ESSEX CORPORATION
Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders
of Essex Corporation to be held at the Columbia Conference Center, 9100 Guilford
Road, Columbia, Maryland on Wednesday, November 13, 1996 at 10:00 a.m.
As discussed in this Proxy Statement, the matters to be acted on at the
Annual Meeting are: the election of directors; the amendment of the Company's
Articles of Incorporation to authorize the issuance of preferred stock and to
increase the number of authorized shares of common stock; the approval of the
Company's 1996 stock option plan; and the ratification of the appointment of
independent auditors. Additionally, there will be a presentation reviewing the
Company's performance in 1995 and the prospects for 1996. 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 Annual Report of the Company for the year ended December 31, 1995,
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 BALLOT IN PERSON AND YOU MAY CAST YOUR
BALLOT AT THAT TIME IF YOU SO DESIRE.
Respectfully yours,
Harry Letaw, Jr.
Chairman & Chief Executive Officer
Columbia, Maryland
October 10, 1996
<PAGE>
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, 1996, and thereafter as it may from time to time be
adjourned, at the Columbia Conference Center, 9100 Guilford Road, Columbia,
Maryland for the following purposes:
1. To elect eight (8) directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
2. To amend Article (c) of the Company's Articles of Incorporation to
authorize a class of preferred stock, the series and rights of which
may be designated from time-to-time by the Board of Directors;
3. To amend Article (c) of the Company's Articles of Incorporation to
increase the number of authorized shares of common stock, $0.10 par
value, to twenty-five million (25,000,000) shares;
4. To approve the adoption of the Essex Corporation 1996 tock Option and
Appreciation Rights Plan;
5. To ratify the appointment of independent auditors; and
6. 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 fixed the close of business on September 6,
1996, 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 was
first sent or given to shareholders is October 14, 1996.
Please indicate your vote, date and sign the enclosed proxy card and
promptly return it in the enclosed addressed envelope, which requires no postage
if mailed in the United States. 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
LEONARD E. MOODISPAW
Secretary
Columbia, Maryland
October 10, 1996
<PAGE>
ESSEX CORPORATION
9150 Guilford Road
Columbia, Maryland 21046
------------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 13, 1996
------------------------------------
The enclosed proxy is furnished to the holders of common stock, $0.10
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, 1996 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, 1996.
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 amendment of the Articles of Incorporation to authorize a class of
preferred stock; FOR amendment of the Articles of Incorporation to increase the
number of authorized shares of Common Stock; FOR approval of the 1996 Stock
Option Plan; and FOR ratification of appointment of independent auditors. The
Company's Board of Directors has taken unanimous affirmative action with respect
to each of the foregoing proposals and 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 6,
1996 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, notwithstanding any subsequent transfers of stock. The
stock transfer books will not be closed.
As of September 6, 1996, the Record Date, there were outstanding
3,624,098 shares of the Common Stock. Only 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, such holders being 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 of Common
Stock 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
eligible votes cast at the Annual Meeting with respect to Proposal 1. The
proposals to amend the Company's Articles of Incorporation, Proposals 2 and 3,
each require approval by more than two-thirds of all the votes to be cast by
holders of the Common Stock at the Annual Meeting. The approval of all other
matters to be considered at the Annual Meeting requires the affirmative vote of
a majority of the eligible votes cast at the Annual Meeting on such matter.
Abstentions and broker non-votes will be counted only for the purpose of
determining the existence of a quorum.
As of the Record Date, all of the present directors, as a group of
seven persons, and all of the present directors and executive officers of the
Company, as a group of sixteen persons, owned beneficially 1,176,918 shares
(21.18% of the total outstanding shares) of the Company. To the knowledge of
management, as of the Record Date, the only executive officer, director and
nominee for director who owned beneficially five percent or more of the
Company's outstanding shares was Dr. Harry Letaw.
<PAGE>
Proxies given by Stockholders of record for use at the Annual Meeting
may be revoked at any time prior to the exercise of the powers conferred. In
addition to revocation in any other manner permitted by law, Stockholders of
record giving a proxy may revoke the proxy by an instrument in writing, executed
by the Stockholder or his attorney authorized in writing or, if the Stockholder
is a corporation, under its corporate seal, by an officer or attorney thereof
duly authorized, and deposited either with the Secretary of the Company at any
time up to and including the last business day preceding the day of the Annual
Meeting, or any adjournment thereof, at which the proxy is to be used, or with
the chairman of such Annual Meeting on the day of the Annual Meeting or
adjournment thereof, and upon either of such deposits the proxy is revoked.
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 may solicit the return of proxies
by telephone, telegram or personal interview. 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 shareholder of record upon request. Such document will be sent to
the requesting party by first class mail within one day of the date of receipt
of the request. All requests shall be made either in writing, and directed to
the Company at its main office address, or orally and directed to the Secretary
at (301) 939-7000.
DISSENTERS' RIGHTS OF APPRAISAL
The Board of Directors does not propose any action for which the laws
of the state of Virginia, or the Articles of Incorporation or By-Laws of the
Company provide a right of a Stockholder to dissent and obtain payment for
shares.
INTEREST OF EXECUTIVE OFFICERS AND DIRECTORS
IN MATTERS TO BE ACTED UPON
Executive officers or directors of the Company have a substantial
interest in two of the matters to be acted upon at the Annual Meeting of
Stockholders: each of the present directors has been nominated for re-election
to the office of director for a term of one year; and every executive officer
and director has an interest in the approval of the 1996 Stock Option and
Appreciation Rights Plan that is the subject of Proposal 4 to the extent that
such persons are or will be eligible to participate in such stock option plan.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The voting securities of the Company which were outstanding on
September 6, 1996, consisted of 3,624,098 shares of Common Stock of the par
value of ten cents ($0.10) per share. Each share of Common Stock is entitled to
one vote on each matter to be acted upon at the Annual Meeting.
The following table and accompanying notes set forth as of September 6,
1996, information with respect to the beneficial ownership of the Company's
Common Stock by (i) each person or group who beneficially own more than 5% of
the Common Stock, (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.
2
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of Outstanding Shares
of Beneficial Owner* Beneficial Ownership (1) of Common Beneficially Owned
--------------------------------- -------------------------- --------------------------------
<S> <C> <C>
Harry Letaw, Jr. (2) 481,192 8.66
Frank E. Manning (3) 128,275 2.31
Terry M. Turpin (4) 98,059 1.77
Joseph R. Kurry, Jr. (5) 59,409 1.07
Samuel Hopkins (6) 47,875 **
Robert W. Hicks (7) 44,200 **
Harold P. Hanson (8) 35,500 **
Anthony L. Ward (9) 27,831 **
Ray M. Keeler (10) 20,250 **
A. William Perkins (11) 20,100 **
Martin G. Every (12) 13,037 **
All Directors and Executive Officers
as a Group (16 persons) (13) 1,176,918 21.18
-----------------------------------------------------------------------
<FN>
* 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) Under the rules of the Commission, a person is deemed to be a
"beneficial owner" of a security if that person has or shares the
power to vote or to direct the voting of such security, or the power
to dispose or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities of which that
person has the right to acquire beneficial ownership within sixty (60)
days. Under these rules, more than one person may be deemed to be a
beneficial owner of the same securities and a person may be deemed to
be a beneficial owner of securities as to which he has no record
ownership interest. The shares listed above include options and rights
to acquire shares within sixty (60) days and shares held of record by
the Essex Corporation Retirement Trust as to which shares the
respective participant has disposition and voting rights. The
percentage ownership is computed based upon the number of shares which
would be outstanding if such options and rights were exercised.
(2) Dr. Harry Letaw, Jr. is Chairman of the Board, President and Chief
Executive Officer of the Company. Of the 481,192 shares beneficially
shown as owned by Dr. Letaw, 259,341 shares represent presently
exercisable rights to acquire Common Stock through stock options and
warrants.
(3) Mr. Frank E. Manning is the record and beneficial owner of
approximately 2.31% of the outstanding shares of the Company (128,275
shares), including presently exercisable options to purchase 23,500
shares. Mr. Manning is the Chairman Emeritus and a Director of the
Company. 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 147,500 shares beneficially
owned by six separate family trusts of which Mrs. Manning is the sole
trustee and over which trusts she has exclusive voting and dispositive
power.
(4) Terry M. Turpin is a Vice President of the Company. Of the shares
shown as beneficially owned, 22,278 represent presently exercisable
rights to acquire common stock through stock options and warrants.
(5) Joseph R. Kurry, Jr. is Vice President, Treasurer and Chief Financial
Officer of the Company. Of the shares shown as beneficially owned,
23,550 represent presently exercisable rights to acquire common stock
through stock options and warrants.
(6) Samuel Hopkins is a Director of the Company. Of the shares shown as
beneficially owned, 14,125 represent presently exercisable rights to
acquire common stock through stock options and warrants.
(7) Robert W. Hicks is a Director of the Company. Of the shares shown as
beneficially owned, 11,000 represent presently exercisable rights to
acquire common stock through stock options and warrants.
(8) Harold P. Hanson is a Director of the Company. Of the shares shown as
beneficially owned, 12,500 represent presently exercisable rights to
acquire common stock through stock options and warrants.
3
<PAGE>
(9) Anthony L. Ward is Vice President, Chief Administrative Officer and
Assistant Secretary of the Company. Of the shares shown as
beneficially owned, 7,000 represent presently exercisable rights to
acquire common stock through stock options and warrants.
(10) Ray M. Keeler is a Director of the Company. Of the shares shown as
beneficially owned, 10,250 represent presently exercisable rights to
acquire common stock through stock options and warrants.
(11) A. William Perkins is a Director of the Company. Of the shares shown
as beneficially owned, 8,500 represent presently exercisable rights to
acquire common stock through stock options and warrants.
(12) Martin G. Every is a Senior Vice President of the Company. Of the
shares shown as beneficially owned, 2,000 represent presently
exercisable rights to acquire common stock through stock options.
(13) Of the shares shown as beneficially owned, 502,781 represent presently
exercisable rights to acquire common stock through stock options and
warrants.
-----------------------------------------------------------------------
</FN>
</TABLE>
MEETINGS OF THE BOARD OF DIRECTORS AND
BOARD STANDING 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 not employed by the Company receive a maximum of
$750 for each Board or Board Committee Meeting attended. In 1996 the Board held
four meetings; the entire membership of the Board was present at all meetings of
the Board of Directors except for one meeting when Mr. Hopkins was absent from
the meeting.
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. A. William
Perkins and Mr. Robert W. Hicks were members of the Audit Committee and attended
all three meetings of the Committee held in 1995. In addition, the Audit
Committee met and reviewed all interim statements and reports prior to issuance
to shareholders and filing with the Securities and Exchange Commission.
The Board of Directors has an established Ethics Committee. Its purpose
is to advise Essex management of means of ensuring that Essex adheres to the
highest ethical standards in its operations. Members in 1995 were A. William
Perkins and Harold Hanson, and ex-officio Leonard E. Moodispaw. The Committee
was consulted on several matters; however, all issues concerning ethics were
discussed by the Board as a whole.
The Compensation Committee recommends to the Board of Directors
compensation, including incentive compensation, for principal executives of the
Company. Membership is comprised of outside directors and consisted of Samuel
Hopkins and Ray M. Keeler during 1995. The Committee was consulted on several
matters; however, all issues concerning compensation were discussed by the Board
as a whole.
4
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION
There are three basic elements in the Company's executive compensation
program -- base salary, incentive bonus, and long-term incentive compensation.
The Compensation Committee, which reviews compensation on an annual basis, is
responsible for all determinations regarding compensation.
1. Base Salary. Salaries of the Company's executive officers are
------------
determined for the forthcoming year at a meeting of the Company's
Compensation Committee of the Board of Directors, which makes
compensation recommendations to the entire Board of Directors. Salaries
for the executive officers are based on the subjective consideration of
each executive's performance, the recommendation of the Compensation
Committee, and the Company's overall performance during the prior year.
Salary adjustments take into account the Company's performance and are
made subject to the foregoing. If an executive is responsible for a
particular business department, that department's financial results are
also considered.
2. Incentive Compensation. 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 constrained by overall Company
performances. There were 93 awards in 1995 totaling $144,000. There was
one award in 1994 for $500. The incentive awards under the Performance
Award Plan for the persons referred to in the Summary Compensation
Table are included in that Table.
3. Long-Term Incentives. Under the Company's 1988 Option and Stock
---------------------
Appreciation Rights Plan, and the Restricted Stock Bonus Plan, as
described elsewhere, restricted stock, stock options and stock
appreciation rights may be granted to executive officers. These awards
provide executives with the opportunity to acquire an equity interest
in the Company and align the executive's interest with that of the
shareholders to create shareholder value as reflected in growth in the
price of the Company's shares. In granting stock options and stock
appreciation rights, the Company does consider the number of options
previously granted to an executive officer, and does consider new
duties and responsibilities the executive officer has assumed during
the year.
5
<PAGE>
REMUNERATION OF EXECUTIVE OFFICERS
The following table sets forth the aggregate 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 $100,000.
<TABLE>
TABLE II
SUMMARY COMPENSATION
YEARS ENDED DECEMBER 31, 1995, DECEMBER 25, 1994 and DECEMBER 26, 1993
<CAPTION>
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ------------------------ -------
- ----------------------------------------------------------------------------------------------------------------------------------
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Compensation Award(s) Options/SARs Payouts sation
Principal Position Year Salary($)(1) Bonus ($) ($)(2) ($)(3) (#) (#) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harry Letaw, Jr. 1995 113,920 10,000 0 0 0 0 0
Chairman and CEO 1994 107,536 0 0 0 0 0 0
1993 111,672 0 0 0 0 0 0
Anthony L. Ward 1995 107,680 7,500 3,235 0 8,000 0 0
Vice President and CAO 1994 105,040 0 3,151 0 0 0 0
1993 109,080 0 3,282 0 2,000 0 0
Joseph R. Kurry, Jr. 1995 106,400 7,500 3,198 0 5,000 0 0
Treasurer, Vice President 1994 104,000 0 3,123 0 20,000 0 0
and CFO 1993 100,500 0 3,018 0 2,000 0 0
Terry M. Turpin 1995 102,848 7,500 3,095 0 8,000 0 0
Vice President 1994 100,006 0 3,009 0 17,778 0 0
1993 103,853 0 3,124 0 2,000 0 0
Martin G. Every 1995 102,640 5,000 3,094 0 5,000 0 0
Senior Vice President 1994 100,360 0 3,025 0 0 0 0
1993 90,360 0 2,717 0 2,000 0 0
- -----------------------------------------------------------------------
<FN>
(1) The decrease in salaries shown for 1994 from 1993 is primarily
attributable to one additional pay period which occurred during 1993.
The increase in salary for Mr. Kurry and Mr. Every in 1994 is
attributable to increases in their annual compensation. 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.
(3) No restricted stock awards were made for the periods indicated. The
number and value of the aggregate restricted stock holdings for the
named executive officers at the end of the 1995 fiscal year, based on
the closing bid price of the Common Stock on NASDAQ on December 29,
1995, without giving effect to the consideration paid by the named
executive officer, were as follows: Dr. Letaw, 211,357 shares,
$475,553 value; Mr. Ward, 17,331 shares, $38,994 value; Mr. Kurry,
29,859 shares, $67,182 value; Mr. Turpin, 72,781 shares, $163,757
value; and Mr. Every, 6,037 shares, $13,583 value.
</FN>
</TABLE>
6
<PAGE>
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 a discretionary contribution as
determined by the Board of Directors, and an employer matching contribution of
up to 3% of eligible employee compensation under the salary reduction feature.
Discretionary contributions are determined annually by the Board of Directors.
No discretionary contribution was made by the Company to the Retirement Plan for
1995. The total authorized contribution under the matching contribution feature
of the Plan was approximately $145,000 in 1995. 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 constrained by overall Company performances. There were 93 awards in 1995
totaling $144,000. There was one award in 1994 for $500. The incentive awards
under the Performance Award Plan for the persons referred to in the Summary
Compensation Table are included in that Table.
RESTRICTED STOCK BONUS PLAN
Essex Corporation has a Restricted Stock Bonus Plan under which up to
50,000 shares of the Company's common stock may be reserved for issuance to
non-employee members of the Board of Directors and key employees of the Company
selected by the Board of Directors. Shares of restricted stock may be issued
under the Plan subject to forfeiture during a restriction period, fixed in each
instance by the Board of Directors, whereby all rights of the grantee to the
stock terminate upon certain conditions such as cessation of continuous
employment during the restriction period. Upon expiration of the restriction
period, or earlier upon the death or substantial disability of the grantee, the
restrictions applicable to all shares of restricted stock of the grantee expire.
The Plan also provides that loans may be advanced by the Company to a grantee to
pay income taxes due on the taxable value of shares granted under the Plan. Such
loans must be evidenced by an interest bearing promissory note payable five (5)
years after the date of the loan, and be secured by shares of stock of the
Company (which may be restricted stock) having a fair market value equal to 200
percent of the loan.
During 1995, the Board awarded a total of 12,000 shares to six directors.
During 1993, the Board awarded 2,000 shares and none were awarded in 1994. There
were approximately 22,050 shares remaining in the Essex Corporation Restricted
Stock Bonus Plan as of September 6, 1996.
EMPLOYMENT AGREEMENTS
Since 1988, the Company has had an Agreement of Employment with Harry
Letaw, Jr., Chairman of the Board, President and Chief Executive Officer. Dr.
Letaw's annual compensation was originally established at $120,000 but was
reduced, at his recommendation to the annual amounts shown in the Summary
Compensation Table. Dr. Letaw's annual compensation was increased to $135,200
effective October 2, 1995. The term of this Agreement is extended on a
month-to-month basis by mutual agreement.
7
<PAGE>
The Company has an Agreement of Employment with Frank E. Manning, Chairman
Emeritus and Member of the Essex Board of Directors, whereby Mr. Manning is a
part-time employee of the Company with duties to provide advice and counsel to
the management of Essex. The Agreement may be terminated by either party with 60
days advance notice. Mr. Manning also receives reimbursement of medical costs
not covered by Medicare. Mr. Manning received compensation of $30,000 in fiscal
year 1995 for his services as an employee of the Company and medical
reimbursement of $1,250.
The above agreements restrict the individuals' rights to compete with the
Company and prohibit misappropriation of proprietary rights of the Company, both
during and after the term of employment.
OPTIONS TO PURCHASE SECURITIES
The Company has an Option and Stock Appreciation Rights Plan (the "OSAR
Plan"). The OSAR Plan as presently in effect provides for the grant of tax
qualified Incentive Stock Options ("ISOs") and options that are not tax
qualified ("NSOs") and Stock Appreciation Rights ("SARs") which rights may be
related to, but not necessarily be granted in tandem with, options granted under
the OSAR Plan. Persons eligible to receive awards of options and SARs under the
OSAR Plan include officers, directors, key employees and other persons who
provide valuable services to the Company. SARs entitle the holder to cash or
Company Common Stock measured by the increase in market value of the Company's
Common Stock from the date of grant to the date of exercise. The exercise price
of an ISO under the OSAR Plan may not be less than the fair market value of the
Company stock on the date of grant; the exercise price of NSOs and the
appreciation base price of SARs are determined in 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. As
originally adopted, the OSAR Plan reserved 400,000 shares of the Company's
Common Stock for issuance. At the 1989 and 1994 Annual Meetings, Company
stockholders approved increases in the number of shares of Common Stock subject
to the OSAR Plan by 250,000 shares and 200,000 shares respectively, making
850,000 the total number of shares subject to the Plan. As of September 6, 1996,
there remain 23,889 shares available for future grants of options or SARs.
The Company had an Incentive Stock Option Plan which expired on March 12,
1992 with no shares available for future grants. As of September 6, 1996,
options for 15,800 shares of the Company's Common Stock remain outstanding under
this Plan and are fully exercisable at prices ranging from $2.52 - $3.00.
The following Table shows for the fiscal year ended December 31, 1995 for
the persons named in the Summary Compensation Table, information with respect to
options to purchase Common Stock granted during 1995 under the OSAR Plan. No
options or stock appreciation rights granted under the OSAR Plan have been
exercised in 1995 by the persons listed below.
8
<PAGE>
<TABLE>
TABLE III
STOCK OPTIONS GRANTS TABLE
FOR FISCAL YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Number of
Securities % Of Total Options/SARs
Underlying Granted to Employees in Exercise or Base Expiration
Name Options Granted (#)(1) Fiscal Year Price ($/Sh) Date
==============================================================================================================================
<S> <C> <C> <C> <C>
Harry Letaw, Jr. --- --- --- ---
Anthony L. Ward 8,000 7.4 3.08 9/10/99
Joseph R. Kurry, Jr. 5,000 4.7 3.08 9/10/99
Terry M. Turpin 8,000 7.4 3.08 9/10/99
Martin G. Every 5,000 4.7 3.08 9/10/99
-----------------------------------------------------------------------
<FN>
(1) Such options became exercisable beginning September 11, 1996.
</FN>
</TABLE>
The following Table shows for the fiscal year ended December 31, 1995
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.
<TABLE>
TABLE IV
AGGREGATED OPTION/SAR EXERCISES AND FY-END OPTION/SAR VALUES TABLE
FOR FISCAL YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
================================================================================================================================
<S> <C> <C> <C> <C>
Harry Letaw, Jr. None --- 238,091/61,909 0/0
Anthony L. Ward None --- 30,000/8,000 0/0
Joseph R. Kurry, Jr. None --- 43,500/5,000 0/0
Terry M. Turpin None --- 25,778/8,000 0/0
Martin G. Every None --- 29,500/5,000 0/0
</TABLE>
9
<PAGE>
PROPOSAL 1
TO ELECT EIGHT (8) DIRECTORS TO SERVE UNTIL THE NEXT
ANNUAL MEETING OF STOCKHOLDERS
OR UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFY.
At the Annual Meeting, eight (8) 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.
The Board of Directors resolved on August 26, 1996 to increase the size of the
Board from seven to eight directors and nominated Dr. E. Ted Prince to fill this
additional position. 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.
Biographical information with respect to each of the director nominees
is set forth below under the caption, "Directors and Executive Officers."
The following table lists the nominees for director, their age, the
positions and offices with the Company, ownership of the Company's Common Stock
and the period during which each has served as a director of the Company, if
any.
<TABLE>
TABLE V
COMMON STOCK OWNERSHIP OF DIRECTORS AND NOMINEES
AS OF SEPTEMBER 6, 1996
<CAPTION>
Director/ No. of Shares
Position and Offices Officer Beneficially Pct. of
Name Age With The Company Since Owned(1)(2) Class(2)
- -------------------- ---- ------------------------------- --------- ------------- --------
<S> <C> <C> <C> <C> <C>
Harry Letaw, Jr. 70 Chairman, President, Director 1988 481,192 8.66
Frank E. Manning (3) 77 Chairman Emeritus, Director 1969 315,775 5.68
Harold P. Hanson 74 Director 1990 35,500 *
Robert W. Hicks 59 Director 1988 44,200 *
Samuel Hopkins 82 Director 1988 47,875 *
Ray M. Keeler 65 Director 1989 20,250 *
A. William Perkins 70 Director 1969 20,100 *
E. Ted Prince 49 Director Nominee -- --- -
*Less than 1% of class
- -----------------------------------------------------------------------
<FN>
(1) Based upon information furnished by the respective individuals. Under
applicable regulations, shares are deemed to be beneficially owned by a
person if he directly or indirectly has or shares the power to vote or
dispose of the shares, whether or not he has any economic interest in the
shares. Unless otherwise indicated, the named beneficial owner has sole
voting and dispositive power with respect to the shares.
(2) Includes options and rights to acquire beneficial ownership within 60 days.
(3) Mr. Manning's shares include: 40,000 shares beneficially owned by his wife,
Eva L. Manning, as to which Mrs. Manning enjoys exclusive control over the
voting and disposition; and 147,500 shares beneficially owned by Mrs.
Manning as trustee of six separate family trusts, over which she has
exclusive voting and dispositive power.
</FN>
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ELECTION OF
EACH OF THE NOMINEES FOR DIRECTOR.
10
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
HARRY LETAW, JR. was elected a Director of the Company in June 1988. He is
Chairman of the Board, President and Chief Executive Officer. Previously, he was
a Director of the Company and a member of the Executive Committee of its Board
from July 1981 to September 1983. Dr. Letaw is President and founder of Severn
Communications Corporation, a technical software firm, and President and founder
of Intellinet Corporation, a motor control system manufacturer, both based in
Maryland. In addition, Dr. Letaw served in senior management and marketing
positions with Raytheon, Bunker-Ramo and Martin-Marietta. He performed military
service during World War II. Dr. Letaw received a Bachelor of Science degree in
Chemistry in 1949, a Master of Science degree in Chemistry in 1951 and a Doctor
of Philosophy degree in Physical Chemistry in 1952, all from the University of
Florida. Dr. Letaw has an employment contract with the Company extending
month-to-month by mutual agreement. Dr. Letaw devotes his full business time to
the business of the Company and his affiliations with other corporations do not
involve any substantial expenditures of time nor do these positions involve any
real or potential conflicts of interest.
FRANK E. MANNING, 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 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.
HAROLD P. HANSON, formerly Executive Director of the Committee on Science,
Space and Technology of the U.S. House of Representatives from 1980-1982 and
1984-1990, was elected a Director of the Company in June 1990. Dr. Hanson is now
adjunct professor of physics, University of Florida, Gainesville and the editor
and publisher of DELOS, a non-profit journal of translation. He is a member of
the Essex Scientific Advisory Board, and a Fellow of the American Physical
Society and a National Science Foundation Franklin medalist. Dr. Hanson was
previously provost of Wayne State University and Boston University. He was an
executive vice president, vice president for academic affairs, dean of the
Graduate School and professor of physics of the University of Florida,
Gainesville. He was also chairman of the Department of Physics and director,
Center for Structural Studies, University of Texas, Austin. A naval officer
during World War II, Dr. Hanson served as research physicist at the Naval
Ordnance Laboratory and was later a Fulbright research fellow in 1961-1962. Dr.
Hanson earned graduate degrees at the University of Wisconsin.
ROBERT W. HICKS 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
also engages in consulting in the commercial sector. He is a principal officer
and stockholder in Asset Management & Recovery, Inc., a consulting firm which
has 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 Secretary of the Kirby
Lithographic Company, Inc.
SAMUEL HOPKINS was elected a Director of the Company in August 1988. From
January 1970 until retirement in October 1987 he was a partner of Alex. Brown &
Sons (investment bankers) in Baltimore, Maryland. Since 1976, Mr. Hopkins has
been a Director of American Maritime Cases, Inc. (legal publisher) in Baltimore,
Maryland. He received a Bachelor of Science degree in Business Economics from
Johns Hopkins University in 1934 and a Juris Doctor degree from the University
of Maryland in 1938. Mr. Hopkins is a Chartered Financial Analyst.
RAY M. KEELER 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 SEDC from December 1987 through
April 1989. From 1988 to November 1995, he was President of CRYTEC, Inc., a
service company providing management, business
11
<PAGE>
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 National Security Agency
(NSA). He received a Bachelor of Arts degree from the University of
Wisconsin-Madison in 1957.
A. WILLIAM PERKINS has been a Director of the Company since its
organization in 1969. He is President of Perkins Warehouse Company, of
Alexandria, Virginia. He is retired from 23 years in the printing industry,
having served as President and Chairman of the Board of Directors of Old
Dominion Printing Co. Mr. Perkins served in the U.S. Navy during World War II
and the Korean Conflict.
E. TED PRINCE was nominated to be director of the Company in August 1996.
In June 1995 he was appointed President and Chief Executive Officer of INSCI
Corporation, a publicly traded software company in optical data storage area. He
was elected Chairman of the Board of Directors in August 1995 and appointed
Chief Financial and Accounting Officer in May 1996 for INSCI Corporation. Dr.
Prince has been president of several software companies and is also President of
Perth Ventures, Inc., a New York City based investment banking firm specializing
in the emerging technology sector. Dr. Prince is an author and publisher of an
industry newsletter, The Technology Fundamentalist. He also serves as director
for several software companies and has a degree in Political Science from the
University of New South Wales (Australia) and a Master of Science and a Doctor
of Philosophy degrees from Monash University (Australia).
JOSEPH R. KURRY, JR. joined Essex Corporation in March 1985 as Treasurer
and Chief Financial Officer and was appointed Vice President in May 1987. He 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, Washington, D.C. and is a Certified Public
Accountant.
ANTHONY L. WARD joined Essex in February 1991. He is currently Vice
President, Chief Administrative Officer, Director of Corporate Development and
Assistant Secretary. Additionally, Mr. Ward is the General Manager of the
Federal Systems Division. Prior to employment with the Company, Mr. Ward served
as Vice President of C3 Operations in the ARC Professional Services Group, a
position he held since 1987. He was with ARC (or ARC subsidiaries) for a total
of 13 years with varied roles in engineering, advanced programs and management
oriented to the DoD C3I arena. From 1972 - 1977 he was with Litton Data Systems
and held software engineering and management positions on key U.S. Navy and U.S.
Army programs. Mr. Ward served honorably in the U.S. Marine Corps from 1958 -
1971. Mr. Ward holds a Bachelor of Arts degree in Business Administration from
Chapman College in Orange, California and has completed all course work for a
Masters of Science in Financial Systems Management.
LEONARD E. MOODISPAW was an active partner in the law firm of Dalnekoff &
Mason from February 1993 through September 1993 and was a partner in the law
firm of Blumenthal, Wayson, Downs and Offutt from 1978 to 1988, both firms are
located in Annapolis, Maryland and specialize in litigation. From September 1993
to April 1994, Mr. Moodispaw served as Executive Vice President of ManTech
International Inc., a privately held company. Since April 1994, he has served as
President of ManTech Advanced Systems International Corporation. He was a
Director of the Essex subsidiary, System Engineering and Development Corporation
(SEDC) from its inception in 1980 until it was acquired by Essex in 1989. In
1988, he joined SEDC as Vice President and Corporate Counsel. From June 1989
until September 1991, he served as Vice President, Corporate Counsel and Chief
Administrative Officer of Essex and from July 1989 has served as Secretary. Mr.
Moodispaw also serves as Director of the MVM Group, Inc., a small consulting
firm in Maryland since 1991 and as Founder and General Counsel of the Security
Affairs Support Association, a not-for-profit organization since 1990. From
September 1991 to February 1993 Mr. Moodispaw was Director of International
Business with GTE Government Systems. Mr. Moodispaw received a Bachelor's degree
in Business Administration from American University in 1965, a Masters Degree in
Business Administration in 1969 and a Juris Doctor degree in 1977 from the
University of Baltimore. Mr. Moodispaw
12
<PAGE>
spends less than 5% of his business time in his capacities with the Company, and
his affiliations with other corporations do not involve any real or potential
conflicts of interest.
MARTIN G. EVERY joined the Company in October 1983. He was subsequently
promoted to the position of Director, Security/Special Military Operations Group
of the Company and elected Senior Vice President of the Company in December
1986. Mr. Every has served as General Manager of the Company's Systems
Effectiveness Division since mid 1990. In 1992 Mr. Every was named to the Board
of Directors of James Madison University (JMU) Research and Development Center,
Inc. and is the Essex manager for the Center for Crisis Prevention, an
Academic-Industrial Coventure between JMU and Essex. Previously, Mr. Every was
with BioTechnology, Inc. From 1961-1966, he served with the U.S. Navy, first as
an operations officer aboard an ocean minesweeper and later as a member of a
Navy Special Warfare Team. Mr. Every received a Bachelor of Science degree in
Biochemistry from Notre Dame in 1961 and a Master of Science degree in
Oceanography from Texas A & M University in 1968.
MATTHEW S. BECHTA was elected Vice President in October 1993. As the
Director of the Columbia Operations within the Federal Systems Division, Mr.
Bechta is responsible for technical operations and business development for
programs for Satellite Communications Engineering and Optoelectronic Signal
Processing. 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 worked at NSA
as a systems engineer on several collection, signal processing and
communications projects. Mr. Bechta holds a Bachelor of Science degree in
Electrical Engineering from Spring Garden College, Pennsylvania and a Master of
Science degree in Computer Science from the Johns Hopkins University.
ROBERT S. KENNEDY has been a Vice President of the Company since August
1987. Dr. Kennedy was awarded the Franklin V. Taylor Award presented by the
American Psychological Association in 1996. He joined the Company in January
1981 and has served as principal investigator for over twenty five scientific
studies in human factors engineering, human performance measurement, and
simulation and training. He was an aviation research psychologist in the U.S.
Navy from 1959 to 1981. Dr. Kennedy received a Bachelor of Arts degree in
English and Philosophy from Iona College in 1957, a Master of Arts degree in
Experimental Psychology from Fordham University in 1959, and a Doctor of
Philosophy in Experimental Psychology from the University of Rochester in 1972.
JEFFREY R. LAPIDES has been a Vice President of Essex, Commercial Products
since October 1990. Dr. Lapides held a variety of positions including President
at Alleco, Inc., formerly a national commercial services firm. He also held the
position of president of its largest subsidiary, Service America. He has held
research positions both at NASA's Goddard Space Flight Center and the National
Institutes of Health. Dr. Lapides received a Bachelor of Arts degree from Clark
University and a Master of Science degree and Doctor of Philosophy degree in
Physics from the University of Maryland at College Park. Dr. Lapides' services
with the Company terminated on September 24, 1996.
CRAIG H. PRICE was elected Vice President in October, 1993. As the Director
of Engineering for the Commercial Products Division, Dr. Price is responsible
for all products, development and research within the Division. 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, during which 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 also in Electrical Engineering, from Stanford University.
TERRY M. TURPIN is Vice President and Science Advisor of Essex, a position
he has held since the acquisition of SEDC in June 1989. He was Vice President
and Chief Scientist of SEDC from September 1984 through June 1989. From December
1983 to September 1984 he was an independent consultant. From 1963 through
December
13
<PAGE>
1983, Mr. Turpin was employed by NSA. For the last ten years of this period, he
was Chief of the Advanced Processing Technologies Division. 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 June 1966 and a Master
of Science in Electrical Engineering from Catholic University in Washington,
D.C. in June 1970.
PROPOSAL 2
TO AMEND ARTICLE (C) OF THE ARTICLES OF INCORPORATION
TO AUTHORIZE A CLASS OF PREFERRED STOCK, THE SERIES AND RIGHTS OF WHICH
MAY BE DESIGNATED FROM TIME TO TIME BY THE BOARD OF DIRECTORS
The Board of Directors has adopted a resolution declaring it advisable
and in the best interests of the Company and its stockholders that the Company's
Articles of Incorporation be amended to authorize a class of preferred stock,
namely, one million (1,000,000) shares of Preferred Stock, par value $.01 per
share, the series and rights of which may be designated from time-to-time by the
Board of Directors in accordance with applicable state and federal law. Such
resolution also recommends that such amendment be approved and adopted by the
Company's Stockholders and directs that such proposal be submitted to the
Company's Stockholders at the Annual Meeting.
The Company's Articles of Incorporation currently only authorize
issuance of a maximum of ten million (10,000,000) shares of Common Stock, par
value $.10 per share which the Board of Directors proposes to increase to
twenty-five million shares. See Proposal 3.
If the Board of Directors' proposal is approved by the Company's
stockholders, the Board of Directors would have authority to designate and issue
up to one million (1,000,000) shares of Preferred Stock to such persons, for
such consideration and with such rights and preferences as the Board of
Directors may determine without further action by the stockholders except as may
be required by law.
The Board of Directors has proposed the authorization of preferred
stock to provide shares which could be used for a variety of corporate purposes,
including mergers and acquisitions and the raising of additional capital
(including public and private offerings of securities). While the Board of
Directors believes it important that the Company have the flexibility that would
be provided by having the ability to designate and issue additional classes of
authorized capital stock, the Company does not currently have any binding
commitments or arrangements that would require the issuance of such stock. The
Board of Directors believes it would be in the Company's best interest, however,
to have shares of preferred stock available to enable the Company to take
advantage of opportunities for possible future acquisitions, and raising capital
for future growth. If such opportunities arise in the future, significant
amounts of capital stock may be issued by the Company's Board of Directors
without further authorization by the Company's Stockholders. Such issuances
could have a significant dilutive effect on the current Stockholders of the
Company.
It is possible that the capital stock that would be authorized by the
proposed amendment could be issued in a transaction that might discourage offers
by takeover bidders or make such offers more difficult or expensive to
accomplish, although the Board of Directors has no current plans for any such
use of the preferred stock. The Board of Directors could, for example, approve
the issuance of additional shares of capital stock having classes, series,
rights and preferences (including the number of votes applicable to each share
of such class or series of capital stock) which may render it more difficult in
the future for takeover bidders or others to accomplish takeovers or changes in
control of the Company. Any issuance of capital stock must be made for proper
business purposes and for proper consideration from the recipient. Designation
of certain classes, series, rights and preferences with respect to the Company's
capital stock would be subject to applicable rules and regulations of the
exchange on which such securities are listed for quotation (currently, the
NASDAQ Stock Market(R)).
14
<PAGE>
The text of the proposed amendment to the Articles of Incorporation is
set forth in full in Exhibit A hereto and reference is made thereto for a
complete statement of its terms. The amendment to the Articles of Incorporation
will become effective upon approval by at least two-thirds of the votes cast by
the Stockholders and the filing of the Amendment to the Articles of
Incorporation with the Secretary of State of Virginia. If approved by the
Stockholders, the Company anticipates that such amendment to the Articles of
Incorporation will be filed as soon as practicable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE AMENDMENT OF THE ARTICLES OF INCORPORATION TO AUTHORIZE A CLASS OF
PREFERRED STOCK, THE SERIES AND RIGHTS OF WHICH MAY BE DESIGNATED FROM TIME TO
TIME BY THE BOARD OF DIRECTORS, AS SET FORTH IN EXHIBIT A HERETO. UNLESS MARKED
TO THE CONTRARY, SHARES OF COMMON STOCK REPRESENTED BY PROXY CARDS RECEIVED FROM
STOCKHOLDERS WILL BE VOTED IN FAVOR OF THE PROPOSED AMENDMENT.
PROPOSAL 3
TO AMEND ARTICLE (C) OF THE ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, PAR VALUE $0.10,
TO 25 MILLION (25,000,000) SHARES
The Board of Directors has adopted a resolution declaring it advisable
and in the best interests of the Company and its stockholders that the Company's
Articles of Incorporation be amended to provide for an increase in the
authorized number of shares of Common Stock of the Company from ten million
(10,000,000) shares to twenty-five million (25,000,000) shares of stock. Such
resolution also recommends that such amendment be approved and adopted by the
Company's Stockholders and directs that such proposal be submitted to the
Company's Stockholders at the Annual Meeting.
The Company's Articles of Incorporation currently authorize issuance of
a maximum of ten million (10,000,000) shares of Common Stock, par value $.10 per
share. If the Board of Directors' proposal is approved by the Company's
Stockholders, the Board of Directors would have authority to issue up to
twenty-five million (25,000,000) shares of Common Stock to such persons and, for
such consideration as the Board of Directors may determine without further
action by the Stockholders except as may be required by law.
As of the date hereof, there are 3,624,098 shares of Common Stock
issued and outstanding. The Board of Directors of the Company has reserved
2,608,696 shares of Common Stock for issuance pursuant to the exercise of
outstanding warrants and stock options. Accordingly, there remain 3,767,206
shares of Common Stock which are unissued and are not reserved for any specific
purpose.
The Board of Directors has proposed the increase in and classification
of the authorized capital stock to provide shares which could be used for a
variety of corporate purposes, including stock splits, mergers, the raising of
additional capital (including public and private offerings of securities), and
implementation of incentive and other option plans. While the Board of Directors
believes it important that the Company have the flexibility that would be
provided by having additional authorized capital stock available, the Company
does not currently have any binding commitments or arrangements that would
require the issuance of such stock. The Board of Directors believes it would be
in the Company's best interest, however, to have such additional shares of
authorized stock available to enable the Company to take advantage of
opportunities for possible future acquisitions, raising capital for future
growth and the establishment of option plans, including the stock option plan
proposed to be adopted in Proposal 4 below. If such opportunities arise in the
future, significant amounts of capital stock may be issued by the Company's
Board of Directors without further authorization by the Company's Stockholders.
Such issuances could have a significant dilutive effect on the current
Stockholders of the Company.
It is possible that the additional capital stock that would be
authorized by the proposed amendment could be issued in a transaction that might
discourage offers by takeover bidders or make such offers more difficult or
15
<PAGE>
expensive to accomplish, although the Board of Directors has no current plans
for any such use of the capital stock. For example, the Board of Directors could
approve the issuance of stock, or grant rights or stock options for such
issuance, to persons, firms or entities that are known to be friendly to
management of the Company. Any issuance of capital stock must be made for proper
business purposes and for proper consideration from the recipient. Designation
of certain classes, series, rights and preferences with respect to the Company's
capital stock would be subject to applicable rules and regulations of the
exchange on which such securities are listed for quotation (currently, the
NASDAQ Stock Market(R)).
The text of the proposed amendment to the Articles of Incorporation is
set forth in full in Exhibit B hereto and reference is made thereto for a
complete statement of its terms. The amendment to the Articles of Incorporation
will become effective upon approval by at least two-thirds of all votes cast by
the Stockholders and the filing of the amendment to the Articles of
Incorporation with the Secretary of State of Virginia. If approved by the
Stockholders, the Company anticipates that such amendment to the Articles of
Incorporation will be filed as soon as practicable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE AMENDMENT OF THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
SHARES OF AUTHORIZED CAPITAL STOCK FROM TEN MILLION (10,000,000) SHARES OF
COMMON STOCK TO TWENTY-FIVE MILLION (25,000,000) SHARES OF COMMON STOCK, AS SET
FORTH IN EXHIBIT B HERETO. UNLESS MARKED TO THE CONTRARY, SHARES OF COMMON STOCK
REPRESENTED BY PROXY CARDS RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF
THE PROPOSED AMENDMENT.
PROPOSAL 4
TO APPROVE THE ADOPTION OF THE ESSEX CORPORATION 1996 STOCK
OPTION AND APPRECIATION RIGHTS PLAN
The Board of Directors has adopted a resolution authorizing the
establishment of the Essex Corporation 1996 Stock Option and Appreciation Rights
Plan (the "1996 Plan"), which plan shall provide for the issuance 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 proposal to adopt the 1996 Plan, as set forth
herein, be submitted to the Stockholders of the Company for vote at the Annual
Meeting.
The following summary of the material provisions of the 1996 Plan set
forth herein is not intended to be complete and is qualified in its entirety by
reference to the 1996 Plan, a copy of which is attached hereto as Exhibit C to
this Proxy Statement.
GENERAL
The purpose of the 1996 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 1996 Plan provides
for the grant of stock options which qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986
(the "Code"), to be issued to employees including officers and directors who are
employees, as well as options which do not so qualify ("Non-Qualified Options")
to be issued to officers, directors, employees and consultants. In addition,
stock appreciation rights ("SARs") may be granted in conjunction with the grant
of Incentive Options and Non-Qualified Options.
The 1996 Plan provides for the granting 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
16
<PAGE>
unexercised portion. If any Incentive Option, Non-Qualified Option or SAR
terminates prior to exercise thereof and during the duration of the 1996 Plan,
the shares of Common Stock as to which such option or right was not exercised
will become available under the 1996 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 1996 Plan may be made available from either
authorized but unissued shares, treasury shares, or both. The 1996 Plan became
effective upon adoption by the Board of Directors, subject to its approval by
the affirmative vote of the holders of a majority of the Company's outstanding
voting stock entitled to vote thereon. In the event that the 1996 Plan is not
approved by the Stockholders, the 1996 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 1996 Plan, and (b) an aggregate of 238 persons are eligible to
participate in the 1996 Plan including 232 employees (including 11 executive
officers and directors) of the Company entitled to receive Incentive Options
under the 1996 Plan and 6 persons (all directors) who may receive Non-Qualified
Options under the 1996 Plan. Consultants engaged by the Company from time to
time are also expected to be eligible to receive Non-Qualified Options under the
1996 Plan.
ADMINISTRATION
The 1996 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, "Rule 16b-3") 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.
SECTION 16(B) COMPLIANCE
It is intended that transactions pursuant to the 1996 Plan will satisfy
the conditions of Rule 16b-3, as amended, promulgated under Section 16 of the
Exchange Act. Section 16(b) of the Exchange Act provides that any so-called
"short-swing profits," that is, a profit realized by an officer, director or
owner of 10 percent or more of the outstanding securities on a purchase and a
sale of stock within a six-month period, are recoverable by the issuer of the
securities. Although the application of Section 16(b) (and the rules promulgated
thereunder) is complex, Rule 16b-3 generally mitigates the impact of Section
16(b) by providing an exemption from the liability provisions for transactions
which satisfy the conditions of Rule 16b-3.
ELIGIBILITY AND EXTENT OF PARTICIPATION
Incentive Options may be granted pursuant to the 1996 Plan only to
employees of the Company (or any subsidiary). Non-Qualified Options and SARs may
be granted pursuant to the 1996 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
17
<PAGE>
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 percent 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.
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 1996 Plan to a 10 percent or less
stockholder and any Non-Qualified Option shall be exercised during a period of
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 1996 Plan
more than ten years after the date of adoption of the 1996 Plan.
Options granted under the 1996 Plan are not transferable except upon
death. Incentive options generally may be exercised only while the option holder
is employed by the Company, or in some cases, within three months of termination
of employment. In the event of disability of an option holder, 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
the death of an option holder, incentive options may be exercised prior to
expiration of the option 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.
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 1996 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
1996 Plan or for the assumption of options theretofore granted. If the 1996 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
In the case of Incentive Options, no taxable gain will be realized by
an option holder upon grant or exercise of the option, and the Company will not
be entitled to a tax deduction at the time any such option is granted or
exercised. However, the excess of the fair market value of any stock received
over the option price will constitute an adjustment in computing alternative
minimum taxable income at the time of the transfer of stock pursuant to the
exercise of the option, or if later, at the earlier of the time that the stock
is transferable or is not subject to a substantial risk of forfeiture.
The treatment for federal income tax purposes of Non-Qualified Options
depends on whether the option has a readily ascertainable fair market value at
the time it is granted. Because the Non-Qualified Options are not actively
traded on an established market and because it is likely that the Non-Qualified
Options will be nontransferable by the optionee or will not be immediately
exercisable, it is expected that the Non-Qualified Options
18
<PAGE>
will not have a readily ascertainable fair market value. If a Non-Qualified
Option does not have a readily ascertainable fair market value at the time of
grant, there is no taxable event at grant; rather, the excess of (i) the fair
market value of the Common Stock on the date it is acquired pursuant to exercise
of the option over (ii) the exercise price, plus the amount, if any, paid for
the option must be included in the optionee's gross income at the time of the
receipt of stock pursuant to exercise of the option, or if later, at the earlier
of the time that the stock is transferable or is not subject to a substantial
risk of forfeiture. If stock received pursuant to the exercise of a
Non-Qualified Option is not taxable at receipt because the stock is
nontransferable and subject to a substantial risk of forfeiture, the optionee
may nevertheless elect to include such amount in gross income when the stock is
received pursuant to exercise of the option.
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 1996 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 1996 Plan.
The tax consequences summarized above may change in the event of
amendment to the Code or the regulations adopted thereunder.
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 for 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 1996 Plan to assist any
employee 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 1996 PLAN
The Board of Directors may at any time terminate the 1996 Plan or make
such amendments 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.
19
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE ADOPTION OF THE ESSEX CORPORATION 1996 STOCK OPTION AND APPRECIATION RIGHTS
PLAN, WHICH PLAN SHALL PROVIDE FOR THE ISSUANCE OF INCENTIVE OPTIONS,
NON-QUALIFIED OPTIONS AND SARS, AS SET FORTH IN EXHIBIT C HERETO. UNLESS MARKED
TO THE CONTRARY, SHARES OF COMMON STOCK REPRESENTED BY PROXY CARDS RECEIVED FROM
STOCKHOLDERS WILL BE VOTED IN FAVOR OF PROPOSAL 4.
PROPOSAL 5
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has, upon recommendation of the Audit Committee,
selected Arthur Andersen LLP as independent auditors of the Company for the
fiscal year ending December 29, 1996, and has further directed that the
selection of such auditors be submitted for ratification by the stockholders at
the Annual Meeting. The Company has been advised by Arthur Andersen LLP that
neither that firm nor any of its associates has any relationship with the
Company other than the usual relationship that exists between independent
certified public accountants and their clients. Arthur Andersen LLP presently
serves as the Company's independent auditors.
Arthur Andersen LLP 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.
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 1997 ANNUAL MEETING
Any proposal which a Stockholder wishes to have presented at the next
Annual Meeting of Stockholders, expected to be held during September 1997, must
be received at the main office of the Company at 9150 Guilford Road, Columbia,
Maryland 21046 no later than March 31, 1997. If such proposal is in compliance
with all of the requirements of Rule 14a-8 of the Securities Exchange Act of
1934, as amended, it will be included in the Proxy Statement and set forth on
the form of proxy issued for the next Annual Meeting. It is urged that any such
proposals be sent by certified mail, return receipt requested.
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of the Company's Annual Report to Stockholders for the year
ended December 31, 1995 accompanies this Proxy Statement. Additional copies of
the Company's Annual Report to Stockholders may be obtained by written request
to the Secretary at the address indicated below. Such Annual Report is not part
of the proxy solicitation materials.
20
<PAGE>
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/A No. 1 FOR THE YEAR ENDED DECEMBER 31, 1995 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/A No. 1 IS NOT PART OF THE PROXY SOLICITATION MATERIALS.
BY ORDER OF THE BOARD OF DIRECTORS
LEONARD E. MOODISPAW
Secretary
21
<PAGE>
EXHIBIT A
AMENDMENT TO ARTICLES OF INCORPORATION
REGARDING AUTHORIZATION OF A CLASS OF PREFERRED STOCK
The Articles of Incorporation are amended by changing the Article
designated ("c") to be and read as follows:
<TABLE>
(c) Preferred Stock
---------------
The aggregate number of shares of preferred stock which the
corporation shall have authority to issue and the par value
per share are as follows:
<CAPTION>
Class and Number of Par Value
Series Shares Per Share
--------- ----------- ---------
<S> <C> <C>
Preferred 1,000,000 $ 0.01
</TABLE>
<TABLE>
Common Stock
------------
The aggregate number of shares of common stock which the
corporation shall have authority to issue and the par value
per share are as follows:
<CAPTION>
Class and Number of Par Value
Series Shares Per Share
--------- ----------- ---------
<S> <C> <C>
Common 10,000,000 $ 0.10
</TABLE>
EXHIBIT B
AMENDMENT TO ARTICLES OF INCORPORATION
REGARDING THE INCREASE IN THE NUMBER OF SHARES
AUTHORIZED OF COMMON STOCK
The Articles of Incorporation are amended by changing the Article
designated ("c") to be and read as follows (assuming adoption of Proposal 2):
<TABLE>
(c) Preferred Stock
---------------
The aggregate number of shares of preferred stock which the
corporation shall have authority to issue and the par value
per share are as follows:
<CAPTION>
Class and Number of Par Value
Series Shares Per Share
--------- ----------- ---------
<S> <C> <C>
Preferred 1,000,000 $ 0.01
</TABLE>
<TABLE>
Common Stock
------------
The aggregate number of shares of Common Stock which the
corporation shall have authority to issue and the par value
per share are as follows:
<CAPTION>
Class and Number of Par Value
Series Shares Per Share
--------- ----------- ---------
<S> <C> <C>
Common 25,000,000 $ 0.10
</TABLE>
<PAGE>
EXHIBIT C
ADOPTION OF THE ESSEX CORPORATION 1996 STOCK
OPTION AND APPRECIATION RIGHTS PLAN
ESSEX CORPORATION
1996 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 1996 Stock Option and Appreciation Rights Plan (the "1996
Plan").
Section 1.2. The purpose of this 1996 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 1996 Plan provides for the grant of options to purchase shares of common
stock of the Company, par value $.10 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 1996 Plan also provides for grants of stock appreciation rights ("SARs") in
connection with the grant of options under this 1996 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 1996 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 1996 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 1996 Plan concerning the
selection of persons eligible to receive awards under this 1996 Plan and with
respect to the timing, pricing and amount of an award under this 1996 Plan shall
be made by the administrator (the "Administrator") of this 1996 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 1996 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 1996 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 1996 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
i
<PAGE>
event that any future statute or regulation shall modify Section 422, this 1996
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
1996 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 1996 Plan is determined to
disqualify the shares of Common Stock purchasable upon exercise of an Incentive
Option granted under this 1996 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 1996 Plan in
accordance with determinations made by the Administrator pursuant to the
provisions of this 1996 Plan. All Options granted pursuant to this 1996 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 1996 Plan and take such action in
the administration of this 1996 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 1996
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 1996 Plan. The
interpretation and construction of any provision of this 1996 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 1996 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 1996 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 1996 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 1996 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 1996
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 1996 Plan.
Section 3.3. No Options shall be granted pursuant to this 1996 Plan to
any Optionee after the tenth anniversary of the date that this 1996 Plan is
adopted by the Board of Directors.
ii
<PAGE>
ARTICLE IV
ELIGIBILITY
Section 4.1. Non-Qualified Options may be granted pursuant to this 1996
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 1996 Plan only to employees (including officers and
directors who are also employees) of the Company (or any of its subsidiaries)
selected by the Administrator. Persons granted Options pursuant to this 1996
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 1996 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 1996 Plan.
ARTICLE V
TERMS AND CONDITIONS OF OPTIONS
Section 5.1. Each Option granted under this 1996 Plan shall be evidenced
by a stock option certificate and agreement (the "Stock Option Certificate and
Agreement") in a form consistent with this 1996 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 1996 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
iii
<PAGE>
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.
(d) Notwithstanding any other provision of this 1996 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
1996 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 1996 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
iv
<PAGE>
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 a
Incentive Option by bequest or inheritance, the 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 1996 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 1996
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 1996 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 1996 Plan, or in any Option
granted pursuant to this 1996 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 1996 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
v
<PAGE>
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 1996 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 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 1996 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
1996 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.
vi
<PAGE>
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 1996 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 1996 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.
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 1996 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 1996 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 1996 Plan and options theretofore granted
shall continue in the manner and under the terms so provided. If this 1996 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 1996
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 1996 Plan after ten years from the date this 1996 Plan is
adopted or the date this 1996 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 1996 Plan shall be subject to such restrictions on transfer and limitations
as shall, in the opinion of the Administrator, be necessary
vii
<PAGE>
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 1996 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 1996 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 1996 Plan
to assist any employee to whom an Option is granted hereunder (including 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.
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 1996 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 1996 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 1996 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
1996 Plan by the Board of Directors or within such other time period required
under Section 422 of the Code and the regulations thereunder, this 1996 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 1996 Plan by the
Board of Directors, this 1996 Plan is executed and adopted as of the 26th day of
August, 1996.
ESSEX CORPORATION
viii
<PAGE>
