-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GrrXegXbUO/jjjOTCfFQ264FRh79w8I793TD2q1teXcrystT3O781enm/hgoywat NFDlHjvBiqOtoNxWEPB8lg== 0000355199-03-000018.txt : 20030429 0000355199-03-000018.hdr.sgml : 20030429 20030429161851 ACCESSION NUMBER: 0000355199-03-000018 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20030429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESSEX CORPORATION CENTRAL INDEX KEY: 0000355199 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 540846569 STATE OF INCORPORATION: VA FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-104819 FILM NUMBER: 03669775 BUSINESS ADDRESS: STREET 1: 9150 GILFORD RD CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 3019397000 MAIL ADDRESS: STREET 1: 9150 GUILFORD ROAD CITY: COLUMBIA STATE: MD ZIP: 21046 S-2 1 forms2.txt FORM S-2 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on April 29, 2003 Registration No. 333 - ______ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- ESSEX CORPORATION (Exact name of registrant as specified in its charter) COMMONWEALTH OF VIRGINIA 54-0846569 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9150 Guilford Road Columbia, Maryland 21046 (301) 953-8800 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) WITH A COPY TO: LEONARD E. MOODISPAW D. SCOTT FREED, ESQUIRE President and Chief Executive Officer Whiteford, Taylor & Essex Corporation Preston L.L.P. 9150 Guilford Road Seven Saint Paul Street Columbia, Maryland 21046 Baltimore, Maryland 21202 (301) 939-7000 (410) 347-8700 (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
====================================================================================================================== CALCULATION OF REGISTRATION FEE ====================================================================================================================== Amount Proposed Proposed Title of each class of to be Maximum Offering Maximum Aggregate Amount Of Registration securities to be registered registered Price Per Share(1) Offering Price (1) Fee - ---------------------------------------------------------------------------------------------------------------------- Common Stock, no par value per share, 2,671,573 $ 3.40 $ 9,083,348 $ 734.84 owned by selling stockholders ====================================================================================================================== (1) Estimated solely for purposes of calculating the Registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended. Based on the average of the bid and asked price of the Common Stock as reported on the OTC Bulletin Board on April 28, 2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. PROSPECTUS SUBJECT TO COMPLETION: April 29, 2003 ESSEX CORPORATION 2,671,573 Shares of Common Stock We have prepared this prospectus to allow some of our stockholders to sell up to 2,671,573 shares of our Common Stock. Our Common Stock trades on the OTC Bulletin Board under the symbol "ESEX." On April 28, 2003, the last reported sale price of our Common Stock was $3.45 per share. ------------------------- INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8. ------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMON STOCK, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is _________, 2003. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. ESSEX HAS NOT REGISTERED THE SHARES OF COMMON STOCK COVERED BY THIS PROSPECTUS UNDER THE SECURITIES LAWS OF ANY STATE. BROKERS OR DEALERS EFFECTING TRANSACTIONS IN THE SHARES COVERED BY THIS PROSPECTUS SHOULD CONFIRM THAT THE SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES LAWS OF THE STATE OR STATES IN WHICH SALES OF THE SHARES OCCUR AS OF THE TIME OF SUCH SALES, OR THAT THERE IS AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES LAWS OF SUCH STATES. ESSEX HAS NOT AUTHORIZED ANYONE, INCLUDING ANY SALESPERSON OR BROKER, TO GIVE ORAL OR WRITTEN INFORMATION ABOUT THIS OFFERING, ESSEX OR THE SHARES COVERED BY THIS PROSPECTUS THAT IS DIFFERENT FROM THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS, OR ANY SUPPLEMENT TO THIS PROSPECTUS, IS ACCURATE AT ANY DATE OTHER THAN THE DATE INDICATED ON THE COVER PAGE OF THIS PROSPECTUS OR ANY SUPPLEMENT TO IT. 2 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and other reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C., and in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-732-0330 for further information on the public reference rooms. For purposes of this prospectus, the SEC allows us to "incorporate by reference" certain information we have filed with the SEC, which means that we are disclosing important information to you by referring you to other information we have filed with the SEC. The information we incorporate by reference is considered part of this prospectus. We specifically are incorporating by reference the following documents: o Our Annual Report on Form 10-KSB for the fiscal year ended December 29, 2002. o Our Current Report on Form 8-K filed on March 7, 2003 announcing our acquisition of Sensys Development Laboratories, Inc. (SDL). o Our Current Report on Form 8-K filed on April 17, 2003, which includes historical financial statements of SDL and unaudited pro forma information presenting the effect of the acquisition as if it had been completed on December 31, 2002. o The description of our Common Stock in our Form 8-A as it may be amended from time to time. We are delivering with this prospectus a copy of the Form 10-KSB and the Form 8-Ks referred to above. To obtain a copy of other filings at no cost, you may write or telephone us at the following address: Corporate Secretary ESSEX CORPORATION 9150 Guilford Road Columbia, Maryland 21046 (301) 939-7000 Neither we nor the selling stockholders have authorized anyone else to provide you with different information. Neither we nor the selling stockholders are making an offer of these securities in any state where the state does not permit an offer. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus or on any prospectus supplement that accompanies this prospectus. 3 FORWARD-LOOKING STATEMENTS Some of the statements contained, or incorporated by reference, in this prospectus discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The "forward-looking" information is based on various factors and was derived using numerous assumptions. In some cases, you can identify these so-called "forward-looking statements" by words like "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of those words and other comparable words. You should be aware that those statements only reflect our predictions. Actual events or results may differ substantially. Important factors that could cause our actual results to be materially different from the forward-looking statements are disclosed under the heading "Risk Factors" and throughout this prospectus. 4 ESSEX CORPORATION REFERENCES TO "WE," "US," "OUR" AND "ESSEX" REFER TO ESSEX CORPORATION. Based in Columbia, Maryland, Essex develops and commercializes optoelectronic devices for industry and government. In the area of services, Essex provides optoelectronic and signal processing expertise to government customers under highly classified advanced and next generation research and development (R&D) contracts, supports the intelligence community mission critical voice and video systems infrastructure, and provides highly classified systems engineering to government customers. In the area of products, Essex builds optical communications and networking system elements and components. Our products and services incorporate advances achieved through more than two decades of pioneering work in developing high-throughput optoelectronics processors and receivers for image, signal and data processing, and advanced communications applications for U.S. intelligence organizations. Capitalizing on its expertise and success in developing and building optoelectronic systems for national security applications, Essex has developed five core areas of technological expertise and intellectual property: 1) Optoelectronic processors and processing (including the Advanced Optical Processor (AOP) program and Optical Processor Enhanced Receiver Architecture (OPERA(TM)) technology); 2) HYPERFINE WAVELENGTH DIVISION MULTIPLEXING (WDM) technology for telecommunications; 3) Communications services (including the capabilities of the newly formed Communications Services Division); 4) Signal processing (including the capabilities of recently acquired Sensys Development Laboratories, Inc.); and 5) Virtual Lens Imaging (VLI) technology (including the ImSyn(TM) processor and technology, for above and below ground imaging). Our services and products for sale and under development include: o The Advanced Optical Processor (AOP) being developed by Essex under contract for the United States Missile Defense Agency (MDA) is a third generation device which leverages spread spectrum signal analysis, wideband ELINT (electronic intelligence) and cryptologic exploitation. The AOP is used for ballistic missile defense environments. In these environments, not only must the missile target be identified using Range-Doppler Imaging (RDI), but other items that are sent into the threat environment to make it harder to identify and "kill" the missile target must also be identified. Other items launched along with the missile include chaff, debris, closely spaced objects, jammers, spoofers and missile decoys. The AOP is a high performance radar signal processor that provides the true correlation-based image formation for ballistic missile defense in a cost-effective, low size, low weight and low power package. Separately, OPERA(TM), an optically enhanced digital signal 5 processing technology, has demonstrated in laboratory modeling a dramatic increase in the quality of service and carrying capacity for CDMA wireless telecommunications systems. Further development and testing of OPERA(TM)has been temporarily delayed until funding is identified and obtained to finance such activity. o An all-optical, all-passive technique, HYPERFINE WDM fiber optic communications technology, which has shown to significantly increase the number of channels and their combined bandwidth used for DWDM. The core HYPERFINE WDM technology provides: - All passive optical components; - Simple and small packaging, using standard manufacturing processes; - Excellent channel isolation; - High density--50 MHz to 100 GHz spacing; - Superior response and flat filter shapes with excellent channel isolation; - Passband shapes that can be tailored for each application; - Low insertion loss; - Low temperature sensitivity; and - Fixed or tunable designs. o In late 2002 Essex received a telecommunication services contract with a potential total multiyear contract value of $30 million and formed the Communications Services Division (CSD) to provide telecommunication systems support in the area of modernization, project management, integration and engineering analysis. The CSD will focus on supporting the intelligence community's mission-critical voice and video systems and associated infrastructure. o Effective March 1, 2003 Essex acquired Sensys Development Laboratories, Inc. (SDL), a Maryland-based provider of systems and software engineering services to the intelligence community. SDL's skill and experience are highly complementary to Essex's core competencies in image and signal processing technology. This acquisition is part of an overall strategy to expand Essex resources and revenues to build a powerhouse of talent and technology founded on a solid base of customers and revenues. This acquisition adds over 25 employees, an estimated $4 million to Essex 2003 revenues, and a solid base of contracts with excellent growth potential. SDL's revenues were approximately $3.1 million and $1.1 million for the fiscal year ended September 30, 2002 and the fiscal quarter ended December 31, 2002, respectively. Historical financial statements of SDL and pro forma information presenting the effect of the acquisition as if it had been completed on December 31, 2002 are contained in our Current Report on Form 8-K filed with the SEC on April 17, 2003. The Form 8-K is incorporated in this prospectus by reference and we are delivering a copy of the report together with this prospectus. o The Virtual Lens Imaging technology (VLI) is a patented high-resolution imaging system that leverages Essex's experience in synthetic aperture imagery and 6 optoelectronic system development. The Company's VLI technology is based on the key features of its optoelectronic processor and its ability to calculate images from non-uniform data in real time. Separately, our high-speed optoelectronic processor, Image Synthesis (ImSynTM), enables extraordinarily fast processing of data for complex visual image systems including radar imaging, magnetic resonance imaging, microscopy and ultrawideband signal processing. We are currently seeking additional funding to further the development and testing of second generation ImSyn(TM) processors in 2003. Essex currently does not have sufficient resources to bring all of its telecommunications and optoelectronics processing devices to market. Accordingly, Essex will likely have to partner with or enter into licensing arrangements with major industry participants in order to successfully introduce in large volume its technology and products. In addition, several optical telecommunications and fiber optic companies, both established and emerging, are currently developing products that may compete in the specialty areas that Essex's technology is designed to address. Most of these companies are larger and more established than Essex and have existing customer bases and significantly greater access to capital resources than Essex. See "RISK FACTORS." 7 RISK FACTORS You should carefully consider the following risk factors before deciding to invest in our Common Stock. You should also consider the other information in this prospectus and the additional information in our other reports on file with the SEC and in the other documents incorporated by reference in this prospectus. See "Where You Can Find More Information" on page 3. RISKS RELATED TO OUR FINANCIAL RESULTS WE HAVE A HISTORY OF NET LOSSES AND WE MAY NOT ACHIEVE OR SUSTAIN PROFITABILITY. We incurred a net loss for our fiscal years ended December 29, 2002 and December 30, 2001. The Company also incurred net losses in fiscal 2000 and 1998. In 1999, we reported a small net income. As of fiscal year end 2002, we had an accumulated deficit of $14.4 million. Our revenues have increased from $2.6 million in fiscal 2001 to $4.5 million in fiscal 2002, primarily as a result of higher revenues on new and expanding U.S. Government programs. Since September 2000, we have primarily funded our operations from the sale of equity securities. We also expect to incur significant but reduced product development and related expenses, and as a result we will need to increase revenues to achieve profitability. IF OUR ACTUAL CAPITAL REQUIREMENTS VARY SIGNIFICANTLY FROM OUR EXPECTATIONS, WE MAY REQUIRE ADDITIONAL FINANCING SOONER THAN ANTICIPATED. Between September 2000 and December 2002, we have received approximately $6.6 million from Private Investors to pursue commercial applications of our optical and wireless communications technologies and resulting products. Receipt of additional funds will be critical to our ability to continue to develop our commercial technologies and products because we currently experience and expect to continue to experience negative or breakeven cash flows. Our actual capital requirements depend upon several factors that are difficult to predict, including the timing of market acceptance of our commercial products under development, our ability to establish and expand our customer base for our commercial products and services, the level of expenditures for sales and marketing and general and administrative functions, the level of revenues from our U.S. Government contracts, the cost of offering additional services and other factors. If our capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. There can be no assurance that such funding will be available or could be obtained in sufficient amounts or on terms acceptable to us, if at all, or on terms that would not include substantial dilution to our stockholders. Without timely financing, we would have to curtail or eliminate development and further reduce expenditures. RISKS RELATED TO OUR BUSINESS WE CURRENTLY RELY ON SALES TO U.S. GOVERNMENT ENTITIES, AND THE LOSS OF SUCH CONTRACTS WOULD HAVE A MATERIAL ADVERSE IMPACT ON OUR OPERATING RESULTS. During fiscal 2002, contracts with the U.S. Government, primarily the military services and other departments and agencies of the Department of Defense (DoD), accounted for approximately 97% or $4.4 million of our revenues. In fiscal 2001, revenues on U.S. Government programs were $2.2 million, or 84% of our revenues. 8 The loss or significant reduction in government funding of a large program in which we participate could also materially adversely affect our future revenues, earnings and cash flows and thus our ability to meet our financial obligations. U.S. Government contracts are conditioned upon the continuing approval by Congress of the amount of necessary spending. Congress usually appropriates funds for a given program each fiscal year even though contract periods of performance may exceed one year. Consequently, at the beginning of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract only if appropriations are made by Congress for future fiscal years. GOVERNMENT CONTRACTS CONTAIN UNFAVORABLE TERMINATION PROVISIONS AND ARE SUBJECT TO AUDIT AND MODIFICATION. Companies engaged in supplying defense-related services and equipment to U.S. Government agencies are subject to certain business risks peculiar to the defense industry. These risks include the ability of the U.S. Government to unilaterally: o suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations; o terminate existing contracts; o reduce the value of existing contracts; o audit our contract-related costs and fees, including allocated indirect costs; and o control and potentially prohibit the export of our products. Any of our U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed, settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. OUR FIXED PRICE CONTRACTS MAY COMMIT US TO UNFAVORABLE TERMS. We provide some of our products and services through fixed price contracts. Fixed price contracts provided 45% and 28% of our sales for fiscal 2001 and fiscal 2002 , respectively. In a fixed price contract, the price is not subject to adjustment based on cost incurred to perform the required work under the contract. Therefore, we fully absorb cost overruns on fixed price contracts and this reduces our profit margin on the contract. Those cost overruns may result in a loss. A further risk associated with fixed price contracts is the difficulty of estimating sales and costs that are related to performance in accordance with contract specifications and the possibility of obsolescence in connection with long-term procurements. Failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed price contract may reduce our profit or cause a loss on the contract. 9 THE EARLY STAGE OF DEVELOPMENT OF OUR OPTICAL AND WIRELESS TELECOMMUNICATIONS PRODUCTS MAKES IT DIFFICULT TO EVALUATE OUR FUTURE BUSINESS AND PROSPECTS. We have traditionally derived our revenues from providing engineering and signal processing services to the U.S. Government. While we continue to provide these services, over the past year we have continued to emphasize our work on developing new optoelectronics telecommunications products, including HYPERFINE WDM fiber optic communications technology and OPERA(TM). Because our development efforts on these products are ongoing and we have not begun commercial sales of these products, our revenue and profit potential is unproven and our limited history in the commercial telecommunications field makes it difficult to evaluate our business and prospects. We have difficulty accurately forecasting our commercial revenue, and we have limited historical financial data upon which to base operating production budgets. You should consider our business and prospects in light of the heightened risks and unexpected expenses and problems we may face as a company in an early stage of development in a rapidly changing industry. WE MAY NOT SUCCESSFULLY IMPLEMENT OUR PLAN TO EXPAND INTO COMMERCIAL MARKETS. Our revenues currently come from business with the DoD and other U.S. Government agencies. In addition to continuing to pursue these market areas, we will focus our technical capabilities and expertise on related commercial markets, including HYPERFINE WDM, OPERA(TM) and ImSyn(TM). These products are still under various stages of development. As such, these products are subject to certain risks and may require us to: o develop marketing, sales and customer support capabilities; o obtain customer and/or regulatory certification; o respond to rapid technological advances; and o obtain customer acceptance of these products and product performance. Our efforts to enter commercial markets will require significant resources, including additional working capital and capital expenditures, as well as the use of management's time. Our efforts to sell our commercial telecommunications products, particularly our optical networking and broadband wireless communications products, also may depend to a significant degree on the efforts of independent distributors or communication service providers. We can give no assurance that these distributors or service providers will be able to market our products or their services successfully or that we will be able to realize a return on our investments in them. If we are not successful in addressing these risks or in developing these commercial business opportunities we may not be able to reach profitability. OUR STRATEGY INVOLVES PURSUING STRATEGIC ACQUISITIONS AND INVESTMENTS THAT MAY NOT BE SUCCESSFUL. Our business strategy includes acquiring or making strategic investments in other companies with a view to expanding our portfolio of products and services, acquiring new technologies, and accelerating the development of new or improved products. To do so, we may issue equity that would dilute our current shareholders' percentage ownership or incur debt or assume indebtedness. In addition, we may incur significant amortization expenses related to intangible assets. We also may incur significant write-offs of goodwill associated with our 10 companies, businesses or technologies that we acquire. Acquisitions and strategic investments involve numerous risks, including: o difficulties in integrating the operations, technologies, and products of the acquired companies; o diversion of management's attention from our core business; o potential difficulties in completing projects of the acquired company; o the potential loss of key employees of the acquired company; and o dependence on unfamiliar or relatively small supply partners. In addition, acquisitions and strategic investments may involve risks of entering markets in which we have no or limited direct prior experience, where competitors in such markets have stronger market positions and of obtaining insufficient revenues to offset increased expenses associated with acquisitions. OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RETAIN KEY PERSONNEL. Our success has always depended in large part on our ability to attract and retain highly-skilled technical, managerial, sales and marketing personnel, particularly those skilled and experienced in optoelectronics and optical communications equipment. The loss of key personnel may prevent us from completing current development and restrict new development. IF WE ARE UNABLE TO DEVELOP AND SUCCESSFULLY INTRODUCE NEW AND ENHANCED PRODUCTS THAT MEET THE NEEDS OF OUR CUSTOMERS IN A TIMELY MANNER, OUR REVENUES AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED. Our future success depends on our ability to anticipate our customers' needs and develop products that address those needs. Technological change in the optical networking industry is occurring at a rapid pace. As a result, we expect there to be frequent new product introductions, changes in customer requirements and evolving industry standards. We may not be able to develop new products or enhancements to our existing products in a timely manner, or at all. This would cause potential customers to seek other solutions, which would reduce our revenues and adversely affect our results of operations and financial condition. We are currently developing many potential optical networking products through our research and development efforts. Although we have several products in development, we may not bring all of these potential products into commercial production due to: o changes in customer demand; o technological developments that make our products less competitive; o evolving industry standards; or o allocation of our limited resources to other products or technologies. If we incur significant expenses developing products that we do not produce commercially, or if we select the wrong products or technologies to bring into commercial 11 production, our revenues and results of operations could be adversely affected and we may not recover significant research and development expenses. ONE ASPECT OF OUR SUCCESS IS DEPENDENT ON OUR OPTOELECTRONICS TELECOMMUNICATIONS PRODUCTS BEING DEVELOPED. FAILURE OF OUR PRODUCTS TO OPERATE AS EXPECTED COULD DELAY OR PREVENT THEIR DEPLOYMENT AND SALE AND COULD SERIOUSLY IMPAIR OUR COMMERCIAL BUSINESS AND PROSPECTS. Our future growth and success depends in part on the commercial success of our optical and wireless telecommunications products being developed. We have begun limited commercial sales of our products and have produced devices only to specifications required in order to conduct laboratory tests and field trials. Some of our devices have been deployed in field trials, others have been tested in our laboratories and still others are in earlier stages of development. If our products fail to operate as expected, this could delay or prevent their deployment and sale and could seriously impair our business and prospects. THE MARKET WE INTEND TO SERVE IS HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN PROFITABILITY. Competition in the network communications equipment market is intense. This market has historically been dominated by such large companies as Alcatel, Ciena, Cisco Systems, JDS Uniphase, Lucent Technologies, NEC and Nortel Networks. Some of these companies, as well as emerging companies, are currently developing products that may compete in the specialty areas that Essex's technology is designed to address. We may face competition from other large communications companies who may enter our proposed markets. Many of these possible competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical and sales and marketing resources than we do and may be able to undertake more extensive marketing efforts and adopt more aggressive pricing policies than we can. Due to the rapidly evolving markets in which we compete, additional competitors with significant market presence and financial resources may enter our markets, further intensifying competition. IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY EFFECTIVELY, WE MAY BE UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGIES, WHICH WOULD IMPAIR OUR COMPETITIVE ADVANTAGE. We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our key employees and consultants and control access to and distribution of our software, documentation and other proprietary information. The Company believes that its patents and patent applications provide it with a competitive advantage. Accordingly, in the event the Company's products and technologies under development gain market acceptance, patent protection would be important to the Company's business. However, obtaining patent and other intellectual property protection may not adequately protect our rights or permit us to gain or keep any competitive advantage. For instance, unauthorized parties may attempt to copy, reverse engineer or otherwise obtain and use our patented products or technology without our permission, thus eroding or eliminating the competitive advantage we hope to gain though the exclusive rights provided by patent protection. 12 Moreover, our existing patents and patents we have applied for (if granted) may not protect us against competitors that independently develop proprietary technologies that are substantially equivalent or superior to our technologies, or design around our patents. In addition, the competitive advantage provided by patenting our technology may erode if we do not upgrade, enhance and improve our technology on an ongoing basis to meet competitive challenges. Monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. A complete description of Essex's patents and patent applications is contained in our Annual Report on Form 10-KSB for fiscal 2002. The Form 10-KSB is incorporated in this prospectus by reference and we are delivering a copy of the report together with this prospectus. THERE IS A RISK THAT OUR PATENT APPLICATIONS WILL NOT BE GRANTED. Although we have filed several applications for U.S. patents relating to our HYPERFINE WDM and OPERA(TM) technologies, there is a risk that some or all of our pending applications will not issue as patents. Although we believe our patent applications are valid, the failure of our pending applications to issue as patents would affect the competitive advantage we hope to gain by obtaining patent protection and thus likely would have a material adverse effect upon our business and results of operations. WE MAY BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES, WHICH COULD SUBJECT US TO SIGNIFICANT LIABILITY, DIVERT THE TIME AND ATTENTION OF OUR MANAGEMENT AND PREVENT US FROM SELLING OUR PRODUCTS. We or our customers may be a party to litigation in the future to protect our intellectual property or to respond to allegations that we infringe on others' intellectual property. Any parties asserting that our products infringe upon their proprietary rights would force us to defend ourselves and possibly our customers against the alleged infringement. If we are unsuccessful in any intellectual property litigation, we could be subject to significant liability for damages and loss of our proprietary rights. Intellectual property litigation, regardless of its success, would likely be time consuming and expensive to resolve and would divert management's time and attention. In addition, we could be forced to do one or more of the following: o stop selling, incorporating or using our products that include the challenged intellectual property; o obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or o redesign those products that use the technology. If we are forced to take any of these actions, our business could be seriously harmed. 13 IF NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE VERY EXPENSIVE, OUR BUSINESS WOULD BE SERIOUSLY HARMED. From time to time we may be required to license technology from third parties to sell or develop our products and product enhancements. These third-party licenses may not be available to us on commercially reasonable terms, if at all. Our inability to maintain or obtain any third-party license required to sell or develop our products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost. If we were required to use technology with lower performance standards or quality, customers may stop buying our products and this would cause our revenues to decline. Similarly, if our costs rise significantly, customers may choose less expensive alternative products, which would cause our revenues to decline. RISKS RELATED TO THE OPTICAL NETWORKING INDUSTRY THE OPTICAL NETWORKING INDUSTRY IS DEVELOPING, UNPREDICTABLE AND CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND EVOLVING STANDARDS. IF THIS INDUSTRY DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, DEMAND FOR OUR PRODUCTS MAY FAIL TO GROW OR MAY DECLINE, WHICH WOULD ADVERSELY AFFECT OUR REVENUES. The optical networking industry is developing and characterized by rapid technological change, frequent new product introductions, changes in customer requirements and continuously evolving industry standards. As a result, it is difficult to predict its potential size and future growth rate. In addition, evolving customer requirements and industry standards are uncertain. Our success in generating revenues in this evolving market will depend on our ability to: o establish, maintain and enhance our relationships with optical networking customers; o convince our customers of the benefits of next-generation optical networks; and o predict accurately, and develop our products to meet, evolving customer requirements and industry standards. If we fail to address changing market conditions, sales of our products may fail to grow or may decline, which would adversely affect our revenues. THE OPTICAL NETWORKING EQUIPMENT INDUSTRY IS EXPERIENCING DECLINING AVERAGE SELLING PRICES, WHICH COULD ADVERSELY AFFECT OUR REVENUES AND GROSS MARGINS. The optical networking equipment industry is experiencing declining average selling prices as a result of increasing competition and greater unit volumes as communications service providers continue to deploy fiber optic networks. We anticipate that average selling prices will continue to decrease in the future in response to product introductions by competitors, price pressures from significant customers and greater manufacturing efficiencies. These average selling price declines may contribute to a decline in our gross margins, which could adversely affect our results of operations. 14 IF THE INTERNET AND COMMERCIAL DATA NETWORKS DO NOT CONTINUE TO EXPAND AND NEXT-GENERATION OPTICAL NETWORKS ARE NOT DEPLOYED AS RAPIDLY AS WE ANTICIPATE, SALES OF OUR PRODUCTS UNDER DEVELOPMENT MAY DECLINE, AND OUR REVENUES MAY BE ADVERSELY AFFECTED. Our future commercial success depends on the continued growth of the Internet and commercial data networks for commerce and communications, the continuing increase in the amount of data transmitted over communications networks and the increasing adoption of, and improvements to, optical networks to meet the increased demand for bandwidth. If data networks, including the Internet, do not continue to expand as a widespread communications medium and commercial marketplace, the need for significantly increased bandwidth across networks and the market for optical networking products may not continue to develop. Future demand for the products we are developing is uncertain and will depend to a great degree on the continued growth and upgrading of optical networks. BECAUSE OPTICAL PRODUCTS ARE COMPLEX AND ARE DEPLOYED IN COMPLEX ENVIRONMENTS, THE PRODUCTS WE ARE DEVELOPING MAY HAVE DEFECTS THAT WE DISCOVER ONLY AFTER FULL DEPLOYMENT, WHICH COULD SERIOUSLY HARM OUR BUSINESS. Optical products are complex and are designed to be deployed in large quantities across complex networks. Because of the nature of the products, they can only be fully tested when completely deployed in large networks with high amounts of traffic. Customers may discover errors or defects in the hardware or the software, or products we develop may not operate as expected, after they have been fully deployed. If we are unable to fix defects or other problems that may be identified in full deployment, we would likely experience: o loss of, or delay in, revenue and loss of market share; o loss of existing customers; o difficulties in attracting new customers or achieving market acceptance; o diversion of development resources; o increased service and warranty costs; o legal actions by our customers; and o increased insurance costs. The occurrence of any of these problems could seriously harm our business, financial condition and results of operations. Defects, integration issues or other performance problems could result in financial or other damages to our customers or could negatively affect market acceptance for the products we develop. Our customers could also seek damages for losses from us, which, if they were successful, would seriously harm our business, financial condition and results of operations. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly and would put a strain on our management and resources. 15 RISKS RELATED TO THIS OFFERING A LIMITED NUMBER OF STOCKHOLDERS ARE ABLE TO EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER APPROVAL. Since September 2000, the Company has engaged in several private placements with a few private investors or their affiliates. We refer to these entities and their affiliates as the "Private Investors". As of the date of this prospectus, these Private Investors and their affiliates hold collectively approximately 3.6 million shares of common stock, including 1,166,666 shares of Common Stock covered by this Prospectus. The Private Investors also hold warrants exercisable under certain circumstances for up to two million shares of our common stock. Accordingly, the Private Investors could seek to exercise significant control and influence of certain actions requiring the approval of the holders of shares of our common stock. This concentration of ownership may also delay or prevent a change in control of Essex or reduce the price other investors might be willing to pay for our common stock. In addition, the interests of the Private Investors may conflict with the interests of other holders of our common stock. THERE IS CURRENTLY ONLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK AND OUR COMMON STOCK IS SUBJECT TO SIGNIFICANT PRICE fluctuations. Our Common Stock is listed on the OTC Bulletin Board and there has only been a limited public market for our common stock. Unless and until our common stock is admitted for quotation on a national securities exchange or the Nasdaq Stock Market, it is unlikely that any active trading market will develop or, if any such market develops, that it will be sustained. Even if our common stock is admitted for quotation or listing on a national securities exchange, an active trading market may not develop unless the number of shares in the hands of the public is substantially increased. In addition, in the event our operating results fall below the expectations of public market analysts and investors, the market price of our common stock would likely be materially adversely affected. The trading price of our common stock is likely to be volatile and sporadic. The stock market in general, and the market for technology companies in particular, has experienced extreme volatility. This volatility has often been unrelated to the operating performance of particular companies. Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the price such investors paid for their shares or at any price at all. SALES BY THE SELLING STOCKHOLDERS OR OTHERS OF A SIGNIFICANT NUMBER OF SHARES OF COMMON STOCK COULD HAVE A MATERIAL ADVERSE EFFECT ON PREVAILING MARKET PRICES. We cannot predict what effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of common stock by the selling stockholders, or the perception that such sales may occur, could have a material adverse effect on prevailing market prices. At March 31, 2003, we have outstanding approximately 8.9 million shares of our common stock, approximately 4,348,000 of which were sold or issued by us in private transactions in reliance upon exemptions from registration under the Securities Act. (See "Other 16 Business Information - Recent Developments" in the 2002 Form 10-KSB for further information.) These privately placed shares may be sold only pursuant to an effective registration statement filed by Essex or an applicable exemption, including the exemption contained in Rule 144 promulgated under the Securities Act. In general, under Rule 144 as currently in effect, a shareholder, including an affiliate of Essex, may sell shares of common stock after at least one year has elapsed since such shares were acquired from us or an affiliate of ours. The number of shares of common stock which may be sold within any three- month period is limited to the greater of one percent of the then outstanding number of shares of common stock or the average weekly trading volume in the common stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144. Certain other requirements of Rule 144 concerning availability of public information, manner of sale and notice of sale must also be satisfied. In addition, a shareholder who is not our affiliate (and who has not been our affiliate for 90 days prior to the sale) and who has beneficially owned shares acquired from us or our affiliate for over two years may resell the shares without compliance with the foregoing requirements under Rule 144. In addition to the shares covered by this prospectus, the Private Investors have been granted rights to have up to 2,000,000 shares of common stock issuable upon exercise of warrants registerable under the Securities Act upon demand and another approximately 1,017,000 shares of Common Stock through "piggy-back" registration rights. We have also filed a registration statement to register an additional 785,000 shares of our common stock held by these and other parties. Sales of substantial amounts of common stock under Rule 144 or pursuant to the holder's registration rights, or the perception that such sales may occur, could have a material adverse effect on prevailing market prices. WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK PRICE VOLATILITY. In the past, securities class action litigation has often been brought against companies after periods of volatility in the market price of their securities. Securities litigation could result in substantial costs and divert management's attention and resources from our business. Due to the potential volatility of our stock price, we may be the target of securities litigation in the future. USE OF PROCEEDS We will not receive any proceeds from the sale of the Common Stock by the selling stockholders. 17 SELLING STOCKHOLDERS This prospectus relates to the offering by the stockholders named in the prospectus for resale of up to 2,671,573 shares of Common Stock. Throughout this prospectus, we may refer to these stockholders and their pledgees, donees, transferees or other successors in interest who receive shares in non-sale transactions, as the "selling stockholders." If they sell all of these shares in this offering, the selling stockholders will beneficially own the shares of our Common Stock as shown below. The following table sets forth the following information with respect to each selling stockholder as of March 31, 2003: (i) name and nature of any position or other relationship with us within the past three years; (ii) the number and percentage of total outstanding shares of our Common Stock each selling stockholder beneficially owns before this offering; (iii) the number of shares of Common Stock the selling stockholder is offering; and (iv) the number and percentage of total outstanding shares of our Common Stock that the selling stockholder will own after the selling stockholder sells all of the shares in this offering.
Percentage of Percentage of Outstanding Amount and Outstanding Amount and Shares of Nature of Shares of Nature of Common Stock Beneficial Common Stock Shares of Beneficial Beneficially Name and Address Ownership Beneficially Common Ownership Owned After of Beneficial Owner Before the Owned Before Stock After the the Offering Offering the Offering Offered Offering - --------------------- ----------------- ----------------- ----------- --------------- --------------- H. Jeffrey Leonard (1) 1,646,866 18.5 1,166,666 480,200 5.4 James P. Gregory (2) 1,614,866 18.1 1,166,666 448,200 5.0 Marie S. Minton (3) 1,614,866 18.1 1,166,666 448,200 5.0 GEF Optical Investment Company, LLC (4)(5) 1,614,866 18.1 1,166,666 448,200 5.0 Global Environment Capital Co., LLC ("GECC") (4)(5) 1,614,866 18.1 1,166,666 448,200 5.0 Global Environment Strategic Technology Partners, LLC ("GESTP")(4)(5) 1,614,866 18.1 1,166,666 1,268,200 5.0 Caroline S. Pisano(6) 408,000 4.6 400,000 8,000 * James A. Katra(7) 470,571 5.3 437,602 32,969 * David W. Morsberger(8) 231,189 2.6 231,189 250 * Robert J. Hilton(9) 214,758 2.4 214,758 0 0 Jeffery M. Brown(10) 171,392 1.9 171,392 0 0 Richard B. Taber, Jr.(11) 18,571 * 18,571 0 0 Richard E. Krauss, Jr.(12) 14,857 * 14,857 0 0 Robert F. Welte(11) 9,360 * 9,360 0 0 Lawrence H. Young, Jr.(11) 4,457 * 4,457 0 0 Mark G. Froehly(11) 1,634 * 1,634 0 0 Anthony F. Zaukus, Jr.(11) 743 * 743 0 0 Mark D. Nichols(11) 594 * 594 0 0 - ------------------------------------------------------------------------------------------------------------ 18 *Less than 1% (1) H. Jeffrey Leonard is Chairman of the Board of Essex and a director of the managing member of GEF. Of the shares shown as beneficially owned, 32,000 are owned directly by Mr. Leonard. In addition, 1,614,866 shares of Common Stock may be deemed to be beneficially owned by Mr. Leonard as described in footnotes (4) and (5) below. Mr. Leonard's address is c/o GEF, 1225 Eye Street, N.W., Suite 900, Washington, DC 20005. Mr. Leonard is the brother-in-law of Ms. Pisano (footnote 6). (2) James P. Gregory is a director of the managing member of GEF. Mr. Gregory may be deemed to be the beneficial owner of these shares as described in footnotes (4) and (5) below. Mr. Gregory's address is c/o GEF, 1225 Eye Street, N.W., Suite 900, Washington, DC 20005. (3) Marie S. Minton is a Director of Essex and a director of the managing member of GEF. Ms. Minton may be deemed to be the beneficial owner of these shares as described in footnotes (4) and (5) below. Ms. Minton's address is c/o GEF, 1225 Eye Street, N.W., Suite 900, Washington, DC 20005. (4) Consists of 1,346,666 shares of Common Stock directly owned by GEF. Also consists of (i) 118,200 shares of Common Stock directly owned by GECC and (ii) 166,666 shares of Common Stock directly owned by GESTP. See footnote (7) below. Each of GEF, GECC and GESTP is a Delaware limited liability company with its principal executive offices located at 1225 Eye Street, N.W., Suite 900, Washington, DC 20005. (5) The Company has been advised that each of GEF, GECC, GESTP, Mr. Leonard, Ms. Minton and Mr. Gregory may be deemed the beneficial owner of 1,614,866 shares of Common Stock directly held for the account of GEF. (6) Caroline S. Pisano is Vice President of Finance and General Counsel of the Company. She is the sister-in-law of Mr. Leonard (footnote 1). (7) Prior to its acquisition by Essex, Mr. Katra was Executive Vice President and Chief Financial Officer and a founding shareholder of our wholly-owned subsidiary SDL and is currently employed by SDL. Of the shares shown as beneficially owned, 30,969 are owned jointly by Mr. Katra and his spouse. (8) Prior to its acquisition by Essex, Mr. Morsberger was Chief Technical Officer and a founding shareholder of our wholly-owned subsidiary SDL, and is currently employed by SDL. Of the shares shown as beneficially owned, 250 are owned by Mr. Morsberger's spouse. (9) Prior to its acquisition by Essex, Mr. Hilton was a Vice President and a founding shareholder of our wholly-owned subsidiary SDL, and is currently employed by SDL. (10) Prior to its acquisition by Essex, Mr. Brown was a Vice President and Corporate Secretary and a founding shareholder of our wholly-owned subsidiary SDL, and is currently employed by SDL. (11) Employees of SDL. (12) Prior to its acquisition by Essex, Mr. Krauss was President of our wholly-owned subsidiary SDL, and is currently employed by SDL.
19 PLAN OF DISTRIBUTION The Common Stock being offered by the selling stockholders may be sold in transactions on the OTC Bulletin Board, on another market on which the Common Stock may be trading, or in privately-negotiated transactions. The sale price to the public may be the market price prevailing at the time of sale, a price related to the prevailing market price or any other price the selling stockholders may determine. The Common Stock may also be sold under SEC Rule 144 and not under this prospectus. The selling stockholders have the discretion not to accept any purchase offer or make any sale of Common Stock if they deem the purchase price to be unsatisfactory at any particular time, or for any reason. The selling stockholders may also sell the Common Stock directly to broker-dealers acting as principals and/or to broker-dealers acting as agents for themselves or their customers. Brokers acting as agents for the selling stockholders will receive usual and customary commissions for brokerage transactions, and broker-dealers acting as principals will do so for their own account at negotiated prices and at their own risk. It is possible that the selling stockholders will sell shares of Common Stock to broker-dealers or other purchasers at a price per share which may be below the then market price. In addition, the selling stockholders may enter into hedging transactions with broker-dealers who may engage in short sales of Common Stock in the course of hedging the positions they assume with a selling stockholder. The selling stockholders also may sell shares short and deliver the shares to close out their positions, and may loan or pledge their shares to a broker-dealer who may have the right to sell the loaned or pledged shares on default or otherwise. The selling stockholders and any brokers, dealers or agents, upon effecting the sale of any of the Common Stock offered hereby, may be deemed "underwriters" as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations thereunder. The selling stockholders and any other persons participating in the sale or distribution of the Common Stock will be subject to applicable provisions of the Exchange Act and its rules and regulations, which may limit the timing of purchases and sales of any of the Common Stock by the selling stockholders or other distribution participants. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to such securities for a specified period of time before the commencement of distributions subject to specified exceptions or exemptions. This may affect the marketability of the Common Stock. We have agreed to indemnify the selling stockholders against some important liabilities, including liabilities under the Securities Act, or to contribute to any payments these selling stockholders may be required to make in respect of these liabilities. We are paying the costs of this registration for the selling stockholders. 20 LEGAL MATTERS The legal issuance and fully paid and non-assessable status of our Common Stock offered by this prospectus was passed upon for us by our legal counsel, Whiteford, Taylor & Preston L.L.P., Baltimore, Maryland. Counsel's opinion is included as exhibit 5.1 to the registration statement of which this prospectus is a part. EXPERTS The financial statements incorporated in this prospectus by reference to our Annual Report on Form 10-KSB for the year ended December 29, 2002 have been so incorporated in reliance on the report of Stegman & Company, independent accountants, given on the authority of said firm as experts in auditing and accounting. The historical financial statements of SDL as of September 30, 2002 and for each of the two years in the period ended September 30, 2002 incorporated in this prospectus by reference to our Current Report on Form 8-K filed on April 17, 2003 have been so incorporated in reliance on the report of Stegman & Company, independent accountants, given on the authority of said firm as experts in auditing and accounting. 21 ------------------------------------------------------ ------------------------------------------------------ TABLE OF CONTENTS ------------------------------------------------------ ------------------------------------------------------ PAGE -------- Where You Can Find More Information...................................................... 3 Forward Looking Statements................................ 4 Essex Corporation......................................... 5 Risk Factors.............................................. 8 Use of Proceeds........................................... 17 Selling Stockholders...................................... 18 Plan of Distribution...................................... 20 Legal Matters............................................. 21 Experts................................................... 21 ------------------------------------------------------ ------------------------------------------------------ ESSEX CORPORATION Common Stock ------------------------ PROSPECTUS ------------------------ , 2003 ------------------------------------------------------ ------------------------------------------------------ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the fees and expenses in connection with the issuance and distribution of the securities being registered. Except for the SEC registration fee, all amounts are estimates.
SEC registration fee............................................ $ 735 Accounting fees and expenses.................................... 4,000 Legal fees and expenses......................................... 12,500 Blue Sky fees and expenses (including counsel fees)............. 2,500 Printing expenses............................................... 500 Transfer agent's and registrar's fees and expenses.............. 500 Miscellaneous expenses.......................................... 200 ------------- Total......................................................... $ 20,935
============= ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Virginia Stock Corporation Act ("Act") permits indemnification of directors and officers of a corporation under certain conditions and subject to certain limitations. Articles (h) and (i) of Essex's Articles of Incorporation contain provisions for the indemnification of directors and officers of Essex within the limitations permitted by the Act. In addition, Essex has entered into indemnity agreements with all of its directors and officers which provide the maximum indemnification allowed by the Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits: EXHIBIT NUMBER DESCRIPTION 4.1 Specimen Stock Certificate* 5.1 Opinion of Whiteford, Taylor & Preston L.L.P. 23.1 Consent of Independent Accountants 23.2 Consent of Independent Accountants 23.3 Consent of Whiteford, Taylor & Preston L.L.P. (included in Exhibit 5.1) 24.1 Power of Attorney (included in the Signature Page to this Registration Statement) 99.1 Securities Purchase Agreement dated March 15, 2001* 99.2 Amendment No. 2 to Registration Rights Agreement dated March 15, 2001* 99.3 Securities Purchase Agreement dated December 14, 2000* 99.4 Amendment No. 1 to Registration Rights Agreement dated December 4, 2000* 99.5 Securities Purchase Agreement dated September 7, 2000 among the Company, Global Optical Investment Company, LLC and Networking Ventures LLC. ** 99.6 Registration Rights Agreement dated September 7, 2000 among the Company, Global Optical Investment Company, LLC and Networking Ventures LLC** 99.7 Agreement and Plan of Merger among Essex Corporation, SDL Acquisition, Inc., Sensys Development Laboratories, Inc, and the Principal Shareholders dated as of February 21, 2003*** 99.8 Registration Rights Agreement dated as of February 28, 2003 between Essex Corporation and Sensys Development Laboratories, Inc. Shareholders - ----------------------- * Incorporated by reference from the similarly numbered exhibit in the Company's Registration Statement on Form S-2 (333-61200). ** Incorporated by reference from Exhibit 99 to the Company's Form 8-K filed September 20, 2000. *** Incorporated by reference from Exhibit 2.1 to the Company's Form 8-K filed March 7, 2003. (b) Financial Statement Schedules. None. ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment to the registration statement) which, individually or when viewed together, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to the information in the registration statement. Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities and Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each of these post-effective amendments shall be deemed to be a new registration statement relating to the securities being offered, and the offering of those securities at that time shall be deemed to be their initial bona fide offering. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities being offered, and the offering of those securities at that time shall be deemed to be their initial bona fide offering. (c) Insofar as directors, officers and controlling persons of the Registrant are permitted to seek indemnification for liabilities arising under the Securities Act, under the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a director, officer or controlling person asserts a claim for indemnification against these types of liabilities in connection with the securities being registered, other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it under these circumstances is against public policy as expressed in the Securities Act and will be governed by the final adjudication of the issue. SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Howard, State of Maryland, on April 29, 2003. ESSEX CORPORATION By: /S/ LEONARD E. MOODISPAW ---------------------------------------- Leonard E. Moodispaw President and Chief Executive Officer POWER OF ATTORNEY Each director whose signature appears below constitutes and appoints Leonard E. Moodispaw and Joseph R. Kurry, Jr., or either of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign for the undersigned any and all amendments or post-effective amendments to this Registration Statement on Form S-2 relating to the issuance of Common Stock of the Registrant, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. We hereby confirm all acts taken by such agents and attorneys-in-fact, or any one or more of them, as herein authorized. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /S/ H. JEFFREY LEONARD Chairman of the Board April 29, 2003 - ---------------------------- H. Jeffrey Leonard /S/ LEONARD E. MOODISPAW President, Chief Executive April 29, 2003 - --------------------------- Officer, and Director (principal Leonard E. Moodispaw executive officer) /S/ JOSEPH R. KURRY, JR. Chief Financial Officer April 29, 2003 - --------------------------- (principal financial and Joseph R. Kurry, Jr. accounting officer) /S/ JOHN G. HANNON Director April 29,2003 - --------------------------- John G. Hannon /S/ ROBERT W. HICKS Director April 29,2003 - --------------------------- Robert W. Hicks /S/ RAY M. KEELER Director April 29,2003 - --------------------------- Ray M. Keeler /S/ FRANK E. MANNING Director April 29,2003 - --------------------------- Frank E. Manning /S/ MARIE S. MINTON Director April 29,2003 - --------------------------- Marie S. Minton /S/ ATHUR L. MONEY Director April 29,2003 - --------------------------- Arthur L. Money /S/ TERRY M. TURPIN Director April 29,2003 - --------------------------- Terry M. Turpin EX-5 4 ex5-1.txt EXHIBIT 5.1 OPINION Exhibit 5.1 WHITEFORD, TAYLOR & PRESTON L.L.P. SEVEN SAINT PAUL STREET BALTIMORE, MARYLAND 21202-1626 410 347-8700 FAX 410 347-9414 www.wtplaw.com April 28, 2003 Board of Directors Essex Corporation 9150 Guilford Road Columbia, MD 21046 RE: REGISTRATION STATEMENT ON FORM S-2 Ladies and Gentlemen: We have acted as counsel to Essex Corporation, a Virginia corporation (the "Company"), in connection with the preparation of a Registration Statement on Form S-2 (the "Registration Statement") filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), relating to 2,671,573 shares (the "Shares") of the Company's common stock, no par value (the "Common Stock"), to be sold by the selling shareholders named in the Registration Statement. In rendering the opinion set forth below, we have examined the Registration Statement and the exhibits thereto, certain records of the Company's corporate proceedings as reflected in its minute books and such statutes, records and other documents as we have deemed relevant. In our examination, we have assumed the genuineness of documents submitted to us as originals and the conformity with the originals of all documents submitted to us as copies thereof. Based on the foregoing, it is our opinion that the Shares are validly issued, fully paid and nonassessable. The opinion set forth above is limited to the Virginia Stock Corporation Act, as amended, the applicable provisions of the Virginia Constitution, and reported judicial decisions interpreting these laws. We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement. In giving such consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act and the rules or regulations of the Commission thereunder. Very truly yours, /s/ Whiteford, Taylor & Preston L.L.P. EX-23 5 ex23-1.txt EXHIBIT 23.1 CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors Essex Corporation We consent to the incorporation by reference in Form S-2 Registration Statement of Essex Corporation of our report dated February 21, 2003, relating to the balance sheet of Essex Corporation as of December 29, 2002 and the related statements of operations, changes in stockholders' equity and cash flows for the fiscal years ended December 29, 2002 and December 30, 2001, which report appears in the 2002 Annual Report on Form 10-KSB of Essex Corporation and to all references to our Firm included in the Registration Statement. STEGMAN & COMPANY Baltimore, Maryland April 29, 2003 EX-23 6 ex23-2.txt EXHIBIT 23.2 CONSENT EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors Essex Corporation We consent to the incorporation by reference in the Form S-2 Registration Statement of Essex Corporation of our report dated January 10, 2003 relating to the balance sheet of Sensys Development Laboratories, Inc. as of September 30, 2002 and the related statements of operations, changes in stockholders' equity and cash flows for the years ended September 30, 2002 and 2001 and to all references to our Firm included in the Registration Statement. STEGMAN & COMPANY Baltimore, Maryland April 29, 2003 EX-23 7 ex23-3.txt EXHIBIT 23.3 CONSENT EXHIBIT 23.3 Consent of Whiteford, Taylor & Preston L.L.P (included in Exhibit 5.1) EX-24 8 ex24-1poa.txt EXHIBIT 24.1 POWER OF ATTORNEY EXHIBIT 24.1 Power of Attorney (included in the Signature Page to this Registration Statement) EX-99 9 ex99-8.txt EXHIBIT 99.8 REGISTRATION RIGHTS AGREEMENT EXHIBIT 99.8 ESSEX CORPORATION REGISTRATION RIGHTS AGREEMENT This Agreement dated as of February 28, 2003 is entered into by and among Essex Corporation, a Virginia corporation ("ESSEX"), and the Persons identified on SCHEDULE I hereto and their permitted successors, assignees or transferees (the "SHAREHOLDERS"). RECITALS WHEREAS, Essex, SDL Acquisition, Inc., a Maryland corporation and wholly owned subsidiary of Essex (the "PURCHASER"), Sensys Development Laboratories, Inc. (the "COMPANY") and certain principal shareholders of the Company (the "Principal Shareholders") have entered into an Agreement and Plan of Merger (the "PLAN"), of even date herewith, pursuant to which (i) the Purchaser will merge with and into the Company (the "MERGER") and (ii) the Shareholders will receive, INTER ALIA, shares of Common Stock (capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Plan); and WHEREAS, in order to induce the Shareholders to vote in favor of the Merger and the Plan, and to induce the Company to enter into the Plan and as a condition thereof, Essex has agreed to grant the securities registration rights to the Shareholders set forth herein; NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "COMMISSION" means the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "COMMON STOCK" means the common stock of Essex. "ESCROW AGREEMENT" means the escrow agreement of even date herewith by and among Essex, the escrow agent and the Principal Shareholders. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "PROSPECTUS" means the prospectus included in any Shelf Registration Statement, as amended or supplemented by an amendment or prospectus supplement, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "REGISTRABLE SHARES" means 1,104,907 shares of Common Stock issued to the Shareholders in connection with the Merger; PROVIDED that following the Release Date "Registrable Shares" shall be adjusted to reflect the actual number of shares of Common Stock finally released to the Principal Shareholders pursuant to the Plan and the Escrow Agreement, and (ii) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares upon (i) any sale pursuant to a Shelf Registration Statement or Rule 144 under the Securities Act or (ii) any sale in any manner to a person or entity which, by virtue of Section 3 of this Agreement, is not entitled to the rights provided by this Agreement. "RELEASE DATE" means the date on which shares of Common Stock securing the Principal Shareholders' indemnification obligations under the Plan are released to the Principal Shareholders pursuant to the terms and conditions of the Plan and the Escrow Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "SHELF REGISTRATION STATEMENT" means a registration statement of Essex filed with the Commission on Form SB-2 or S-2 or, if available, Form S-3 (or any successors thereto) for an offering to be made on a continuous or delayed basis pursuant to Rule 415 under the Securities Act (or any similar rule that may be adopted by the Commission) covering the Registrable Shares. "SELLING SHAREHOLDER" means any Shareholder owning Registrable Shares included in a Shelf Registration Statement. "UNDERWRITTEN OFFERING" means an offering registered under the Securities Act in which securities of Essex are sold to an underwriter or underwriters on a firm commitment basis for reoffering to the public 2. REGISTRATION RIGHTS 2.1 SHELF REGISTRATION. (a) FILING OF SHELF REGISTRATION STATEMENT. Within sixty (60) days from the date hereof, Essex (i) shall file a Shelf Registration Statement to register for resale the Registrable Shares and (ii) will use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective as promptly as possible after date of filing thereof. (b) EFFECTIVENESS, ETC. Essex agrees to use its reasonable best efforts to keep the Shelf Registration Statement continuously effective for a period of four (4) years from the effective date thereof or, if earlier, until all of the Registrable Shares covered by a Shelf Registration Statement have been sold pursuant thereto. Essex further agrees to supplement or make amendments to the Shelf Registration Statement if required by (i) Section 2.2(b) hereof, (ii) the registration form utilized by Essex for such registration or by the instructions applicable to such registration form, or (iii) the Securities Act; PROVIDED, HOWEVER, that notwithstanding 2 anything to the contrary herein Essex will not be required to supplement or amend the Shelf Registration Statement until current financial information is available so long as Essex is in compliance with (x) the foregoing clauses (i) and (iii) and (y) its reporting obligations under the Exchange Act subsequent to the effective date. (c) UNDERWRITTEN OFFERING AT THE REQUEST OF THE PRINCIPAL SHAREHOLDERS. Upon the written request of one or more Principal Shareholders (such Principal Shareholder or Principal Shareholders being referred to herein as the "REQUESTING PRINCIPAL SHAREHOLDERS"), requesting that Essex amend the Shelf Registration Statement to the extent necessary for the offering of the Requesting Principal Shareholders' Registrable Shares pursuant to an Underwritten Offering, Essex will give prompt written notice of the requested Underwritten Offering to all other holders of Registrable Shares and thereupon Essex will use its best efforts to effect such amendment to a Shelf Registration Statement for an Underwritten Offering of (x) the Registrable Shares which Essex has been so requested to include in the Underwritten Offering by the Requesting Principal Shareholders and (y) all other Registrable Shares which Essex has been requested to include in the Underwritten Offering by the holders thereof by written request given to Essex within five (5) days after the giving of such written notice by Essex. Notwithstanding the foregoing, Essex shall have no obligation under this Section 2(c) unless the estimated aggregate offering price of the Registrable Shares requested for inclusion in such Underwritten Offering is $1,000,000 or more. (d) LIMITATION ON AMENDMENTS. Essex shall not be required to amend the Shelf Registration Statement pursuant to Section 2(c) hereof more than two (2) times in the aggregate; PROVIDED that each amendment so made shall have been effective to permit the sale in an Underwritten Offering of all of the Registrable Shares included in the Shelf Registration Statement for that purpose. (e) SUSPENSION OF REGISTRATION. Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a "Material Event") as a result of which the Shelf Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the good faith determination of the Board of Directors of the Company that any registration of the Registrable Shares should be suspended because it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company (such condition, a "Blackout Condition"): (i) in the case of clause (B) above, subject to the next sentence, as promptly as reasonably practicable, but in no event later than ten (10) days after the Material Event, prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Registration Statement and Prospectus so that such 3 Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder, and, in the case of a post-effective amendment to the Registration Statement, subject to the next sentence, use their reasonable best efforts to cause it to become effective as promptly as practicable; and (ii) give prompt notice to each Selling Shareholder that the availability of the Shelf Registration Statement is suspended (a "Deferral Notice") and, upon receipt of any Deferral Notice, each Holder shall not sell any Registrable Shares pursuant to the Registration Statement until such Selling Shareholder's receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it (x) is advised in writing by the Company that the Prospectus may be used, and (y) has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus or, in connection with a Blackout Condition, the expiration of ninety (90) days from delivery of the relevant Deferral Notice (or sooner period as provided by the next sentence). Notwithstanding anything contained herein to the contrary, the Company may only suspend the Shelf Registration Statement once in any twelve (12) month period, for up to ninety (90) days (the "Maximum Blackout Period"), in connection with a Blackout Condition and the Company shall promptly give written notice of the fact that a Blackout Condition no longer exists. The Company will use reasonable best efforts to ensure that the use of the Prospectus may be resumed or, if necessary, to effect registration of the Registrable Shares covered by the withdrawn or postponed registration statement in accordance with this Agreement (x) in the case of clause (A) above, as promptly as practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Company, public disclosure of such Material Event would not be prejudicial or contrary to the interests of the Company or, if necessary to avoid unreasonable burden or expense, as soon as practicable thereafter and (z) in the case of clause (C) above, as soon as the earlier such time as the Blackout Condition no longer exists, or the lapse of the Maximum Blackout Period. 2.2 REGISTRATION PROCEDURES. In connection with Essex's registration obligations pursuant to this Agreement, Essex shall, subject to the limitations set forth herein and to applicable law, use its reasonable best efforts to effect any such registration so as to permit the sale of the applicable Registrable Shares in accordance with the intended method or methods of distribution thereof in conformity with any required time period set forth herein, and in connection therewith Essex shall: (a) furnish to each Selling Shareholder such reasonable numbers of copies of the Prospectus, including any preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Selling Shareholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by such Selling Shareholder; 4 (b) use its commercially reasonable efforts to register or qualify the Registrable Shares under the securities or Blue Sky laws of such states as the Selling Shareholders shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the Selling Shareholders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the Selling Shareholder; PROVIDED, HOWEVER, that Essex shall not be required in connection with this subparagraph (ii) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction; (c) cause all such Registrable Shares to be listed on each securities exchange or automated quotation system on which similar securities issued by Essex are then listed; (d) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of the Shelf Registration Statement; (e) make available for inspection by the Selling Shareholders, any managing underwriter participating in any disposition pursuant to the Shelf Registration Statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the Selling Shareholders, all financial and other records, pertinent corporate documents and properties of Essex and cause Essex's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Shelf Registration Statement; (f) notify each Selling Shareholder, promptly after it shall receive notice thereof, of the time when the Shelf Registration Statement has become effective or a supplement to any Prospectus forming a part of such Shelf Registration Statement has been filed; and (g) notify each seller of such Registrable Shares of any request by the Commission for the amending or supplementing of the Shelf Registration Statement or Prospectus. 2.3 ALLOCATION OF EXPENSES. Essex will pay all Registration Expenses for all registrations under this Agreement. For purposes of this Section, the term "Registration Expenses" shall mean all expenses incurred by Essex in complying with this Agreement, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and expenses of counsel for Essex, and Blue Sky fees and expenses, but excluding underwriting discounts, selling commissions and the fees and expenses of Selling Shareholders' own counsel. 2.4 INDEMNIFICATION AND CONTRIBUTION. (a) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, Essex will indemnify and hold harmless each Selling Shareholder, each underwriter of such Registrable Shares, and each other person, if any, who controls such Selling Shareholder or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Selling Shareholder, underwriter or controlling person may become subject under the 5 Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Shelf Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary Prospectus or final Prospectus contained in the Shelf Registration Statement, or any amendment or supplement to such Shelf Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and Essex will reimburse such Selling Shareholder, underwriter and each such controlling person for any legal or any other expenses reasonably incurred by such Selling Shareholder, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that Essex will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Shelf Registration Statement, preliminary Prospectus or Prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to Essex, in writing, by or on behalf of such Selling Shareholder, underwriter or controlling person specifically for use in the preparation thereof. (b) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each Selling Shareholder, severally and not jointly, will indemnify and hold harmless Essex, each of its directors and officers and each underwriter (if any) and each person, if any, who controls Essex or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which Essex, such directors and officers, underwriter or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement, any preliminary Prospectus or final Prospectus contained in the Registration Statement, or any amendment or supplement to the Shelf Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information relating to such Selling Shareholder furnished in writing to Essex by or on behalf of such Selling Shareholder specifically for use in connection with the preparation of such Shelf Registration Statement, Prospectus, amendment or supplement; PROVIDED, HOWEVER, that the obligations of a Selling Shareholder hereunder shall be limited to an amount equal to the net proceeds to such Selling Shareholder of Registrable Shares sold in connection with such registration. (c) Each party entitled to indemnification under this Section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to give notice as provided herein shall not 6 relieve the Indemnifying Party of its obligations under this Section except to the extent that the Indemnifying Party is adversely affected by such failure. The Indemnified Party may participate in such defense at such party's expense; PROVIDED, HOWEVER, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding; PROVIDED FURTHER that in no event shall the Indemnifying Party be required to pay the expenses of more than one law firm per jurisdiction as counsel for the Indemnified Party. The Indemnifying Party also shall be responsible for the expenses of such defense if the Indemnifying Party does not elect to assume such defense. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 2.4 is due in accordance with its terms but for any reason is held to be unavailable to an Indemnified Party in respect to any losses, claims, damages and liabilities referred to herein, then the Indemnifying Party shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities to which such party may be subject in such proportion as is appropriate to reflect the relative fault of Essex on the one hand and the Selling Shareholders on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of Essex and the Selling Shareholders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact related to information supplied by Essex or the Selling Shareholders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Essex and the Selling Shareholders agree that it would not be just and equitable if contribution pursuant to this Section 2.4 were determined by PRO RATA allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph of Section 2.4, (a) in no case shall any one Selling Shareholder be liable or responsible for any amount in excess of the net proceeds received by such Selling Shareholder from the offering of Registrable Shares and (b) Essex shall be liable and responsible for any amount in excess of such proceeds; PROVIDED, HOWEVER, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section, notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve such party from any other obligation it or they may have thereunder or otherwise under this Section. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its prior written consent, which consent shall not be unreasonably withheld. 7 2.5 INFORMATION BY HOLDER. Each holder of Registrable Shares included in any registration shall furnish to Essex such information regarding such holder and the distribution proposed by such holder as Essex may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 2.6 "STAND-OFF" AGREEMENT; CONFIDENTIALITY OF NOTICES. ------------------------------------------------- (a) Each Shareholder, if requested by Essex and the managing underwriter of an underwritten public offering by Essex of Common Stock, shall not sell or otherwise transfer or dispose of any Registrable Shares or other securities of Essex held by such Shareholder for a period of 90 days following the effective date of a registration statement filed by Essex to register securities for sale by Essex; PROVIDED, that all shareholders of Essex then holding at least five percent (5%) of the outstanding Common Stock (on an as-converted or as-exercised basis) and all officers and directors of Essex enter into similar agreements. (b) Essex may impose stop-transfer instructions with respect to the Registrable Shares or other securities subject to the foregoing restriction until the end of such 90-day period. (c) Any Shareholder receiving any written notice from Essex regarding Essex's plans to file a registration statement shall treat such notice confidentially and shall not disclose such information to any person other than as necessary to exercise its rights under this Agreement. 2.7 RULE 144 REQUIREMENTS. Essex agrees to: --------------------- (a) make and keep current public information about Essex available, as those terms are understood and defined in Rule 144; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of Essex under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) furnish to any holder of Registrable Shares upon request (i) a written statement by Essex as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of Essex, and (iii) such other reports and documents of Essex as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration. 2.8 TERMINATION. All of Essex's obligations to register Registrable Shares under Sections 2.1 of this Agreement shall terminate four (4) years after the date of this Agreement. 3. TRANSFERS OF RIGHTS. This Agreement, and the rights and obligations of the Shareholders hereunder, may be not be assigned without the prior written consent of Essex except in connection with the transfer by a Principal Shareholder of at least 100,000 Registrable Shares by such Principal Shareholder provided such transferee agrees in writing to be bound by 8 this Agreement in which event such transferee shall be a "Selling Shareholder" for all purposes hereof. 4. GENERAL. (a) SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (b) SPECIFIC PERFORMANCE. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, the Purchaser shall be entitled to specific performance of the agreements and obligations of Essex hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction. (c) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Maryland (without reference to the conflicts of law provisions thereof). (d) NOTICES. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (i) two business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (ii) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below: If to Essex, at 9150 Guilford Road, Columbia, MD 21046, Attention: President and Chief Executive Officer, or at such other address or addresses as may have been furnished in writing by Essex to the Purchaser, with a copy to D. Scott Freed, Esquire, Whiteford, Taylor & Preston L.L.P., Seven St. Paul Street, Baltimore, Maryland 21202; or If to any Selling Shareholders, at the address set forth in Schedule I hereto or at such other address or addresses as may have been furnished to Essex in writing by any Selling Shareholder. Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, telecopy, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section. (e) COMPLETE AGREEMENT. This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. (f) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or terminated and the observance of any term of this Agreement may be waived with 9 respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively), with the written consent of Essex and the holders of at least 51% of the Registrable Shares held by all of the Shareholders. Any such amendment, termination or waiver effected in accordance with this Section 4(f) shall be binding on all parties hereto, even if they do not execute such consent and Essex. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. (g) PRONOUNS. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. (h) COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same document. This Agreement may be executed by facsimile signatures. (i) SECTION HEADINGS. The section headings are for the convenience of the parties and in no way alter, modify, amend, limit or restrict the contractual obligations of the parties. [SIGNATURE PAGES IMMEDIATELY FOLLOW] 10 Executed as of the date first written above. COMPANY: ESSEX CORPORATION By: /S/ LEONARD E. MOODISPAW ---------------------------------------- Leonard E. Moodispaw President and Chief Executive Officer SELLING SHAREHOLDERS: /S/ JAMES A. KATRA (SEAL) ---------------------------------------- James A. Katra /S/ JEFFERY M. BROWN (SEAL) ---------------------------------------- Jeffery M. Brown /S/ DAVID W. MORSBERGER (SEAL) ---------------------------------------- David W. Morsberger /S/ ROBERT J. HILTON (SEAL) ---------------------------------------- Robert J. Hilton /S/ RICHARD B. TABER, JR. (SAL) ---------------------------------------- Richard B. Taber, Jr. /S/ ROBERT F. WELTE (SEAL) ---------------------------------------- Robert F. Welte /S/ LAWRENCE H. YOUNG (SEAL) ---------------------------------------- Lawrence H. Young 11 /S/ MARK G. FROEHLY (SEAL) ---------------------------------------- Mark G. Froehly /S/ ANTHONY F. ZAUKUS (SEAL) ---------------------------------------- Anthony F. Zaukus /S/ MARK D. NICHOLS (SEAL) ---------------------------------------- Mark D. Nichols /S/ RICHARD E. KRAUS, JR. (SEAL) ---------------------------------------- Richard E. Kraus, Jr. 12 -----END PRIVACY-ENHANCED MESSAGE-----