SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
ESSEX CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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[_] 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:
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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 Wednesday, November 13, 2002 at 10:00 a.m.
We invite you to arrive at 9:30 a.m. to visit with Essex Senior Management and
discuss the Essex products and technology. A continental breakfast 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 of the Company's
2002 stock option plan; and the ratification of the appointment of independent
auditors. Additionally, there will be a presentation reviewing the Company's
performance in 2001 and 2002. There will also be an opportunity for Stockholders
to present questions to management and to a representative of the Company's
independent auditors. Discussions of the Company's business at past annual
meetings have generally been interesting and useful. We hope you will be able to
attend.
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 30, 2001, including the financial statements, is enclosed. Such report
and financial statements are not a part of this Proxy Statement.
Whether or not you plan to attend, we hope that your shares of stock
will 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/ Leonard E. Moodispaw
Leonard E. Moodispaw
PRESIDENT & CHIEF EXECUTIVE OFFICER
Columbia, Maryland
October 10, 2002
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 10:00 a.m.,
Wednesday, November 13, 2002, 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 approve the adoption of the Essex Corporation 2002 Stock Option and
Appreciation Rights Plan;
3. To ratify the appointment of independent auditors; 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 September 24,
2002 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 October 14, 2002.
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
October 14, 2002
ESSEX CORPORATION
9150 Guilford Road
Columbia, Maryland 21046
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 13, 2002
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 November 13, 2002 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 October 14, 2002.
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 approval of the 2002 Stock Option Plan; and FOR ratification of
appointment of independent auditors. 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 September 24,
2002 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 7,435,254 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 present, the Annual Meeting may be adjourned
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. The approval of all other matters to be considered at the
Annual Meeting requires the affirmative vote of a majority of the votes cast at
the Annual Meeting on each specific matter. Abstentions and broker non-votes
will be counted only for the purpose of determining the existence of 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.
1
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.
2
VOTING SECURITIES AND PRINCIPAL HOLDERS
GENERAL
The voting securities of the Company consist of Common Stock. On the
Record Date there were 7,435,254 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.
VOTING SECURITIES
The following table and accompanying notes set forth as of the Record
Date information with respect to the beneficial ownership of the Company's
voting securities by (i) each person or group who beneficially owns more than 5%
of the 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
Name and Address of Amount and Nature of Shares of Common Stock
Beneficial Owner * Beneficial Ownership (1) Beneficially Owned
-------------------------------- ------------------------ -------------------------
John G. Hannon (2) 1,522,535 20.48
H. Jeffrey Leonard (3) 1,518,162 20.42
Marie S. Minton (4) 1,486,662 19.99
Caroline S. Pisano (5) 1,336,000 17.97
Terry M. Turpin (6) 430,493 5.67
Leonard E. Moodispaw (7) 402,650 5.17
Joseph R. Kurry, Jr. (8) 208,359 2.74
Matthew S. Bechta (9) 136,387 1.81
Frank E. Manning (10) 126,775 1.70
Craig H. Price (11) 113,728 1.51
Robert W. Hicks (12) 71,700 **
Ray M. Keeler (13) 46,500 **
James P. Gregory (14) 1,486,662 19.99
Harry Letaw, Jr. (15) 669,859 9.01
GEF Optical Investment
Company, LLC (16)(20) 1,486,662 19.99
Global Environment Capital
Co., LLC ("GECC") (17)(20) 1,486,662 19.99
Networking Ventures, L.L.C. (18) 1,330,000 17.89
Global Environment Strategic
Technology Partners, L.P.
("GESTP")(19)(20) 1,124,612 15.13
All Directors and Executive
Officers as a Group
(14 persons)(21) 4,685,629 55.14
3
* 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
exercisable 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.
(2) John G. Hannon is a Director of the Company and a managing member of
Networking Ventures. Of the shares of Common Stock shown as beneficially
owned, 225 are owned directly by Mr. Hannon and 192,310 are owned by the
Hannon Family, LLC for which Mr. Hannon exercises voting and dispositive
control. In addition 1,330,000 shares of Common Stock may be deemed
beneficially owned indirectly by Mr. Hannon as described in footnote (18)
below. Mr. Hannon's address is c/o Networking Ventures, 9150 Guilford
Road, Columbia, MD 21046.
(3) H. Jeffrey Leonard is Chairman of the Board of the Company and a
director of the managing member of GEF. Of the shares of Common Stock
shown as beneficially owned, 31,500 are owned directly by Mr. Leonard.
In addition, 1,486,662 shares of Common Stock may be deemed to be
beneficially owned indirectly by Mr. Leonard as described in footnote
(16) below. Mr. Leonard's address is c/o GEF, 1225 Eye Street, N.W.,
Suite 900, Washington, DC 20005.
(4) Marie S. Minton is a Director of the Company and a director of the
managing member of GEF. Ms. Minton may be deemed to be the beneficial
owner of these shares by virtue of the arrangements described in footnote
(16) below. Ms. Minton's address is c/o GEF, 1225 Eye Street, N.W., Suite
900, Washington, DC 20005.
(5) Caroline S. Pisano is a Director of the Company and a managing member
of Networking Ventures. Of the shares of Common Stock shown as
beneficially owned, 6,000 are owned directly by Ms. Pisano. In addition,
1,330,000 shares of Common Stock may be deemed to be beneficially owned
indirectly by Ms. Pisano as described in footnote (18) below.
(6) Terry M. Turpin is a Director, Senior Vice President and Chief Technical
Officer of the Company. Of the shares shown as beneficially owned,
151,800 represent presently exercisable rights to acquire Common Stock
through stock options.
(7) Leonard E. Moodispaw is President, Chief Executive Officer and a Director
of the Company. Of the shares shown as beneficially owned, 345,500
represent presently exercisable rights to acquire Common Stock through
stock options.
(8) Joseph R. Kurry, Jr. is Senior Vice President, Treasurer and Chief
Financial Officer of the Company. Of the shares shown as beneficially
owned, 169,000 represent presently exercisable rights to acquire Common
Stock through stock options.
(9) Matthew S. Bechta is Vice President of the Company. Of the shares shown
as beneficially owned, 92,150 represent presently exercisable rights to
acquire Common Stock through stock options.
(10)Mr. Manning is the Chairman Emeritus and a Director of the Company. Of
the shares shown as beneficially owned, 44,000 represent presently
exercisable rights to acquire Common Stock through stock options. Does
not include 40,000 shares of the Company's Common Stock owned of record
and beneficially by Mrs. Eva L. Manning, wife of Mr. Frank E. Manning.
Also does not include 94,500 shares beneficially owned by separate family
trusts of which Mrs. Manning is the sole trustee and over which trusts
she has exclusive voting and dispositive power.
(11)Craig H. Price is Vice President of the Company. Of the shares shown as
beneficially owned, 98,500 represent presently exercisable rights to
acquire Common Stock through stock options.
(12)Robert W. Hicks is a Director of the Company. Of the shares shown as
beneficially owned, 31,500 represent presently exercisable rights to
acquire Common Stock through stock options.
(13)Ray M. Keeler is a Director of the Company. Of the shares shown as
beneficially owned, 32,500 represent presently exercisable rights to
acquire Common Stock through stock options.
4
(14)James P. Gregory is a director of the managing member of GEF. Mr.
Gregory may be deemed to be the beneficial owner of these shares by
virtue of the arrangements described in footnote (16) below. Mr.
Gregory's address is c/o GEF, 1225 Eye Street, N.W., Suite 900,
Washington, DC 20005.
(15)Dr. Harry Letaw, Jr. is the former Chairman of the Board and Chief
Executive Officer of the Company. His address is 1023 Benfield Boulevard,
Millersville, MD 21108.
(16)Consists of 1,330,000 shares of Common Stock directly owned by GEF. Also
consists of (i) 118,200 shares of Common Stock directly owned by GECC and
(ii) 38,462 shares of Common Stock directly owned by GESTP, by virtue of
the entities being related with interlocking ownership described in
footnote (20) 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)Consists of 1,330,000 shares of Common Stock directly owned by GEF. Also
consists of (i) 118,200 shares of Common Stock directly owned by GECC and
(ii) 38,462 shares of Common Stock directly owned by GESTP, by virtue of
the entities being related with interlocking ownership described in
footnote (20) below. GECC is a Delaware limited liability company with
its principal executive offices located at 1225 Eye Street, N.W., Suite
900, Washington, DC 20005.
(18)Consists of 1,330,000 shares of Common Stock directly owned by Networking
Ventures. Networking Ventures is a Maryland limited liability company
with its principal executive offices located at 9150 Guilford Road,
Columbia, MD 21046.
(19)Consists of 997,500 shares of Common Stock directly owned by GEF. Also
consists of (i) 88,650 shares of Common Stock directly owned by GECC and
(iii) 38,462 shares of Common Stock directly owned by GESTP, by virtue of
the entities being related with interlocking ownership described in
footnote (20) below. GESTP is a Delaware limited liability company with
its principal executive offices located at 1225 Eye Street, N.W., Suite
900, Washington, DC 20005.
(20)GEF, GECC, Mr. Leonard, Ms. Minton, and Mr. Gregory may be deemed the
beneficial owner of 1,486,662 shares of Common Stock directly held for
the account of GEF, GECC and GESTP by virtue of the entities being
related with interlocking ownership. GESTP has 75% beneficial ownership
in 1,330,000 shares held by GEF and 118,200 shares held by GECC and
directly owns 38,462 shares.
(21)Of the shares shown as beneficially owned, 1,062,218 represent presently
exercisable rights to acquire Common Stock through stock options.
5
THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Directors generally meet quarterly. 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. Board members who are not employed by the Company receive a
maximum of $1,500 for each Board meeting or $750 for each Board Committee
Meeting attended. In 2001 the Board held two meetings; the entire membership of
the Board was present at both meetings. Board members who are affiliated with
GEF or Networking Ventures have waived any board fees.
The Board of Directors has three standing Committees: the Audit
Committee, the Ethics Committee and the Compensation Committee. The Audit
Committee, established by resolution of the Board, is vested with the following
duties and powers: (1) to recommend to the Board the independent public
accountants to audit the books and records of the Company; (2) to review the
recommendations of the independent public accountants with respect to accounting
methods and internal controls, and to advise the Board with respect thereto; (3)
to examine the scope and extent of the audit conducted by the independent public
accountants and to advise the Board with respect thereto; and (4) such other
functions and responsibilities as may be assigned by the Board. Mr. Robert W.
Hicks, Mr. Ray M. Keeler and Ms. Marie S. Minton were members of the Audit
Committee and attended the four meetings the Committee held in 2001.
The Compensation Committee recommends to the Board of Directors
compensation, including incentive compensation, for principal executives of the
Company. Membership consisted of Mr. John G. Hannon, Mr. Ray M. Keeler and Mr.
Frank E. Manning during 2001. The Committee was consulted on several matters;
however, all issues concerning compensation were discussed by the Board as a
whole.
6
AUDIT COMMITTEE REPORT
The Audit Committee consists of Messrs. Hicks, Keeler and Ms. Minton.
Messrs. Hicks and Keeler meet the independence and experience requirements of
Rule 4200(a)(15) of the National Association of Securities Dealers' listing
standards. The Audit Committee's responsibilities are as described in a written
Charter (Appendix A) adopted by the Board. The Audit Committee reports as
follows with respect to the audit of the Company's fiscal 2001 audited financial
statements.
- The Committee has reviewed and discussed the Company's 2001 audited
financial statements with the Company's management;
- The Committee has discussed with the independent auditors (Stegman &
Company) the matters required to be discussed by Statement On Auditing
Standards No. 61, which include, among other items, matters related to
the conduct of the audit of the Company's consolidated financial
statements;
- The Committee has received written disclosures and the letter from the
independent auditors required by the Independence Standards Board
Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES (which
relates to the auditor's independence from the corporation and its
related entities) and has discussed with the auditors their
independence from the Company;
- 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 auditors.
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 financial
statements has been carried out in accordance with auditing standards
generally accepted in the United States of America, that the financial
statements are presented in accordance with accounting principles
generally accepted in the United States of America or that the
Company's independent auditors are in fact "independent"; and
- Based on review and discussions of the Company's 2001 audited financial
statements with management and discussions with the independent
auditors, the Audit Committee recommended to the Board of Directors
that the Company's 2001 audited financial statements be included in the
Company's Annual Report on Form 10-KSB.
Audit Committee
Robert W. Hicks, Chairman
Ray M. Keeler
Marie S. Minton
7
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during the last three fiscal years by the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers who served as such at the end of the last fiscal
year and whose total compensation exceeds $100,000.
==================================================================================================================
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
Other Securities
Annual Underlying
Name and Compensation Options/SARs
Principal Position Year Salary($)(1) Bonus ($) ($)(2) (#)
------------------------------------------------------------------------------------------------------------------
Leonard E. Moodispaw 2001 175,032 0 1,616 85,000
President and CEO 2000 136,404 0 0 100,000
1999 124,800 0 0 45,000
Terry M. Turpin 2001 155,064 0 4,652 70,000
Senior Vice President, 2000 134,496 25,000 4,785 52,000
Director and CTO 1999 122,720 0 3,682 15,000
Joseph R. Kurry, Jr. 2001 134,992 0 4,050 40,000
Treasurer, Senior Vice 2000 122,804 15,000 4,134 61,500
President and CFO 1999 114,400 0 3,432 15,000
Craig H. Price 2001 134,992 0 4,050 25,000
Vice President 2000 114,184 15,000 3,875 27,500
1999 103,260 0 3,098 10,000
Matthew S. Bechta 2001 130,000 0 3,900 25,000
Vice President 2000 112,840 10,000 3,685 31,000
1999 102,960 0 3,089 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 the Company'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.
8
DEFINED CONTRIBUTION RETIREMENT PLAN
The Company has a qualified defined contribution retirement plan, the
Essex Corporation Retirement Plan and Trust, which includes a 401(k) salary
reduction feature for its employees. The Plan calls for an employer matching
contribution of up to 3% of eligible employee compensation under the salary
reduction feature and a discretionary contribution as determined by the Board of
Directors. No discretionary contribution was made by the Company to the
Retirement Plan for 1999 - 2001. The total authorized contribution under the
matching contribution feature of the Plan was approximately $64,000 in 2001. All
employee contributions are 100% vested at all times and Company contributions
vest based on length of service. 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 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. Such awards may be limited by overall Company performance and the
availability of funds. There was approximately $141,000 awarded in 2000,
including the $65,000 awarded to persons named in the Summary Compensation
Table. No awards were made in 2001 and 1999.
EMPLOYMENT AGREEMENTS
In September 2000, the Company entered into two-year employment
agreements with Terry M. Turpin, Craig H. Price and Matthew S. Bechta. The
agreements provide for an annual base salary of $155,000, $135,000 and $130,000
for each of Messrs. Turpin, Price and Bechta, respectively. The agreements also
contain standard intellectual property and confidentiality provisions. The
employment agreements expired by their terms on August 31, 2002.
9
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.
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 30, 2001.
OPTIONS TO PURCHASE SECURITIES
In addition to the plans discussed below, the Company has established
the Essex Corporation 2002 Stock Option and Appreciation Rights Plan. See
"PROPOSAL 2 - RATIFICATION OF THE ESSEX CORPORATION 2002 STOCK OPTION AND
APPRECIATION RIGHTS PLAN".
The Company has established other Essex Corporation Stock Option and
Appreciation Rights Plans (the "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 employees, as well as options which do not so
qualify ("Non-Qualified Options") to be issued to persons or consultants,
including those who are not employees. These Plans also provide for grants of
stock appreciation rights ("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 50% 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
1,316,718 shares of Common Stock for issuance. As of September 24, 2002 there
were 336,650 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 2001, the Company issued such options for 85,000
shares to its President and 40,000 to its Chief Financial Officer/Treasurer. In
addition, another 45,000 shares were issued to an employee of the Company.
10
The following table shows for the fiscal year ended December 30, 2001
for the persons named in the Summary Compensation Table, information with
respect to options to purchase Common Stock granted during 2001.
STOCK OPTIONS GRANTS
IN FISCAL YEAR ENDED DECEMBER 30, 2001
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL OPTIONS/
OPTIONS SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE
================================================================================
Leonard E. Moodispaw 60,000 (1) 10.6 3.96 01/22/11
25,000 (2) 4.4 6.07 10/02/11
Terry M. Turpin 50,000 (1) 8.8 3.96 01/22/11
20,000 (2) 3.5 6.07 10/02/11
Joseph R. Kurry, Jr. 30,000 (1) 5.3 3.96 01/22/11
10,000 (2) 1.8 6.07 10/02/11
Craig H. Price 15,000 (1) 2.6 3.96 01/22/11
10,000 (2) 1.8 6.07 10/02/11
Matthew S. Bechta 15,000 (1) 2.6 3.96 01/22/11
10,000 (2) 1.8 6.07 10/02/11
(1) Such options became exercisable beginning January 23, 2001.
(2) Such options became exercisable beginning October 3, 2001.
11
The following table shows for the fiscal year ended December 30, 2001
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
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END($)(1)
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
================================================================================================
Leonard E. Moodispaw --- --- 333,000/12,500 $1,721,875/$17,250
Terry M. Turpin --- --- 126,800/53,200 $665,752/$143,468
Joseph R. Kurry, Jr. --- --- 165,000/5,000 $802,665/$6,900
Craig H. Price 1,500 $6,510 86,000/12,500 $425,925/$33,075
Matthew S. Bechta 1,850 $11,100 82,650/12,500 $411,903/$33,075
3,000 $12,000
(1) Market value of underlying securities based on the closing price of the
Company's Common Stock on December 28, 2001 (last trading day of fiscal
2001) on the OTC Bulletin Board of $7.45 minus the exercise price.
12
EQUITY COMPENSATION PLAN INFORMATION
(C) NUMBER OF
(A) NUMBER OF SECURITIES REMAINING
SECURITIES TO BE ISSUED (B) WEIGHTED AVERAGE AVAILABLE FOR FUTURE
UPON EXERCISE OF EXERCISE PRICE OF ISSUANCE
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS (EXCLUDING A)
---------------------------- ------------------------- ------------------------ ------------------------
EQUITY COMPENSATION PLANS
PREVIOUSLY APPROVED BY 1,348,818 $3.00 351,650
STOCKHOLDERS
EQUITY COMPENSATION
PLANS NOT PREVIOUSLY 406,500 $2.85 47,550
APPROVED BY STOCKHOLDERS
------------------------- ------------------------
TOTAL 1,755,318 399,200
------------------------------------------------------
This table summarizes share and exercise price information about the
Company's equity compensation plans as of December 30, 2001.
13
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 has 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 65, was elected a Director of the Company in
September 2000. He is a partner in Networking Ventures, L.L.C., a privately held
company dedicated to investing in and guiding technology companies in the
expanding optical and information security sector. 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 involved in numerous
entrepreneurial ventures. He is a Director of the Armed Forces Communications
and Electronics Association (AFCEA).
ROBERT W. HICKS, age 65, was elected a Director of the Company 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, 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 stockholder 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.
RAY M. KEELER, age 71, was elected a Director of the Company 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 System Engineering and
Development Corporation ("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.
14
H. JEFFREY LEONARD, age 48, was elected a Director of the Company in
September 2000 and Chairman of the Board in December 2000. Dr. Leonard is the
President and founding shareholder of Global Environment Fund. Dr. Leonard
serves as Chairman of the Investment Committee for GEF's five 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, Measuring and Monitoring Inc., Aurora Flight Sciences
Corp., Athena Technologies, Sorbent Technologies, International Pepsi-Cola
Bottlers Limited and Global Forest Products 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.
FRANK E. MANNING, age 83, Chairman Emeritus, is the founder of the
Company. Mr. Manning has served as a Director of the Company since its
organization in 1969. Mr. Manning has been a special advisor to the CEO for the
past five years. Mr. Manning received a Bachelor of Science degree in Economics
from Franklin and Marshall College in 1942, and a Masters of Letters degree in
Industrial Relations from the University of Pittsburgh in 1946.
MARIE S. MINTON, age 40, was elected a Director of the Company in
December 2000. Ms. Minton is the Chief Financial Officer and a Director of
Global Environment Fund, an international, private equity, investment management
firm. Ms. Minton has been a member of the senior management team of GEF since
1994. Before joining GEF, Ms. Minton was the Vice President of Finance for Clean
Air Capital Markets Corporation, a boutique investment banking firm. Prior to
that, Ms. Minton was an Audit Manager in the Entrepreneurial Services Division
of Ernst & Young from 1986 through 1993. 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 and the
Association for Investment Management and Research. Ms. Minton is a Certified
Public Accountant and a Chartered Financial Analyst.
LEONARD E. MOODISPAW, age 59, President, Chief Executive Officer and
Director of the Company, 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, 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. (MASI), a subsidiary of ManTech International
Corporation. From 1965 to 1978, Mr. Moodispaw was a senior manager in the
National Security Agency (NSA). Following NSA he was engaged in the private
practice of law. He is the Founder of the Security Affairs Support Association
(SASA) that brings government and industry together to solve problems of mutual
interest. He received a Bachelor of Science degree in Business Administration
from the American University in Washington, D.C. in 1965, a Master of Science
15
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.
CAROLINE S. PISANO, age 35, was elected a Director of the Company in
September 2000. She is a partner in Networking Ventures, L.L.C., a privately
held company dedicated to investing in and guiding technology companies in the
expanding optical and information security sector. From August 1996 to March
2000, Ms. Pisano served as the Chief Financial Officer of Pulse Engineering,
Inc., an information security and signal processing company which was sold in
March 2000. From August 1992 to July 1996 Ms. Pisano served as a senior
transactional attorney with the law firm of Wechsler, Selzer, and Gurvitch,
Chartered. From June 1988 to August 1990, Ms. Pisano, a Certified Public
Accountant, practiced public accounting with Arthur Andersen & Co. Ms. Pisano
received her Juris Doctor from the Washington College of Law at the American
University in Washington, D.C. Ms. Pisano graduated Magna Cum Laude with a
Bachelor of Science degree in Accounting from the University of Maryland.
TERRY M. TURPIN, age 59, was elected a Director of the Company in
January 1997. He is Senior Vice President and Chief Technical Officer for the
Company, 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 Opto-electronic 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 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 49, was elected Vice President in October 1993.
As Director of the Processing Systems Group, Mr. Bechta is responsible for the
development and delivery of signal processing solutions to government, industry
and commercial customers. Mr. Bechta joined Essex in 1989 with the merger of
Essex and SEDC. As one of the founders of SEDC, he served in various technical
and management capacities since incorporation in 1980. From 1975-1980, Mr.
Bechta was employed by NSA as a systems engineer. Mr. Bechta holds 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,
Pennsylvania.
GERALD J. DAVIEAU, age 46, joined Essex in 1989 as a result of the
merger of Essex with SEDC, and was elected Vice President in November 1997. From
1996 to 1997 Mr. Davieau was technical director of telecommunications systems
engineering operations. Mr. Davieau is responsible for design and analysis of
wireless satellite applications. He is listed on 14 Motorola patents and 6
patent disclosures from work on Iridium(R) and Teledesic(TM) satellite programs.
Mr. Davieau was employed by SPACECOM in Gaithersburg, Maryland, 1982-1987. He
served in the U.S. Army from 1978 to 1982. Mr. Davieau holds a Bachelor of
Science degree in Electrical
16
Engineering from Lehigh University and a Master of Science degree in Electrical
Engineering from the University of Maryland.
KIMBERLY J. DECHELLO, age 41, joined Essex in May 1987 and has served
in various administrative and management capacities. She was appointed Chief
Administrative Officer in November 1997 and Corporate Secretary in January 1998.
Ms. DeChello is responsible for administration, human resources, investor
relations and industrial insurance. 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.
JOSEPH R. KURRY, JR., age 52, joined Essex Corporation in March 1985.
He is Treasurer and Chief Financial Officer, positions he has held since 1985,
and Senior Vice President. Mr. Kurry was controller of ManTech International
Corporation from December 1979 to March 1985. Mr. Kurry received a Bachelor of
Science degree in Business Administration in 1972 from Georgetown University, in
Washington, D.C. and is a Certified Public Accountant.
CRAIG H. PRICE, age 53, was elected Vice President in October 1993. Dr.
Price, Director of Optoelectronic Products, is 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, and 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.
17
PROPOSAL 2 -- RATIFICATION OF THE ESSEX CORPORATION
2002 STOCK OPTION AND APPRECIATION RIGHTS PLAN
The Board of Directors established the Essex Corporation 2002 Stock
Option and Appreciation Rights Plan (the "2002 Plan"), which provides for the
award of incentive options, non-qualified options and stock appreciation rights.
Pursuant to the resolution, the Board of Directors has declared it to be
advisable and in the best interests of the Company and its Stockholders that the
Company adopt such plan and has directed that the 2002 Plan, as set forth
herein, be submitted to the Stockholders of the Company for ratification at the
Annual Meeting. Stockholder ratification means that Incentive Options awarded in
accordance with the 2002 Plan will be eligible to receive favorable treatment,
as noted below, under Section 422 of the Code.
The following discussion of the material provisions of the 2002 Plan
set forth herein is a summary and is not intended to be complete. A complete
copy of the 2002 Plan is on file with the Securities and Exchange Commission and
can be obtained from the Company by following the procedures described under
"Reference Documents."
GENERAL
The purpose of the 2002 Plan is to induce officers, directors,
employees and consultants of the Company (or any of its subsidiaries) who are in
a position to contribute materially to the Company's prosperity to remain with
the Company, to offer such persons incentives and rewards in recognition of
their contributions to the Company's progress and to encourage such persons to
continue to promote the best interests of the Company. The 2002 Plan provides
for the grant to officers, directors, employees and consultants of stock options
which qualify as Incentive Options under Section 422 of the Code, as well as
Non-Qualified Options. In addition, SARs may be granted in conjunction with the
grant of Incentive Options and Non-Qualified Options.
The 2002 Plan provides for the grant of Incentive Options,
Non-Qualified Options and SARs with respect to, in the aggregate, up to 300,000
shares of Common Stock (which number is subject to adjustment in the event of
stock dividends, stock splits, and other similar events). To the extent that an
Incentive Option or Non-Qualified Option is not exercised within the period of
exercisability specified therein, it will expire as to the then unexercised
portion. If any Incentive Option, Non-Qualified Option or SAR terminates prior
to exercise thereof and during the duration of the 2002 Plan, the shares of
Common Stock as to which such option or right was not exercised will become
available under the 2002 Plan for the grant of additional options or rights to
any eligible officer, director, employee and consultant. The shares of Common
Stock subject to the 2002 Plan may be made available from either authorized but
unissued shares, treasury shares, or both. The 2002 Plan became effective upon
adoption by the Board of Directors. In the event that the 2002 Plan is not
approved by the Essex stockholders, the 2002 Plan shall remain in force;
however, all options granted thereunder shall automatically be deemed to be
Non-Qualified Options.
As of the date hereof: (a) there have been no options or rights granted
under the 2002 Plan, and (b) an aggregate of 43 persons are eligible to
participate in the 2002 Plan, including 36 employees (including 14 executive
officers and directors) of the Company entitled to receive
18
Incentive Options under the 2002 Plan and 7 persons (all directors) who may
receive Non-Qualified Options under the 2002 Plan. Consultants engaged by the
Company from time to time are also expected to be eligible to receive
Non-Qualified Options under the 2002 Plan.
ADMINISTRATION
The 2002 Plan will be administered by: (a) the Board of Directors or
(b) in the discretion of the Board of Directors, by a committee (the
"Committee") of the Board of Directors of two or more members of the Board of
Directors, each of whom is a "Non-Employee" director as such term is defined by
Rule 16b-3 (as such rule may be amended from time to time ) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Board of Directors or
the Committee generally has the authority to determine the individuals to whom
and the date on which options and rights are to be granted, the number of shares
of stock to be subject to each option and right, the exercise price of shares of
stock subject to options and rights, the terms of any vesting or forfeiture
schedule and the other terms and provisions of each option and right.
ELIGIBILITY AND EXTENT OF PARTICIPATION
Incentive Options may be granted pursuant to the 2002 Plan only to
employees of the Company (or any subsidiary). Non-Qualified Options and SARs may
be granted pursuant to the 2002 Plan to officers, directors, employees or
consultants of the Company or any subsidiary.
There is no minimum number of shares of Common Stock with respect to
which an option or right may be granted. However, if the aggregate fair market
value of shares with respect to which Incentive Options are exercisable for the
first time by any employee during any calendar year (under all stock option
plans of the Company) exceeds $100,000, such excess options shall be treated as
Non-Qualified Options. For the purpose of the foregoing limitation, the fair
market value of shares subject to an Incentive Option is to be determined as of
the time the option is granted.
The Board of Directors or the Committee may require, as a condition of
granting any option or right, that the optionee enter into a stock option
agreement which shall require, among other things, the agreement by the employee
with the Company that the employee not sell or otherwise dispose of shares
acquired pursuant to the exercise of an Incentive Option for a minimum of two
years from the date of grant of the Incentive Option and one year from the date
of transfer of the Common Stock, absent the written approval, consent or waiver
of the Board of Directors or Committee.
PURCHASE PRICE AND EXERCISE OF OPTIONS
The price at which shares of Common Stock covered by an option may be
purchased shall be determined by the Board of Directors or the Committee;
however, the purchase price of shares of Common Stock issuable upon exercise of
an Incentive Option must not be less than 100% of the fair market value of such
shares on the date the Incentive Option is granted. Any cash proceeds received
by the Company from the exercise of the options will be used for general
corporate purposes.
19
EXPIRATION AND TRANSFER OF OPTIONS
The Board of Directors or the Committee has the sole discretion to fix
the period within which any Incentive or Non-Qualified Option may be exercised.
Any Incentive Option granted under the 2002 Plan to a 10 percent or less
stockholder and any Non-Qualified Option shall be exercised during a period not
more than ten years from the date of grant and any Incentive Option granted to a
greater than 10 percent stockholder shall be exercised within five years from
the date of grant. No Incentive Options may be granted under the 2002 Plan more
than ten years after the date of adoption of the 2002 Plan.
Options granted under the 2002 Plan are not transferable except upon
death. Incentive options generally may be exercised only while the optionholder
is employed by the Company, or in some cases, within three months of termination
of employment. In the event of disability of an optionholder, incentive options
may be exercised to the extent of the accrued right to purchase the option
within one year of termination of employment due to disability. In the event of
death of an optionholder, incentive options may be exercised prior to expiration
of the option or within three years after the date of death, whichever period of
time is shorter. In the event of retirement of an optionholder, options may be
exercised at any time within the remaining term of such option, but if any ISO
is exercised more than three months following retirement the option will be
treated as a Non-Qualified Option for federal income tax purposes.
Upon a reorganization, merger or consolidation of the Company as a
result of which the outstanding Common Stock is changed into or exchanged for
cash or property or securities not of the Company's issue, or upon a sale of
substantially all the property of the Company, the 2002 Plan will terminate and
all outstanding options previously granted thereunder shall terminate, unless
provision is made in connection with such transaction for the continuance of the
2002 Plan or for the assumption of options therefore granted. If the 2002 Plan
and unexercised options are to terminate pursuant to such transaction, persons
owning any unexercised portions of options then outstanding will have the right,
prior to the consummation of the transaction, to exercise the unexercised
portions of their options, including the portions thereof which would, but for
such transaction, not yet be exercisable.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a brief discussion of federal income tax consequences
associated with grants made under the 2002 Plan. It is based on an existing U.S.
laws and regulations, all of which are subject to change.
INCENTIVE OPTIONS. No taxable income is realized by the optionee upon
the grant or exercise of an Incentive Option under the 2002 Plan, but the excess
of the fair market value of the stock acquired over the exercise price may give
rise to "alternative minimum tax". If no disposition of shares issued to an
optionee pursuant to the exercise of an Incentive Option is made by the optionee
within the later of (i) two years from the date of grant and (ii) one year after
the transfer of such shares to the optionee, then (a) upon sale of such shares,
any amount realized in excess of the option price (the amount paid for the
shares) will be taxed to the optionee as a long-term or mid-term capital gain;
and any loss sustained will be a long-term capital loss; and
20
(b) no deduction will be allowed to the Company for federal income tax purposes.
Shares held more than one year but not more than eighteen months will be taxed
at the mid-term capital gain rate, currently 28%, and shares held more than
eighteen months will be taxed at the long-term capital gain rate, currently 20%.
The exercise of Incentive Options will give rise to an item of tax preference
that may result in alternative minimum tax liability for the optionee.
If shares of Common Stock acquired upon the exercise of an Incentive
Option are disposed of prior to the expiration of the two-year and one-year
holding periods described above (a "disqualifying disposition"), generally (a)
the optionee will realize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on a sale of such shares) over the
option price thereof, and (b) the Company will be entitled to deduct such amount
subject to applicable withholding requirements and subject to certain limits on
the deductibility of compensation set forth in Section 162(m) of the Code. Any
further gain realized will be taxed as capital gain (as set forth in the
preceding paragraph) and will not result in any deduction by the Company.
Special rules apply where all or a portion of the exercise price of the
Incentive Option is paid by tendering shares of Common Stock.
NON-QUALIFIED OPTIONS. No taxable income is realized by the optionee at
the time the Non-Qualified Option is granted. Generally, (a) at exercise,
ordinary income is realized by the optionee in an amount equal to the excess of
the fair market value of the shares on the date of exercise over the exercise
price, and the Company receives a tax deduction for the same amount, subject to
applicable withholding requirements and subject to certain limits on the
deductibility of compensation set forth in Section 162(m) of the Internal
Revenue Code, and (b) at disposition, appreciation or depreciation after the
date of exercise is treated as either capital gain or loss, as set forth above
under "Incentive Options."
Under Section 280G of the Code, certain persons who receive
compensation payments in connection with a change in control of a company may be
subject to a 20 percent excise tax and the issuer may lose its tax deduction
with respect to such payments. These rules may apply to options and rights
granted under the 2002 Plan. The determination of the application of these rules
will depend upon a number of factual matters not determinable at this time. It
should be realized, however, that these rules may affect the ability of the
Company to secure a tax deduction on the exercise of certain Non-Qualified
Options granted under the 2002 Plan.
EXERCISE OF OPTIONS; SARS
Generally, an option will be exercised by the tender in cash of the
total exercise price for the shares of stock which the option is being
exercised. The Board of Directors or the Committee may, however, permit an
optionee to pay all or a portion of the exercise price by delivering to the
Company shares of Common Stock having an aggregate fair market value at least
equal to such total exercise price. An option may also be exercised by tender to
the Company of a written notice of exercise together with advice of the delivery
of an order to a broker to sell part or all of the shares of Common Stock
subject to such exercise notice and an irrevocable order to such broker to
deliver to the Company sufficient proceeds from the sale of such shares to pay
the exercise price and any withholding taxes (a "cashless exercise") provided
all documentation and procedures are approved in advance by the Board or the
Committee. The Company has the authority under the 2002 Plan to
21
assist any employee, excluding officers and directors, of the Company with the
payment of the purchase price of the Common Stock by lending the amount of the
purchase price to the employee, on terms, including rate of interest and
security for the loan, as the Board of Directors shall authorize.
The Board of Directors or the Committee may, in its discretion, at any
time prior to the exercise of any option, grant in connection with such option
the right to surrender part or all of such option to the extent the option is
exercisable, and receive an amount (payable in cash, shares of the Company's
Common Stock or combination thereof as determined by the Board of Directors or
the Committee) equal to the difference between the then fair market value of the
shares issuable upon the exercise of the option (or portions thereof
surrendered) and the exercise price of the option or portion thereof
surrendered.
AMENDMENTS TO THE 2002 PLAN
The Board of Directors may at any time terminate the 2002 Plan or make
such arrangements thereto as it deems advisable and in the best interests of the
Company, without action on the part of the Company's stockholders, unless such
approval is required pursuant to Section 422 of the Code or other federal or
state law. Such amendments may include, without limitation, changes in the
number of shares reserved for issuance under the plan, the class or classes of
individuals eligible to participate therein and the manner of administration and
duration of the plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
ESSEX CORPORATION 2002 STOCK OPTION AND APPRECIATION RIGHTS PLAN. UNLESS
MARKED TO THE CONTRARY, SHARES OF COMMON STOCK REPRESENTED BY PROXY CARDS
RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF PROPOSAL 2.
PROPOSAL 3 -- RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has, upon recommendation of the Audit Committee,
selected Stegman & Company as independent auditors of the Company for the fiscal
year ending December 29, 2002, and has further directed that the selection of
such auditors 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO
RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS AND, UNLESS MARKED TO THE
CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF SUCH
RATIFICATION.
22
RELATIONSHIP WITH INDEPENDENT AUDITORS
AUDIT FEES. The aggregate fees billed by Stegman & Company for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal year ended December 30, 2001 and for the reviews of
the financial statements included in the Company's quarterly reports on Form
10-QSB for that fiscal year were $33,250.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. During
the year ended December 30, 2001, Stegman & Company did not provide the Company
with any services related to financial information systems design and
implementation.
ALL OTHER FEES. The Company estimates that the aggregate fees for all
other services rendered by Stegman & Company during the year ended December 30,
2001 were $11,750. These fees relate principally to preparation of the Company's
tax returns and review of SEC registration statements.
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.
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
All stockholder proposals intended to be presented at the 2003 Annual
Meeting of the Company must be received by the Company not later than July 16,
2003 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 2003 Annual Meeting is May 17, 2003. If a stockholder gives notice of
such a proposal after the August 30, 2003 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 2003
annual meeting.
23
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 30, 2001 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-KSB FOR THE FISCAL YEAR ENDED DECEMBER 30, 2001 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-KSB IS NOT PART OF THE PROXY SOLICITATION MATERIALS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kimberly J. DeChello
KIMBERLY J. DECHELLO
SECRETARY
24
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.
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.
ADDENDUM A
PROXY CARD
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, Terry M. Turpin
and Joseph R. Kurry, Jr. proxies with full power of substitution in them to vote
all shares of common stock and preferred stock which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of Essex Corporation to
be held on November 13, 2002 at THE GREAT ROOM AT HISTORIC SAVAGE MILL, 8600
FOUNDRY STREET, SAVAGE, MARYLAND at 10:00 a.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 follows:
1. Election of Directors
FOR all nominees listed below WITHHOLD AUTHORITY
--- ---
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below.
JOHN G. HANNON
ROBERT W. HICKS
RAY M. KEELER
H. JEFFREY LEONARD
FRANK E. MANNING
MARIE S. MINTON
LEONARD E. MOODISPAW
CAROLINE S. PISANO
TERRY M. TURPIN
2. Ratification of the Essex Corporation 2002 Stock Option and Appreciation
Rights Plan. (Board of Directors Favors a Vote FOR Approval.)
APPROVE DISAPPROVE ABSTAIN
--- --- ---
3. Confirm Stegman & Company as independent auditors for the company. (Board
of Directors Favors a Vote FOR Approval.)
APPROVE DISAPPROVE ABSTAIN
--- --- ---
4. Act upon such other business as may properly come before the meeting.
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 ABOVE STATED PROPOSALS.
Receipt is hereby acknowledged of the Notice of Meeting and Proxy Statement of
Essex Corporation dated October 10, 2002.
I will attend I will NOT attend the Meeting
--- ---
----------------------------- -------
Signature of Stockholder Date
----------------------------- -------
Signature of Stockholder Date
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.
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.
ADDENDUM B
ESSEX CORPORATION
2002 STOCK OPTION AND APPRECIATION RIGHTS PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
Section 1.1. Essex Corporation (the "Company"), a Virginia corporation,
hereby establishes a stock option and appreciation rights plan to be named the
Essex Corporation 2002 Stock Option and Appreciation Rights Plan (the "2002
Plan").
Section 1.2. The purpose of this 2002 Plan is to induce persons who are
officers, directors, employees and consultants of the Company or any of its
subsidiaries who are in a position to contribute materially to the Company's
prosperity to remain with the Company, to offer said persons incentives and
rewards in recognition of their contributions to the Company's progress, and to
encourage said persons to continue to promote the best interests of the Company.
This 2002 Plan provides 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
employees, as well as options which do not so qualify ("Non-Qualified Options")
to be issued to persons or consultants, including those who are not employees.
This 2002 Plan also provides for grants of stock appreciation rights ("SARs") in
connection with the grant of options under this 2002 Plan. Incentive Options and
Non-Qualified Options may be collectively referred to hereinafter as the
"Options" as the context may require.
Section 1.3. All options and other rights previously granted by the
Company under any other plan previously adopted by the Company shall continue to
be governed by such plan. All Options granted hereunder on or after the date
that this 2002 Plan has been approved and adopted by the Company's board of
directors (the "Board of Directors") shall be governed by the terms and
conditions of this 2002 Plan unless the terms of such Option specifically
indicate that it is not to be so governed.
ARTICLE II
ADMINISTRATION
Section 2.1. All determinations under this 2002 Plan concerning the
selection of persons eligible to receive awards under this 2002 Plan and with
respect to the timing, pricing and amount of an award under this 2002 Plan shall
be made by the administrator (the "Administrator") of this 2002 Plan. The
Administrator shall be either: (a) the Board of Directors or (b) in the
discretion of the Board of Directors by a committee (the "Committee") of the
Board of Directors of two or more members of the Board of Directors, each of
whom is a "Non-Employee director" as such term is defined by Rule 16b-3 (as such
rule may be amended from time to time, "Rule 16b-3") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In such case, a majority
of the total number of members of the Committee shall be necessary to constitute
a quorum; and (i) the affirmative act of a majority of the members present at
any meeting at which a quorum is present, or (ii) the approval in writing by a
majority of the members of the Committee shall be necessary to constitute action
by the Committee.
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this 2002 Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
that any provision of this 2002 Plan or action by the Administrator fails to so
comply, it shall be deemed to be null and void, to the extent permitted by law
and deemed advisable by the Administrator.
Section 2.2. The provisions of this 2002 Plan relating to Incentive
Options are intended to comply in every respect with Section 422 of the Code
("Section 422") and the regulations promulgated thereunder. In the event that
any future statute or regulation shall modify Section 422, this 2002 Plan shall
be deemed to incorporate by reference such modification. Any stock option
agreement relating to the grant of any Incentive Option pursuant to this 2002
Plan, which option is outstanding and unexercised at the time that any modifying
statute or regulation becomes effective, shall also be deemed to incorporate by
reference such modification, and no notice of such modification need be given to
the Optionee (as hereinafter defined). Any stock option agreement relating to an
Incentive Option shall provide that the
Optionee (as hereinafter defined) hold the stock received upon exercise of such
Incentive Option for a minimum of two years from the date of grant of the
Incentive Option and one year from the date of exercise of such Incentive
Option, absent the written approval, consent or waiver of the Administrator.
Section 2.3. If any provision of this 2002 Plan is determined to
disqualify the shares of Common Stock purchasable upon exercise of an Incentive
Option granted under this 2002 Plan from the special tax treatment provided by
Section 422, such provision shall be deemed to incorporate by reference the
modification required to qualify such shares of Common Stock for said tax
treatment.
Section 2.4. The Company shall grant Options under this 2002 Plan in
accordance with determinations made by the Administrator pursuant to the
provisions of this 2002 Plan. All Options granted pursuant to this 2002 Plan
shall be clearly identified as Incentive Options or Non-Qualified Options. The
Administrator may from time to time adopt (and thereafter amend or rescind) such
rules and regulations for carrying out this 2002 Plan and take such action in
the administration of this 2002 Plan, not inconsistent with the provisions
hereof, as it shall deem proper. The Board of Directors or, subject to the
supervision of the Board of Directors, the Committee, as the Administrator,
shall have plenary discretion, subject to the express provisions of this 2002
Plan, to determine which officers, directors, employees and consultants shall be
granted Options, the number of shares subject to each Option, the time or times
when an Option may be exercised (whether in whole or in installments), whether
Rights under Section 7.6 hereof shall be granted, the terms and provisions of
the respective option agreements (which need not be identical), including such
terms and provisions which may be amended from time to time as shall be
required, in the judgment of the Administrator, to conform to any change in any
law or regulation applicable hereto, and to make all other determinations deemed
necessary or advisable for the administration of this 2002 Plan. The
interpretation and construction of any provision of this 2002 Plan by the
Administrator (unless otherwise determined by the Board of Directors) shall be
final, conclusive and binding upon all persons.
Section 2.5. No member of the Administrator shall be liable for any
action or determination made in good faith with respect to administration of
this 2002 Plan or the Options granted hereunder. A member of the Administrator
shall be indemnified by the Company, pursuant to the Company's bylaws, for any
expenses, judgments or other costs incurred as a result of a lawsuit filed
against such member claiming any rights or remedies arising out of such member's
participation in the administration of this 2002 Plan.
ARTICLE III
TOTAL NUMBER OF SHARES TO BE OPTIONED
Section 3.1. There shall be reserved for issuance or transfer upon
exercise of Options to be granted from time to time under this 2002 Plan an
aggregate of 300,000 shares of Common Stock of the Company (subject to
adjustment as provided in Article VIII hereof). The shares issued upon exercise
of any Options granted under this 2002 Plan may be shares of Common Stock
previously issued and reacquired by the Company at any time or authorized but
unissued shares of Common Stock, as the Board of Directors from time to time may
determine.
Section 3.2. In the event that any Options outstanding under this 2002
Plan for any reason expire or are terminated without having been exercised in
full or shares of Common Stock subject to Options are surrendered in whole or in
part pursuant to Rights granted under Section 7.6 hereof (except to the extent
that shares of Common Stock are issued as payment to the holder of the Option
upon such surrender) the unpurchased shares of Common Stock subject to such
Option and any such surrendered shares of Common Stock may again be available
for transfer under this 2002 Plan.
Section 3.3. No Options shall be granted pursuant to this 2002 Plan to
any Optionee after the tenth anniversary of the date that this 2002 Plan is
adopted by the Board of Directors.
ARTICLE IV
ELIGIBILITY
Section 4.1. Non-Qualified Options may be granted pursuant to this 2002
Plan to officers, directors, employees and consultants of the Company (or any of
its subsidiaries) selected by the Administrator, and Incentive Options may be
granted pursuant to this 2002 Plan only to employees (including officers and
directors who are also
ii
employees) of the Company (or any of its subsidiaries) selected by the
Administrator. Persons granted Options pursuant to this 2002 Plan are referred
to herein as "Optionees." For purposes of determining who is an employee with
respect to eligibility for Incentive Options, Section 422 shall govern. The
Administrator may determine (in its sole discretion) that any person who would
otherwise be eligible to be granted Options shall, nonetheless, be ineligible to
receive any award under this 2002 Plan.
Section 4.2. The Administrator will (in its discretion) determine the
persons to be granted Options, the time or times at which Options shall be
granted, the number of shares of Common Stock subject to each Option, the terms
of a vesting or forfeiture schedule, if any, the type of Option issued, the
period during which such Options may be exercised, the manner in which Options
may be exercised and all other terms and conditions of the Options; PROVIDED,
HOWEVER, no Option will be granted which has terms or conditions inconsistent
with those stated in Articles V and VI hereof. Relevant factors in making such
determinations may include the value of the services rendered by the respective
Optionee, his or her present and potential contributions to the Company, and
such other factors which are deemed relevant in accomplishing the purpose of
this 2002 Plan.
ARTICLE V
TERMS AND CONDITIONS OF OPTIONS
Section 5.1. Each Option granted under this 2002 Plan shall be
evidenced by a stock option certificate and agreement (the "Stock Option
Certificate and Agreement") in a form consistent with this 2002 Plan, provided
that the following terms and conditions shall apply:
(a) The price at which each share of Common Stock covered by an Option
may be purchased shall be set forth in the Stock Option Certificate and
Agreement and shall be determined by the Administrator, provided that the option
price for any Incentive Option shall not be less than the "fair market value" of
the shares of Common Stock at the time of grant determined in accordance with
Section 5.1(b) below. Notwithstanding the foregoing, if an Incentive Option to
purchase shares of Common Stock is granted pursuant to this 2002 Plan to an
Optionee who, on the date of the grant, directly or indirectly owns more than
ten percent (10%) of the voting power of all classes of capital stock of the
Company (or its parent or subsidiary), not including the shares of Common Stock
obtainable upon exercise of the Option, the minimum exercise price of such
Option shall be not less than one hundred ten percent (110%) of the "fair market
value" of the shares of Common Stock on the date of grant determined in
accordance with Section 5.1(b) below.
(b) The "fair market value" shall be determined by the Administrator,
which determination shall be binding upon the Company and its officers,
directors, employees and consultants. The determination of the fair market value
shall be based upon the following: (i) if the shares of Common Stock are not
listed and traded upon a recognized securities exchange and there is no report
of stock prices with respect to the shares of Common Stock published by a
recognized stock quotation service, on the basis of the recent purchases and
sales of the shares of Common Stock in arms-length transactions; or (ii) if the
shares of Common Stock are not then listed and traded upon a recognized
securities exchange or quoted on the NASDAQ Stock Market, and there are reports
of stock prices by a recognized quotation service, upon the basis of the last
reported sale or transaction price of such stock on the date of grant as
reported by a recognized quotation service, or, if there is no last reported
sale or transaction price on that day, then upon the basis of the mean of the
last reported closing bid and closing asked prices for such stock on that day or
on the date nearest preceding that day; or (iii) if the shares of Common Stock
shall then be listed and traded upon a recognized securities exchange or quoted
on the NASDAQ Stock Market, upon the basis of the last reported sale or
transaction price at which shares of Common Stock were traded on such recognized
securities exchange on the date of grant or, if the shares of Common Stock were
not traded on such date, upon the basis of the last reported sale or transaction
price on the date nearest preceding that date. The Administrator shall also
consider such other factors relating to the fair market value of the shares of
Common Stock as it shall deem appropriate.
(c) For the purpose of determining whether an Optionee owns more than
ten percent (10%) of the voting power of all classes of stock of the Company, an
Optionee is considered to own those shares which are owned directly or
indirectly through brothers and sisters (including half-blooded siblings),
spouse, ancestors and lineal descendants; and proportionately as a shareholder
of a corporation, a partner of a partnership, and/or a beneficiary of a trust or
an estate that owns shares of the Company.
iii
(d) Notwithstanding any other provision of this 2002 Plan, in
accordance with the provisions of Section 422(d) of the Code, to the extent that
the aggregate fair market value (determined at the time the Option is granted)
of the shares of Common Stock of the Company with respect to which Incentive
Options (without reference to this provision) are exercisable for the first time
by any individual in any calendar year under any and all stock option plans of
the Company, its subsidiary corporations and its parent (if any) exceeds
$100,000, such Options shall be treated as Non-Qualified Options.
(e) An Optionee may, in the Administrator's discretion, be granted more
than one Incentive Option or Non-Qualified Option during the duration of this
2002 Plan, and may be issued a combination of Non-Qualified Options and
Incentive Options; PROVIDED, HOWEVER, that non-employees are not eligible to
receive Incentive Options.
(f) The duration of any Option and any Right related thereto shall be
within the sole discretion of the Administrator; PROVIDED, HOWEVER, that any
Incentive Option granted to a ten percent (10%) or less stockholder or any
Non-Qualified Option shall, by its terms, be exercised within ten years after
the date the Option is granted and any Incentive Option granted to a greater
than ten percent (10%) stockholder shall, by its terms, be exercised within five
years after the date the Option is granted.
(g) An Option and any Right related thereto shall not be transferable
by the Optionee other than by will, or by the laws of descent and distribution.
An Option may be exercised during the Optionee's lifetime only by the Optionee.
(h) The Administrator may impose such other or further conditions on
any transaction under the 2002 Plan, including without limitation, the grant or
award of any Option or the exercise or other disposition thereof, as it, in its
discretion, may deem necessary or advisable in order to exempt the transaction
from Section 16(b) of the Exchange Act, including without limitation thereto,
the approval or ratification of the transaction by shareholders or a six-month
restriction on disposition of the Option or the Common Stock issuable upon
exercise thereof.
ARTICLE VI
EMPLOYMENT OR SERVICE OF OPTIONEE
Section 6.1. If the employment or service of an Optionee is terminated
for cause, the option rights of such Optionee, both accrued and future, under
any then outstanding Non-Qualified or Incentive Option shall terminate
immediately. "Cause" shall mean incompetence in the performance of duties,
disloyalty, dishonesty, theft, embezzlement, unauthorized disclosure of patents,
processes or trade secrets of the Company, individually or as an employee,
partner, associate, officer or director of any organization. The determination
of the existence and the proof of "cause" shall be made by the Administrator
and, subject to the review of any determination made by the Administrator, such
determination shall be binding on the Optionee and the Company.
Section 6.2. If the employment or service of the Optionee is terminated
by either the Optionee or the Company for any reason other than for cause,
death, retirement or for disability, as defined in Section 22(e)(3) of the Code,
the option rights of such Optionee under any then outstanding Incentive Option
shall, subject to the provisions of Section 5.1(h) hereof, be exercisable by
such Optionee at any time prior to the expiration of the Option or within three
months after the date of such termination, whichever period of time is shorter,
but only to the extent of the accrued right to exercise the Option at the date
of such termination.
Section 6.3. In the case of an Optionee who becomes disabled, as
defined by Section 22(e)(3) of the Code, the option rights of such Optionee
under any then outstanding Incentive Option shall, subject to the provisions of
Section 5.1(h) hereof, be exercisable by such Optionee at any time prior to the
expiration of the Option or within one year after the date of termination of
employment or service due to disability, whichever period of time is shorter,
but only to the extent of the accrued right to exercise the Option at the date
of such termination.
Section 6.4. In the event of the death of an Optionee, the option
rights of such Optionee under any then outstanding Incentive Option shall be
exercisable by the person or persons to whom these rights pass by will or by the
laws of descent and distribution, at any time prior to the expiration of the
Option or within three years after the date of death, whichever period of time
is shorter, but only to the extent of the accrued right to exercise the Option
at the date of death. If a person or estate acquires the right to exercise an
Incentive Option by bequest or inheritance, the
iv
Administrator may require reasonable evidence as to the ownership of such
Option, and may require such consents and releases of taxing authorities as the
Administrator may deem advisable.
Section 6.5. If an Optionee to whom an Option has been granted under
this 2002 Plan retires from his employment or service with the Company or any of
the Subsidiaries under a retirement plan or policy of the Company and its
Subsidiaries or at his or her normal retirement date or earlier with the
approval or consent of the Company or such Subsidiary, or as a result of the
Disability as defined in Section 22(e)(3) of the Code, such Option shall
continue to be exercisable in whole or in part, to the extent not therefore
exercised, by the Optionee to whom granted in the manner set forth in this 2002
Plan, at any time within the remaining term of such Option.
Section 6.6. The Administrator may also provide that an employee must
be continuously employed by the Company for such period of time as the
Administrator, in its discretion, deems advisable before the right to exercise
any portion of an Option granted to such employee will accrue, and may also set
such other targets, restrictions or other terms relating to the employment of
the Optionee which targets, restrictions, or terms must be fulfilled or complied
with, as the case may be, prior to the exercise of any portion of an Option
granted to any employee.
Section 6.7. Except in the event of termination for cause,
Non-Qualified Options shall be exercisable during such term as determined at the
time of grant by the Administrator.
Section 6.8. Options granted under this 2002 Plan shall not be affected
by any change of duties or position, so long as the Optionee continues in the
service of the Company.
Section 6.9. Nothing contained in this 2002 Plan, or in any Option
granted pursuant to this 2002 Plan, shall confer upon any Optionee any right
with respect to continuance of employment or service by the Company nor
interfere in any way with the right of the Company to terminate the Optionee's
employment or service or change the Optionee's compensation at any time.
ARTICLE VII
PURCHASE OF SHARES
Section 7.1. Except as provided in this Article VII, an Option shall be
exercised by tender to the Company of the full exercise price of the shares of
Common Stock with respect to which the Option is exercised and written notice of
the exercise. The right to purchase shares of Common Stock shall be cumulative
so that, once the right to purchase any shares of Common Stock has accrued, such
shares or any part thereof may be purchased at any time thereafter until the
expiration or termination of the Option. A partial exercise of an Option shall
not affect the right of the Optionee to exercise the Option from time to time,
in accordance with this 2002 Plan, as to the remaining number of shares of
Common Stock subject to the Option. The purchase price of the shares shall be in
United States dollars, payable in cash or by certified bank check.
Notwithstanding the foregoing, in lieu of cash, an Optionee may, with the
approval of the Administrator, exercise his or her Option by tendering to the
Company shares of Common Stock of the Company owned by him or her and having an
aggregate fair market value at least equal to the full exercise price. The fair
market value of any shares of Common Stock so surrendered shall be determined by
the Administrator in accordance with Section 5.1(b) hereof.
Section 7.2. Except as provided in Article VI above, an Option may not
be exercised unless the holder thereof is an officer, director, employee, or
consultant of the Company at the time of exercise.
Section 7.3. No Optionee, or Optionee's executor, administrator,
legatee, or distributee or other permitted transferee, shall be deemed to be a
holder of any shares of Common Stock subject to an Option for any purpose
whatsoever unless and until a stock certificate or certificates for such shares
are issued to such person under the terms of this 2002 Plan. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Article VIII hereof.
Section 7.4. If: (i) the listing, registration or qualification of the
Options issued hereunder, or of any securities issuable upon exercise of such
Options (the "Subject Securities") upon any securities exchange or quotation
system or under federal or state law is necessary as a condition of or in
connection with the issuance or exercise of the
v
Options, or (ii) the consent or approval of any governmental regulatory body is
necessary as a condition of or in connection with the issuance or exercise of
the Options, the Company shall not be obligated to deliver the certificates
representing the Subject Securities or to accept or to recognize an Option
exercise unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained. The Company will take reasonable
action to so list, register, or qualify the Options and the Subject Securities,
or effect or obtain such consent or approval, so as to allow for their issuance.
Section 7.5. An Optionee may be required to represent to the Company as
a condition of his or her exercise of Options issued under this 2002 Plan that:
(i) the Subject Securities acquired upon exercise of his or her Option are being
acquired by him or her for investment purposes only and not with a view to
distribution or resale, unless counsel for the Company is then of the view that
such a representation is not necessary and is not required under the Securities
Act of 1933, as amended (the "Securities Act"), or any other applicable statute,
law, regulation or rule; and (ii) that the Optionee shall make no exercise or
disposition of an Option or of the Subject Securities in contravention of the
Securities Act, the Exchange Act or the rules and regulations thereunder.
Optionees may also be required to provide (as a condition precedent to exercise
of an Option) such documentation as may be reasonably requested by the Company
to assure compliance with applicable law and the terms and conditions of this
2002 Plan and the subject Option.
Section 7.6. The Administrator may, in its discretion, grant in
connection with any Option, at any time prior to the exercise thereof, the right
(previously defined as an "SAR" or collectively, the "SARs") to surrender all or
part of the Option to the extent that such Option is exercisable and receive in
exchange an amount (payable in cash, shares of Common Stock valued at the then
fair market value, or a combination thereof as determined by the Administrator)
equal to the difference (the "Spread") between the then fair market value of the
shares of Common Stock issuable upon the exercise of the Option (or portions
thereof surrendered) and the option price payable upon the exercise of the
Option (or portions thereof surrendered). Such SARs may be included in an Option
only under the following conditions: (a) the SARs will expire no later than the
expiration of the underlying Option; (b) the SARs may be for no more than one
hundred percent (100%) of the Spread; (c) the SARs are transferable only when
the underlying Option is transferable and under the same conditions; (d) the
SARs may be exercised only when the underlying Option is eligible to be
exercised; and (e) the SARs may be exercised only when the Spread is positive,
i.e., when the market price of the stock subject to the Option exceeds the
exercise price of the Option.
Section 7.7. An Option may also be exercised by tender to the Company
of a written notice of exercise together with advice of the delivery of an order
to a broker to sell part or all of the shares of Common Stock subject to such
exercise notice and an irrevocable order to such broker to deliver to the
Company (or its transfer agent) sufficient proceeds from the sale of such shares
to pay the exercise price and any withholding taxes. All documentation and
procedures to be followed in connection with such a "cashless exercise" shall be
approved in advance by the Administrator.
ARTICLE VIII
CHANGE IN NUMBER OF OUTSTANDING SHARES OF
STOCK, ADJUSTMENTS, REORGANIZATIONS, ETC.
Section 8.1. In the event that the outstanding shares of Common Stock
of the Company are hereafter increased or decreased or changed into or exchanged
for a different number of shares or kind of shares or other securities of the
Company or of another corporation by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split, combination of
shares, or a dividend payable in capital stock, appropriate adjustment shall be
made by the Administrator in the number and kind of shares for the purchase of
which Options may be granted under this 2002 Plan, including the maximum number
that may be granted to any one person. In addition, the Administrator shall make
appropriate adjustments in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised, shall be exercisable, to the end
that the Optionee's proportionate interest shall be maintained as before the
occurrence to the unexercised portion of the Option and with a corresponding
adjustment in the option price per share. Any such adjustment made by the
Administrator shall be conclusive.
Section 8.2. The grant of an Option pursuant to this 2002 Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
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Section 8.3. Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company as a result of
which the outstanding securities of the class then subject to Options hereunder
are changed into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of substantially all the property of the Company
to an association, person, party, corporation, partnership, or control group as
that term is construed for purposes of the Exchange Act, this 2002 Plan shall
terminate, and all outstanding Options theretofore granted hereunder shall
terminate, unless provision be made in writing in connection with such
transaction for the continuance of this 2002 Plan and/or for the assumption of
Options theretofore granted, or the substitution for such Options of options
covering the stock of a successor employer corporation, or a parent or a
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices, in which event this 2002 Plan and options theretofore granted
shall continue in the manner and under the terms so provided. If this 2002 Plan
and unexercised Options shall terminate pursuant to the foregoing sentence, all
persons owning any unexercised portions of Options then outstanding shall have
the right, at such time prior to the consummation of the transaction causing
such termination as the Company shall designate, to exercise the unexercised
portions of their Options, including the portions thereof which would, but for
this Section 8.3 not yet be exercisable.
ARTICLE IX
DURATION, AMENDMENT AND TERMINATION
Section 9.1. The Board of Directors may at any time terminate this 2002
Plan or make such amendments hereto as it shall deem advisable and in the best
interests of the Company, without action on the part of the stockholders of the
Company unless such approval is required pursuant to Section 422 of the Code or
the regulations thereunder or other federal or state law; PROVIDED, HOWEVER,
that no such termination or amendment shall, without the consent of the
individual to whom any Option shall theretofore have been granted, materially
adversely affect or impair the rights of such individual under such Option.
Pursuant to Section 422(b) of the Code, no Incentive Option may be granted
pursuant to this 2002 Plan after ten years from the date this 2002 Plan is
adopted or the date this 2002 Plan is approved by the stockholders of the
Company, whichever is earlier.
ARTICLE X
RESTRICTIONS
Section 10.1. Any Options and shares of Common Stock issued pursuant to
this 2002 Plan shall be subject to such restrictions on transfer and limitations
as shall, in the opinion of the Administrator, be necessary or advisable to
assure compliance with the laws, rules and regulations of the United States
government or any state or jurisdiction thereof. In addition, the Administrator
may in any Stock Option Certificate and Agreement impose such other restrictions
upon the disposition or exercise of an Option or upon the sale or other
disposition of the shares of Common Stock deliverable upon exercise thereof as
the Administrator may, in its sole discretion, determine. By accepting an award
pursuant to this 2002 Plan, each Optionee shall thereby agree to any such
restrictions.
Section 10.2. Any certificate issued to evidence shares of Common Stock
issued pursuant to an Option shall bear such legends and statements as the
Committee, the Board of Directors or counsel to the Company shall deem advisable
to assure compliance with the laws, rules and regulations of the United States
government or any state or jurisdiction thereof. No shares of Common Stock will
be delivered pursuant to exercise of the Options granted under this 2002 Plan
until the Company has obtained such consents or approvals from such regulatory
bodies of the United States government or any state or jurisdiction thereof as
the Committee, the Board of Directors or counsel to the Company deems necessary
or advisable.
ARTICLE XI
FINANCIAL ASSISTANCE
Section 11.1. The Company is vested with authority under this 2002 Plan
to assist any employee to whom an Option is granted hereunder, excluding any
officer or director of the Company or any of its subsidiaries who is also an
employee, in the payment of the purchase price payable on exercise of such
Option, by lending the amount of such purchase price to such employee on such
terms and at such rates of interest and upon such security (or unsecured) as
shall have been authorized by or under authority of the Board of Directors. Any
such assistance shall comply with the requirements of Regulation G promulgated
by the Board of the Federal Reserve System, as amended from time to time, and
any other applicable law, rule or regulation.
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ARTICLE XII
APPLICATION OF FUNDS
Section 12.1. The proceeds received by the Company from the issuance
and sale of Common Stock upon exercise of Options granted pursuant to this 2002
Plan are to be added to the general funds of the Company and used for its
corporate purposes as determined by the Board of Directors.
ARTICLE XIII
EFFECTIVENESS OF PLAN
Section 13.1. This 2002 Plan shall become effective upon adoption by
the Board of Directors, and Options may be issued hereunder from and after that
date subject to the provisions of Section 3.3 above. This 2002 Plan must be
approved by the Company's stockholders in accordance with the applicable
provisions (relating to the issuance of stock or options) of the Company's
governing documents and state law or, if no such approval is prescribed therein,
by the affirmative vote of the holders of a majority of the votes cast at a duly
held stockholders meeting at which a quorum representing a majority of all the
Company's outstanding voting stock is present and voting (in person or by proxy)
or, without regard to any required time period for approval, by any other method
permitted by Section 422 of the Code and the regulations thereunder. If such
stockholder approval is not obtained within one year of the adoption of this
2002 Plan by the Board of Directors or within such other time period required
under Section 422 of the Code and the regulations thereunder, this 2002 Plan
shall remain in force, provided however, that all Options issued and issuable
hereunder shall automatically be deemed to be Non-Qualified Options.
IN WITNESS WHEREOF, pursuant to the approval of this 2002 Plan by the
Board of Directors, this 2002 Plan is executed and adopted as of the 2nd day of
May 2002 and amended the 19th day of September 2002.
ESSEX CORPORATION
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