annual Meeting
to respond to appropriate questions.
This Proposal 3 must receive a greater number of affirmative votes than
negative votes cast at the Annual Meeting to be approved. Abstentions and
broker-non votes will have no effect on this Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO
RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AND, UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS
WILL BE VOTED IN FAVOR OF SUCH RATIFICATION.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Company uses Stegman & Company ("Stegman") as its registered public
accounting firm. The following table shows the fees that were billed to the
Corporation by Stegman for professional services rendered for the fiscal years
ended December 31, 2004 and December 28, 2003.
FEE CATEGORY 2004 2003
------------------------------------------------ ---------- ----------
Audit Fees...................................... $ 50,500 $ 32,000
Audit-Related Fees.............................. 68,750 44,000
Tax Fees........................................ 12,800 8,000
All Other Fees.................................. -- --
---------- ----------
Total Fees................................. $ 132,050 $ 84,000
========== ===========
========== ===========
30
AUDIT FEES
This category includes fees for the audit of the Company's annual
consolidated financial statements and review of financial statements included in
the quarterly reports on Form 10-Q.
AUDIT-RELATED FEES
This category includes fees for assurance and related services that are
reasonably related to the performance of the audit or review of the
Corporation's consolidated financial statements and are not included above under
"Audit Fees". These services include services in connection with acquisitions
and stock offerings, including comfort letters to underwriters.
TAX FEES
This category includes fees for tax return preparation, tax advice and
tax planning.
ALL OTHER FEES
This category includes fees for products and services provided by
Stegman that are not included in the services reported above.
PRE-APPROVAL OF SERVICES
The Audit Committee pre-approves all services, including both audit and
non-audit services, provided by the Company's independent registered public
accounting firm. For audit services, each year the independent registered public
accounting firm provides the Committee with an engagement letter outlining the
scope of the audit services proposed to be performed during the year, which must
be formally accepted by the Committee before the audit commences. The
independent registered public accounting firm also submits an audit services fee
proposal, which also must be approved by the Committee before the audit
commences.
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. If any other matter requiring a vote of the Stockholders is properly
brought before the Annual Meeting, it is the intention of the persons appointed
as proxies to vote with respect to any such matter in accordance with their best
judgment.
It is important that proxies be returned promptly. Stockholders,
whether or not they expect to attend the Annual Meeting in person, are urged to
complete, sign and return the accompanying proxy in the enclosed envelope which
requires no postage if mailed in the United States.
31
STOCKHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING
All stockholder proposals intended to be presented at the 2006 Annual
Meeting of the Company must be received by the Company not later than December
13, 2005, and must otherwise comply with the rules of the SEC for inclusion in
the Company's proxy statement and form of proxy relating to that meeting.
Proposals should be delivered to Essex Corporation, 9150 Guilford Road,
Columbia, MD 21046, Attention: Corporate Secretary.
Except in the case of proposals made in accordance with Rule 14a-8,
stockholders intending to bring any business before the annual meeting of
shareholders must deliver written notice thereof to the Secretary of the Company
not less than 45 days prior to the anniversary of the date on which the
Corporation first mailed its proxy materials for its immediately preceding
annual meeting of shareholders. The deadline for matters sought to be presented
at the 2006 Annual Meeting is February 24, 2006. If a stockholder gives notice
of such a proposal after the February 24, 2006 deadline, the Company's proxy
holders will be allowed to use their discretionary voting authority to vote
against the stockholder proposal when and if the proposal is raised at the
Company's 2006 annual meeting.
ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 accompanies this Proxy Statement. Such report is not
part of the proxy solicitation materials.
REFERENCE DOCUMENTS
UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
STOCKHOLDER, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 AND THE EXHIBITS THERETO REQUIRED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO THE SECRETARY,
ESSEX CORPORATION, 9150 GUILFORD ROAD, COLUMBIA, MARYLAND 21046. THE FORM 10-K
IS NOT PART OF THE PROXY SOLICITATION MATERIALS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kimberly J. DeChello
KIMBERLY J. DECHELLO
SECRETARY
32
APPENDIX A
ESSEX CORPORATION
AUDIT COMMITTEE CHARTER
OF THE BOARD OF DIRECTORS
The duties and powers of the Audit Committee of the Board of Directors of Essex
Corporation are defined as follows:
Study and make recommendations to the Board of Directors with respect
to auditing policies and procedures and the scope and extent of audits;
To recommend to the Board of Directors the firm to be retained by the
Company as independent auditors;
To review and approve with the Company's independent auditors the proposed
plan of audit;
To review, in consultation with independent auditors, their completed
proposed audit report and SEC filings, and the related management
letter, as well as review the executive management's response to that
report;
Review the Company's unaudited quarterly financial results;
To consult with the independent auditor (periodically, as appropriate,
outside management's presence) regarding the adequacy of internal
accounting controls and report the status of the controls to the Board
of Directors;
To consider questions of audit independence resulting from non-audit
services rendered by the independent auditors;
To determine requirements for Internal Audits and staffing. To receive
and review periodic reports of the Company's internal audit staff and
to meet with that staff to review and approve the internal audit
programs, as well as to review the executive management's response to
internal audit reports;
Satisfy itself as to the professional competency of the Treasurer and
the internal auditor and the quality of performance of their respective
staffs in discharging the responsibilities of the two offices;
To review enforcement and compliance with the Company's Code of Ethics
and to directly receive and investigate confidential information or
allegations of improprieties from any employee or other person; and
To review material transactions by any officer with the Company.
33
EXHIBIT A
ESSEX CORPORATION
2004 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED FEBRUARY 22, 2005)
1. PURPOSES OF THE PLAN. The purposes of this Plan are to attract and
retain the best available personnel, to provide additional incentives to
Employees, Directors and Consultants and to promote the success of the Company's
business.
2. DEFINITIONS. The following definitions shall apply as used herein
and in the individual Award Agreements except as defined otherwise in an
individual Award Agreement. In the event a term is separately defined in an
individual Award Agreement, such definition shall supersede the definition
contained in this Section 2.
(a) "ADMINISTRATOR" means the Board or any of the Committees
appointed to administer the Plan.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
(c) "APPLICABLE LAWS" means the legal requirements relating to
the Plan and the Awards under applicable provisions of federal securities laws,
state corporate and securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S. jurisdiction
applicable to Awards granted to residents therein.
(d) "ASSUMED" means that pursuant to a Corporate Transaction
either (i) the Award is expressly affirmed by the Company or (ii) the
contractual obligations represented by the Award are expressly assumed (and not
simply by operation of law) by the successor entity or its Parent in connection
with the Corporate Transaction with appropriate adjustments to the number and
type of securities of the successor entity or its Parent subject to the Award
and the exercise or purchase price thereof which at least preserves the
compensation element of the Award existing at the time of the Corporate
Transaction as determined in accordance with the instruments evidencing the
agreement to assume the Award.
(e) "AWARD" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Restricted Stock Unit or other right or
benefit under the Plan.
(f) "AWARD AGREEMENT" means the written agreement evidencing
the grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(g) "BOARD" means the Board of Directors of the Company.
(h) "CAUSE" means, with respect to the termination by the
Company or a Related Entity of the Grantee's Continuous Service, that such
termination is for "Cause" as such term is expressly defined in a then-effective
written agreement between the Grantee and the Company or such Related Entity, or
in the absence of such then-effective written agreement and definition, is based
on, in the determination of the Administrator, the Grantee's: (i) performance of
any act or failure to perform any act in bad faith and to the detriment of the
Company or a Related Entity;
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(ii) dishonesty, intentional misconduct or material breach of any agreement with
the Company or a Related Entity; or (iii) commission of a crime involving
dishonesty, breach of trust, or physical or emotional harm to any person.
(i) "CHANGE IN CONTROL" means a change in ownership or control
of the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person
or related group of persons (other than an acquisition from or by the Company or
by a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals who are
Continuing Directors.
(j) "CODE" means the Internal Revenue Code of 1986, as
amended.
(k) "COMMITTEE" means any committee composed of members of the
Board appointed by the Board to administer the Plan.
(l) "COMMON STOCK" means the common stock of the Company.
(m) "COMPANY" means Essex Corporation, a Virginia corporation,
or any successor corporation that adopts the Plan in connection with a Corporate
Transaction.
(n) "CONSULTANT" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(o) "CONTINUING DIRECTORS" means members of the Board who
either (i) have been Board members continuously for a period of at least
thirty-six (36) months or (ii) have been Board members for less than thirty-six
(36) months and were elected or nominated for election as Board members by at
least a majority of the Board members described in clause (i) who were still in
office at the time such election or nomination was approved by the Board.
(p) "CONTINUOUS SERVICE" means that the provision of services
to the Company or a Related Entity in any capacity of Employee, Director or
Consultant is not interrupted or terminated. In jurisdictions requiring notice
in advance of an effective termination as an Employee, Director or Consultant,
Continuous Service shall be deemed terminated upon the actual cessation of
providing services to the Company or a Related Entity notwithstanding any
required notice period that must be fulfilled before a termination as an
Employee, Director or
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Consultant can be effective under Applicable Laws. Continuous Service shall not
be considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers among the Company, any Related Entity, or any successor, in any
capacity of Employee, Director or Consultant, or (iii) any change in status as
long as the individual remains in the service of the Company or a Related Entity
in any capacity of Employee, Director or Consultant (except as otherwise
provided in the Award Agreement). An approved leave of absence shall include
sick leave, military leave, or any other authorized personal leave. For purposes
of each Incentive Stock Option granted under the Plan, if such leave exceeds
ninety (90) days, and reemployment upon expiration of such leave is not
guaranteed by statute or contract, then the Incentive Stock Option shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the expiration of such ninety (90) day period.
(q) "CORPORATE TRANSACTION" means any of the following
transactions:
(i) a merger or consolidation in which the Company is
not the surviving entity,except for a transaction the principal purpose of which
is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company;
(iii) the complete liquidation or dissolution of the
Company;
(iv) any reverse merger or series of related
transactions culminating in a reverse merger (including, but not limited to, a
tender offer followed by a reverse merger) in which the Company is the surviving
entity but (A) the shares of Common Stock outstanding immediately prior to such
merger are converted or exchanged by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, or (B) in which securities
possessing more than forty percent (40%) of the total combined voting power of
the Company's outstanding securities are transferred to a person or persons
different from those who held such securities immediately prior to such merger
or the initial transaction culminating in such merger, but excluding any such
transaction or series of related transactions that the Administrator determines
shall not be a Corporate Transaction; or
(v) acquisition in a single or series of related
transactions by any person or related group of persons (other than the Company
or by a Company-sponsored employee benefit plan) of beneficial ownership (within
the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Company's
outstanding securities but excluding any such transaction or series of related
transactions that the Administrator determines shall not be a Corporate
Transaction.
(r) "COVERED EMPLOYEE" means an Employee who is a "covered
employee" under Section 162(m)(3) of the Code.
(s) "DIRECTOR" means a member of the Board or the board of
directors of any Related Entity.
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(t) "DISABILITY" means as defined under the long-term
disability policy of the Company or the Related Entity to which the Grantee
provides services regardless of whether the Grantee is covered by such policy.
If the Company or the Related Entity to which the Grantee provides service does
not have a long-term disability plan in place, "Disability" means that a Grantee
is unable to carry out the responsibilities and functions of the position held
by the Grantee by reason of any medically determinable physical or mental
impairment for a period of not less than ninety (90) consecutive days. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.
(u) "DIVIDEND EQUIVALENT RIGHT" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common Stock.
(v) "EMPLOYEE" means any person, including an Officer or
Director, who is in the employ of the Company or any Related Entity, subject to
the control and direction of the Company or any Related Entity as to both the
work to be performed and the manner and method of performance. The payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.
(w) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(x) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on one or more
established stock exchanges or national market systems, including without
limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on the
principal exchange or system on which the Common Stock is listed (as determined
by the Administrator) on the date of determination (or, if no closing sales
price or closing bid was reported on that date, as applicable, on the last
trading date such closing sales price or closing bid was reported), as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted on an
automated quotation system (including the OTC Bulletin Board) or by a recognized
securities dealer, its Fair Market Value shall be the closing sales price for
such stock as quoted on such system on the date of determination, but if selling
prices are not reported, the Fair Market Value of a share of Common Stock shall
be the mean between the high bid and low asked prices for the Common Stock on
the date of determination (or, if no such prices were reported on that date, on
the last date such prices were reported), as reported in The Wall Street Journal
or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock of the type described in (i) and (ii), above, the Fair Market Value
thereof shall be determined by the Administrator in good faith.
(y) "GRANTEE" means an Employee, Director or Consultant who
receives an Award under the Plan.
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(z) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code
(aa) "NON-QUALIFIED STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(bb)"OFFICER" means a person who is an officer of the Company
or a Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(cc) "OPTION" means an option to purchase Shares pursuant to
an Award Agreement granted under the Plan.
(dd) "PARENT" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(ee) "PERFORMANCE-BASED COMPENSATION" means compensation
qualifying as "performance-based compensation" under Section 162(m) of the Code.
(ff) "PLAN" means this 2004 Stock Incentive Plan.
(gg) "RELATED ENTITY" means any Parent or Subsidiary of the
Company and any business, corporation, partnership, limited liability company or
other entity in which the Company or a Parent or a Subsidiary of the Company
holds a substantial ownership interest, directly or indirectly.
(hh) "REPLACED" means that pursuant to a Corporate Transaction
the Award is replaced with a comparable stock award or a cash incentive program
of the Company, the successor entity (if applicable) or Parent of either of them
which preserves the compensation element of such Award existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same (or a more favorable) vesting schedule applicable to such Award. The
determination of Award comparability shall be made by the Administrator and its
determination shall be final, binding and conclusive.
(ii)"RESTRICTED STOCK" means Shares issued under the Plan to
the Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(jj)"RESTRICTED STOCK UNITS" means an Award which may be
earned in whole or in part upon the passage of time or the attainment of
performance criteria established by the Administrator and which may be settled
for cash, Shares or other securities or a combination of cash, Shares or other
securities as established by the Administrator.
(kk) "RULE 16B-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor thereto.
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(ll)"SAR" means a stock appreciation right entitling the
Grantee to Shares or cash compensation, as established by the Administrator,
measured by appreciation in the value of Common Stock.
(mm) "SHARE" means a share of the Common Stock.
(nn) "SUBSIDIARY" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is 1,300,000 Shares. The Shares to be issued pursuant
to Awards may be authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award)
which is forfeited, canceled or expires (whether voluntarily or involuntarily)
shall be deemed not to have been issued for purposes of determining the maximum
aggregate number of Shares which may be issued under the Plan. Shares that
actually have been issued under the Plan pursuant to an Award shall not be
returned to the Plan and shall not become available for future issuance under
the Plan, except that if unvested Shares are forfeited, or repurchased by the
Company at the lower of their original purchase price or their Fair Market Value
at the time of repurchase, such Shares shall become available for future grant
under the Plan. To the extent not prohibited by Section 422(b)(1) of the Code
(and the corresponding regulations thereunder), the listing requirements of The
Nasdaq National Market (or other established stock exchange or national market
system on which the Common Stock is traded) and Applicable Law, any Shares
covered by an Award which are surrendered (i) in payment of the Award exercise
or purchase price or (b) in satisfaction of tax withholding obligations incident
to the exercise of an Award shall be deemed not to have been issued for purposes
of determining the maximum number of Shares which may be issued pursuant to all
Awards under the Plan, unless otherwise determined by the Administrator.
4. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATOR.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS. With respect to grants of Awards to Directors or Employees who are
also Officers or Directors of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
(ii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND
OTHER EMPLOYEES. With respect to grants of Awards to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee
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designated by the Board, which Committee shall be constituted in such a manner
as to satisfy the Applicable Laws. Once appointed, such Committee shall continue
to serve in its designated capacity until otherwise directed by the Board. The
Board may authorize one or more Officers to grant such Awards and may limit such
authority as the Board determines from time to time.
(iii) ADMINISTRATION WITH RESPECT TO COVERED
EMPLOYEES. Not-withstanding the foregoing, grants of Awards to any Covered
Employee intended to qualify as Performance-Based Compensation shall be made
only by a Committee (or subcommittee of a Committee) which is comprised solely
of two or more Directors eligible to serve on a committee making Awards
qualifying as Performance-Based Compensation. In the case of such Awards granted
to Covered Employees, references to the "Administrator" or to a "Committee"
shall be deemed to be references to such Committee or subcommittee.
(iv) ADMINISTRATION ERRORS. In the event an Award is
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws
and the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and
Consultants to whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards
are granted hereunder;
(iii) to determine the number of Shares or the amount
of other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use
under the Plan;
(v) to determine the terms and conditions of any
Award granted hereunder;
(vi) to amend the terms of any outstanding Award
granted under the Plan, provided that (A) any amendment that would adversely
affect the Grantee's rights under an outstanding Award shall not be made without
the Grantee's written consent, (B) the reduction of the exercise price of any
Option awarded under the Plan shall be subject to stockholder approval and (C)
canceling an Option at a time when its exercise price exceeds the Fair Market
Value of the underlying Shares, in exchange for another Option, Restricted
Stock, or other Award shall be subject to stockholder approval, unless the
cancellation and exchange occurs in connection with a Corporate Transaction;
(vii) to construe and interpret the terms of the Plan
and Awards, including without limitation, any notice of award or Award
Agreement, granted pursuant to the Plan;
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(viii) to grant Awards to Employees, Directors and
Consultants employed outside the United States on such terms and conditions
different from those specified in the Plan as may, in the judgment of the
Administrator, be necessary or desirable to further the purpose of the Plan; and
(ix) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.
(c) INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or as Officers or
Employees of the Company or a Related Entity, members of the Board and any
Officers or Employees of the Company or a Related Entity to whom authority to
act for the Board, the Administrator or the Company is delegated shall be
defended and indemnified by the Company to the extent permitted by law on an
after-tax basis against all reasonable expenses, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any claim,
investigation, action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any Award
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by the Company) or paid by them in
satisfaction of a judgment in any such claim, investigation, action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such claim, investigation, action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct; provided, however,
that within thirty (30) days after the institution of such claim, investigation,
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at the Company's expense to defend the same.
5. ELIGIBILITY. Awards other than Incentive Stock Options may be
granted to Employees, Directors and Consultants. Incentive Stock Options may be
granted only to Employees of the Company or a Parent or a Subsidiary of the
Company. An Employee, Director or Consultant, who has been granted an Award may,
if otherwise eligible, be granted additional Awards. Awards may be granted to
such Employees, Directors or Consultants who are residing in non-U.S.
jurisdictions as the Administrator may determine from time to time.
6. TERMS AND CONDITIONS OF AWARDS.
(a) TYPES OF AWARDS. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) cash or (iii) an
Option, a SAR, or similar right with a fixed or variable price related to the
Fair Market Value of the Shares and with an exercise or conversion privilege
related to the passage of time, the occurrence of one or more events, or the
satisfaction of performance criteria or other conditions. Such awards include,
without limitation, Options, SARs, sales or bonuses of Restricted Stock,
Restricted Stock Units or Dividend Equivalent Rights, and an Award may consist
of one such security or benefit, or two (2) or more of them in any combination
or alternative.
(b) DESIGNATION OF AWARD. Each Award shall be designated in
the Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the
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extent that the aggregate Fair Market Value of Shares subject to Options
designated as Incentive Stock Options which become exercisable for the first
time by a Grantee during any calendar year (under all plans of the Company or
any Parent or Subsidiary of the Company) exceeds $100,000, such excess Options,
to the extent of the Shares covered thereby in excess of the foregoing
limitation, shall be treated as Non-Qualified Stock Options. For this purpose,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the grant date of the relevant Option.
(c) CONDITIONS OF AWARD. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, the following: (i) increase in share price, (ii) earnings per
share, (iii) total stockholder return, (iv) operating margin, (v) gross margin,
(vi) return on equity, (vii) return on assets, (viii) return on investment, (ix)
operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash
flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and
depreciation, (xvi) economic value added, (xvii) market share and (xviii)
personal management objectives. Partial achievement of the specified criteria
may result in a payment or vesting corresponding to the degree of achievement as
specified in the Award Agreement.
(d) ACQUISITIONS AND OTHER TRANSACTIONS. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
(e) DEFERRAL OF AWARD PAYMENT. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the election
would entitle the Grantee to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.
(f) SEPARATE PROGRAMS. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Administrator from time to time.
(g) INDIVIDUAL LIMITATIONS ON AWARDS.
(i) INDIVIDUAL LIMIT FOR OPTIONS AND SARS. The maximum number of Shares with
respect to which Options and SARs may be granted to any Grantee in any fiscal
year of the Company shall be 500,000 Shares. In connection with a Grantee's
commencement of
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Continuous Service, a Grantee may be granted Options or SARs for up to an
additional 500,000 Shares which shall not count against the limit set forth in
the previous sentence. The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
pursuant to Section 10, below. To the extent required by Section 162(m) of the
Code or the regulations thereunder, in applying the foregoing limitations with
respect to a Grantee, if any Option or SAR is canceled, the canceled Option or
SAR shall continue to count against the maximum number of Shares with respect to
which Options and SARs may be granted to the Grantee. For this purpose, the
repricing of an Option (or in the case of a SAR, the base amount on which the
stock appreciation is calculated is reduced to reflect a reduction in the Fair
Market Value of the Common Stock) shall be treated as the cancellation of the
existing Option or SAR and the grant of a new Option or SAR.
(ii) INDIVIDUAL LIMIT FOR RESTRICTED STOCK AND RESTRICTED STOCK UNITS. For
awards of Restricted Stock and Restricted Stock Units that are intended to be
Performance-Based Compensation, the maximum number of Shares with respect to
which such Awards may be granted to any Grantee in any fiscal year of the
Company shall be 500,000 Shares. The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization
pursuant to Section 10, below.
(iii) DEFERRAL. If the vesting or receipt of Shares under an Award is deferred
to a later date, any amount (whether denominated in Shares or cash) paid in
addition to the original number of Shares subject to such Award will not be
treated as an increase in the number of Shares subject to the Award if the
additional amount is based either on a reasonable rate of interest or on one or
more predetermined actual investments such that the amount payable by the
Company at the later date will be based on the actual rate of return of a
specific investment (including any decrease as well as any increase in the value
of an investment).
(h) EARLY EXERCISE. The Award Agreement may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise may
be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Administrator determines to be appropriate.
(i) TERM OF AWARD. The term of each Award shall be no more
than seven (7) years from the date of grant thereof (excluding any period for
which the Grantee has elected to defer the receipt of the Shares or cash
issuable pursuant to the Award). However, in the case of an Incentive Stock
Option granted to a Grantee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary of the Company, the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Award Agreement (excluding any
period for which the Grantee has elected to defer the receipt of the Shares
issuable pursuant to the Incentive Stock Option).
(j) TRANSFERABILITY OF AWARDS. Incentive Stock Options may not
be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee.
Non-Qualified Stock Options and other Awards shall be transferable (i) by will
or by the laws of descent and distribution and (ii) during the lifetime of the
Grantee, to the extent
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and in the manner authorized by the Administrator. Notwithstanding the
foregoing, the Grantee may designate one or more beneficiaries of the Grantee's
Incentive Stock Option or Non-Qualified Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
(k) TIME OF GRANTING AWARDS. The date of grant of an Award
shall for all purposes be the date on which the Administrator makes the
determination to grant such Award, or such other date as is determined by the
Administrator.
7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION AND TAXES.
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase
price, if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary of the Company, the per Share exercise price shall be
not less than one hundred ten percent (110%) of the Fair Market Value per Share
on the date of grant; or
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(ii) In the case of Non-Qualified Stock Options, the
exercise price shall be not less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(iii) In the case of SARs, the base appreciation
amount shall be not less than one hundred percent (100%) of the Fair Market
Value per Share on the date of grant.
(iv) In the case of other Awards, such price as is
determined by the Administrator.
(v) Notwithstanding the foregoing provisions of this
Section 7(a), in the case of an Award issued pursuant to Section 6(d) above, the
exercise or purchase price for the Award shall be determined in accordance with
the provisions of the relevant instrument evidencing the agreement to issue such
Award.
(b) CONSIDERATION. Subject to Applicable Laws, the
consideration to be paid for the Shares to be issued upon exercise or purchase
of an Award including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). In addition to any other types of
consideration the Administrator may determine, the Administrator is authorized
to accept as consideration for Shares issued under the Plan the following:
(i) cash;
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(ii) check;
(iii) surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised, provided, however, that Shares acquired under the Plan or any
other equity compensation plan or agreement of the Company must have been held
by the Grantee for a period of more than six (6) months (and not used for
another Award exercise by attestation during such period);
(iv) with respect to Options, payment through a
broker-dealer sale and remittance procedure pursuant to which the Grantee (A)
shall provide written instructions to a Company designated brokerage firm to
effect the immediate sale of some or all of the purchased Shares and remit to
the Company sufficient funds to cover the aggregate exercise price payable for
the purchased Shares and (B) shall provide written directives to the Company to
deliver the certificates for the purchased Shares directly to such brokerage
firm in order to complete the sale transaction; or
(v) any combination of the foregoing methods of
payment.
(c) TAXES. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any non-U.S., federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
8. EXERCISE OF AWARD.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.
(i) Any Award granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised, including,
to the extent selected, use of the broker-dealer sale and remittance procedure
to pay the purchase price as provided in Section 7(b)(iv).
(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF CONTINUOUS
SERVICE.
(i) An Award may not be exercised after the
termination date of such Award set forth in the Award Agreement and may be
exercised following the termination of a Grantee's Continuous Service only to
the extent provided in the Award Agreement.
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(ii) Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Service
for a specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of the
Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock
Option to the extent not exercised within the time permitted by law for the
exercise of Incentive Stock Options following the termination of a Grantee's
Continuous Service shall convert automatically to a Non-Qualified Stock Option
and thereafter shall be exercisable as such to the extent exercisable by its
terms for the period specified in the Award Agreement.
9. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company
may require the person exercising such Award to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by any Applicable Laws.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Awards may
be granted to any Grantee in any fiscal year of the Company, as well as any
other terms that the Administrator determines require adjustment shall be
proportionately adjusted for (i) any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Shares, or similar transaction affecting
the Shares, (ii) any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company, or (iii) as the
Administrator may determine in its discretion, any other transaction with
respect to Common Stock including a corporate merger, consolidation, acquisition
of property or stock, separation (including a spin-off or other distribution of
stock or property), reorganization, liquidation (whether partial or complete) or
any similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator
and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
A-13
11. CORPORATE TRANSACTIONS AND CHANGES IN CONTROL.
(a) TERMINATION OF AWARD TO EXTENT NOT ASSUMED IN CORPORATE
TRANSACTION. Effective upon the consummation of a Corporate Transaction, all
outstanding Awards under the Plan shall terminate. However, all such Awards
shall not terminate to the extent they are Assumed in connection with the
Corporate Transaction.
(b) ACCELERATION OF AWARD UPON CORPORATE TRANSACTION OR CHANGE
IN CONTROL.
(i) CORPORATE TRANSACTION. Except as provided otherwise in
an individual Award Agreement, in the event of a Corporate Transaction, for
the portion of each Award that is neither Assumed nor Replaced, such portion
of the Award shall automatically become fully vested and exercisable and be
released from any repurchase or forfeiture rights (other than repurchase
rights exercisable at fair market value) for all of the Shares at the time
represented by such portion of the Award, immediately prior to the specified
effective date of such Corporate Transaction.
(ii) CHANGE IN CONTROL. Except as provided otherwise in an
individual Award Agreement, in the event of a Change in Control (other than a
Change in Control which also is a Corporate Transaction), each Award which is at
the time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any repurchase or forfeiture rights (other than
repurchase rights exercisable at fair market value), immediately prior to the
specified effective date of such Change in Control, for all of the Shares at the
time represented by such Award.
(c) EFFECT OF ACCELERATION ON INCENTIVE STOCK OPTIONS. Any
Incentive Stock Option accelerated under this Section 11 in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Stock Option under the Code only to the extent the $100,000 dollar
limitation of Section 422(d) of the Code is not exceeded. To the extent such
dollar limitation is exceeded, the excess Options shall be treated as
Non-Qualified Stock Options.
12. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
upon its initial approval by the stockholders of the Company. It shall continue
in effect for a term of ten (10) years unless sooner terminated. Subject to
Applicable Laws, Awards may be granted under the Plan upon its becoming
effective.
13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the
Plan; provided, however, that no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by Applicable Laws, or if such amendment would change any of the provisions of
Section 4(b)(vi) or this Section 13(a).
(b) No Award may be granted during any suspension of the Plan
or after termination of the Plan.
A-14
(c) No suspension or termination of the Plan (including
termination of the Plan under Section 12 above shall adversely affect any rights
under Awards already granted to a Grantee.
14. RESERVATION OF SHARES.
(a) The Company, during the term of the Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT/CONSULTING RELATIONSHIP. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the right of the Company or any Related Entity to terminate the Grantee's
Continuous Service at any time, with or without Cause, and with or without
notice. The ability of the Company or any Related Entity to terminate the
employment of a Grantee who is employed at will is in no way affected by its
determination that the Grantee's Continuous Service has been terminated for
Cause for the purposes of this Plan.
16. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
17. UNFUNDED OBLIGATION. Grantees shall have the status of general
unsecured creditors of the Company. Any amounts payable to Grantees pursuant to
the Plan shall be unfunded and unsecured obligations for all purposes,
including, without limitation, Title I of the Employee Retirement Income
Security Act of 1974, as amended. Neither the Company nor any Related Entity
shall be required to segregate any monies from its general funds, or to create
any trusts, or establish any special accounts with respect to such obligations.
The Company shall retain at all times beneficial ownership of any investments,
including trust investments, which the Company may make to fulfill its payment
obligations hereunder. Any investments or the creation or maintenance of any
trust or any Grantee account shall not create or constitute a trust or fiduciary
relationship between the Administrator, the Company or any Related Entity and a
Grantee, or otherwise create any vested or beneficial interest in any Grantee or
the Grantee's creditors in any assets of the Company or a Related Entity. The
Grantees shall have no claim against the Company or any Related Entity for any
changes in the value of any assets that may be invested or reinvested by the
Company with respect to the Plan.
18. PLAN HISTORY. The Plan initially became effective upon is approval
by the stockholders on July 21, 2004. In February 2005, the Board approved an
amendment and restatement of the Plan in order to increase the number of shares
available for issuance thereunder by 300,000 shares from 1,000,000 shares to
1,300,00 shares, with such amendment and restatement of the Plan to be effective
only upon approval by the stockholders of the Company.
A-15
ESSEX CORPORATION VOTE BY INTERNET - WWW.PROXYVOTE.COM
9150 GUILFORD ROAD ------------------------------------
COLUMBIA, MARYLAND 21046 Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site and follow the voting
instruction form.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER
COMMUNICATIONS
1 OF 2 If you would like to reduce the costs incurred
by Essex Corporation in mailing proxy materials,
AUTO DATA PROCESSING you can consent to receiving all future proxy
INVESTOR COMM SERVICES statements, proxy cards and annual reports
ATTENTION: electronically via e-mail or the Internet. To
51 MERCEDES WAY sign up for electronic delivery, please follow
EDGEWOOD, NY the instructions above to vote using the
11717 Internet and, when prompted, indicate that you
agree to receive or access shareholder
communications electronically in future years.
VOTE BY MAIL
Mark, sign and date your proxy card and return
it in the postage-paid envelope we have provided
or return it to Essex Corporation, c/o ADP,
51 Mercedes Way, Edgewood, NY 11717
TO VOTE, MARK BLOCKS BELOW IN BLUE ESSEX1 KEEP THIS PORTION
OR BLACK INK AS FOLLOWS: FOR YOUR RECORDS
-------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY DETACH AND RETURN THIS PORTION ONLY
WHEN SIGNED AND DATED.
ESSEX CORPORATION
Vote on Directors
1. Election of Directors
01) JOHN G. HANNON 06) MARIE S. MINTON FOR WITHOLD FOR ALL
02) ROBERT W. HICKS 07) ARTHUR L. MONEY ALL FOR ALL EXCEPT
03) ANTHONY M. JOHNSON 08) LEONARD E. MOODISPAW
04) RAY M. KEELER 09) TERRY M. TURPIN
05) H. JEFFREY LEONARD ------ ------- ------
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THE
NOMINEE'S NAME ON THE LINE BELOW.
-----------------------------------------
Vote on Proposals Approve Disapprove Abstain
2. Ratify and approve an amendment and
restatement of the Company's 2004 Stock
Incentive Plan to increase the number of
shares reserved for issuance thereunder
from 1,000,000 shares to 1,300,000 shares.
(Board of Directors Favors a Vote FOR
Approval.) ------ ------ ------
Approve Disapprove Abstain
3. Ratify the selection of Stegman & Company
as the independent registered public
accounting firm for the company. (Board
of Directors Favors a Vote FOR Approval.) ------ ------ ------
4. Act upon such other business as may properly
come before the meeting.
Receipt is hereby acknowledged of the Notice of Meeting and Proxy Statement of
Essex Corporation dated April 12, 2005.
Please sign exactly as your name appears on the envelope in which this card was
mailed. When signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If shares are held jointly, each holder should
sign.
Yes No AUTO DATA PROCESSING
INVESTOR COMM SERVICES
PLEASE INDICATE IF YOU PLAN TO ATTENTION:
ATTEND THIS MEETING ----- ----- TEST PRINT
51 MERCEDES WAY
EDGEWOOD, NY
11717
--------------------------------------- -----------------------------
SIGNATURE (PLEASE SIGN WITHIN BOX) DATE SIGNATURE (JOINT OWNERS) DATE
-------------------------------------------------------------------------------
ESSEX CORPORATION, 9150 GUILFORD ROAD, COLUMBIA, MARYLAND 21046
Board of Directors Proxy for the Annual Meeting of Stockholders
The undersigned hereby appoints Leonard E. Moodispaw, Lisa G. Jacobson
and Kimberly J. DeChello proxies with full power of substitution in them to vote
all shares of common stock which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of Essex Corporation to be held on May 10, 2005
at THE GREAT ROOM AT HISTORIC SAVAGE MILL, 8600 FOUNDRY STREET, SAVAGE, MARYLAND
at 1:00 p.m. (see proxy for further details), and at any adjournment or
adjournments of such meeting, with all powers which the undersigned would
possess if personally present. Without limiting the generality of the foregoing,
said proxies are authorized to vote as shown on the reverse side of this card.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION
MADE THEREON. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF ALL DIRECTOR NOMINEES AND TO APPROVE THE PROPOSALS STATED ON THE
REVERSE SIDE OF THIS CARD.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY
IN THE POSTAGE-PREPAID ENVELOPE.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF ESSEX CORPORATION.
DIRECTIONS TO THE GREAT ROOM
AT HISTORIC SAVAGE MILL
FROM I-95 MILES
o Take MD-32 East/Fort Meade 1.2
o Take the US-1 North & South exit towards Elkridge/Laurel and
Turn Right (South) onto Rt. 1/Washington Blvd. .5
o Turn Right on Gorman Road (follow Savage Mill signs) .3
o Turn Right on Foundry Street .2
o Turn Left on Baltimore Street .1
o Turn Left on Fair Street and park in The West or "Main" Parking Lot.
(follow sign to right).1
Park as far down in the parking lot as possible as Savage Mill is at the end of
the lot.
The Great Room is located on Level 2 in the Old Weave Building. From Parking
Lot, walk directly into New Weave Building. You will be on the upper level
(Level 1). Go down stairs and continue straight to Old Weave Building. After
entering Old Weave Building, follow to right and THE GREAT ROOM will be directly
in front of you.
You can find more information at WWW.SAVAGEMILL.COM/DIRECTIONS.HTML or call
301-490-1668.