CUBIC CORP /DE/, PRE 14A, 1997-12-22

CUBIC CORP /DE/
PRE 14A, 1997-12-22
MEASURING & CONTROLLING DEVICES, NEC

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<PAGE>
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant /X/

Check the appropriate box:

/X/ Preliminary Proxy Statement

CUBIC CORPORATION
-------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
<PAGE>
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..............................................................................

1998 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT

<PAGE>
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PRINCIPAL EXECUTIVE OFFICE
9333 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123

------------------------

To Cubic Shareholders:

Cubic Corporation's 1998 Annual Meeting will be held in the Crystal Room at
the Handlery Hotel & Country Club, at 950 Hotel Circle North, San Diego,
California 92108, on February 10, 1998, at 10:30 a.m. Pacific Standard Time. The
formal notice and proxy statement follow.

The Directors and Officers of the Corporation invite your attendance at the
meeting. Whether or not you plan to attend the meeting, we would appreciate your
completing and returning the accompanying proxy which, of course, may be revoked
at any time before it is used.

The Corporation's 1997 Annual Report is enclosed herewith.

Sincerely yours,

[SIG]

Walter J. Zable
CHAIRMAN OF THE BOARD

January 6, 1998
<PAGE>
TO ENSURE YOUR REPRESENTATION AT THE MEETING,
PLEASE DATE, SIGN AND MAIL PROMPTLY
THE ENCLOSED PROXY, FOR WHICH
A RETURN ENVELOPE IS PROVIDED.

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NOTICE OF ANNUAL MEETING

---------------------

The Annual Meeting of Shareholders of Cubic Corporation will be held in the
Crystal Room at the Handlery Hotel & Country Club, at 950 Hotel Circle North,
San Diego, California 92108, on February 10, 1998, at 10:30 a.m. Pacific
Standard Time, for the following purposes:

1. To elect seven Directors for the ensuing year;

2. To authorize an amendment to Article 4 of the Certificate of
Incorporation to increase the amount of authorized common stock of the
Corporation from 15,000,000 shares to 20,000,000 shares;

3. To consider and act upon a proposal to approve the Cubic Corporation
1998 Stock Option Plan as adopted by the Board of Directors; and

4. To transact such other business as may properly come before the meeting.

Shareholders of record at the close of business on January 5, 1998 will be
entitled to vote at the meeting. The transfer books will not be closed.

By Order of the Board of Directors

[SIG]

William C. Stewart, Jr.
SECRETARY

San Diego, California
January 6, 1998
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PRINCIPAL EXECUTIVE OFFICE
9333 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123

------------------------

PROXY STATEMENT

Proxies in the form enclosed with this statement are solicited by the Board
of Directors of Cubic Corporation for use at the Annual Meeting of Shareholders
of the Corporation to be held in San Diego, California, on February 10, 1998.
Execution of a proxy will not in any way affect a shareholder's right to attend
the meeting and vote in person, and any shareholder giving a proxy has the right
to revoke it at any time before it is exercised by filing with the Secretary of
the Corporation a written revocation or duly executed proxy bearing a later
date. The Proxy will be suspended if the shareholder is present at the meeting
and elects to vote in person.

OUTSTANDING SHARES AND VOTING RIGHTS

The voting securities of the Corporation consist of its Common Stock,
without Par Value, of which 8,946,658 shares are outstanding at December 5, 1997
(after deducting 2,941,585 shares held as Treasury Shares).

Only shareholders of record on the books of the Corporation at the close of
business on January 5, 1998 will be entitled to vote at the meeting. Each such
holder of common shares is entitled to one vote for each said share. Votes will
be counted by the Inspector of Elections. Abstentions, broker non-votes and
proxies without authority to vote will not be counted in votes cast.

The approximate date on which the proxy statement and form of proxy are
first being sent or given to security holders is January 6, 1998.

ELECTION OF DIRECTORS

Seven Directors comprise the authorized membership of the Board of Directors
of the Corporation. Seven Directors are to be elected by a plurality vote at the
Annual Meeting, each to hold office for the term of one year and until his
successor is elected. Proxy holders will, unless authorization to do so is
withheld, vote the proxies received by them for the reelection of the following
Directors, now in office, in accordance with this proxy authorization, reserving
the right, however, to distribute, in their discretion, their votes of
uncommitted proxies among the management nominees.

IDENTIFICATION OF DIRECTORS

WALTER J. ZABLE, 82, DIRECTOR SINCE 1951. Chairman of the Board, President
and Chief Executive Officer, and Chairman of the Executive Committee.

WALTER C. ZABLE, 51, DIRECTOR SINCE 1976. Vice Chairman of the Board, Member
of the Executive Committee, and Vice President. Formerly President of Cubic
Automatic Revenue Collection Group, a wholly-owned subsidiary. Prior thereto
performed various management functions at the Corporation's former subsidiary,
United States Elevator Corp.
<PAGE>
JACKSON D. ARNOLD, 85, DIRECTOR SINCE 1974. Retired Admiral United States
Navy, Member of the Audit and Compliance, the Executive, and the Executive
Compensation Committees.

ROBERT T. MONAGAN, 77, DIRECTOR SINCE 1986. Chairman of the Executive
Compensation Committee and Member of the Nominating Committee. Former President
of the California Manufacturers Association. Chairman of the California State
World Trade Commission. Former Speaker of the California State Assembly.
Director of Electronic Medical Management, Inc.

RAYMOND E. PEET, 77, DIRECTOR SINCE 1987. Retired Vice Admiral United States
Navy, Chairman of the Audit and Compliance Committee, Member of the Executive
and the Nominating Committees. Member of Board of Consultants to the Comptroller
General of the United States, Chairman of San Diego Dialogue, and Chairman of
the Board of Directors of the Price Real Estate Investment Trust, Inc.

RICHARD G. DUNCAN, 88, DIRECTOR SINCE 1991. Member of the Nominating and the
Audit and Compliance Committees. Retired Executive Vice President of Dun &
Bradstreet, Inc., President of its Business Information Division, and member of
its Board of Directors. Retired Director of Provident Savings Bank, Riverside,
California.

WILLIAM W. BOYLE, 63, DIRECTOR SINCE 1995. Vice President of Finance and
Chief Financial Officer. Director of Sigma Circuits, Inc. Member of the West
Coast Advisory Board of Protection Mutual Insurance Company.

IDENTIFICATION OF EXECUTIVE OFFICERS

THOMAS A.BAZ, 64, Vice President and Corporate Controller since 1983.

WALTER E. FAIRBANKS, 66, Group Vice President/Defense since 1993.

WILLIAM C. STEWART, JR., 68, Vice President, Secretary and General Counsel
since 1984.

JOHN D. THOMAS, 44, Vice President and Treasurer since 1992.

BOARD OF DIRECTORS AND BOARD COMMITTEES

During the fiscal year 1997, five meetings of the Board of Directors were
held. Each of the incumbent Directors attended 75% or more of the aggregate of
(1) the total number of Board meetings and (2) the total number of meetings held
by all Board Committees on which he served. Outside Directors, other than
Jackson D. Arnold and Raymond E. Peet, are paid fees of $1,500 for attendance at
each meeting of the Board and $1,000 for attendance at each meeting of any
Committee of which a Director is a Member. Jackson D. Arnold and Raymond E. Peet
each receive a flat annual fee of $12,000 because of their more extensive
services as Members of the Executive Committee. Salaried employees of the
Corporation who are Directors are not separately compensated for their services
as Directors, but all Directors are reimbursed for travel expenses, if incurred,
for attendance at meetings.

AUDIT AND COMPLIANCE COMMITTEE

Members of this Committee are Raymond E. Peet, Chairman, Jackson D. Arnold,
and Richard G. Duncan. It held two meetings during the fiscal year. The
Committee advises and assists the Corporation's Chief Financial Officer in
making periodic overall reviews of the Corporation's internal controls and
financial statements, reviews legal matters and Hotline activities, meets
periodically with the Corporation's independent auditors to discuss their audit
activities and recommends to the Board of Directors independent auditors for
appointment for the Corporation's annual audit, and advises and provides
oversight of the Corporation's Internal Audit activities and other programs.

2
<PAGE>
EXECUTIVE COMPENSATION COMMITTEE

Members of this Committee are Robert T. Monagan, Chairman, and Jackson D.
Arnold. It held one meeting during fiscal 1997. The Committee approves salary
and/or other compensation adjustments for the benefit of the Corporation's
Officers.

NOMINATING COMMITTEE

Members of this Committee are Robert T. Monagan, Raymond E. Peet and Richard
G. Duncan. No meetings were held during fiscal 1997. The Committee will not
consider shareholder nominations.

OWNERSHIP OF COMMON STOCK

The following table sets forth information with respect to persons known to
the Corporation to be the beneficial owner of more than 5% of the Corporation's
outstanding Common Stock (after deduction of Treasury Shares):

<TABLE>
<CAPTION>
NAME AMOUNT PERCENT
TITLE AND BENEFICIALLY OF
CLASS ADDRESS OWNED OWNED
- ---------- ------------------- ----------- -----------
<S> <C> <C> <C>
Common Walter J. Zable 3,558,847 39.78%
P. O. Box 1525
Rancho Santa Fe
California 92067
</TABLE>

The following table sets forth information with respect to beneficial
ownership of the Corporation's Common Stock by Directors and all Officers and
Directors as a group as of December 5, 1997. In each case where such number of
shares exceeds 1% of the securities of such class outstanding on the record date
(after deduction of Treasury Shares), the percentage of such class is indicated
in parentheses. Except as indicated, each individual named has sole investment
and voting power with respect to the securities shown.

<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY
OWNED
DIRECTLY OR
NAME INDIRECTLY (2)
- ------------------------------------------------------------------------------ --------------
<S> <C>
Walter J. Zable (39.78%)(1)................................................... 3,558,847(3)
Raymond E. Peet............................................................... 5,125
Jackson D. Arnold............................................................. 11,550
Richard G. Duncan............................................................. 1,200
Walter C. Zable............................................................... 148,969(4)
Robert T. Monagan............................................................. 1,100
William W. Boyle.............................................................. 600
Walter E. Fairbanks........................................................... 16,100(5)
William C. Stewart, Jr........................................................ 502
All Officers and Directors as a Group (16)(41.86%)............................ 3,745,428
</TABLE>

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(1) By virtue of his beneficial share ownership, Mr. Zable may be deemed to be a
"Control" person of the Corporation as that term is described under the
Securities Exchange Act of 1934.

(2) All shares of common stock indicated as being beneficially owned are owned
directly except for Walter J. Zable, Walter C. Zable and Walter E.
Fairbanks.

(3) Walter J. Zable's shares are beneficially owned through Trusts and a public
benefit charitable corporation, the terms of which establish sole voting
power in Mr. Zable.

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<PAGE>
(4) A portion of the shares of Walter C. Zable are owned indirectly through a
Trust, the terms of which establish sole voting power in Mr. Zable.

(5) A portion of the shares of Walter E. Fairbanks are owned indirectly through
a Trust, the terms of which establish sole voting power in Mr. Fairbanks.

Walter C. Zable is the son of Walter J. Zable.

Although it is not contemplated that any nominee will be unable to serve as
a Director, in such event the proxies will be voted by the proxy holders for
such other persons as may be designated by the Board of Directors.

AMENDMENT OF CERTIFICATE OF INCORPORATION

In February 1996, pursuant to action of the Board of Directors and approved
by a majority of the Shareholders, the Articles of Incorporation of the
Corporation were amended to eliminate the authorization for preferred shares and
to reduce the number of common shares authorized for issuance to 15,000,000. In
July 1996, pursuant to action of the Board of Directors and approved by a
majority of the Shareholders, the Articles of Incorporation were amended to
divide each two shares of the Corporation's common stock into three shares to
provide for a three-for-two stock split, which resulted in the issuance of
additional shares of stock, thereby reducing the number of authorized but
unissued shares to a total of 3,111,757. This remaining balance is insufficient
should the Corporation desire to effect another stock split or for use in the
event of acquisitions of other entities or product lines in which shares of
stock would be the consideration for such activity. In addition, subject to the
approval of the Shareholders, the Corporation has adopted a stock option plan,
as more fully explained below, in which it is proposed that 1,000,000 shares be
reserved for the granting of options. Adoption of the plan by the Shareholders
would constitute another reason to increase the number of shares authorized for
issuance by the Corporation.

AN AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES IS
NECESSARY FOR APPROVAL.

THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.

PROPOSED CUBIC CORPORATION 1998 STOCK OPTION PLAN

The Corporation's 1981 Amended and Restated Employee Stock Option Plan,
which was approved by the Shareholders, terminated as to the granting of options
on December 2, 1991. That Plan authorized the granting of options to key
employees, including Officers, whether or not Directors, of the Corporation or
its subsidiaries as selected by the Board of Directors. Because the
Corporation's Board of Directors continues to believe that the attraction and
retention of key employees with outstanding capabilities is essential to the
Corporation's future growth and success, the Board adopted, subject to
Shareholder approval, the Cubic Corporation 1998 Stock Option Plan (the "1998
Plan"), and the setting aside of 1,000,000 shares of the Corporation's capital
stock for issuance pursuant to the 1998 Plan.

The following is a brief description of the material features of the 1998
Plan (including the provisions which will be necessary in order for the options
granted under the 1998 Plan to be treated as incentive stock options).

Employees, Officers and Directors of the Corporation or its subsidiaries
relative to the Corporation's or subsidiaries' management or development are
eligible to receive options under the 1998 Plan. The 1998 Plan permits the
granting of options that are intended to qualify either as Incentive Stock
Options ("ISOs") or Non-Qualified Stock Options ("NQSOs"). ISOs may be granted
only to employees (including Officers and Directors who are also employees) of
the Corporation or its subsidiaries.

4
<PAGE>
1,000,000 of the authorized but unissued shares of the Corporation's Capital
Stock has been reserved by the Board of Directors for issuance pursuant to the
1998 Plan. No person shall be granted an ISO to the extent that the fair market
value of the shares to which such options are exercisable for the first time by
the optionee during any calendar year exceeds $100,000.

The 1998 plan is administered by the Executive Compensation Committee, the
members of which are appointed by the Board of Directors. Subject to the terms
of the 1998 Plan, the Committee determines the persons who are to receive
options, the number of shares subject to each option and the terms and
conditions of the options. The Committee also has the authority to construe and
interpret any of the provisions of the 1998 Plan or any options granted
thereunder.

The option price of each ISO and NQSO shall be not less than 100% of the
fair market value of the option shares on the date of granting of the option.
The options will be exercisable in part from time to time commencing twelve
months after the date they are granted. As consideration for the granting of any
such option, each optionee shall agree to remain in the employ of and to render
his/her services to the Corporation or subsidiaries for a period of one year
from the date of the option, but such agreement shall not impose upon the
Corporation or subsidiaries any obligation to retain the optionee in their
employ for any period. Should an optionee cease to be employed by the
Corporation or its subsidiaries, a member of the Board of Directors of the
Corporation, or no longer performs services for the Corporation or its
subsidiaries and the termination is for "cause", all options granted under the
1998 Plan expire on the date of the occurrence giving rise to such termination
or upon the date the option expires by its term, whichever is earlier, and any
option that has not vested in the optionee as of the date of termination
immediately expires and becomes null and void. "Cause" is defined to include an
optionee's personal dishonesty, misconduct, breach of fiduciary duty,
incompetence intentional failure to perform stated obligations, willful
violation of any law, rule, regulation or final cease and desist order, or any
material breach of any provision of the 1998 Plan, and stock option agreement or
any employment agreement. Should an optionee cease to be employed by the
Corporation or subsidiaries, other than by reason of death, the option, to the
extent that it was exercisable on the date of cessation of employment, may be
exercised at any time within three months following such cessation of employment
or before the date the option expires by its terms, whichever is earlier. If
cessation of employment occurs by reason of death of the optionee, to the extent
that the optionee had the right to exercise such option, the same may be
exercised by the optionee's heirs, executors, or administrators within six
months after the optionee's death. No option shall be transferable by the
optionee otherwise than by will or the laws of descent and distribution. No
option may be granted after ten years from the earlier of the date of the
Shareholder's approval or corporate adoption. There is no limitation in the 1998
Plan as to which employees (including Officers, whether or not they are
Directors) shall be eligible to receive options.

The consideration to be received upon exercise of options may be paid either
in cash or by check or by the surrender or delivery to the Corporation of shares
of its stock in payment, or by any combination of the same. Optionees shall be
credited with the fair market value of any stock so surrendered or delivered as
of the exercise date. The 1998 Plan includes provision for adjustment in the
number of shares covered by outstanding options in the event of any
recapitalization subject to any required action by the Shareholders. If an
option is to be granted to an employee who at the time such option is granted
owns, or under Section 424(d) of the Code is deemed to own, more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or of a parent or subsidiary corporation, the option price shall be
at least 110 percent of the fair market value of the stock subject to the option
at the time such option is granted, and such option by its terms shall not be
exercisable after the expiration of ten years after the date such option is
granted.

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<PAGE>
The 1998 Plan empowers the Committee, notwithstanding the foregoing
provisions, to grant options under which actual dates for installments fall up
to six months before or after the applicable anniversary date of the grant and,
in addition, grant options under which the first installment accrues after any
period following the date of grant, if necessary, in the opinion of the
Committee adequately to compensate optionees, subject to the limitation that no
option shall be exercisable after ten years from the date the option is granted.

The market value of the Corporation's Capital Stock without par value as of
December 5, 1997, was $33.75. The Board of Directors of the Corporation may,
insofar as permitted by law, from time to time, with respect to any shares at
the time not subject to options, suspend or discontinue the 1998 Plan or revise
or amend it in any respect whatsoever except that, without approval of the
Shareholders, no such revision or amendment shall change the number of shares
subject to the 1998 Plan, change the designation of the class of employees
eligible to receive options, or decrease the price at which options may be
granted.

THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES IS NECESSARY
FOR APPROVAL. IF SO APPROVED, THE 1998 PLAN WILL BECOME EFFECTIVE IMMEDIATELY.

THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE PLAN.

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<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION

The following table sets forth all cash compensation paid for services
rendered in all capacities to the Corporation and its subsidiaries during or
with respect to the 1997 fiscal year to the Chief Executive Officer and the four
most-highly compensated Executive Officers of the Corporation whose compensation
exceeded $100,000:

<TABLE>
<CAPTION>
NAME POSITION
- ------------------------- --------------------------------- ANNUAL COMPENSATION LONG TERM
------------------------------------ COMPENSATION
BASE BONUS OTHER ANNUAL -------------
SALARY --------- COMPENSATION
---------- (B) ------------- (D)
(A) (C)
<S> <C> <C> <C> <C> <C> <C>
W.J. Zable Chairman of the Board 1997 $ 500,000 $ 95,000 $ 43,061 $ 84,837
President and Chief 1996 $ 500,000 $ 75,000 $ 42,587 $ 165,000
Executive Officer 1995 $ 500,000 $ 75,000 $ 43,914 $ 95,000

W.W. Boyle Vice President Finance 1997 $ 314,423 $ 60,000 $ 34,829
Chief Financial Officer 1996 $ 299,039 $ 35,000 $ 34,009
1995 $ 274,005 $ 30,000 $ 24,004

W.E. Fairbanks Group Vice President 1997 $ 269,231 $ 50,000 $ 18,823
Defense 1996 $ 249,231 $ 30,000 $ 11,155

W.C. Zable Vice Chairman of the 1995 $ 228,846 $ 30,000 $ 11,224
Board & Vice 1997 $ 264,449 $ 25,000 $ 25,063
President of Cubic 1996 $ 251,615 $ 25,000 $ 24,549
Corporation 1995 $ 241,577 $ 25,000 $ 25,004

W.C. Stewart Vice President, Secretary 1997 $ 184,615 $ 25,000 $ 30,164
and General Counsel 1996 $ 174,309 $ 20,000 $ 22,562
1995 $ 165,462 $ 20,000 $ 20,414
</TABLE>

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(A) Amounts shown include cash compensation earned and received as well as
earned and deferred at the election of the Officers.

(B) Amounts shown include bonus cash compensation earned for each fiscal year
whether received or deferred at the election of the Officer.

(C) Amounts shown reflect the individual's interest in the Corporation's
contribution for fiscal 1997 to the Corporation's Employees' Profit Sharing
Plan, premiums for executive life insurance coverage in accordance with
I.R.S. tables, and automobile allowances.

(D) The split-dollar insurance plan, described below, initiated for the benefit
of the shareholders, requires the Officer to make contributions toward
acquisition of the life insurance. In October 1992, to offset the cost,
including taxes, of the insurance contribution by Mr. Zable, the Board of
Directors adopted a supplemental executive compensation program under the
terms of which a predetermined sum would be paid annually. The amounts set
forth above are the annual payments under this program. Payments may be
discontinued at any time by the Board of Directors.

The remuneration shown for the named individuals includes deferred
compensation under the Corporation's Deferred Compensation Plan. Under the Plan,
selected key employees of the Corporation, including Officers, may defer all or
any part of their compensation until termination of employment with the
Corporation. The deferred compensation is held in the general funds of the
Corporation and credited to the account of the employee. Each account is
credited with interest at the rate set by the Secretary of the United States
Treasury.

The Corporation provides all full-time employees with life insurance
coverage up to $50,000, depending on their rate of compensation, and executives
of the Corporation with $150,000 of life insurance. In

7
<PAGE>
addition, executives are provided, at their option, with additional life
insurance in an amount of 1, 2, 3, or 4 times the executive's salary, at the
executive's option, up to a total maximum of $500,000, all of the premiums for
such additional insurance being paid solely by each electing executive.
Currently, premiums not paid by the executive for all life insurance coverage
are treated as compensation to those executives in accordance with Internal
Revenue Service Tables, and are included in the cash compensation shown.

For several years, Walter J. Zable has been awarded annual bonuses, as
indicated above, which he has not taken in cash except for certain personal
expenses which from time to time have been applied against the accumulated bonus
amount. Certain legal expenses incurred by Mr. Zable, involving matters
unrelated to the Corporation, were applied against his accumulated bonus amount
which resulted in an outstanding indebtedness to the Corporation at the end of
the fiscal year in the amount of $66,785.

For several years the Corporation has leased certain manufacturing
facilities and space from Walter C. Zable and Karen Zable Cox for use in
connection with the manufacture of paramilitary radio equipment. Walter C. Zable
is a Director of the Corporation and both he and Karen Zable Cox are the
children of Walter J. Zable.

The remuneration shown for the named individuals includes their interest in
the Corporation's contribution for fiscal 1997 to the Corporation's Employees'
Profit Sharing Plan. The Plan is for employees of the Corporation and its
subsidiaries. The amount of the Corporation's annual contribution is determined
by the Board of Directors in its sole discretion. The Plan also allows employees
to make voluntary contributions of up to 10% of their compensation to the Plan.
Employees, including executives, are permitted, pursuant to the provisions of
the Plan, to defer pre-tax up to 10% of their compensation up to a maximum
amount allowed by the Internal Revenue Code depending upon the amount of that
compensation in addition to the after-tax contributions referred to above. These
pre-tax deferrals made by the named individuals are also included in the
compensation shown above. The Corporation's annual and the employee's voluntary
contributions to the Plan are made to various funds held by an insurance
company. Each employee is given investment discretion over the contributions
allocated to his or her account.

The compensation shown does not include contributions by the Corporation
under its defined benefit Employees' Pension Plan because the amount of such
contributions in respect to a specified person are not and cannot be readily
calculated. Additional information regarding the Corporation's Employees'
Pension Plan is set forth below:

The Corporation maintains a defined benefit Pension Plan ("Plan") for most
of its employees and the employees of its subsidiaries. The Corporation's
contributions to the Plan are distributed amongst various funds held by an
insurance company. They are actuarially determined for the total of all
participants covered by the Plan. Therefore, the amount of contribution in
respect to a specified person is not and cannot be readily calculated. The
Corporation's contribution to the Plan for 1997 amounts to approximately 2.3% of
the participants' remuneration. Generally, all participants in the Plan earn the
right to receive a monthly pension at the Plan's normal retirement date of age
65 in an amount equal to 1/12th of 3/4ths of 1% of their total earnings
(including bonuses) since 1974. Most Officers and Directors of the Corporation
who are salaried have been participants and have been credited with years of
service for each year since the Plan has been in existence. Most regular
employees, including Officers, participate in the non-contributory Pension Plan
of the Corporation, subject to the terms and conditions of the Plan. The

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<PAGE>
benefits to be paid under the Pension Plan are not subject to adjustments for
Social Security benefits or other offsets.

<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS UNDER THE CUBIC CORPORATION PENSION PLAN
- ------------------------------------------------------------------------
AT RETIREMENT AGE OF 65
AVERAGE YEARS OF SERVICE
ANNUAL -------------------------------------------
COMPENSATION 10 20 30 40
- --------------------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 50,000 $ 3,750 $ 7,500 $ 11,250 $ 15,000
100,000 7,500 15,000 22,500 30,000
150,000 11,250 22,500 33,750 45,000
</TABLE>

Compensation eligible to the Plan is limited by ERISA regulations to
$150,000 during the year ended September 30, 1997.

The years of credited service in the Corporation's Pension Plan for the
listed individuals are: 48 years for W. J. Zable, 25 years for W. C. Stewart, 35
years for W. C. Zable, 14 years for W. W. Boyle, and 5 years for W. E.
Fairbanks.

The Corporation also provides to certain Executive Officers certain normal
management fringe benefits, including financial counseling and club memberships,
which are not included in the above Table. An undetermined part of these
benefits might have been used for personal purposes in an amount which is not
reasonably determined. It has been concluded that the aggregate amounts of any
such benefits are not material and do not, in any event, exceed the lesser of
$50,000 or 10% of the compensation reported as to each person specified and, in
any case, the aggregate amount of such other compensation is the lesser of
$25,000 times the number of persons in the group or 10% of the compensation
reported above for the group.

In October 1992, a trust established by the principal shareholders of the
Corporation, Mr. and Mrs. Walter J. Zable, entered into an agreement with the
Corporation whereby the Corporation agreed to make advances of premiums payable
on a split-dollar life insurance policy purchased by the trust on the life of
Mrs. Zable. The agreement is so designed that if the assumptions made as to
mortality experience, policy dividends and other factors are realized, upon the
demise of Mrs. Zable the Corporation will recover all of its insurance premium
payments as well as other costs associated with the policy. The advances are
secured by a collateral assignment of the policy to the Corporation. The
agreement is intended to prevent the possibility of a large block of the
Corporation's common shares being put on the market, to the detriment of the
share price, in order for the beneficiaries to pay estate taxes. The Corporation
may cause the agreement to be terminated and the policy to be surrendered at any
time. The difference between policy premiums and other payments and the increase
in the cash surrender value of the policy has been expensed in the year
incurred. The amounts expensed related to the policy were $165,000, $130,000,
and $390,000 in 1997, 1996, and 1995, respectively. However, should the policy
be held to maturity, all payments advanced to carry the policy will be returned.
Further, should the policy be held for ten years, the Corporation estimates that
the cash surrender value will exceed all payments made, and amounts previously
expensed in the early years of the policy will have been reversed.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

No Director, Officer, or beneficial owner of more than ten percent of the
Common Stock of the Corporation failed to file on a timely basis, as disclosed
in Form 3, Form 4 and amendments thereto, and Form 5 and amendments thereto,
reports required by Section 16(a) of the Exchange Act during the fiscal year
1997.

9
<PAGE>
PERFORMANCE GRAPH

<TABLE>
<CAPTION>
FISCAL YEAR ENDING

<S> <C> <C> <C> <C> <C> <C>
COMPANY 1992 1993 1994 1995 1996 1997
CUBIC CORP 100 146.55 138.61 179.85 224.62 441.27
PEER GROUP 100 144.92 196.11 307.39 280.91 524.94
BROAD MARKET 100 118.07 123.88 149.66 176.52 240.62
</TABLE>

The above graph compares the performance of Cubic Corporation with that of
the Media General Composite Index and a peer group comprised of companies in the
Federal Trade Commission SIC Codes 3699 and 3829, Electrical Equipment and
Supplies (NEC) and Measuring and Controlling Devices (NEC), which are published
industry groups. The chart assumes that $100 was invested on October 1, 1992, in
each of Cubic Corporation, the Media General Composite Index and the peer group
index, and compares the return on investment as of September 30th of each of the
following five years. The return on investment represents the change in the
fiscal year-end stock price plus reinvested dividends.

EXECUTIVE COMPENSATION COMMITTEE REPORT

The Executive Compensation Committee of the Board of Directors has the
responsibility for executive compensation programs and the evaluation of the
Corporation's executive officers. It is the Committee's responsibility to
determine the compensation of the Corporation's Chief Executive Officer and the
other executive officers taking into consideration individual and corporate
performance, performance of competitors and other similar businesses and
relevant compensation data.

The Corporation's compensation policy is to evaluate the relative
contributions of its executive officers and to compensate them fairly in
relation to their individual contributions to the overall performance of the
Corporation.

Taking into consideration the compensation practices of companies in similar
businesses in a reasonable geographic area, the base salaries of the
Corporation's executive officers are set to attract qualified people necessary
for the continued successful operation and growth of the Corporation and its
subsidiaries. With the assistance of the Human Resources Department, the base
salary structure is reviewed in relation to the practices of companies in
similar businesses and of similar size.

Although the compensation of the Chief Executive Officer, Walter J. Zable,
is in keeping with that of other companies in similar businesses in a reasonable
geographic area it is in a lower range and has been only modestly changed for
the last several years at Mr. Zable's request although the Corporation has
continued to grow. The Committee considered the growth of the Corporation and
its subsidiaries and the continuing leadership and contribution of the Chief
Executive Officer to that growth in determining the compensation for Mr. Zable.

Generally, an annual bonus is given at the end of the fiscal year based on
individual, corporate, and business segment performance for the fiscal year and
the executive officer's responsibilities and performance, both past and
anticipated. The Corporation seeks to encourage individuals to remain with the
Corporation and to continue to focus on technical and financial performance of
the Corporation.

Management annually reviews the salaries of the executive officers in light
of the foregoing considerations and makes recommendations to the Committee as to
salaries, increases or decreases, and bonus amounts. The determination of each
executive's compensation by the Committee takes into consideration the Corporate
performance, the recommendations of management, and salaries and incentive
compensation of executives in similar businesses.

The Committee has taken note of the Corporation's continuing financial
success in spite of declining defense and government budgets and increasing
competition in those markets in which the Corporation

10
<PAGE>
participates. Particular note has been made of the increase in the business base
of the Corporation in the automatic fare collection area throughout the world.

During the fiscal year, no executive officer of the Corporation served
either as a director or as a member of the compensation committee of any other
entity whose executive officers served either as a Director or as a member of
the Executive Compensation Committee of the Corporation. No member of the
Committee is a former or current Officer or employee of the Corporation or any
of its subsidiaries.

Robert T. Monagan, Chairman Jackson D. Arnold

INDEPENDENT AUDITORS

Ernst & Young LLP has audited the Corporation's books and records since 1959
and are continuing as its auditors in addition to providing tax services. No
change is contemplated. There is no other relationship.

Representatives of Ernst & Young LLP are expected to be present at the
shareholders' meeting with the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.

DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the next Annual
Meeting must be received by the Secretary, Cubic Corporation, 9333 Balboa
Avenue, San Diego, California 92123, no later than August 31, 1998.

11
<PAGE>
OTHER MATTERS

All shareholders of record at the close of business January 5, 1998, the
record date for the determination of shareholders entitled to vote at the Annual
Meeting, are concurrently being sent a copy of the Corporation's Annual Report,
including financial statements for the fiscal year ended September 30, 1997.

The expense of preparing, printing and mailing the Notice of Meeting and
Proxy material and all other expenses of soliciting proxies will be borne by the
Corporation. In addition to the solicitation of proxies by use of the mails, the
Directors, Officers and regular employees of the Corporation, who will receive
no compensation in addition to their regular salary, if any, may solicit proxies
by mail, telegraph, telephone, or personal interview. The Corporation may also
reimburse brokerage firms, banks, trustees, nominees and other persons for their
expenses in forwarding proxy material to the beneficial owners of shares held by
them of record. Management knows of no business which will be presented for
consideration at the Annual Meeting other than that stated in the Notice of
Meeting. However, if any such matter shall properly come before the meeting, the
persons named in the enclosed proxy form will vote the same in accordance with
their best judgment.

By Order of the Board of Directors

[SIG]

William C. Stewart, Jr.
SECRETARY

12
<PAGE>
CUBIC CORPORATION

1998 STOCK OPTION PLAN

1. PURPOSE.

This Stock Option Plan (the "Plan") is intended to serve as an incentive to,
and to encourage stock ownership by, certain eligible participants rendering
services to Cubic Corporation (the "Corporation") and its subsidiary
corporations as that term is defined in Article 3, below, (the "Subsidiaries"),
so that they may acquire or increase their proprietary interest in the success
of the Corporation and Subsidiaries, and to encourage them to remain in the
employ of the Corporation or of the Subsidiaries.

2. ADMINISTRATION.

2.1 COMMITTEE. The Plan shall be administered by the Executive
Compensation Committee of the Board of Directors of the Corporation (the
"Committee"). The Committee shall select one of its members as Chairman and
shall appoint a Secretary, who need not be a member of the Committee. The
Committee shall hold meetings at such times and places as it may determine and
minutes of such meetings shall be recorded. Acts of a majority of the Committee
in a meeting at which a quorum is present and acts approved in writing by a
majority of the members of the Committee shall be valid acts of the Committee.
No member of the Committee shall vote on any matter concerning his or her own
participation in the Plan.

2.2 TERM. The members of the Committee shall be appointed annually by the
Board of Directors and shall be subject to removal by the Board of Directors at
any time. The Board of Directors may terminate the function of the Committee at
any time and resume all powers and authority previously delegated to the
Committee.

2.3 AUTHORITY. The Committee shall have sole discretion and authority to
grant options under the Plan to eligible participants rendering services to the
Corporation or any subsidiary of the Corporation at such times, under such terms
and in such amounts as it may decide. The term "Subsidiary" as used herein means
any Corporation more than 50% of whose voting stock is owned directly or
indirectly by the Corporation. [For purposes of this Plan and any Stock Option
Agreement (as defined below), the term "Corporation" shall include any
Subsidiary, if applicable.] Subject to the express provisions of the Plan, the
Committee shall have complete authority to interpret the Plan, to prescribe,
amend and rescind the rules and regulations relating to the Plan, to determine
the details and provisions of any Stock Option Agreement, to accelerate any
options granted under the Plan and to make all other determinations necessary or
advisable for the administration of the Plan.

2.4 TYPE OF OPTION. The Committee shall have full authority and discretion
to determine, and shall specify, whether the eligible individual will be granted
options intended to qualify as incentive options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), ("Incentive Options") or
options which are not intended to qualify under Section 422 of the Code
("Non-Qualified Options"); provided, however, that Incentive Options shall only
be granted to employees of the Corporation, or a Subsidiary thereof, and shall
be subject to the special limitations set forth herein attributable to Incentive
Options.

2.5 INTERPRETATION. The interpretation and construction by the Committee
of any provisions of the Plan, or of any option granted under it, shall be final
unless otherwise determined by the Board of Directors. No member of the Board of
Directors or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any option granted under it.

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CUBIC CORPORATION

1998 STOCK OPTION PLAN

3. ELIGIBILITY.

3.1 GENERAL. All directors, officers, and employees of the Corporation, or
Subsidiary, relative to the Corporation's, or any Subsidiary's management,
operation or development shall be eligible to receive options under the Plan.
The selection of recipients of options shall be within the sole and absolute
discretion of the Committee. No person shall be granted an option under this
Plan unless such person has executed the grant representation letter set forth
on Exhibit "A", as such Exhibit may be amended by the Committee from time to
time, and no person shall be granted an Incentive Option under this Plan unless
such person is a director or an employee of the Corporation, or a Subsidiary, on
the date of grant.

3.2 TERMINATION OF ELIGIBILITY.

3.2.1 If an optionee ceases to be employed by the Corporation, or its
Subsidiary, is no longer an officer or member of the Board of Directors of
the Corporation, or no longer performs services for the Corporation or its
Subsidiary, for any reason (other than "cause" as hereinafter defined, or
such optionee's death) any option granted hereunder to such optionee shall
expire on the 90th day after the occurrence giving rise to such termination
of eligibility (or 1 year in the event the optionee is "disabled" as defined
in Section 22(e)(3) of the Code) or upon the date it expires by its terms,
whichever is earlier. Any option that has not vested in the optionee as of
the date of such termination shall immediately expire and shall be null and
void. The Committee shall, in its sole and absolute discretion, decide
whether an authorized leave of absence for military or governmental service,
or absence for any other reason, shall constitute termination of eligibility
for purposes of this Section.

3.2.2 If optionee ceases to be employed by the Corporation, or its
Subsidiary, is no longer an officer or member of the Board of Directors of
the Corporation, or no longer provides services for the Corporation, or its
Subsidiary, and such termination is a result of "cause", as hereinafter
defined, then all options granted hereunder to such optionee shall expire on
the date of the occurrence giving rise to such termination of eligibility or
upon the date it expires by its terms, whichever is earlier, and such
optionee shall have no rights with respect to any unexercised options. For
purposes of this Plan, "cause" shall mean an optionee's personal dishonesty,
misconduct, breach of fiduciary duty, incompetence, intentional failure to
perform stated obligations, willful violation of any law, rule, regulation
or final cease and desist order, or any material breach of any provision of
this Plan, any Stock Option Agreement or any employment agreement.

3.3 DEATH OF OPTIONEE AND TRANSFER OF OPTION. In the event an optionee
shall die, an option may be exercised (subject to the condition that no option
shall be exercisable after its expiration and only to the extent that the
optionee's right to exercise such option had accrued at the time of the
optionee's death) at any time within six months after the optionee's death by
the executors or administrators of the optionee or by any person or persons who
shall have acquired the option directly from the optionee by bequest or
inheritance. Any option that has not vested in the optionee as of the date of
death or termination of employment, whichever is earlier, shall immediately
expire and shall be null and void. No option shall be transferable by the
optionee other than by will or the laws of intestate succession.

3.4 LIMITATION ON OPTIONS. No person shall be granted any Incentive Option
to the extent that the aggregate fair market value of the Stock (as defined
below) to which such options are exercisable for the first time by the optionee
during any calendar year exceeds $100,000.

4. IDENTIFICATION OF STOCK.

The Stock, as defined herein, subject to the options shall be shares of the
CORPORATION's authorized but unissued or acquired or reacquired common stock
(the "Stock"). The aggregate number of

14
<PAGE>
CUBIC CORPORATION

1998 STOCK OPTION PLAN

shares which may be issued under options shall not exceed 1,000,000 shares of
Capital Stock, subject to adjustment, however, as provided in Section 6 below.
If any option granted hereunder shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject thereto shall
again be available for purposes of this Plan.

5. TERMS AND CONDITIONS OF OPTIONS.

Stock options granted pursuant to the Plan shall be evidenced by an
agreement ("Stock Option Agreement") in such form as the Committee shall from
time to time determine, which agreement shall comply with and be subject to the
following terms and conditions:

5.1 OPTIONEE'S AGREEMENT. Each optionee shall agree to remain in the
employ of and to render to the Corporation or Subsidiaries his/her services for
a period of one year from the date of the option, but such agreement shall not
impose upon the Corporation or Subsidiaries any obligation to retain the
optionee in their employ for any period.

5.2 NUMBER OF SHARES. Each option shall state the number of shares of
Stock to which it pertains.

5.3 OPTION EXERCISE PRICE. Each option shall state the option exercise
price, which shall be determined by the Committee; provided, however. That (i)
the exercise price of any Incentive option shall not be less than 100% of the
fair market value of the Stock, as determined by the Committee, on the date of
the granting of such option; (ii) the exercise price of any Incentive Option
granted to an employee who owns or under Section 422 of the Code is deemed to
own more than ten percent of the total combined voting power of all classes of
stock of the Corporation shall be at least 110 percent of the fair market value
of the Stock subject to the option, as determined by the Committee, on the date
such option is granted; and (iii) the exercise price of any Non-Qualified Option
shall not be less than 100 percent of the fair market value of the Stock, as
determined by the Committee, on the date of grant of such option.

5.4. TERM OF OPTION. The term of an option granted hereunder shall be
determined by the Committee at the time of grant, but shall not exceed ten years
from the date of the grant. The term of any Incentive Option granted to an
employee who owns more than 10% of the total combined voting power of all
classes of the Corporation's Stock, as determined for purposes of Section 422 of
the Code, shall in no event exceed ten years from the date of grant. All options
are subject to early termination as set forth in this Plan. In no event shall
any option be exercisable after the expiration of its term.

5.5 METHOD OF EXERCISE. An option shall be exercised by written notice to
the Corporation by the optionee (or successor in the event of death) and
execution by the optionee of an exercise representation letter in the form set
forth in Exhibit "B", as such Exhibit may be amended by the Committee from time
to time. Such written notice shall state the number of shares with respect to
which the option is being exercised and designate a time, during normal business
hours of the Corporation, for the delivery thereof ("Exercise Date"), which time
shall be at least 30 days after the giving of such notice unless an earlier date
shall have been mutually agreed upon. At the time specified in the written
notice, the Corporation shall deliver to the optionee at the principal office of
the Corporation, or such other appropriate place as may be determined by the
Committee, a certificate or certificates for such shares. Notwithstanding the
foregoing, the Corporation may postpone delivery of any certificate or
certificates after notice of exercise for such reasonable period as may be
required to comply with any applicable listing requirements of any securities
exchange. In the event an option shall be exercisable by any person other than
the optionee, the required notice under this Section shall be accompanied by
proof of the right of such person to exercise the option.

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CUBIC CORPORATION

1998 STOCK OPTION PLAN

5.6 MEDIUM AND TIME OF PAYMENT. The option exercise price shall be payable
in full on or before the Exercise Date in any one of the following alternative
forms:

5.6.1. Full payment in cash or;

5.6.2 Full payment in shares of Stock having a fair market value on the
Exercise Date in the amount equal to the option exercise price;

5.6.3 A combination of the consideration set forth in Sections 5.6.1,
and 5.6.2 equal to the option exercise price; or

5.6.4 Any other method of payment complying with the provisions of
Section 422 of the Code with respect to Incentive Options, provided the
terms of payment are established by the Committee at the time of grant and
any other method of payment established by the Committee with respect to
Non-Qualified Options.

5.7 FAIR MARKET VALUE. During such time as the Stock is not listed upon an
established stock exchange, the fair market value per share shall be the mean
between dealer "bid" and "ask" prices of the Stock in the New York
over-the-counter market on the day the option is granted, as reported by the
National Association of Securities Dealers, Inc. If the stock is at the time
listed or admitted to trading on any established stock exchange or exchanges,
then the fair market value shall be deemed to be the closing selling price of
one share of Stock on the date in question on the stock exchange determined by
the Committee to be the primary market for the Stock as such price is officially
quoted on the composite tape of transactions on such exchange. If there is no
reported sale of the Stock on such stock exchange on the date in question, then
the fair market value shall be the closing selling price on the exchange on the
last preceding date for which such quotation exists. Subject to the foregoing,
the Committee, in fixing the option price, shall have full authority and
discretion and be fully protected in doing so.

5.8 TIMES OF EXERCISE OF OPTIONS. No option shall be exercisable either in
whole or in part prior to twelve months from the date it is granted. Subject to
the right of cumulation provided in the last sentence of this Section, each
option shall be exercisable as to not more than one-fourth of the total number
of shares covered thereby during each twelve-month period commencing twelve
months from the date of the granting of the option until all shares of Stock
covered by the option shall have been purchased. The Committee may provide,
however, for the exercise of options after the initial twelve-month period,
either as to an increased percentage of shares of Stock per year or as to all
remaining shares, if the employee shall, with the approval of the Corporation,
retire. No option shall be exercisable after the expiration of ten years from
the date it is granted. Except as otherwise herein provided, during the lifetime
of the optionee, the option shall be exercisable only by him/her and no other
person shall acquire any rights therein. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part, in any
subsequent period but not later than ten years from the date the option is
granted.

5.9 RIGHTS AS A STOCKHOLDER. An optionee or successor shall have no rights
as a shareholder with respect to any Stock underlying any option until the date
of the issuance to such optionee or successor of a certificate for such Stock.
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 Section 6 hereof.

5.10 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms
and conditions and within the limitations of the Plan, the Committee may modify,
extend or renew outstanding options granted under the Plan, or accept the
surrender of outstanding options (to the extent not theretofore exercised) and
authorize the granting of new options in substitution therefor (to the extent
not theretofore

16
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CUBIC CORPORATION

1998 STOCK OPTION PLAN

exercised). Notwithstanding the foregoing, however, no modification of any
option shall, without the consent of the optionee, alter or impair any rights or
obligations under any option theretofore granted under the Plan.

5.11 OTHER PROVISIONS. The Stock Option Agreements shall contain such
other provisions, including without limitation, restrictions or conditions upon
the exercise of options, as the Committee shall deem advisable.

5.12 DISCRETIONARY POWER OF COMMITTEE. Notwithstanding the foregoing
provisions set forth herein above, the Committee may grant options under which
actual dates for installments fall up to six months before or after the
applicable anniversary of the date of the grant and, in addition, grant options
under which the first installment accrues after any period following the date of
grant, if necessary, in the opinion of the Committee adequately to compensate
the optionees.

6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

6.1 SUBDIVISION OR CONSOLIDATION. Subject to any required action by
shareholders of the Corporation, the number of shares of Stock covered by each
outstanding option, and the exercise price per share thereof in each such
option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Stock of the Corporation resulting from a subdivision
or consolidation of shares or the payment of a stock dividend (but only on the
Stock) or any other increase or decrease in the number of such shares effected
without receipt of consideration by the Corporation. Any fraction of a share
subject to option that would otherwise result from an adjustment pursuant to
this Section shall be rounded downward to the next full number of shares without
other compensation or consideration to the holder of such option.

6.2 CAPITAL TRANSACTIONS. Upon a sale or exchange of all or substantially
all of the assets of the Corporation, a merger or consolidation in which the
Corporation is not the surviving corporation, a merger, reorganization or
consolidation in which the Corporation is the surviving corporation and
shareholders of the Corporation exchange their stock for securities or property,
a liquidation of the Corporation or similar transaction ("Capital Transaction"),
this Plan and each option issued under this Plan, whether vested or unvested,
shall terminate, unless such options are assumed by a successor corporation in a
merger or consolidation, 15 days prior to such Capital Transaction; provided,
however, that unless the outstanding options are assumed by a successor
corporation in a merger or consolidation, subject to terms approved by the
Committee or the options are repurchased pursuant to Section 8, all optionees
will have the right, until 15 days prior to such Capital Transaction, to
exercise all vested options. Notwithstanding the foregoing, in the event there
is a merger or consolidation where the Corporation is not the surviving
corporation, all options granted under this Plan shall vest 30 days prior to
such merger or consolidation unless such options are assumed by the successor
corporation in such merger or consolidation. The Committee may (but shall not be
obligated to) (i) accelerate the vesting of any option or (ii) apply the
foregoing provisions, including but not limited to termination of this Plan and
any options granted pursuant to the Plan, in the event there is a transaction
similar to a Capital Transaction.

6.3 ADJUSTMENTS. To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.

6.4 ABILITY TO ADJUST. The grant of an option pursuant to the Plan shall
not affect in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or
any part of its business or assets.

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CUBIC CORPORATION

1998 STOCK OPTION PLAN

6.5 NOTICE OF ADJUSTMENT. Whenever the Corporation shall take any action
resulting in any adjustment provided for in this Section, the Corporation shall
forthwith deliver notice of such action to each optionee, which notice shall set
forth the number of shares subject to the option and the exercise price thereof
resulting from such adjustment.

6.6 LIMITATION ON ADJUSTMENTS. Any adjustment, assumption or substitution
of an Incentive Option shall comply with Section 425 of the Code, if applicable.

7. SECURITIES LAW COMPLIANCE.

Corporation may, in its discretion, cause the Plan, and the Stock to be
offered pursuant to options granted thereunder to be registered in accordance
with applicable regulations under the Securities Act of 1933. If no such
registration is effective, then, as a condition to the exercise of any portion
of an option, Corporation may require the person exercising such option to
represent and warrant at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for Corporation, such a
representation is required under the Securities Act of 1933 or any other
applicable federal or state law, or any regulation or rule of any governmental
agency, and for this purpose may require such other representations as
Corporation reasonably may determine to be necessary.

8. RESERVATION OF SHARES AND COMMON STOCK.

Corporation during the term of this Plan, shall at all times reserve and
keep available, and shall seek or obtain from any regulatory body having
jurisdiction any requisite authority in order to issue and sell such number of
the shares as shall be sufficient to satisfy the requirements of the Plan.
Inability of Corporation to obtain from any regulatory body having jurisdiction
authority deemed by Corporation's counsel to be necessary to the lawful issuance
and sale of any shares of its Stock hereunder shall relieve Corporation of any
liability with respect to the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.

9. NON-ASSIGNABILITY.

Options granted under this Plan may not be sold, pledged, assigned or
transferred in any manner other than by will or by the laws of intestate
succession, and may be exercised during the lifetime of the optionee only by
such optionee. Any transfer by the optionee of any option granted under this
Plan in violation of this Section shall void such option and any Stock Option
Agreement entered into by the optionee and the Corporation regarding such
transferred option shall be void and have no further force or effect. No option
shall be pledged or hypothecated in any way, nor shall such option be subject to
execution, attachment or similar process.

10. NO RIGHT OF EMPLOYMENT.

Neither the grant nor exercise of any option nor anything in this Plan shall
impose upon the Corporation or any other corporation any obligation to employ or
continue to employ any optionee. The right of the Corporation and any other
corporation to terminate any employee shall not be diminished or affected
because an option has been granted to such employee.

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CUBIC CORPORATION

1998 STOCK OPTION PLAN

11. TERM OF PLAN.

This Plan is effective on the date the Plan is adopted by the Board of
Directors and options may be granted pursuant to the Plan from time to time
within a period of ten years from the date the Plan is adopted, or the date the
Plan is approved by the Stockholders, whichever is earlier. Termination of the
Plan shall not affect any option theretofore granted.

12. AMENDMENT OF THE PLAN.

The Board of Directors of the Corporation may, subject to any required
shareholder approval, suspend or discontinue or terminate the Plan, or revise or
amend it in any respect whatsoever with respect to any shares of Stock at that
time not subject to options.

13. APPLICATION OF FUNDS.

The proceeds received by the Corporation from the sale of Stock pursuant to
options may be used for general corporate purposes.

14. RESERVATION OF SHARES.

The Corporation, during the term of this Plan, shall at all times reserve
and keep available such number of shares of Stock as shall be sufficient to
satisfy the requirements of the Plan.

15. NO OBLIGATION TO EXERCISE OPTION.

The granting of an option shall impose no obligation upon the optionee to
exercise such option.

16. APPROVAL OF BOARD OF DIRECTORS AND SHAREHOLDERS.

The Plan shall not take effect until approved by the Board of Directors of
the Corporation. This Plan shall be approved by a vote of the shareholders
within twelve months from the date the Plan is adopted by the Board of
Directors. In the event such shareholder vote is not obtained, all options
granted hereunder, whether vested or unvested, shall be null and void.

17. WITHHOLDING TAXES.

Notwithstanding anything else to the contrary in this Plan or any Stock
Option Agreement, the exercise of any option shall be conditioned upon payment
by such optionee in cash, or other provisions acceptable to the Committee, of
all local, state, federal or other withholding taxes applicable, in the
Committee's judgment, to the exercise or to later disposition of shares acquired
upon exercise of an option (including any repurchase of an option or the Stock).

18. SECURITIES LAW COMPLIANCE.

Notwithstanding anything contained herein, the Corporation shall not be
obligated to grant any option under this Plan or to sell, issue or effect any
transfer of any Stock unless such grant, sale, issuance or transfer is at such
time effectively (i) registered or exempt from registration under the Securities
Act of 1933 and (ii) qualified or exempt from qualification under the California
Corporate Securities Law of 1968 and any other applicable state securities laws.
As a condition to exercise of any option, each optionee shall make such
representations as may be deemed appropriate by counsel to the Corporation for
the

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CUBIC CORPORATION

1998 STOCK OPTION PLAN

Corporation to use any available exemption from registration under the
Securities Act of 1933 or any other applicable federal or state law, or any
regulation or rule of any governmental agency.

19. RESTRICTIVE LEGENDS.

The certificates representing the Stock issued upon exercise of options
granted pursuant to this Plan, including any certificate issued to any
transferee thereof, will bear the following legends giving notice of
restrictions on transfer under the Act and this Plan as follows:

(a) The shares represented by this certificate have been issued or
transferred in a transaction which was not registered under the
Securities Act of 1933, as amended, in reliance upon an exemption
afforded by such act. No sale or transfer of these shares shall be made,
no attempted sale or transfer shall be valid, and the issuer shall not be
required to give any effect to any such transaction unless (a) such
transaction shall have been duly registered under the Act, or (b) the
issuer shall have first received an opinion of counsel satisfactory to it
that such registration is not required.

(b) The sale, transfer, Hypothecation, or encumbrance of the shares
represented by this certificate is restricted by the provisions of a
Stock Option Plan Agreement dated __________, and a Stock Option Plan
dated __________, 199_, a copy of which may be inspected at the
Corporation's principal office.

20. MANDATORY ARBITRATION.

In the event of any dispute between the Corporation and the optionee
regarding the Agreement or this Plan, the dispute and any issue as to the
arbitrability of such dispute, shall be settled to the exclusion of a court of
law, by arbitration in San Diego, California, by a panel of three arbitrators
(each party shall choose one arbitrator and the third shall be chosen by the two
arbitrators so selected) in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. The decision of a majority
of the arbitrators shall be final and binding upon the parties. All costs of the
arbitration and the fees of the arbitrators shall be allocated between the
parties as determined by a majority of the arbitrators, it being the intent that
the prevailing party in such a proceeding shall be made whole with respect to
its expenses.

21. NOTICES.

Any notice to be given under the terms of the Plan shall be addressed to the
Corporation in care of its Secretary at its principal office, and any notice to
be given to an optionee shall be addresses to such optionee at the address
maintained by the Corporation for such person or at such other address as the
optionee may specify in writing to the Corporation.

DATE PLAN ADOPTED BY BOARD OF
DIRECTORS: ________________________________________

DATE PLAN APPROVED BY STOCKHOLDERS: ________________________________________

20
<PAGE>
EXHIBIT A

____Date____

Name
Address
City/State

Re: 1998 Stock Option Plan

To Whom It May Concern:

This letter is delivered to ____(Name of Corporation)____, a ____(where
incorporated)____ corporation (the "Corporation") to purchase, in connection
with the grant to ____________(the "Optionee") of an option (the "Option") to
purchase shares of common stock of the Corporation (the "Stock") pursuant to the
____(Name of Corporation)____ 1998 Stock Option Plan, dated ____________(the
"Plan"). The Optionee understands that the Corporation's receipt of this letter,
executed by the Optionee, is a condition to the Corporation's willingness to
grant the Option to the Optionee.

The Optionee acknowledges that the grant of the Option by the Corporation is
in lieu of any and all other promises of the Corporation to the Optionee,
whether written or oral, express or implied, regarding the grant of options or
other rights to acquire Stock. Accordingly, in anticipation of the grant of the
Option, the Optionee hereby relinquishes all rights to such other rights, if
any, to acquire stock of the Corporation.

In addition, the Optionee makes the following representations and warranties
with the understanding that the Corporation will rely upon them in the
Corporation's determination of whether the grant of the Option meets the
requirements of the "private offering" exemption provided in Section 25102(f) of
the California Corporations Code and certain exemptions provided under the
Securities Act of 1933, as amended.

1. The Optionee acknowledges receipt of a copy of the Plan and Agreement.
The Optionee has carefully reviewed the Plan and Agreement.

2. The Option and the Stock will be acquired by the Optionee for investment
only, for the Optionee's own account, and not with a view to or for sale in
connection with any distribution of the Option or the Stock. The Optionee will
not take, or cause to be taken, any action which would cause the Optionee, or
any entity or person affiliated with the Optionee, to be deemed an underwriter
with respect to the Option or the Stock.

3. The Optionee either:

a) has a preexisting personal or business relationship with the
Corporation or any of its officers, directors or controlling persons of a
nature and duration as would allow the Optionee to be aware of the
character, business acumen, general business and financial circumstances of
the Corporation or of the person with whom such relationship exists; or

b) by reason of the Optionee's business or financial experience, or the
business or financial experience of the Optionee's professional advisor who
is unaffiliated with and is not compensated by the Corporation or any
affiliate or selling agent of the Corporation, directly or indirectly, the
Optionee has the capacity to protect the Optionee's interests in connection
with the grant of the Option and the purchase of the Stock.

EXHIBIT A -- PAGE 1
<PAGE>
4. The Optionee acknowledges that an investment in the Corporation
represents a speculative investment and a high degree of risk. The Optionee
acknowledges that the Optionee has had the opportunity to obtain and review all
information from the Corporation necessary to make a reasonably informed
investment decision and that the Optionee has had all questions asked of the
Corporation answered to the reasonable satisfaction of the Optionee. The
Optionee is able to bear the economic risk of an investment in the Option and
the Stock.

5. The grant of the Option has not been accompanied by the publication of
any advertisement.

6. The Optionee understands and acknowledges that the Stock has not been,
and will not be, registered under the Securities Act of 1933, as amended, or
qualified under the California Corporate Securities Law of 1968. The Optionee
understands and acknowledges that the Stock may not be sold without compliance
with the registration requirements of federal and applicable state securities
laws unless an exemption from such laws is available. The Optionee understands
that the certificate representing the Stock shall bear the legends set forth in
the Plan.

7. The Optionee understands and acknowledges that the Option and the Stock
are subject to the terms and conditions of the Plan.

8. The Optionee understands and agrees that, at the time of exercise of any
part of the Option for Stock, the Optionee may be required to provide the
Corporation with additional representations, warranties and/or covenants similar
to those contained in this letter.

9. The Optionee is a resident of the State of ____________.

10. The Optionee will notify the Corporation immediately of any change in
the above information which occurs before the Option is exercised in full by the
Optionee.

The foregoing representations and warranties are given on ____(Date)____, at
____(City/State)____.

OPTIONEE:

------------------------------------------

EXHIBIT A -- PAGE 2
<PAGE>
EXHIBIT B

__DATE__

Name
Address
City/State

Re: 1998 Stock Option Plan

To Whom It May Concern:

I (the "Optionee") hereby exercise my right to purchase _____shares of
common stock (the "Stock") of ____(Name of Corporation)____ (the "Corporation"),
pursuant to the ( Name of Corporation) 1998 Stock Option Plan dated
________________(the "Plan"), and the Stock Option Agreement (the "Agreement")
dated ________________. As provided in such Plan, I deliver herewith payment as
set forth in the Plan in the amount of the aggregate option exercise price.
Please deliver to me, at my address as set forth above, stock certificates
representing the subject shares registered in my name (and ____(Name of Spouse)
as __(Style of Vesting).

The Optionee hereby represents as follows:

1. The Optionee acknowledges receipt of a copy of the Plan and Agreement.
The Optionee has carefully reviewed the Plan and Agreement.

2. The Optionee either:

a) has a preexisting personal or business relationship with the
Corporation or any of its officers, directors or controlling persons of a
nature and duration as would allow the undersigned to be aware of the
character, business acumen, general business and financial circumstances of
the Corporation or of the person with whom such relationship exists; or

b) by reason of the Optionee's business or financial experience or the
business or financial experience of the Optionee's professional advisor(s)
who is (are) unaffiliated with and is (are) not compensated by the
Corporation or any affiliate or selling agent of the Corporation, directly
or indirectly, has the capacity to protect the Optionee's interests in
connection with the purchase of nonqualified stock options of the
Corporation and Stock issuable upon exercise thereof.

3. The Optionee is able to bear the economic risk of his investment in the
stock options of the Corporation and the Stock issuable upon exercise thereof.

4. The Optionee acknowledges that an investment in the Corporation
represents a speculative investment and a high degree of risk. The Optionee
acknowledges that the Optionee has had the opportunity to obtain and review all
information from the Corporation necessary to make a reasonably informed
investment decision and that the Optionee has had all questions asked of the
Corporation answered to the reasonable satisfaction of the Optionee.

5. The grant of Options for Stock and the exercise of the Options has not
been accompanied by the publication of any advertisement.

6. The Optionee understands and acknowledges that the Stock has not, and
will not, be registered under the Securities Act of 1933, as amended, or
qualified under the California Securities Law of 1968. The Optionee understands
and acknowledges that the Stock may not be sold without compliance with the

EXHIBIT B -- PAGE 1
<PAGE>
registration and qualification requirements of federal and applicable state
securities laws unless exemptions from such laws are available. The Optionee
understands that the certificate representing the Stock shall bear the legends
set forth in the Plan.

7. The Optionee is a resident of the State of _______________.

8. The Optionee hereby is purchasing for the Optionee's own account and not
with a view to or for sale in connection with any distribution of the stock
options of the Corporation or any Stock issuable upon exercise thereof.

The foregoing representations and warranties are given on ____(Date)____, at
____(City/State)__.

OPTIONEE:
____________________

EXHIBIT B -- PAGE 2
<PAGE>

PROXY PROXY

CUBIC CORPORATION

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS

The undersigned, a shareholder of Cubic Corporation, a Delaware corporation,
hereby appoints Walter J. Zable, William W. Boyle and William C. Stewart, Jr.,
or any of them, the attorneys and proxies of the undersigned, with power of
substitution, to vote the common shares of Cubic Corporation standing in the
name of the undersigned at the Annual Meeting of Shareholders of Cubic
Corporation to be held in the Crystal Room, at the Handlery Hotel and Country
Club, at 950 Hotel Circle North, San Diego, California 92108, on Tuesday,
February 10, 1998, at 10:30 a.m. PST, and at any adjournment or adjournments
thereof, as follows:

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
INSTRUCTIONS INDICATED. HOWEVER, IF NO INSTRUCTIONS
ARE GIVEN, THE PROXIES WILL VOTE THE SHARES FOR
ITEMS (1), (2) AND (3) AND, IN THEIR DISCRETION, ON
MATTERS DESCRIBED IN ITEM (4).

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.

(Continued, and to be signed, on the other side)

<PAGE>

CUBIC CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY /X/

1. Election of Directors -

Nominees: Walter J. Zable, Walter C. Zable, William W. Boyle, Jackson D. Arnold,
Richard G. Duncan, Robert T. Monagan and Raymond E. Peet

(To withhold authority to vote for any nominee, write that nominee's name on the
line provided below)

________________________________________________________________________________

FOR all Withhold for all
/ / / /

2. Approval of the Board of Directors' amendment of Article 4 of the
Corporation's Certificate of Incorporation increasing the authorized number
of Common Shares of the Corporation from fifteen million to twenty million.

For Against Abstain
/ / / / / /

3. Approval of the Cubic Corporation 1998 Stock Option Plan as adopted by
the Board of Directors, and

For Against Abstain
/ / / / / /

4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.

The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement dated January 10, 1997.

Dated:___________________________________________________________________, 1998

________________________________________________________________________________
Signature

________________________________________________________________________________
Signature if held jointly

Please sign exactly as name (or names) appear on this card. When shares are
held by joint tenants, all holders should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.