10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 26, 2004

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the Transition period from                      to                     

Commission File Number 0-10772

ESSEX CORPORATION

(Exact name of registrant as specified in its charter)

Virginia	54-0846569
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9150 Guilford Road, Columbia, Maryland	21046
(Address of principal executive offices)	(Zip Code)

(301) 939-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES ¨ NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 25, 2004
Common Stock, no par value per share	15,249,256

ESSEX CORPORATION

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEX

•       UNAUDITED CONSOLIDATED BALANCE SHEETS	3
•       UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS	5
•       UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
•       NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL INFORMATION	7

References hereinafter to the quarter(ly) and nine month periods represent the 13-week and 39-week periods, respectively, ending on the date indicated.

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ESSEX CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 26, 2004			December 28, 2003
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	18,729,738		$	31,835,294
Accounts receivable, net		10,649,801			3,969,601
Prepayments and other		748,707			146,517
Total Current Assets		30,128,246			35,951,412
Property and Equipment
Computers and special equipment		2,101,952			1,226,349
Furniture, equipment and other		734,139			250,138
		2,836,091			1,476,487
Accumulated depreciation and amortization		(1,390,892	)		(1,107,790	)
Net Property and Equipment		1,445,199			368,697
Other Assets
Goodwill		11,836,993			2,998,000
Other intangibles, net		2,480,994			50,141
Note receivable		1,314,572			—
Patents, net		325,511			333,648
Other		234,928			23,764
Total Other Assets		16,192,998			3,405,553
TOTAL ASSETS	$	47,766,443		$	39,725,662

The accompanying notes are an integral part of these statements.

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ESSEX CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 26, 2004			December 28, 2003
	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	4,832,353		$	694,434
Note payable		—			100,000
Accrued wages and vacation		1,510,316			898,498
Accrued retirement plans contribution payable		315,696			298,551
Advance payments		614,252			462,000
Other accrued expenses		724,537			522,538
Capital leases		12,000			4,390
Total Current Liabilities		8,009,154			2,980,411
Long-Term Debt
Capital lease, net of current portion		32,272			—
Total Liabilities		8,041,426			2,980,411
Shareholders’ Equity
Common stock, no par value; 50 million shares authorized; 15,210,066 and 15,241,257 shares issued and outstanding, respectively		50,602,829			49,004,021
Additional paid-in capital		2,000,000			2,000,000
Accumulated deficit		(12,877,812	)		(14,258,770	)
Total Shareholders’ Equity		39,725,017			36,745,251
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	47,766,443		$	39,725,662

The accompanying notes are an integral part of these statements.

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ESSEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	Nine Month Period Ended Sept. 26, 2004		Nine Month Period Ended Sept. 28, 2003			Quarterly Period Ended Sept. 26, 2004		Quarterly Period Ended Sept. 28, 2003
Revenues:
Services and products	$	38,502,091	$	11,220,333		$	15,693,928	$	4,070,392
Purchased hardware		13,000,092		—			964,170		—
Total		51,502,183		11,220,333			16,658,098		4,070,392
Costs of goods sold and services provided:
Services and products		28,889,372		7,041,896			11,686,243		2,379,954
Purchased hardware		12,773,834		—			935,637		—
Total		41,663,206		7,041,896			12,621,880		2,379,954
Gross Margin		9,838,977		4,178,437			4,036,218		1,690,438
Selling, general and administrative expenses		7,621,522		3,418,644			3,095,059		1,428,393
Research and development		671,376		337,804			224,161		111,764
Amortization of other intangible assets		347,988		295,360			185,689		121,343
Operating Income		1,198,091		126,629			531,309		28,938
Interest income (expense), net		182,867		(60,915	)		57,706		(17,716	)
Income Before Income Taxes		1,380,958		65,714			589,015		11,222
Provision for income taxes		—		—			—		—
Net Income	$	1,380,958	$	65,714		$	589,015	$	11,222
Basic Earnings Per Common Share	$	0.09	$	0.01		$	0.04	$	0.00
Diluted Earnings Per Common Share	$	0.08	$	0.01		$	0.04	$	0.00
Weighted Average Number of Shares
Basic		15,207,952		8,393,338			15,213,447		8,585,607
Effect of dilution - Stock options		1,296,851		910,164			1,369,698		1,162,585
Diluted		16,504,803		9,303,502			16,583,145		9,748,192

The accompanying notes are an integral part of these statements.

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ESSEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

	Nine Months Ended Sept. 26, 2004			Nine Months Ended Sept. 28, 2003
Cash Flows From Operating Activities:
Net Income	$	1,380,958		$	65,714
Adjustments to reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation and amortization		306,731			126,950
Amortization of other intangible assets		347,988			295,359
Contract reserves/account allowance		180,000			—
Other		—			3,271
Change in Assets and Liabilities:
Accounts receivable		(4,501,623	)		(822,638	)
Prepayments and other assets		(403,394	)		91,681
Advance payments		152,252			—
Accounts payable		3,948,295			(140,869	)
Accrued wages, vacation and retirement		319,338			359,632
Other liabilities		166,743			113,341
Net Cash Provided By Operating Activities		1,897,288			92,441
Cash Flows From Investing Activities:
Acquisitions, net of cash acquired		(14,120,225	)		(309,000	)
Purchases of property and equipment		(1,038,748	)		(143,710	)
Net Cash Used In Investing Activities		(15,158,973	)		(452,710	)
Cash Flows From Financing Activities:
Sales of common stock		1,192,227			—
Note receivable		(1,314,572	)		—
Note payable		(100,000	)		100,000
Exercise of stock options		388,581			69,829
Short-term borrowings/repayments, net		—			96,632
Payment of capital lease obligations		(10,107	)		(64,675	)
Net Cash Provided By Financing Activities		156,129			201,786
Cash and Cash Equivalents
Net decrease		(13,105,556	)		(158,483	)
Balance – beginning of period		31,835,294			1,030,247
Balance – end of period	$	18,729,738		$	871,764

The accompanying notes are an integral part of these statements.

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ESSEX CORPORATION

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

NOTE 1: General

Fiscal Year and Presentation

These statements cover Essex Corporation (the “Company”) and its wholly-owned subsidiary, Computer Science Innovations, Inc. (“CSI”), which was acquired effective April 30, 2004. The Company is on a 52/53-week fiscal year ending the last Sunday in December. Years 2004 and 2003 are 52-week fiscal years. References to the quarter(ly) and nine month periods represent the 13-week and 39-week periods, respectively, ending on the date indicated. All material intercompany transactions have been eliminated. Certain amounts for 2003 have been reclassified to conform to the 2004 presentation.

The information furnished in the accompanying Unaudited Consolidated Balance Sheets, Unaudited Consolidated Statements of Operations and Unaudited Consolidated Statements of Cash Flows have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, such information contains all adjustments considered necessary for a fair presentation of such information. The operating results for the nine-month period ended September 26, 2004 may not be indicative of the results of operations for the year ending December 26, 2004, or any future period. This financial information should be read in conjunction with the Company’s 2003 audited consolidated financial statements and footnotes thereto, included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for inventory obsolescence and valuation, depreciation and amortization, intangible assets and contingencies, among others. Actual results could differ from these estimates.

Research and Development

Research and development costs are expensed as incurred. Such costs include direct labor and materials as well as a reasonable allocation of indirect costs. However, no general and administrative costs are included in research and development. Equipment which has alternative future uses is capitalized and charged to expense over its estimated useful life.

NOTE 2: Basic and Diluted Earnings Per Share

Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period reduced by contingently returnable shares. Diluted earnings per common share incorporates the incremental shares issuable upon the assumed exercise of stock options and warrants. As of September 26, 2004 and September 28, 2003, the effect of the incremental shares from options, warrants and contingent shares (if applicable) of 204,500 and 2,258,800, respectively, have been excluded from diluted weighted average shares as the effect would have been antidilutive or contingencies were not resolved.

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ESSEX CORPORATION

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

NOTE 3: Common Stock

The Company completed a follow-on public offering in December 2003 and issued 4,000,000 shares of common stock. The Company received net proceeds of $31.4 million. In January 2004, the underwriters exercised their over allotment option and the Company sold an additional 150,000 common shares and received net proceeds of $1.2 million.

In connection with the March 1, 2003 acquisition of Sensys Development Laboratories, Inc. (“SDL”), the Company had issued approximately 422,000 common shares into escrow. These shares were to be released to certain SDL shareholders or returned to Essex based upon certain factors, principally the future market price of the Company’s stock. During the first quarter of 2004, the 422,000 shares in escrow were returned to the Company in accordance with the terms of the purchase agreement.

NOTE 4: Stock-Based Compensation

The Company accounts for stock options granted to employees and directors using the intrinsic value based method of accounting. Under this method, the Company does not recognize compensation expenses for the stock options because the exercise price is equal to the market price of the underlying stock on the date of the grant. If the Company had used the fair value based method of accounting, net earnings and earnings per share would have been reduced to the pro forma amounts listed in the table below. The Black-Scholes option pricing model was used to calculate the pro forma stock-based compensation costs. For purposes of the pro forma disclosures, the assumed compensation expense is amortized over the option’s vesting periods. The pro forma information is consistent with assumptions used in the year end calculations. Accordingly, net income (loss) and earnings (loss) per share would be as follows:

	Nine Months Ended						Three Months Ended
	Sept. 26, 2004			Sept. 28, 2003			Sept. 26, 2004			Sept. 28, 2003
Net income, as reported	$	1,380,958		$	65,714		$	589,015		$	11,222
Less: Total stock-based employee compensation expense determined under fair value based method		1,905,717			582,138			926,442			189,568
Pro forma (loss) income	$	(524,759	)	$	(516,424	)	$	(337,427	)	$	(178,346	)
Earnings (loss) per share:
Basic-as reported	$	0.09		$	0.01		$	0.04		$	0.00
Basic-pro forma	$	(0.03	)	$	(0.07	)	$	(0.02	)	$	(0.02	)
Diluted-as reported	$	0.08		$	0.01		$	0.04		$	0.00
Diluted-pro forma	$	(0.03	)	$	(0.07	)	$	(0.02	)	$	(0.02	)

NOTE 5: Amortization of Other Intangible Assets

In connection with the March 1, 2003 acquisition of SDL, there was $431,000 of intangible value assigned primarily to contracts. In connection with the April 30, 2004 acquisition of CSI, there was $1,279,000 of value assigned, primarily to contracts. In connection with the June 25, 2004

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ESSEX CORPORATION

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

acquisition of substantially all of the assets from Performance Group, Inc., there was $1,498,000 of value assigned, primarily to contracts. (See Note 7.) Amortization of $186,000 and $348,000 was recognized in the quarter and nine months ended September 26, 2004, respectively. Amortization of $121,000 and $295,000 was recognized in the quarter and nine month periods ended September 28, 2003, respectively.

NOTE 6: Income Taxes

The Company is in a net operating loss (NOL) carryforward position for book and tax purposes.

The Company has established a valuation reserve for all of its deferred tax assets. Such tax assets are available to be recognized and benefit future periods. The evaluation of the realizability of deferred tax assets in future periods is made annually at year end based upon a variety of factors for generating future taxable income, such as historical and projected operating performance. The Company had a deferred income tax asset valuation allowance of $3.5 million at December 28, 2003.

NOTE 7: Acquisitions

In April 2004, the Company agreed to acquire 100% of the common stock of Computer Science Innovations, Inc. (“CSI”), which is headquartered in Melbourne, Florida, for approximately $8.1 million in cash. The Company incurred another $125,000 in related legal and accounting fees. CSI has proprietary techniques, algorithms and tools that are used to build custom “cognitive engines” for a broad range of intelligence, defense and commercial customers and applications. CSI had revenue of approximately $7.6 million in its fiscal year ended March 31, 2004. The Company closed this transaction effective April 30, 2004.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

Current assets	$	1,548,000
Equipment and other		172,000
Goodwill		5,776,000
Intangible assets		1,279,000
Total assets acquired		8,775,000
Current liabilities		(550,000	)
Net assets acquired	$	8,225,000

Of the intangible assets of $1,279,000, there was $923,000 assigned to contracts which have an estimated overall amortization life of less than three years. The remaining balance was primarily assigned to intellectual property with an estimated overall amortization life of less than five years.

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ESSEX CORPORATION

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

The following information is presented on a pro forma basis as though the business combination had been completed as of the beginning of fiscal 2004.

	For The Nine Months Ended September 26, 2004 (in Thousands) (Unaudited)
	As Reported		Pro Forma
Revenues	$	51,502	$	53,630
Net Income	$	1,381	$	1,092
Earnings Per Share:
Basic	$	0.09	$	0.07
Fully diluted	$	0.08	$	0.07

On June 25, 2004, the Company completed the acquisition of substantially all of the assets of Performance Group, Inc. (“PGI”) with main offices in Fredericksburg, VA. PGI provides services and systems in the areas of Geographic Information Systems (GIS), Imagery Processing and Analysis, Spatial Data Development, Environmental Consulting, Visualization, and IT Solutions to government and private sector clients. PGI had revenue of approximately $4.5 million in calendar year 2003.

The Company paid $5.8 million in cash and assumed $362,000 of liabilities. The Company also incurred $125,000 in outside expenses.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

Current assets	$	1,597,000
Equipment and other		117,000
Goodwill		3,068,000
Intangible assets		1,498,000
Total assets acquired		6,280,000
Current liabilities		(362,000	)
Net assets acquired	$	5,918,000

Of the intangible assets of $1.5 million, there was $1.2 million assigned to contracts which have an estimated overall amortization life of less than five years. The remaining balance was primarily assigned to intellectual property with an estimated overall amortization life of less than five years.

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ESSEX CORPORATION

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

The following information is presented on a pro forma basis as though the business combination had been completed as of the beginning of fiscal 2004.

	For The Nine Months Ended September 26, 2004 (in Thousands) (Unaudited)
	As Reported		Pro Forma
Revenues	$	51,502	$	54,133
Net Income	$	1,381	$	1,884
Earnings Per Share:
Basic	$	0.09	$	0.12
Fully diluted	$	0.08	$	0.11

NOTE 8: Statements of Cash Flows – Supplemental Disclosure

There was a $50,000 capital lease entered into in the first nine months of 2004. There were no new capital leases in the first nine months of 2003.

In connection with the acquisition of substantially all of the assets of PGI, the Company assumed approximately $362,000 of liabilities.

NOTE 9: Major Customers

Most of the Company’s revenues are derived from contracts with the U.S. Government, where the Company is either the prime contractor or a subcontractor, depending on the contract. For the nine months ended September 26, 2004 and September 28, 2003, revenues derived from U.S. Government programs were $50.2 million, or 97.5% and $11.1 million, or 98.9%, of the Company’s total revenues, respectively. For the nine months ended September 26, 2004, approximately $34.2 million or 66.5% of revenues were derived from one U.S. Government customer on one program.

NOTE 10: Commitments regarding Facility Leases

The Company entered into leases for production and office space in Maryland in connection with the work on its largest program. The leases are for seven years ending approximately April 2011 and total rent is approximately $3.5 million. The leases contain normal clauses for payment of operating, real estate and common area maintenance over base year amounts.

In connection with these leases, the Company agreed to provide an estimated $3 million to the landlord to finance special security-related leasehold improvements. The Company has recorded a note receivable in connection with the lease as the landlord will repay the funds over forty months following construction completion at 7% interest.

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ESSEX CORPORATION

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

At September 26, 2004, the Company had funded $1.3 million of this commitment.

The Company has entered into a lease for replacement office space for certain of its Maryland operations, including its corporate headquarters. The lease is for a term of seven years beginning in January 2005 and total rent is approximately $6 million. The leases contain normal clauses for payment of operating, real estate and common area maintenance over base year amounts.

NOTE 11: Subsequent Event

On November 1, 2004, the Company filed a registration statement with the Securities and Exchange Commission for a proposed follow-on underwritten public offering of up to 6,000,000 shares of its common stock, including 1,000,000 shares from a selling shareholder. Since the registration statement has not yet become effective, the price per share and net proceeds to the Company have not been determined.

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ESSEX CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections contain forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects”, “anticipates”, “plans”, “believes”, “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements that include, but are not limited to, projections of revenues, earnings, segment performance, cash flows and contract awards. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. For more information on risk factors, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003. Therefore, actual future results and trends may differ materially from what is indicated in forward-looking statements due to a variety of factors. References to the quarter(ly) and nine month periods represent the 13-week and 39-week periods, respectively, ending on the date indicated. In this Form 10-Q, “we”, “us” and “our” refers to Essex Corporation, including its consolidated subsidiaries.

OVERVIEW

Essex provides advanced signal, image, and information processing solutions primarily for U.S. Government intelligence and defense customers. We create our solutions by combining our services and expertise with hardware, software, and proprietary and patented technology to meet our customers’ requirements. Within the intelligence and defense communities we have established and maintained long-standing and successful customer relationships. We are also developing next generation signal, image and information processing solutions under classified U.S. Government research and development awards. We have been able to develop our current proprietary technology using a combination of government funding and our own internal funding and we believe this combination will allow us to continue to enhance and expand our technology and services for future market needs.

Most of our revenues are derived from awards with the U.S. Government, where we are either the prime contractor or a subcontractor, depending on the award. For the nine months ended September 26, 2004 and September 28, 2003, revenues derived from U.S. Government programs were $50.2 million, or 97.5%, and $11.1 million, or 98.9%, of our total revenues, respectively.

On certain projects, our customers require us to purchase and provide the hardware portion of the total system solution, which entails our purchasing hardware from third party vendors and reselling it to our customers. We show the revenue and costs from purchased hardware separately since this revenue carries significantly lower margins than our products and services revenue. The purchased hardware revenue is highly variable from quarter to quarter.

Our most significant expenses are cost of goods sold and services provided, which consist primarily of direct labor and associated costs for program personnel and direct expenses incurred to complete projects, including the cost of materials and equipment and subcontract efforts. Our ability to accurately predict personnel requirements, salaries and other costs, as well as to manage personnel levels and successfully redeploy personnel, can have a significant impact on our cost of goods sold and services provided.

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ESSEX CORPORATION

Utilizing our own employees to complete projects results in higher gross margins as compared to our enlisting subcontracted employees for the same work. As a result, we seek to maximize our internal labor content on our awards. Selling, general and administrative expenses consist primarily of costs associated with our management, finance and administrative groups and business development expenses which include bid and proposal efforts, and occupancy, travel and other corporate costs. We have revenue from some awards on which our U.S. Government customers pay us to perform research and development on their behalf. We also spend funds on internal research and development, which are separately classified as such in the financial statements. We are in a net operating loss carry forward position, and currently do not anticipate paying taxes until 2006.

On March 1, 2003, we acquired 100% of the common stock of Sensys Development Laboratories, Inc., or SDL. The assigned value of the consideration and related expenses was approximately $4.4 million. SDL provides both system and software engineering technical support to U.S. Government customers and prime contractors supporting government programs. SDL has an established workforce with specialized experience and credentials. For its fiscal year ended September 30, 2002, SDL had revenues of $3.1 million.

On April 30, 2004, we acquired 100% of the common stock of Computer Science Innovations, Inc., or CSI, which is headquartered in Melbourne, Florida, for approximately $8.1 million in cash. CSI has proprietary techniques, algorithms and tools that are used to build custom cognitive engines for a broad range of intelligence, defense and commercial customers and applications. Cognitive engines are software that includes predictive models and classifiers, and they have applications in the areas of fraud and anomaly detection, image and signal recognition, information integration, knowledge management, network information assurance, semantic processing and waveform analysis. CSI had revenue of approximately $7.6 million in its fiscal year ended March 31, 2004.

On June 25, 2004, we acquired substantially all of the assets of Performance Group, Inc., or PGI, with main offices in Fredericksburg, Virginia, for approximately $5.8 million in cash and $362,000 in assumed liabilities. PGI provides services and systems in the areas of GIS, image processing and analysis, spatial data development, environmental consulting, visualization, and IT solutions to government and private sector clients. PGI had revenue of approximately $4.5 million in calendar year 2003.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we re-evaluate our estimates, including those related to revenue recognition, research and development, intangible assets and contingencies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

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ESSEX CORPORATION

Revenue Recognition

We enter into three types of U.S. Government agreements:

• Time and material. On time and material agreements, revenue is recognized to the extent of billable rates multiplied by hours delivered, plus other direct costs.

• Cost plus fixed fee. We recognize revenue on cost plus fixed fee arrangements to the extent costs are incurred plus a proportionate amount of fee earned. We must determine that the costs incurred are proper and that the ultimate costs incurred will not overrun the expected funding on the project and still deliver the scope of work proposed. Even though cost plus fixed fee arrangements generally do not require that we expend costs in excess of the award value, such expenditures may be required in order to achieve customer satisfaction and receive additional work. In addition, since the reimbursable costs include both direct and indirect costs, we must determine that the indirect costs are properly accounted and allocated in accordance with reasonable cost allocation methods.

• Fixed price. On fixed price services agreements, we must determine that the costs incurred provide a proportionate amount of progress on the work and that the ultimate costs incurred will not overrun the funding on the award and the required hours will be delivered. On fixed price product orders, revenue is not recorded until we determine that the goods have been delivered and accepted by the customer.

We use historical technical performance experience where applicable to evaluate progress on fixed price and cost plus fixed fee jobs. We use historical government audit experience in the indirect cost area to evaluate the propriety and expected recovery of our indirect costs on cost plus fixed fee agreements. The following table sets forth the percentage of revenues under each type of agreement for the nine months ended September 28, 2003 and September 26, 2004:

	Percentage of Revenue by Type
	Nine Months Ended
	Sept. 28, 2003		Sept. 26, 2004
Time and material	50.4	%	87.1	%
Cost plus fixed fee	30.4		10.3
Fixed price	19.2		2.6
Total	100.0	%	100.0	%

Research and Development

Research and development costs are expensed as incurred. Such costs include direct labor and materials as well as a reasonable allocation of indirect costs. However, no selling, general, and administrative costs are included. Equipment which has alternative future uses is capitalized and charged to expense over its estimated useful life.

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ESSEX CORPORATION

Goodwill and Other Intangible Assets

Business acquisitions typically result in the recording of goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we will incur. We have adopted Statement of Financial Accounting Standards, or SFAS, No. 142 which requires that we, on an annual basis, calculate the fair value of the reporting units that contain the goodwill and compare that to the carrying value of the reporting unit to determine if impairment exists. Impairment testing must take place more often if circumstances or events indicate a change in the impairment status. Management judgment is required in calculating the fair value of the reporting units. Because of the integral technologies and operations of the acquisitions to date, we have determined that Essex has only one corporate-wide reporting entity to which this test applies.

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ESSEX CORPORATION

RESULTS OF OPERATIONS

The following table sets forth, for each period indicated, items in the statement of our operations expressed as a percentage of total revenue.

	Nine Months Ended				Quarterly Periods Ended
	Sept. 28, 2003		Sept. 26, 2004		Sept. 28, 2003		Sept. 26, 2004
Revenues:		%		%		%		%
Services and products	100.0		74.8		100.0		94.2
Purchased hardware	—		25.2		—		5.8
Total	100.0		100.0		100.0		100.0
Costs of goods sold and services provided	62.8		80.9		58.5		75.8
Gross Margin	37.2		19.1		41.5		24.2
Selling, general and administrative expenses	30.5		14.8		35.1		18.6
Research and development	3.0		1.3		2.7		1.3
Amortization of other intangible assets	2.6		0.7		3.0		1.1
Operating income	1.1		2.3		0.7		3.2
Interest income (expense), net	(0.5	)	0.4		(0.4	)	0.3
Income before income taxes	0.6		2.7		0.3		3.5
Provision for income taxes	—		—		—		—
Net income	0.6	%	2.7	%	0.3	%	3.5	%

The following table sets forth, for each component of our revenues, the related cost of goods sold and services provided expressed as a percentage of the related revenues for the periods indicated.

	Nine Months Ended				Quarterly Periods Ended
	Sept. 28, 2003		Sept. 26, 2004		Sept. 28, 2003		Sept. 26, 2004
Costs of goods sold and services provided:		%		%		%		%
Services and products	62.8		75.0		58.5		74.5
Purchased hardware	—		98.3		—		97.0

Revenues. Total revenues were $51.5 million and $11.2 million in the first nine months of fiscal 2004 and 2003, respectively. Total revenues were $16.7 million and $4.1 million in the third quarters of fiscal 2004 and 2003, respectively. The key factors for the higher revenue were the increased activity on the October 2003 $57.1 million multi-year award and the January 2004 $4.5 million (increased in the third quarter of 2004 to $6.2 million) two-year award for software and systems engineering and the delivery of custom systems to national priority programs. Revenues from these two awards in the first nine months of 2004 were $34.2 million and $2.4 million, respectively. Of this total $36.6 million, $13.0 million was for purchased hardware. Revenues from these two awards in the third quarter of 2004 were $9.4 million and $290,000, respectively. Of this total $9.7 million, $1.0 million was for purchased hardware. There was no comparable purchased hardware revenue in the first nine months of 2003. In addition, we had increased revenues in 2004 associated with the acquisitions described in Note 7.

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Cost of Goods Sold and Services Provided (“CGS”). Total CGS increased $34.7 million to $41.7 million for the first nine months of 2004 from $7.0 million for the comparable period in 2003. As a percentage of total revenues, total CGS was approximately 80.9% for the first nine months of 2004, compared to approximately 62.8% for the comparable period in fiscal 2003. For services and products revenue, CGS was 75.0% for the first nine months of 2004 as compared to 62.8% for the comparable period in 2003. The increase in CGS in 2004 reflects increased volume and revenue for the period. The increase in CGS as a percentage of revenue in 2004 reflects the change in the mix of work, primarily related to the two contracts awarded in October 2003 and January 2004. Specifically, upon award and ramp up, a majority of the revenues under those contracts relate to subcontracts and purchased hardware which are lower margin. Over time, we anticipate a gradual shift of a portion of this work to our staff. For the third quarter of 2004, total CGS increased $10.2 million to $12.6 million from $2.4 million for the comparable period of 2003. As a percentage of total revenues, total CGS was approximately 75.8% for the third quarter of 2004 as compared to 58.5% for the comparable period in 2003. For services and products revenue, CGS was 74.5% for the third quarter of 2004 as compared to 58.5% for the comparable period in 2003. For purchased hardware revenues, CGS was 98.3% and 97.0% in the first nine months and third quarter of 2004, respectively, and there were no comparable purchases in the first nine months and third quarter of 2003. These third quarter results also reflect the higher volume and increased subcontractor and purchased hardware components discussed above.

Overall margins increased from the end of second quarter of 2004 to the end of third quarter of 2004 from 16.7% to 19.1% due to a change in the mix of products and services provided with an increase in our higher margin services revenue relative to our purchased hardware revenue.

Selling, General and Administrative Expenses. Selling, general and administrative expenses (SG&A) increased $4.2 million to $7.6 million for the first nine months of 2004 from $3.4 million for the comparable period in 2003. For the third quarter of 2004, SG&A increased $1.7 million to $3.1 million from $1.4 million for the comparable period in 2003. SG&A has increased to support the higher volume of business as well as including the SG&A of the acquired businesses. SG&A has decreased as a percentage of revenues.

Research and Development Expenses. Research and development (R&D) expenses increased $333,000 to $671,000 in the first nine months of 2004 compared to $338,000 in the comparable period in 2003. For the third quarter of 2004, R&D increased $112,000 to $224,000 compared to $112,000 in the comparable period in 2003. We incurred the majority of its research and development on efforts related to optical communications technology and has incurred R&D since May 2004 in the newly-acquired CSI operation.

Amortization of Other Intangible Assets. During the nine months ended September 26, 2004, amortization of other intangible assets was $348,000, which was primarily related to the CSI and PGI acquisitions. There was $295,000 of amortization costs in the comparable period in 2003 relating to the SDL acquisition. For the third quarters of 2004 and 2003, amortization was $186,000 and $121,000, respectively. The amortization of other intangibles related to the SDL acquisition was substantially complete in the first quarter of 2004.

Net Interest Income (Expense). Net interest income was $183,000 in the first nine months of 2004 compared to net interest expense of $61,000 in the comparable period in 2003. For the third quarter of 2004, net interest income was $58,000 compared to net interest expense of $18,000 in the comparable period in 2003.

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The net interest income reflects the temporary investment of the proceeds from the stock offering.

Net Income. We recorded net income of $589,000 and $11,000 in the third quarters of 2004 and 2003, respectively. Net income was $1.4 million and $66,000 in the first nine month periods of 2004 and 2003, respectively. We are in a net operating loss carryforward position for book and tax purposes. No provision for or benefit from income taxes was recognized in the first nine months of 2004 or 2003 due to the net operating loss carryforwards. We adjusted our income tax valuation reserves accordingly during these periods.

BACKLOG

Our awards with the U.S. government generally extend over multiple years. Funded backlog generally consists of the sum of all award amounts for which funding has been approved and contracts signed, less the value of work performed under such contracts. Since the U.S. government operates under annual appropriations, our customers typically fund awards on an incremental basis, generally for periods of one year or less. In many cases, our awards include unexercised options. Accordingly, a significant amount of our backlog is “unfunded”. We include in unfunded backlog the total value of signed contracts, less funding to date. Unfunded backlog includes contract options based upon expected performance levels for those options. Unfunded backlog does not include any estimate of future potential delivery orders that might be awarded under indefinite delivery indefinite quantity contracts. We have recently revised our calculation of unfunded backlog and the amounts presented here are consistent with this definition. The effect of our change reduced backlog by $13.3 million and $19.0 million at September 26, 2004 and December 28, 2003, respectively.

As of September 26, 2004, we had total contract backlog, funded and unfunded, of approximately $73.0 million as compared with $93.8 million at December 28, 2003. Of these amounts, funded backlog was $26.2 million and unfunded backlog was $46.8 million at September 26, 2004 compared to $15.0 million and $78.8 million, respectively, at fiscal year end 2003. Unfunded backlog as of September 26, 2004 includes the remaining balance of approximately $23.5 million on our $30 million, ten-year contract through 2011 to provide communications systems support to the intelligence community. Unfunded backlog at September 26, 2004 also includes the remaining balance of approximately $11.4 million on our $57.1 million multi-year contract for software and systems engineering that we received in October 2003 but does not include the recent increase in the ceiling of that award. In October 2004, the ceiling on this award was increased to $235.6 million, subject to final price negotiations to be completed by December 31, 2004. Backlog at September 26, 2004 does not include the $178.5 million increase in the ceiling of this award.

We currently expect to recognize revenue during the last three months of fiscal 2004 from approximately 23.3% of our total backlog as of September 26, 2004. We cannot guarantee that we will recognize any revenue from our backlog. The federal government has the prerogative to cancel any contract or delivery order at any time. Backlog varies considerably from time to time as current contracts or delivery orders are executed and new contracts or delivery orders under existing contracts are won.

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FINANCIAL CONDITION – LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity and capital resource needs are to finance the costs of our operations and to make capital expenditure. Based upon our current level of operations, we expect that our cash flow from operations and amounts of cash on hand will be adequate to meet our anticipated needs for at least the next twelve months.

We evaluate our liquidity position using various factors. The following represents some of the more important factors:

	SELECTED FINANCIAL DATA AS OF (In thousands)
	Sept. 26, 2004		December 28, 2003		Sept. 28, 2003
Total Assets	$	47,766	$	39,726	$	7,566
Working Capital	$	22,119	$	32,971	$	1,241
Current Ratio		3.76:1		12.06:1		1.51:1
Advance from Accounts Receivable Financing	$	—	$	—	$	266
Capital Leases		46		4		11
Convertible Debt		—		—		500
Other Debt		—		100		100
Total Debt/Financing	$	46	$	104	$	877
Shareholders’ Equity	$	39,725	$	36,745	$	4,516

During the first nine months of 2004, net cash provided by operating activities was $1.9 million. Cash provided from net income and non cash depreciation, amortization and other charges of approximately $2.2 million was offset by an increase in accounts receivable and prepaids net of the change in accounts payable and accrued items of $300,000. The increase in accounts receivable during the first nine months of 2004 was due to the increase in sales and does not reflect any significant change in payment cycle.

During the nine months ended September 26, 2004, net cash used in investing activities was $15.2 million, of which $14.1 million was for the acquisitions of CSI and substantially all of the assets of PGI. We also expended $1.0 million for property, equipment and leasehold improvements to support our growing work force. Our working capital at September 26, 2004 decreased to $22.1 million from $33.0 million at fiscal year end 2003. The decrease was primarily a result of the acquisitions of CSI and assets of PGI for cash.

During the nine months ended September 26, 2004, net cash provided by financing activities was $156,000. Cash received of $1.6 million from the sale of common stock and proceeds from

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exercises of stock options was offset by cash of $1.3 million that was provided to a landlord under an obligation to finance special facility security improvements.

The Company expects to satisfy its operating cash requirements for the remainder of 2004 from its operating cash flows and existing cash balance.

On November 1, 2004, the Company filed a registration statement with the Securities and Exchange Commission for a proposed follow-on underwritten public offering of up to 6,000,000 shares of its common stock, including 1,000,000 shares from a selling shareholder. Since the registration statement has not yet become effective, the price per share and net proceeds to the Company have not been determined.

INFLATION

Because of the Company’s substantial activities in professional services and product development, the Company is more labor intensive than firms involved primarily in industrial activities. To attract and maintain higher caliber professional staff, the Company must structure its compensation programs competitively. The wage demand effect of inflation is felt almost immediately in the Company’s costs; however, the net effect during the periods presented is minimal.

The inflation rate in the United States generally has little impact on the Company’s cost-reimbursable type contracts and other short-term contracts. For longer-term, fixed-price and time and material type contracts, the Company endeavors to protect its margins by including cost escalation provisions or other specific inflation protective terms in these contracts.

The preceding paragraphs discussing the Company’s financial condition contain forward-looking statements. The factors affecting the ability of the Company to meet its funding requirements and manage its cash resources include, among other things, the amount and timing of product sales, inventory turnover, the magnitude of fixed costs, sales growth and the ability to obtain working capital, all of which involve risks and uncertainties that are difficult to predict.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company had no variable rate debt outstanding as of September 26, 2004.

Our exposure to market risk relates to changes in interest rates on short-term investment of the remaining proceeds of our stock offerings. Presently, such investments earn approximately 1%. Based upon our investments during the first nine months of 2004, a hypothetical 1% increase in interest rates would have increased income by about $10,000 for every $1 million invested and would have increased our annual cash flow and interest income by a comparable amount.

ITEM 4. CONTROLS AND PROCEDURES

Based on their most recent evaluation, Leonard E. Moodispaw, the Company’s Chief Executive Officer and Lisa G. Jacobson, the Company’s Chief Financial Officer, have concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of the end of the period covered by this report are effective to ensure that information required to be disclosed by the Company in this report is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to be recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

There were no significant changes in the Company’s internal controls or other factors that materially affected, or are reasonably likely to materially affect, these controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.

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PART II – OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2004 Annual Meeting of Shareholders of the Company (the “Meeting”) was held on July 21, 2004. The total number of outstanding shares entitled to vote at the meeting was 15,098,929 and there were present at the Meeting in person or by proxy 14,478,163 shares, which number constituted a quorum for the Meeting, and were entitled to vote and acted as follows with respect to the following proposals:

1. Election of directors – each of the following directors was reelected to the Board of Directors of the Company, with votes being cast for each director as follows:

Name of Director	Votes For	Votes Against	Withhold Authority	Broker Non-Votes and Abstentions
John G. Hannon	14,419,298	0	58,865	0
Robert W. Hicks	14,415,298	0	62,865	0
Anthony M. Johnson	14,414,918	0	63,245	0
Ray M. Keeler	14,410,823	0	67,340	0
H. Jeffrey Leonard	13,843,795	0	634,368	0
Marie S. Minton	14,415,663	0	62,500	0
Arthur L. Money	13,888,220	0	589,943	0
Leonard E. Moodispaw	14,415,618	0	62,545	0
Terry M. Turpin	14,412,218	0	65,945	0

2. Amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock to 50,000,000 was approved by a vote of 14,169,153 cast in favor, 228,288 cast against, 0 cast for withhold, 80,722 cast as abstain and 0 broker non-votes.

3. Ratification of the Company’s 2004 Stock Plan was approved by a vote of 10,433,447 cast in favor, 233,873 cast against, 0 cast for withhold, 115,997 cast as abstain and 0 broker non-votes.

4. Ratification of the Company’s Employee Stock Purchase Plan was approved by a vote of 10,563,397 cast in favor, 131,273 cast against, 0 cast for withhold, 88,647 cast as abstain and 0 broker non-votes.

5. Ratification of the Company’s Independent Auditors was approved by a vote of 14,315,525 cast in favor, 53,920 cast against, 0 cast for withhold, 108,718 cast as abstain and 0 broker non-votes.

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ITEM 5. OTHER INFORMATION

RISK FACTORS

Our business, results of operations and financial condition may be materially and adversely affected due to any of the following risks. The risks described below are not the only ones we face. Additional risks that we are not presently aware of or that we currently believe are immaterial may also impair our business operations.

Risks Related to Our Business

We currently rely on sales to U.S. Government entities, particularly in the intelligence and defense areas, and the loss of certain of our awards with the U.S. Government could have an adverse impact on our operating results.

We depend on sales to the U.S. Government. For fiscal years 2003 and 2002, awards from the U.S. intelligence and defense communities and other departments and agencies of the Department of Defense accounted for approximately $15.9 million, or 98% of our revenues, and $4.4 million, or 97% of our revenues, respectively. For the nine months ended September 26, 2004, these contracts accounted for approximately $50.2 million, or 98% of our revenues.

For fiscal 2003 and 2002, our top three customer programs accounted for approximately $8.5 million, or 52% of our revenues, and $3.5 million, or 78% of our revenues, respectively. For the nine months ended September 26, 2004, our top three customers accounted for approximately $39.7 million, or 77% of our revenues. For fiscal years 2003 and 2002, our award with the Missile Defense Agency accounted for approximately $3.3 million, or 21% of our revenues, and $2.1 million, or 46% of our revenues, respectively. For the nine months ended September 26, 2004, our largest award with the National Security Agency accounted for approximately $34.2 million, or 67% of our revenues. The loss or significant reduction in government funding of a program for which we are the contractor or in which we participate could reduce our revenue and cash flows and have an adverse effect on our operating results.

We depend on U.S. Government awards which are only partially funded; the U.S. Government has no obligation to fully fund our awards.

Budget decisions made by the U.S. Government are outside of our control and have significant consequences for our business. Funding for U.S. Government awards is subject to Congressional appropriations. Although multi-year awards may be planned or authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may be expected to continue for several years. Consequently, awards often initially receive only partial funding, and additional funds are committed only as Congress makes further appropriations. The termination of funding for one of our U.S. Government awards would result in a loss of anticipated future revenues attributable to that program which could have an adverse impact on our operations and increase our overall costs of doing business.

Our backlog was approximately $73.0 million as of September 26, 2004, of which approximately $26.2 million was funded. Our backlog includes orders under awards that in some cases extend for several years, with the latest expiring in 2011. Our estimate of the portion of the backlog as

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of September 26, 2004 from which we expect to recognize revenue in the remainder of fiscal 2004 may not be precise because the receipt and timing of any revenue is subject to various contingencies, many of which are beyond our control. The U.S. Government’s ability to select multiple winners under multiple award schedule contracts, government-wide acquisition contracts, blanket purchase agreements and other indefinite delivery, indefinite quantity, or IDIQ, contracts, as well as its right to award subsequent task orders among such multiple winners, means that there is no assurance that unfunded contract backlog will result in actual orders. The actual receipt of revenues on awards included in backlog may never occur or may change because a program schedule could change or the program could be canceled, or a contract could be reduced, modified, or terminated early. Moreover, under IDIQ contracts, the U.S. Government is not obligated to order more than a minimum quantity of goods or services. If we fail to realize revenue from engagements included in our backlog as of September 26, 2004, our revenue and operating results for fiscal 2004, as well as future reporting periods, may be materially harmed.

U.S. Government awards are subject to immediate termination and are heavily regulated.

Our U.S. Government awards can be terminated by the U.S. Government either at its convenience or if we default. If the U.S. Government terminates one of our awards, we are entitled to payment of compensation only for work done and commitments made at the time of termination. If our U.S. Government awards are terminated for default, we would be obligated to pay the excess costs incurred by the U.S. Government in procuring undelivered items from another source. If any or all of our U.S. Government awards are terminated under either of these circumstances, we may be unable to procure new awards to offset the lost revenues.

In addition, supplying defense-related services and equipment to U.S. Government agencies subjects us to risks specific to the defense industry, including the ability of the U.S. Government to unilaterally:

• suspend us from receiving new awards pending resolution of alleged violations of procurement laws or regulations;

• terminate our existing awards;

• reduce the value of our existing awards;

• audit our award-related costs and fees, including allocated indirect costs; and

• control and prohibit the export of our products.

Because a significant portion of our revenues are dependent on our procurement, performance and payment under our U.S. Government awards, the loss of one or more large awards would have an adverse impact on our financial condition.

A key part of our strategy involves pursuing acquisitions; however, acquisitions may not achieve intended results.

A key part of our strategy is to selectively pursue acquisitions. We acquired Sensys Development Laboratories, Inc., or SDL, in March 2003; Computer Science Innovations, Inc., or CSI, in April 2004; and substantially all of the assets of Performance Group, Inc., or PGI, in June 2004.

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We intend to continue to pursue acquisition opportunities in the future. If we do identify an appropriate acquisition candidate, we may not be able to successfully negotiate the terms of the acquisition. We may use all or a substantive portion of our cash on one or more acquisitions, although we currently have no commitments or agreements and are not involved in any negotiations with respect to any specific acquisitions. In addition, in connection with an acquisition, we may incur significant amortization expenses related to intangible assets. We also may incur significant write-offs of goodwill associated with companies, businesses or technologies that we acquire.

Acquisitions and strategic investments may involve a number of other risks, including:

• difficulties in integrating the operations, technologies, and products of the acquired companies;

• diversion of management’s attention from our existing business;

• potential difficulties in completing the acquired company’s projects; and

• the potential loss of the acquired company’s key employees.

We face intense competition from a number of competitors that have greater resources than we do, which could result in price reductions, reduced profitability and loss of market share.

We operate in highly competitive markets and may encounter intense competition to win U.S. Government awards. If we are unable to successfully compete for new business, our revenue growth may decline. Many of our competitors are larger and have greater financial, technical, marketing and public relations resources than we do. Larger competitors include Lockheed Martin Corporation and divisions of large defense contractors such as Boeing Support Services. These competitors may be able to compete more effectively for very large scale government awards. These competitors also may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualification, past performance on larger scale contracts, geographic presence, price, and the availability of key professional personnel. Our competitors also have established or may establish relationships among themselves or with third parties, including through mergers and acquisitions, to increase their ability to address customers’ needs. Accordingly, it is possible that new competitors or alliances among competitors may emerge against whom it will be difficult for us to compete.

In addition, competition in the commercial market for network communications equipment 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 areas that our technology is designed to address. We also may face competition from other large communications companies who may enter our markets. Many of these possible competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical and business development resources than we do and may be able to undertake more extensive marketing efforts and adopt more aggressive pricing policies than we

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can. In addition, additional competitors with significant market presence and financial resources may enter our markets, which are rapidly evolving, further intensifying competition.

Unfavorable government audit results could force us to adjust previously reported operating results and could subject us to a variety of penalties and sanctions.

The federal government audits and reviews our performance on awards, pricing practices, cost structure, and compliance with applicable laws, regulations, and standards. Like most large government vendors, our awards are audited and reviewed on a continual basis by federal agencies, including the Defense Contract Management Agency and the Defense Contract Audit Agency. An audit of our work, including an audit of work performed by companies we have acquired or may acquire or subcontractors we have hired or may hire, could result in a substantial adjustment in the current period operating results. For example, any costs which were originally reimbursed could subsequently be disallowed. In this case, cash we have already collected may need to be refunded and our operating margins may be reduced.

If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with U.S. Government agencies. In addition, we could suffer serious harm to our reputation if allegations of impropriety were made against us, even if the allegations were not true. Audits for costs incurred on work performed after fiscal 2001 for Essex, CSI and SDL, and after 1994 for PGI have not yet been completed.

If we were suspended or debarred from contracting with the U.S. Government generally, or any specific agency, if our reputation or relationship with U.S. Government agencies were impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our revenue and operating results would be materially harmed.

If we are unable to manage our growth, our business could be adversely affected.

Achieving our plans for growth will place significant demands on our management, as well as on our administrative, operational and financial resources. For us to successfully manage our growth, we must continue to improve our operational, financial and management information systems and expand, motivate and manage our workforce. If we are unable to successfully manage our growth without compromising the quality of our services, we could lose existing customers and our ability to attract new customers could be adversely affected.

Our success depends largely on our ability to attract and retain key personnel.

Our success has historically depended in large part on our ability to attract and retain highly skilled technical, managerial and operational personnel, particularly those knowledgeable about the U.S. Government intelligence and defense agencies, those with security clearances and those skilled in optoelectronics and optical communications equipment. In addition, the relationships and reputation that many members of our senior management team have established and maintain with government personnel contribute to our ability to maintain good customer relationships and to identify new business opportunities. The loss of key personnel may impair our ability to obtain new U.S. Government awards or adequately perform under our current U.S. Government awards.

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We also rely on the skills and expertise of our senior technical development personnel, the loss of any of whom could prevent us from completing current development projects and restrict new development projects. We currently do not maintain “key man” insurance on any of our executives or key employees.

We have a history of net losses and we may not achieve or sustain profitability.

Although we had net income of $139,000 for fiscal 2003, we incurred a net loss for each of our fiscal years 2002, 2001, and 2000. As of September 26, 2004, we had an accumulated deficit of approximately $12.9 million. If revenues do not meet our expectations, or if our expenses exceed our expectations, we may incur substantial operating losses in the future, in which case the price of our common stock may decline.

We enter into fixed price arrangements that could subject us to losses in the event costs exceed our expectations.

We provide some of our services and products through fixed price arrangements. For the nine months ended September 26, 2004, fixed price arrangements accounted for 3% of our revenues. Fixed price arrangements accounted for 16% and 28% of our revenues for fiscal 2003 and 2002, respectively. In a fixed price award, the price is not subject to adjustment based on cost incurred to perform the required work under the award. Therefore, we fully absorb cost overruns on fixed price awards.

Cost overruns reduce our profit margin on the contract and may result in a loss. Additionally, we estimate sales and costs that are related to performance in accordance with award 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 award may reduce our profit, result in significant losses or cause a loss on the award.

Our quarterly operating results may vary widely.

Our quarterly revenues and operating results have fluctuated significantly in the past, and may fluctuate in the future. A number of factors can cause our revenue, cash flow and operating results to vary from quarter to quarter, including:

• acquisitions of other businesses;

• commencement, completion or termination of projects during any particular quarter;

• variable purchasing patterns under government awards, blanket purchase agreements and IDIQ awards;

• seasonal work patterns due to vacation, holiday, and weather incidences resulting in reduced work days on our time and materials awards;

• changes in Presidential administrations and senior U.S. Government officials that affect the timing of technology procurement; and

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• changes in policy or budgetary measures that adversely affect appropriations for government awards in general.

Changes in the number of projects commenced, completed or terminated during any quarter may cause significant variations in our cash flow from operations because a relatively large amount of our expenses is fixed. We may incur significant operating expenses during the start-up and early stages of an award and typically do not receive corresponding payments until subsequent quarters. We also may incur significant or unanticipated expenses when awards expire or are terminated. In addition, payments due to us from U.S. Government agencies may be delayed due to customer payment cycles or as a result of the failure of Congress and the President to approve budgets in a timely manner.

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. We believe that our patents and patent applications provide us with a competitive advantage and, therefore, patent protection is important to our business. However, our 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, eroding or eliminating the competitive advantage we hope to gain though the exclusive rights provided by patent protection. Moreover, our existing patents and pending patent applications, 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. 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.

In addition, we conduct research and development under projects with the U.S. Government. In general, our rights to technologies we develop under those projects are subject to the U.S. Government’s non-exclusive, non-royalty bearing, world-wide license to use those technologies. In the case of SBIR awards, the U.S. Government has limited rights to the delivered data for five years after project completion, and unlimited rights after five years. Our rights to license and protect our technology are unaffected by the U.S. Government’s rights to SBIR technical data.

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.

There is a risk that some of our patent applications will not be granted.

Although we have received our first hyperfine WDM and VLI patents, we have filed several other applications for U.S. and International patents relating to our hyperfine WDM, VLI and OPERA^™ technologies, and there is a risk that some or all of the pending applications will not be

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granted. Although we believe our patent applications are valid, the failure of our pending applications to be granted would affect the competitive advantage we hope to gain by obtaining patent protection and could 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. We have not performed any patent infringement clearance searches and are not in a position to assess the likelihood that any claims would be asserted. If any parties assert that our products infringe upon their proprietary rights, we would be forced 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:

• stop selling, incorporating or using our products that include the challenged intellectual property;

• obtain from the owner of any 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

• re-design those products that use the technology.

If we are forced to take any of these actions, our business could be seriously harmed.

Because we currently are developing our optoelectronic products for the commercial market, it is difficult to evaluate our future business and prospects in this market.

We traditionally have derived our revenues from awards from the U.S. Government. While we intend to enhance and expand our government business, we are continuing our work to develop new optoelectronic commercial products, including products based on our hyperfine WDM fiber optic communications technology, such as our optical encryptor. Because we have not begun significant commercial sales of these products, our commercial revenue and profit potential is unproven and our limited history in the commercial market makes it difficult to evaluate our business and prospects. We cannot accurately forecast our commercial revenue and we have limited historical financial data upon which to base 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 developing new commercial products for a rapidly changing industry.

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Our ability to expand into the commercial optical networking market may be adversely affected by unfavorable and uncertain conditions in the communications industry and the economy in general.

One element of our strategy is to develop products targeted at the commercial optical networking market. The market for communications equipment, including optical components, has suffered a severe and prolonged downturn. Many of our potential customers in this market have experienced significant financial distress, and some have gone out of business. This has resulted in a significant consolidation in the commercial communications equipment industry, combined with a substantial reduction in overall demand. In addition, most of the potential customers we would like to reach have become more conservative about their future purchases, which has made our commercial business slow to materialize.

We expect the following factors to affect our ability to expand our commercial market business for an indeterminate period:

• capital expenditures by many of our potential customers may be flat or reduced;

• increased competition resulting from reduced demand will put substantial downward pressures on the pricing of the products we are developing, which may reduce profit margins;

• increased competition may enable commercial customers to insist on more favorable terms and conditions for sales, including extended payment terms or other financing assistance as a condition of procuring their business; and

• the bankruptcies or weakened financial condition of several communications companies may adversely affect the commercial market for the optical networking products we are developing.

The result of any one or a combination of these factors could eliminate or reduce our ability to successfully enter and compete in this market.

Our optoelectronic products are complex, operate in demanding environments and have not yet been widely deployed. If our products contain defects that are undiscovered until full deployment we may incur significant and unexpected expenses, losses of sales and harm to our reputation.

Optoelectronic products are complex and are designed to be deployed 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. Our products have not yet been deployed and tested in a commercial environment, and when they are, customers may discover errors or defects in the hardware or the software, or products we develop may not operate as expected. If we are unable to fix defects or other problems that may be identified in full deployment, we would likely experience:

• a loss of, or delay in, revenue and loss of market share;

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• a loss of existing customers;

• difficulties in attracting new customers or achieving market acceptance;

• diversion of development resources;

• increased service and warranty costs;

• legal actions by our customers; and

• increased insurance costs.

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, could adversely affect our cash flow from 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.

If necessary licenses of third-party technology are not available to us or are very expensive, we may not be able to sell products of the same quality, and our cost of operations could increase.

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.

Changes in stock option accounting rules may adversely impact our operating results.

Technology companies like ours have a history of using broad based employee stock option programs to hire, incentivize and retain our workforce in a competitive marketplace. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” allows companies the choice of either using a fair value method of accounting for options which would result in expense recognition for all options granted, or using an intrinsic value method, as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” or APB 25, with a pro forma disclosure of the impact on net income (loss) of using the fair value option expense recognition method. We have elected to apply APB 25 and accordingly we generally do not recognize any expense with respect to employee stock options as long as such options are granted at exercise prices equal to the fair value of our common stock on the date of grant.

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In October 2004, the Financial Accounting Standards Board, or FASB, proposed that Statement 123R, “Share Based Payment,” which would require all companies to measure compensation cost for all share-based payments, including employee stock options, at fair value, would be effective for public companies for interim or annual periods beginning after June 15, 2005. We are currently evaluating the effect that the adoption of Statement 123R will have on our financial position and results of operations, but it is possible that our adoption of this standard may adversely affect our operating results in future periods.

We may lose our ability to benefit from government programs aimed at small businesses.

We currently participate in certain government programs under the regulations promulgated by the U.S. Small Business Administration, or SBA, such as the Small Business Innovative Research, or SBIR, program and small business set-aside contracts and preferences. Qualification as a small business is determined under the criteria set forth in the SBA Small Business Size Standards regulation. These criteria include the classification of the product or service in the North American Industry Classification System, trailing three year averages of the number of employees or annual receipts, affiliates, and other applicable factors. The restriction of a particular project or program under small business limited competition rules is a unilateral decision that is made at the time of procurement by the responsible agency procurement authority. The restriction of a particular project or program to small businesses, as a small business set-aside, in one procurement cycle does not assure that it will be similarly restricted in follow-on or related procurements.

A significant portion of our revenue historically has resulted from our participation in these small business set-aside programs, and our award from the National Security Agency, which accounted for 67% of our revenues for the nine months ended September 26, 2004, is under the NSA Set-aside for Small Business, or NSETS, Program.

We anticipate that, in the future, due to the increases in the levels of our revenues and number of employees, we may begin to lose our ability to participate in some or all of these programs, including receiving new awards under the programs. We also anticipate that some follow-on or related procurements for programs that were originally awarded to us as small business set-asides may not be issued under the small business limited competition rules of the SBA.

The failure by Congress to timely approve budgets for the federal agencies we support could delay or reduce spending and cause us to lose revenue.

On an annual basis, Congress must approve budgets that govern spending by each of the federal agencies we support. When Congress is unable to agree on budget priorities, and thus is unable to pass the annual budget on a timely basis, then Congress typically enacts a continuing resolution. A continuing resolution allows government agencies to operate at spending levels approved in the previous budget cycle. When government agencies must operate on the basis of a continuing resolution it may delay funding we expect to receive from clients on work we are already performing and would result in any new initiatives being delayed, and in some cases being cancelled.

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BUSINESS

Overview

Essex provides advanced signal, image, and information processing solutions primarily for U.S. Government intelligence and defense customers. We create our solutions by combining our services and expertise with hardware, software, and proprietary and patented technology to meet our customers’ requirements. Within the intelligence and defense communities we have established and maintained long-standing and successful customer relationships. We are also developing next generation signal, image and information processing solutions under classified U.S. Government research and development contracts. We have been able to develop our current proprietary technology using a combination of government funding and our own internal funding and we believe this combination will allow us to continue to enhance and expand our technology and services for future market needs.

While we have primarily marketed our services and products to the intelligence and defense markets, we believe we are also well positioned to apply our solutions to growth areas within the commercial market. Historically, our proprietary technology and products, although critical to our solutions offerings, have not accounted for a significant portion of our revenues on a standalone basis.

Achieving information superiority, or the ability to collect, process and disseminate information while denying our adversaries capabilities to do the same, is a primary objective for the intelligence and defense communities. Our services and products facilitate the technology transformation necessary for our intelligence and defense customers to achieve information superiority. We provide advanced processing solutions using optical, optoelectronic, and software technology within the following three business areas:

Signal Processing.

• Integrated signal processing solutions. We offer fully integrated, turn-key systems for processing signals using a variety of commercial-off-the-shelf and customized hardware and software components for our signals intelligence customers.

• Advanced optical signal processors. We offer high resolution, ultra-wideband signal processors for electronic warfare and signals intelligence applications. These analog signal processors provide significant improvements over digital devices in processing speed and capacity while substantially reducing the size, weight and power requirements of a system.

• Radar signal processors. We offer advanced optical processing products, which are used as high performance radar signal processing subsystems for advanced ballistic missile defense.

• Communications and networks. We offer services and products that support analysis and transmission of communications in a variety of formats. We also offer an optical encryption product for secure high speed communications over optical links. We utilize our optoelectronic and signal processing expertise and products to build highly secure,

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advanced networks that can provide wavelength provisioning and bandwidth on demand.

Image Processing.

• 3-D imaging. We offer services and products that utilize optoelectronic processing and synthetic aperture radar, or SAR, imagery technology to provide high resolution 3-D images. Applications for these solutions include cloud, foliage and ground penetration, change detection, utility monitoring, and mineral exploration.

• Geographic information solutions. We offer geographic information solutions, or GIS, and plug-in software tools that allow users to integrate, compare, and manipulate datasets and images within third party commercial GIS systems. Our tools can also provide users web-access to these systems.

Information Processing.

• Cognitive processing. We offer software products and services for the analysis and processing of information that is in the form of signals, images, and native language to discover new patterns, relationships, and commonalities within large and complex data environments.

• Critical information technology infrastructure services. We offer information technology, project management, systems integration and engineering services which facilitate the modernization of the intelligence community’s critical voice and video systems and associated infrastructure.

Our current customers include the National Security Agency, the National Reconnaissance Office, the National Geospatial-Intelligence Agency, other intelligence agencies, the Missile Defense Agency, the Defense Advanced Research Project Agency, the U.S. Army, Navy, and Air Force and other defense elements. Many of our advanced processing solutions are used in critical national defense programs. Of our 246 employees, 164 have government security clearances, with 127 holding Top Secret/Sensitive Compartmented Information clearances, or TS/SCI, which are security clearances at the highest levels.

We have enhanced our internally developed, core optoelectronic processing technology and solutions with selective acquisitions of complementary technologies and capabilities. We acquired Sensys Development Laboratories, Inc., or SDL, in March 2003; Computer Science Innovations, Inc., or CSI, in April 2004; and substantially all of the assets of Performance Group, Inc., or PGI, in June 2004. SDL’s systems and software engineering capabilities, combined with our core capabilities, enabled us to win a $57.1 million, 4.3-year award with the National Security Agency in October 2003. In September 2004, 18 months after closing the SDL acquisition, we opened a 50,000-square foot leased secure facility in Annapolis Junction, Maryland related to on-going work on this award. In October 2004, we signed an expansion of this award to a new ceiling of $235.6 million subject to final price negotiations to be completed by December 31, 2004. We believe CSI and PGI bring highly complementary capabilities and technology to our core signal, image, and information processing business areas.

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For fiscal 2002 and 2003, we generated revenue of $4.5 and $16.3 million respectively. For the nine months ended September 26, 2004, we generated revenues of $51.5 million. Over 97% of our revenue in each of these periods was derived from our customers in the intelligence and defense community.

Industry Overview

While we primarily serve the intelligence and defense markets, we also believe significant opportunities exist for us to expand into commercial markets.

Intelligence and Defense Market.

The total defense budget, as submitted in the President’s 2005 Budget to Congress, is projected to grow from $375.3 billion in government fiscal year 2004 to $487.7 billion in government fiscal year 2009. The President’s 2005 Budget submission supports the defense transformation process, in which information superiority is a primary objective, by including nearly $75 billion for procurement and nearly $70 billion for research, development, test and evaluation. The intelligence budget has been classified except for government fiscal years 1997 and 1998. According to the Congressional Research Service, the intelligence budget for those two years was $26.6 and $26.7 billion, respectively. Since then, the global threat of terrorism, wars in Iraq and Afghanistan, the demands of homeland security, the needs of the intelligence community and renewed focus on modernizing Department of Defense infrastructures under the information superiority transformation program have led to increased spending.

The U.S. Government is one of the largest purchasers of optoelectronic, signal processing and other information technology services and products. We believe we are well positioned within the intelligence and defense market to capitalize on the following trends:

• Advanced encryption. According to the General Accounting Office, the National Security Agency has budgeted to spend $4.8 billion between fiscal years 2004 and 2009 for the Department of Defense to protect classified networks and sensitive information, and to develop enhanced encryption capabilities. We believe the need for advanced encryption is driven by the increased demand and use of high speed optical communications operating at transmissions rates of up to 10 gigabits-per second.

• Emphasis on photonics. According to the Director of the Defense Advanced Research Project Agency, or DARPA, photonics, which is the use of light to process and transport information, is one of three core technologies of the U.S. military. Photonics technology is used in signal processing to analyze high speed communications, radar signals, and complex image data sets, and is superior to alternate signal and image processing because it allows signals to be processed at higher speeds than digital technologies.

• Increased focus on missile defense. The Missile Defense Agency is developing a layered defense to intercept ballistic missiles that requires several enabling technologies including optoelectronic processors, sensors, radars and communication networks. The Missile Defense Agency’s budget provides funding of more than $9.2 billion in government fiscal year 2005.

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• SAR imagery. Militant groups and terrorists that are agile and grouped in smaller forces have become adept at hiding, either under camouflage, foliage, rugged terrain or underground, and using evasive tactics to avoid detection. As a result, we believe the need has increased for advanced imaging systems that can identify the presence of targets and provide accurate 3-D images.

• Geographic information solutions. Daratech, an independent market research firm, estimated the 2003 market for GIS systems and solutions to be $1.75 billion, which represents growth of 8% from 2002. We believe there is growing market interest in the integration of imagery data, new data sets, such as SAR imagery, and web enablement.

• Cognitive computing. In 2004, DARPA cited cognitive computing as one of eight strategic areas of focus for research and transition to operational use. We believe the need to mine and find common threads in enormous quantities of communications and data is increasing.

Commercial Market Potential.

A 2003 study by the University of California, Berkeley, estimated that the volume of information being processed and stored worldwide has been increasing by 30% per year, and that total information flow was approximately 18 million terabytes in 2002. This significant increase in information processing load has underscored the need for improved solutions for the processing, transport, distribution, and protection of large bandwidth environments. These large volumes of data have also created the need for business intelligence, which includes a range of technologies and services for gathering, storing, analyzing, and providing access to data to help businesses make better decisions, similar to those serving the information superiority market. We believe new solutions utilizing cognitive processors, optical technology, object recognition, data mining and data synthesis technology and capabilities will be useful in addressing the processing demands of the commercial market’s massive data sets.

• Business intelligence. We believe that as companies increasingly discover the possibilities and benefits of business intelligence, demand for access to multiple data sources, better analytic techniques and data integration will increase due to the need to effectively manage increasingly complex data environments. IDC, an independent market research firm, estimates that the worldwide market for business intelligence tools will be $4.1 billion in 2004 and will increase to $4.9 billion in 2008, representing a compound annual growth rate of 4.3%. Additionally, data mining software, a segment within the broader business intelligence tools market, is expected by IDC to grow from $541 million in 2004 to $687 million in 2008, representing a compound annual growth rate of 6.2%.

• Expected communications industry spending and growth in bandwidth demand. The Telecommunications Industry Association’s 2004 forecast for U.S. spending on communications equipment projects an increase from $14.4 billion in 2004 to $18.5 billion in 2007, a compound annual growth rate of 8.7%. Spending is being driven by increasing usage of bandwidth for bundled services, data transport, digital video and voice-over-internet-protocol, or VoIP. Additionally, IDC estimates that the

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number of Internet users worldwide will grow from 787.5 million in 2004 to 1.1 billion in 2007, a compound annual growth rate of 11.0%

Competitive Strengths

We believe the following competitive strengths will allow us to take advantage of the trends in our industry:

• Signal, image, and cognitive processing expertise. We have significant experience in building signal and image processing solutions, using optoelectronic processors, and developing cognitive processing software for the intelligence community.

• Intelligence community experience and relationships. We have significant intelligence community expertise and a lengthy track record with the intelligence community.

• Skilled employees with high level security clearances. As of September 26, 2004, 164 of our 246 employees had government security clearances, with 127 of these employees holding TS/SCI clearances.

• Established sole source awards relationships. Many of our awards are sole source awards, which are awarded without competitive bidding, based on unique capabilities and urgent and compelling needs.

• Experienced management team and expert advisory boards. Our senior executives have an average of over 20 years of executive and senior management experience in supporting the U.S. Government intelligence and defense communities. In addition, our Technical and National Programs Advisory Board members listed below have extensive experience and relationships within the intelligence, defense and commercial markets:

• U.S. Army Lieutenant General Claudia Kennedy (retired). General Kennedy served for 32 years in the Army culminating in her appointment as Deputy Chief of Staff of Intelligence.

• U.S. Air Force Lieutenant General Kenneth Minihan (retired). General Minihan served 33 years in the Air Force in various capacities including Director of the National Security Agency/Central Security Service.

• U.S. Navy Rear Admiral Don McDowell (retired). Rear Admiral McDowell commanded the worldwide 10,000-person Naval Security Group.

• Dr. Paul Green. Dr. Green is a co-inventor and co-developer of key communications technologies in use in optical and cellular communications.

• Sam Greenholtz. Mr. Greenholtz is a retired senior optical networking architecture engineer for Verizon where he was responsible for technical evaluation of optical networking products.

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• Joe Houston. Mr. Houston is the former President of the International Society of Optical Engineering and has 39 years of engineering expertise and technical management experience.

• Intellectual property. Our innovative use of optoelectronic and signal processing technology has produced 14 patents and 18 patents pending, covering optical communications devices and 3-D image synthesis.

Strategy

Our objective is to continue to grow our business as a provider of signal, image, and information processing services and products to U. S. Government customers and to leverage our intellectual property and capabilities in this field to both government and commercial customers. Key elements of our strategy include:

• Leverage technology to expand U.S. Government business. We intend to leverage our high technology services and products to further penetrate the intelligence and defense communities and to expand our participation in other growth areas of the U.S. Government such as homeland security.

• Build on research and development efforts. We intend to continue to utilize company and customer funded research and development to develop technologies and products that have significant potential in both the government and commercial markets.

• Accelerate business development efforts. We intend to capitalize on the investments we have made in our business development function, together with our capabilities, relationships and facilities, to effectively compete for additional large procurements.

• Pursue strategic acquisitions. We intend to continue to pursue strategic acquisitions that cost-effectively add new customers, specific federal agency knowledge, complementary technology, or technological expertise to accelerate our access to existing or new markets.

• Build product channel partnerships. In commercializing our technologies, we intend to pursue strategic relationships with market leaders in related areas of signal, image, and information processing, as well as communications.

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Services and Products

We support our customers’ goal of achieving information superiority through our combination of the skills and knowledge of a services company with the technology and innovation of a product oriented company. Based on the core competencies that we have developed both internally and through acquisitions, we provide advanced processing solutions using optical, optoelectronic and software technology within the following three business areas:

Signal Processing.

Integrated signal processing solutions. We provide software and systems engineering services to the intelligence community. We significantly expanded our systems engineering capabilities by acquiring Sensys Development Laboratories, Inc., or SDL, in March 2003. SDL’s skill and experience were highly complementary to our core competencies in image and signal processing technology. In October 2003, we were awarded a defense related award for $57.1 million over a three-month base period plus four option years for software and systems engineering and delivery of custom systems to national priority programs. We believe that the knowledge and capability of the SDL team, combined with our core capabilities, enabled us to win this large award. We are the prime contractor and there are numerous team members and subcontractors who work on this program. In the second quarter of 2004, in support of this award, we leased over 50,000 square feet of space that currently houses a Sensitive Compartmented Information Facility, or SCIF, with both office and production space. Our SCIF has been certified by our intelligence customer to allow us to perform highly classified work within our leased facility.

Advanced optical signal processors. In addition to radar analysis, our customers use our advanced optical processors, or AOPs, for cellular phone signal analysis, wideband electronic intelligence analysis, and encryption system exploitation.

Radar signal processors. We design and develop AOPs, which are high performance radar signal processors that can be applied to radar signal analysis to provide advanced ballistic missile defense in a cost-effective, low-size, low-weight and low-power package. In missile defense, the missile target must be identified, along with other items that make it harder to identify the missile, so that the missile target can be isolated and destroyed.

In May 2002, we received a five-year $25.0 million indefinite delivery, indefinite quantity, or IDIQ, award from the Naval Air Warfare Center to use our signal processing technology to enhance Department of Defense radar programs. Working for the Missile Defense Agency under this award, we have designed and fabricated a prototype AOP. We are awaiting the opportunity to test the device at the Massachusetts Institute of Technology’s Lincoln Laboratory facility and subsequently a field demonstration. These tests were originally scheduled to occur in 2004 but have been deferred until 2005 due to operational priorities that forced scheduling changes. The laboratory and field tests are among the final steps prior to production of the AOP for Department of Defense applications.

Communications and networks. Our patented hyperfine WDM technology is the core technology behind our solutions for the defense and intelligence communication markets and opportunities in the commercial markets. Originally developed for military applications and now being applied to commercial communications applications to create wavelength rich solutions, our hyperfine WDM technology is characterized by simple and small packaging, high channel density, low insertion loss, superior filter shape, low sensitivity to temperature changes, and the fact that it is a passive optical technology and therefore does not require power to operate. To date, our sales of hyperfine WDM technology have been limited to prototype and early production units for military applications. In July 2003, we commenced a project with a key government agency to apply hyperfine WDM to achieve privacy in an all-optical network and an award to create a technology roadmap for optical components. In connection with DARPA, we also have been

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applying our communications technology to improve processor performance and security in next generation supercomputer performance.

Image Processing.

3-D imaging. We design, develop, manufacture and support products that feature optoelectronic processing and synthetic aperture radar, or SAR, imagery technology to provide 3-D images. These technologies are primarily used today for military imaging that penetrates clouds, foliage and the ground, as well as for change detection and facility inspection. They can also be used in commercial applications, such as utility monitoring, mineral exploration and other special purpose inspections. We believe we are positioned to apply these technologies to major government programs for customers that are increasingly focusing on military imaging.

Geographic information solutions. Our GIS and Environmental Services Group, which was created from our June 2004 acquisition of Performance Group, Inc., provides extensive software tools that allow users to integrate, compare and manipulate datasets and images within third party commercial GIS systems. Once this information is collected, there are many potential user applications in the areas of asset management, planning, security, emergency operations, and environmental assessment. We are exploring combining our GIS solutions with our proprietary 3-D imaging technology, to address new defense, intelligence and commercial applications.

Information Processing.

Cognitive processing. With our acquisition of Computer Science Innovations, Inc., or CSI, in April 2004, we now have proprietary techniques, algorithms and tools that are used to build custom cognitive engines for a broad range of intelligence, defense and commercial customers and applications. Cognitive engines are software that includes predictive models and classifiers, and they have applications in the areas of fraud and anomaly detection, image and signal recognition, information fusion, knowledge management, network information assurance, semantic processing and waveform analysis. CSI has been developing cognitive engines for government and commercial customers since 1983.

Critical information technology infrastructure services. We provide information technology services that facilitate the modernization, project management, integration and engineering analysis of the intelligence community’s critical voice and video systems and associated infrastructure. In 2003, we received a telecommunication services award with a total value of over $30.0 million over ten years. We believe our technology infrastructure group has the potential for significant growth as the intelligence and defense communities focus on upgrading their communications infrastructure.

Customers

Our current customers include the National Security Agency, the National Reconnaissance Office, the National Geospatial-Intelligence Agency, other intelligence agencies, the Missile Defense Agency, the Defense Advanced Research Project Agency, the U.S. Army, Navy, and Air Force and other defense elements. Many of our advanced processing solutions are used in critical national defense programs. Our commercial customers include Boeing Corporation and Applied Signal Technologies.

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Employees

As of September 26, 2004 we had 246 employees. Of our 246 employees, 164 had government security clearances, with 127 employees holding TS/SCI, which are security clearances at the highest levels. We believe we are successful in recruiting and retaining our employees by offering a competitive salary, benefits, growth prospects and the opportunity to perform mission critical services in a classified environment.

Intellectual Property

We have 14 issued patents and 18 patents pending covering the core intellectual property for our products. Our patent portfolio is divided into four technology groups: hyperfine WDM, OPERA^TM, ImSyn^TM and Virtual Lens Imaging.

Hyperfine WDM

The first hyperfine WDM patent, entitled “Optical Tapped Delay Line,” was awarded to Essex on August 19, 2003 as U.S. Patent No. 6,608,721 and will expire on June 20, 2020. It includes 46 claims covering use of the device as a receiver and demultiplexer for wavelength division multiplexing fiber optic networks. Related international patents are still pending. On January 22, 2002, we filed U.S. and international patents for use of hyperfine WDM technology as an add drop multiplexer and as an optical-code division multiple access, or OCDMA, system. On July 21, 2002, we filed U.S. and international patents for several other hyperfine WDM optical signal processing architectures. On November 19, 2003, we filed U.S. and international patents for use of hyperfine WDM as an encryptor for fiber optic and free-space communications.

OPERA^TM

We filed a patent application for our OPERA^TM technology in the U.S. and in certain other countries on January 19, 2001, U.S. Patent Pending No. 09/766,151. OPERA^TM is an optoelectronic system for wireless communications that eliminates interfering signals using optical correlation combined with multi-user detection algorithms.

ImSyn^TM

We hold four U.S. patents on our ImSyn^TM technology. Three of these patents cover the optoelectronic architecture and applications including accelerating image reconstructions for SAR and Magnetic Resonance Imaging, or MRI. The fourth patent covers the sensing and reconstruction techniques of the Virtual Lens Microscope^TM, or VLM, technology which is part of our VLI technology family. This technology family can be applied to semiconductor inspection, foliage and ground penetration imaging, biomedical imaging, and non-destructive testing.

The first issued ImSyn^TM patent (U.S. Patent No. 5,079,555), “Sequential Image Synthesizer,” includes 20 claims and expires January 7, 2009. The corresponding Canadian patent (No. 2,058,209), expires November 25, 2011. The corresponding European patent for a subset of the claims (No. 0543064) is in force in the United Kingdom and Germany, and will expire on November 21, 2011.

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Our patent in Japan (Patent No. 3113338) for the same claims as the U.S. patent will expire on October 29, 2011.

The second issued ImSyn^TM patent (U.S. Patent No. 5,384,573), “Image Synthesis Using Time Sequential Holography,” includes 157 claims and expires on January 24, 2012. In France, the United Kingdom, Germany and Italy, Patent EP0617797B1 has been awarded for a subset of the claims in the U.S. patent and this patent expires December 17, 2012.

The third ImSyn^TM U.S. Patent No. 5,736,958, “Image Synthesis Using Time Sequential Holography,” with 8 claims expires April 7, 2015. The fourth issued ImSyn^™ patent (U.S. Patent No. 5,751,243), “Image Synthesis Using Time Sequential Holography,” with 21 claims expires May 11, 2015.

Virtual Lens Imaging

The ImSyn^TM U.S. Patent No. 5,751,243 discloses the Virtual Lens Microscope, a 2-D and 3-D sensing and reconstruction technique called the Synthetic Aperture Microscope. On May 11, 2004, we were awarded the second VLI patent, U.S. patent 6,735,346 entitled “Efficient Fourier Transform Algorithm For Non-Uniform Data,” that discloses algorithms and methods for faster 2-D and 3-D image reconstruction of synthetic aperture data. On April 28, 2004, we filed U.S. and international patent applications entitled “Sub-aperture Sidelobe and Alias Mitigation Techniques” that discloses algorithms and methods for improving the reconstruction of synthetic aperture 2-D and 3-D image data.

Competition

We have sold our services and products primarily to the intelligence and defense communities. The level of security clearances required for this work limits the range of competitors against whom we compete for both services and products. In addition, the number of competitors is limited even further by the level of technical expertise required for both product and service deliveries to our government customers. We compete either as prime contractor or as a subcontractor, depending on the requirement and scope of the project.

Our larger competitors for U.S. Government business include Lockheed Martin Corporation and divisions of large defense contractors such as Boeing Support Services. These competitors may be able to compete more effectively for very large scale government awards. These competitors also may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualification, past performance on larger scale contracts, geographic presence, price, and the availability of key professional personnel. Our competitors also have established or may establish relationships among themselves or with third parties, including through mergers and acquisitions, to increase their ability to address customers’ needs. Accordingly, it is possible that new competitors or alliances among competitors may emerge against whom it will be difficult for us to compete.

Competition in the communications market for network communications equipment is intense and has historically been dominated by such large companies as Alcatel, Ciena, Cisco Systems, JDS Uniphase, Lucent Technologies, NEC and Nortel Networks. Competitors for high speed encryption technology include General Dynamics, L3 Communications, Viasat and Safenet. Because of our proprietary optical encryption solution, these companies are also potential channel partners.

43

ESSEX CORPORATION

Some of these companies, as well as emerging companies, are currently developing products that may compete in the areas that our technology is designed to address. We also may face competition from other large communications companies who may enter our markets. Many of these possible competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical and business development resources than we do and may be able to undertake more extensive marketing efforts and adopt more aggressive pricing policies than we can. In addition, additional competitors with significant market presence and financial resources may enter our markets, which are rapidly evolving, further intensifying competition.

In the commercial market, we are still positioning our optical products and technology. Our commercial products will be sold as part of an integrated solution. We intend to sell our products through well established channels within the commercial industry in order to successfully introduce our technology and products into the market. Our products are based on patented technology, available only through us, which we believe have significant performance advantages over alternative products in the same market space, including simple and small packaging, high channel density, low insertion loss, superior filter shape, low sensitivity to temperature changes, and the fact that it is a passive optical technology and therefore does not require power to operate.

Legal Proceedings

We currently are not a party to any material legal proceedings.

Properties

We lease the locations listed in the table below. We believe that our present and proposed facilities are adequate for our current business needs.

Location	Square Feet	Expiration Date
9020 Junction Drive (Warehouse) Annapolis Junction, MD 20701	14,630	April 30, 2011
9020 Junction Drive (Office/SCIF) Annapolis Junction, MD 20701	37,384	April 30, 2011
9140 Guilford Road Columbia, MD 21046	8,691	(1)
135 National Business Parkway Suite 214 Annapolis Junction, MD 20701	7,421	(1)
9150 Guilford Road Columbia, MD 21046	17,655	(1)
2300 Fall Hill Avenue Suite 260 Fredericksburg, VA 22401	3,686	March 31, 2005

44

ESSEX CORPORATION

Location	Square Feet	Expiration Date
1235 Evans Road Melbourne, FL 32904	20,000	May 31, 2007
9633 South 48th Street Suites 235-240 Phoenix, AZ 85044	3,331	September 30, 2007
6708 Alexander Bell Drive Columbia, MD 21046	39,203	January 14, 2012

(1) These leases will terminate upon move-in to the Alexander Bell Drive location, currently projected for March 2005.

45

ESSEX CORPORATION

ITEM 6. EXHIBITS

Exhibit 3.1	-	Articles of Incorporation, as amended
Exhibit 10.1	-	Essex Corporation 2004 Stock Plan
Exhibit 10.2	-	Essex Corporation Employee Stock Purchase Plan
Exhibit 31.1	-	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	-	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	-	Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
Exhibit 32.2	-	Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

* These exhibits are being “furnished” with this periodic report and are not deemed “filed” with the Securities and Exchange Commission and are not incorporated by reference in any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation by reference language in any such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ESSEX CORPORATION
	(Registrant)
Date: November 8, 2004		/s/ Lisa G. Jacobson
		Lisa G. Jacobson
		Executive Vice President and Chief Financial Officer

(Ms. Jacobson is the Principal Financial and Chief Accounting Officer of the Registrant and has been duly authorized to sign on behalf of the Registrant.)

46

EX-3.1

Exhibit 3.1

Commonwealth of Virginia

[LOGO]

State Corporation Commission

Richmond, January 28, 1969

This is to certify that the certificate of incorporation of Human Factors Placement Service, Inc. was this day issued and admitted to record in this office and that the said corporation is authorized to transact its business subject to all the laws of the state applicable to the corporation and its business.

State Corporation Commission

/s/ William C. Young

    Clerk of the commission

ARTICLES OF INCORPORATION

OF

HUMAN FACTORS PLACEMENT SERVICE, INC.

We hereby associate to form a stock corporation under the provisions of Chapter 1 of Title 13.1 of the Code of Virginia and to that end set forth the following:

(a) The name of the corporation is HUMAN FACTORS PLACEMENT SERVICE, INC.

(b) The purpose or purposes for which the corporation is organized are:

To establish, conduct and carry on in all of its branches a general agency and service business; to act, and to appoint others to act, as general agent, special agent, broker, factor, representative, independent contractor for individuals, firms, associations and corporations in the performance of services and in the distribution, delivery, purchase and sales of articles of commerce of every kind and description, and in the advertising, introducing, contracting for, selling, distributing, promoting, using, services of all kinds, relating to any and all kinds of businesses, for any and all purposes; to invest in, own, purchase, maintain, operate, sell, lease, or dispose of, and hold in fee simple or otherwise real estate; and to make all contracts and do all things proper, incidental and conducive to the complete attainment of its purposes.

The aforegoing enumeration of the purposes, objects and businesses of the Corporation is made in furtherance, and not in limitation, of the powers and allowed purposes conferred upon corporations generally by the laws of the Commonwealth of

Virginia, and it is expressly provided that said enumeration of specific powers shall not be held to limit or restrict in any manner the objects, purposes and powers of the Corporation.

(c) The aggregate number of shares which the corporation shall have the authority to issue and the par value per share are as follows:

CLASS AND SERIES	NUMBER OF SHARES	PAR VALUE PER SHARE OR NO PAR VALUE
Common - All One	1000	$	1.00 per share

(d) The post office address of the initial registered office is 303 Cameron Street, Alexandria, Virginia. The name of the city in which the initial registered office is located is City of Alexandria, Virginia. The name of the initial registered agent is Frank E. Manning,              an officer of the Corporation and whose business office is the same as the registered office of the corporation.

(e) The number of directors constituting the initial board of directors is three (3) and the names and addresses of the persons who are to serve as the initial directors are:

NAME	ADDRESS
Frank E. Manning	2210 Russell Road Alexandria, Virginia
Eva L. Manning	2210 Russell Road Alexandria, Virginia
A. William Perkins, Jr.	213 Virginia Avenue Alexandria, Virginia
Dated January 15, 1969.

/s/ Frank E. Manning	(SEAL)
Frank E. Manning
/s/ Eva L. Manning	(SEAL)
Eva L. Manning
/s/ A. William Perkins	(SEAL)
A. William Perkins, Jr
INCORPORATORS

ARTICLES OF AMENDMENT

OF

ARTICLES OF INCORPORATION

OF

HUMAN FACTORS PLACEMENT SERVICE, INC.

HUMAN FACTORS PLACEMENT SERVICE, INC. a corporation organized and existing under and by virtue of the Virginia Stock Corporation Act of the Commonwealth of Virginia, DOES HEREBY CERTIFY.

FIRST: That the Board of Directors of said corporation, at a meeting held on August 14, 1969, adopted a resolution proposing and declaring advisable the following amendment to the Articles of Incorporation of said corporation:

RESOLVED; that the Articles of Incorporation of this corporation be amended, after adoption at a Special Meeting of Stockholders called for such purpose, by changing the Article thereof numbered (a) so that, as amended, said Article shall be and read as follows:

“(a): The name of the corporation is ESSEX CORPORATION.”

SECOND: That on August 14, 1969 notice of the proposed amendment was given to each stockholder of record of the said corporation entitled to vote thereon, said notice having been given in the manner prescribed in the Virginia Stock Corporation Act and having been accompanied by a copy of the said proposed amendment; and

THIRD: That at a Special Meeting of Stockholders held on August 14 1969 the said proposed amendment was adopted by the Stockholder; and

FOURTH: That on the date of the said Special Meeting of Stockholders there were outstanding 500 shares of Common Stock of the said corporation, being all of the outstanding stock of the corporation then outstanding and entitled to vote on the said proposed amendment; and

FIFTH: That at said Special Meeting of Stockholders held August 14, 1969, 500 shares of the corporation’s common stock were voted in favor of the adoption of said amendment; and no shares were voted against the said amendment.

IN WITNESS WHEREOF, said HUMAN FACTORS PLACEMENT SERVICE, INC. has caused its corporate seal to be hereunto affixed and this certificate to be signed by Frank E. Manning, its President, and Eva L. Manning, its Secretary, this 21st day of August, 1969.

HUMAN FACTORS PLACEMENT SERVICE, INC.
By	/s/ Frank E. Manning
	President

(CORPORATE SEAL)

By	/s/ Eva L. Manning
	Secretary

COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

AT RICHMOND.

August 27, 1969

The accompanying articles having been delivered to the State Corporation Commission on behalf of

Human Factors Placement Service, Inc.

(Chg. name to: Essex Corporation)

and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is

ORDERED that this CERTIFICATE OF AMENDMENT

be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.

Upon the completion of such recordation, this order and the articles shall be forwarded for recordation in the office of the clerk of the Corporation Court of the City of Alexandria

STATE CORPORATION COMMISSION
By	/s/ Ralph T. Cotteral
	Chairman

VIRGINIA:

In the Clerk’s Office of the Corporation Court of the City of Alexandria

The foregoing certificate (including the accompanying articles) has been duly recorded in my office this 5th day of September, 1969 and is now returned to the State Corporation Commission by certified mail.

Alvin W. Frinks, Clerk
By	/s/ Alvin W. Frinks
	Deputy Clerk

ARTICLES OF AMENDMENT

OF

ARTICLES OF INCORPORATION

OF

ESSEX CORPORATION

ESSEX CORPORATION, a corporation organized and existing under and by virtue of the Virginia Stock Corporation Act of the Commonwealth of Virginia, DOES HEREBY CERTIFY:

FIRST: That the Board of Directors of said corporation, at a meeting duly held on April 1, 1971, adopted a resolution proposing and declaring advisable the following amendment to the Articles of Incorporation of said corporation:

RESOLVED, that the Articles of Incorporation of this corporation be amended, after adoption at a Special Meeting of Stockholders called for such purpose, by changing the Article thereof designated (“c”) so that, as amended, said Article shall be and read as follows:

“(c) The aggregate number of shares which the corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Par Value Per Share
Common - All one	100,000	$	1.00”

SECOND: That on April 1, 1971 notice of the proposed amendment was given to each stockholder of record of the said corporation entitled to vote thereon, said notice having been given in the manner prescribed in the Virginia Stock Corporation Act and having been accompanied by a copy of the said proposed amendment; and

THIRD: That at a Special Meeting of Stockholders held on April 1, 1971 the said proposed amendment was adopted by the Stockholders; and

FOURTH: That on the date of the said Special Meeting of Stockholders there were outstanding 1,000 shares of Common Stock of the said corporation, being all of the outstanding stock of the corporation then outstanding and entitled to vote on the said proposed amendment; and

FIFTH: That at said Special Meeting of Stockholders held April 1, 1971 1,000 shares of the corporation’s common stock were voted in favor of the adoption of said amendment; and no shares were voted against the said amendment.

IN WITNESS WHEREOF, said ESSEX CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by its President, and its Secretary, this 21st day of May, 1971.

	ESSEX CORPORATION
	By	/s/ Frank E. Manning
		President
(CORPORATE SEAL)	By	/s/ A. Carl von Sternberg
		Secretary

2

COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

AT RICHMOND,

June 14, 1971

The accompanying articles having been delivered to the State Corporation Commission on behalf of

Essex Corporation

and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is

ORDERED that this CERTIFICATE OF AMENDMENT

be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.

Upon the completion of such recordation, this order and the articles shall be forwarded for recordation in the office of the clerk of the Corporation Court City of Alexandria

STATE CORPORATION COMMISSION
By	/s/ Ralph T. Cotterall
	Acting Chairman

VIRGINIA:

In the Clerk’s Office of the Corporation Court City of Alexandria

The foregoing certificate (including the accompanying articles) has been duly recorded in my office this 24th day of June 1971 and is now returned to the State Corporation Commission by certified mail.

	/s/ Alvin W. Frinks
	Clerk
By:	/s/ Katherine F. Bradfield

ARTICLES OF AMENDMENT

OF

ARTICLES OF INCORPORATION

OF

ESSEX CORPORATION

ESSEX CORPORATION, a corporation organized and existing under and by virtue of the Virginia Stock Corporation Act of the Commonwealth of Virginia, DOES HEREBY CERTIFY:

FIRST: That the Board of Directors of said corporation, at a meeting duly held on June 11, 1981, adopted resolutions proposing and declaring advisable the following amendments to the Articles of Incorporation of said corporation:

RESOLVED, that the Articles of Incorporation of this corporation be amended, after adoption at a Special Meeting of Stockholders called for such purpose, by changing the Article thereof designated (“c”) so that as amended, said Article to be and read as follows:

“(c) The aggregate number of shares which the corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Par Value Per Share
Common - All one	5,000,000	$	0.10

RESOLVED FURTHER, that the Articles of Incorporation of this corporation be amended, after adoption at a Special Meeting of Stockholders called for such purpose, by adding a new Article (f) thereto, said Article to be and read as follows:

“(f) No holder of shares of any class of stock of the corporation shall have any preemptive or preferential right to purchase or subscribe to (i) any shares of any class of stock of the corporation, whether now or hereafter authorized, (ii) any warrants, rights, or options to purchase any such stock, or (iii) any securities or obligations convertible into any such stock or into warrants, rights, or options to purchase any such stock.”

RESOLVED FURTHER, that the Articles of Incorporation of this corporation be amended, after adoption at a Special Meeting of Stockholders called for such purpose, by adding a new Article (g) thereto, said Article to be and read as follows:

“(g) Any number of shareholders together holding at least one-third (1/3) of the outstanding shares of capital stock entitled to vote with respect to the business to be transacted, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of business thereat.”

-2-

RESOLVED FURTHER, that the Articles of Incorporation of this corporation be amended, after adoption at a Special Meeting of Stockholders called for such purpose, by adding a new Article (h) thereto, said Article to be and read as follows:

“(h) Each Director and officer of the Corporation shall be indemnified by the Corporation against liabilities, fines, penalties and claims imposed upon or asserted against him (including amounts paid in settlement) by reason of having been such a Director or officer, whether or not continuing so to be, and against all expenses (including counsel fees) reasonably incurred by him in connection therewith, except in relation to matters as to which he shall have been finally adjudged to be liable by reason of having been guilty of gross negligence or willful misconduct in the performance of his duty as such Director or officer. In the event of any other judgment against such Director or officer, or in the event of a settlement, the indemnification shall be made only if the Corporation shall be advised, in case none of the persons involved shall be or have been a Director of the Corporation, by the Board of Directors, and otherwise by independent counsel to be appointed by the Board of Directors that in its or his opinion such Director or officer was not guilty of gross negligence or willful misconduct in the performance of his duty, and in the event of a settlement, that such settlement was, or if still to be made, is in the best interests of the Corporation. If the determination is to be made by the Board of Directors, it may rely, as to all questions of law, on the advice of independent counsel. Every reference herein to Director of officer shall include every Director or officer or former Director or officer of the Corporation and every person who may have served at its request as a Director or officer of another corporation in which the Corporation owns shares of stock or of which it is a creditor or, in the case of a non-stock corporation, to which the Corporation contributes and, in all such cases, his executors and administrators. The right of indemnification hereby provided shall not be exclusive of any other rights to which any Director or officer may be entitled.”

-3-

SECOND: That on July 21, 1981, notice of the proposed amendments were given to each stockholder of record of the said corporation entitled to vote thereon, said notice having been given in the manner prescribed in the Virginia Stock Corporation Act and having been accompanied by a copy of the said proposed amendments; and

THIRD: That on the date of the said Notice to Stockholders there were outstanding 69,870 shares of Common Stock of the said corporation, being all of the outstanding stock of the corporation then outstanding and entitled to vote on the said proposed amendments; and

FOURTH: That the said proposed amendments were unanimously approved by the written consent of the holders of all of the authorized, issued and outstanding shares of Common Stock of the said corporation on July 21, 1981.

IN WITNESS WHEREOF, said ESSEX CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by FRANK MANNING, its President and RICHARD C. FOOTE, its Secretary, this 22nd day of July, 1981.

ESSEX CORPORATION
By:	/s/ FRANK MANNING
	FRANK MANNING, President
By:	/s/ RICHARD C. FOOTE
	RICHARD C. FOOTE,
	Treasurer

(SEAL)

-4-

ARTICLES OF AMENDMENT

OF

ESSEX CORPORATION

ONE

The name of the corporation is Essex Corporation.

Two

Article (h) of the Articles of Incorporation of the Corporation is amended to read as follows:

1. Each Director and officer of the Corporation shall be entitled to indemnity, including indemnity with respect to a proceeding by or in the right of the Corporation, to the fullest extent required or permitted under the provisions of the Stock Corporation Act of the Commonwealth of Virginia as in effect from time to time, except only an indemnity against willful misconduct, a knowing violation of the criminal law or a knowing violation of any federal or state securities law. No amendment or repeal of this Article (h) shall apply or have any effect on the rights provided under this Article (h) with respect to any omission occurring prior to such amendment or repeal. The Corporation shall promptly take all such actions, and make all such determinations, as shall be necessary or appropriate to comply with its obligation to make such indemnity and shall promptly pay or reimburse all reasonable expenses, including attorneys’ fees, incurred by any such officer or director in

connection with such actions and determinations or proceedings of any kind arising therefrom.

2. The Corporation shall promptly pay for or reimburse the reasonable expenses, including attorney’s fees, incurred by an officer or director of the Corporation in connection with any proceeding (whether or not made a party) arising from his or her status as such officer or director, in advance of final disposition of any such proceeding upon receipt by the Corporation from such officer or director of (a) a written statement of good faith belief that he or she is entitled to indemnity by the Corporation, and (b) a written undertaking, executed personally or on his or her behalf, to repay the amount so paid or reimbursed if after final disposition of such proceeding it is determined that he or she did not meet the applicable standard of conduct.

3. The rights of each officer or director of the Corporation under this Article (h) or as otherwise provided by law shall continue regardless of cessation of their status as such and shall inure to the benefit of their respective heirs, executors, administrators and legal representatives. Such rights shall not prevent or restrict the power of the Corporation to make or provide any further indemnity, or provisions for determining entitlement to indemnity pursuant to one or more indemnification agreements, bylaws, or other arrangements (including, without limitation, creation of trust funds or security interests funded by letters of credit or other means) approved by the Board of Directors (whether or not any of the directors of the Corporation shall be a party to or beneficiary of any such agreements, bylaws

-2-

or arrangements); provided, however, that any provision of such agreements, bylaws or other arrangements shall not be effective if and to the extent that it is determined to be contrary to this Article (h) or applicable laws of the Commonwealth of Virginia.

4. The rights to indemnity and payment or reimbursement of expenses provided under this Article (h) shall extend to any individual who, while a director or officer of the Corporation, is or was serving at the Corporation’s request as a director, officer, partner, trustee (including service as a named fiduciary), employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.

5. The provisions of this Article (h) shall be applicable regardless of when a transaction, occurrence or course of conduct on which a proceeding is based, in whole or in part, took place.

6. Each provision of this Article (h) shall be severable, and an adverse determination as to any such provision shall in no way affect the validity of any other provision. The provisions of this Article (h) shall be in addition to, and not in limitation of, all rights to indemnity and payment or reimbursement of expenses required or permitted by applicable provisions of law.

Three

Article (i) is added to the Articles of Incorporation and reads as follows:

(i) In any proceeding brought by a stockholder of the Corporation in the right of the Corporation, or brought by or on

-3-

behalf of stockholders of the Corporation, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for monetary damages with respect to any transaction, occurrence or course of conduct, whether prior or subsequent to the effective date of this Article, except for liability resulting from such persons having engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law, according to the provisions of the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended.

Four

The foregoing amendments were adopted on June 8, 1988.

Five

The amendments were adopted by a vote of the shareholders representing 79.45% of the issued and outstanding shares of the Company.

The undersigned secretary of the corporation declares that the facts herein stated are true as of June 8, 1988.

ESSEX CORPORATION
By:	/s/ Joel R. Kaswell
	Joel R. Kaswell,
	Secretary
	Essex Corporation

-4-

ARTICLES OF AMENDMENT OF

ESSEX CORPORATION

ONE

The name of the Corporation is Essex Corporation.

TWO

The text of the amendment to the Corporation’s Articles of Incorporation is:

(c) The aggregate number of shares which the Corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Par Value
Common	10,000,000	$	0.10

THREE

The board of directors unanimously recommended the amendment to the stockholders on June 22, 1992.

FOUR

The amendment was adopted by a 2/3 majority of the stockholders on June 22, 1992 at the Corporation’s Annual Meeting of Stockholders.

The undersigned secretary of the Corporation declares that the facts herein stated are true as of March 1st, 1993.

ESSEX CORPORATION
By:	/s/ Leonard E. Moodispaw
	Leonard E. Moodispaw
	Secretary

COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

March 10, 1993

The State Corporation Commission has found the accompanying articles submitted on behalf of

ESSEX CORPORATION

to comply with the requirements of law, and confirms payment of all related fees.

Therefore, it is ORDERED that this

CERTIFICATE OF AMENDMENT

be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective March 10, 1993 at 11:08 AM.

The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.

STATE CORPORATION COMMISSION
By:	/s/ Haliberton Wilbur Jr.
	Commissioner

AMENACPT

CIS20436

93-03-08-0113

ARTICLES OF AMENDMENT

OF

ESSEX CORPORATION

To the State Corporation Commission Commonwealth of Virginia

The following Articles of Amendment are hereby submitted pursuant to the provisions of the Virginia Stock Corporation Act on behalf of the corporation hereinafter named.

1. The name of the corporation (hereinafter referred to as the “Corporation”) is ESSEX CORPORATION.

2. Article (c) of the Articles of Incorporation of the Corporation is hereby amended to read as follows:

(c) Preferred Stock

The aggregate number of shares of Preferred Stock which the Corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Par Value Per Share
Preferred	1,000,000	$	0.01

The Board of Directors is authorized to provide for the designation, preferences, limitations and relative rights, in one or more series of the Preferred Stock to the fullest extent contemplated by the Virginia Stock Corporation Act by the adoption of Articles of Amendment to the Articles of Incorporation in accordance with the Virginia Stock Corporation Act.

Common Stock

The aggregate number of shares of Common Stock which the Corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Par Value Per Share
Common	25,000,000	$	0.10

3. The date of adoption of the amendment herein provided for was as of January 31, 1997 with respect to approval of the class of Preferred Stock and as of November 13, 1996 as to the increase in the number of authorized shares of Common Stock.

4. The amendment herein provided for was proposed by the Board of Directors of the Corporation and submitted to the shareholders of the Corporation in accordance with the provisions of the Virginia Stock Corporation Act.

The designation, number of outstanding shares, and number of votes entitled to be cast by each voting group entitled to vote separately on the amendment herein provided for are as follows:

Designation	Number of Outstanding Shares	Number of Votes
Common Stock $.10 par value	3,624,098	3,642,098

The total number of votes cast for and against the amendment herein provided for by each voting group entitled to vote separately on the said amendment is as follows:

Designation	Number of Votes Cast for Amendment to Authorize Preferred Stock	Number of Votes Cast Against Amendment to Authorize Preferred Stock
Common Stock $.10 par value	2,440,940	294,510

Designation	Number of Votes Cast for Amendment to Increase the Authorized Common Stock	Number of Votes Cast Against Amendment to Increase the Authorized Common Stock
Common Stock $.10 par value	2,988,590	195,727

The number of votes cast for the amendment herein provided for by the said voting group was sufficient for approval by that voting group.

******

Executed on 3/13, 1997.

ESSEX CORPORATION
By:	/s/ A. Ward
Name:	A. WARD
Title:	VICE PRESIDENT

COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

March 27, 1997

The State Corporation Commission has found the accompanying articles submitted on behalf of

ESSEX CORPORATION

to comply with the requirements of law, and confirms payment of all related fees. Therefore, it is ORDERED that this

CERTIFICATE OF AMENDMENT

be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective March 27, 1997 at 09:40 AM.

The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.

STATE CORPORATION COMMISSION
By	/s/ T.V. Morrison Jr.
	Commissioner

AMENACPT

CIS20436

97-03-21-0031

Commonwealth of Virginia

[LOGO] State Corporation Commission

I Certify the Following from the Records of the Commission:

the foregoing is a true copy of the ARTICLES OF AMENDMENT of ESSEX CORPORATION issued March 27, 1997.

Nothing more is hereby certified.

[SEAL]	Signed and Sealed at Richmond on this Date: March 31, 1997
	/s/ William J. Bridge
	William J. Bridge, Clerk of the Commission

ARTICLES OF AMENDMENT

OF

ESSEX CORPORATION

To the State Corporation Commission Commonwealth of Virginia

The following Articles of Amendment are hereby submitted pursuant to the provisions of the Virginia Stock Corporation Act on behalf of the corporation hereinafter named.

1. The name of the corporation (hereinafter referred to as the “Corporation”) is ESSEX CORPORATION.

2. Article (c) of the Articles of Incorporation of the Corporation is hereby amended to read as follows:

(c) Preferred Stock

The aggregate number of shares of Preferred Stock which the Corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Par Value Per Share
Preferred (unassigned)	997,500	$	0.01
Class A	2,500	$	100.00

I. Dividends. The holders of the Class A Preferred Stock shall be entitled to cumulative preferential dividends, when, as and if declared by the Board of Directors on an annual basis in an amount equal to eight percent (8%) per annum of the liquidation preference per share of $100. Dividends may be paid (to the extent permissible under the Virginia Stock Corporation Act) to the holders of the Class A Preferred Stock in cash or, at the option of the Company, in shares (the “Dividend Shares”) of common stock of the Corporation, par value $.10 per share (the “Common Stock”) (based upon the last sale price of a share of Common Stock for the five (5) trading days preceding the record date for a particular dividend).

II. Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, each share of Class A Preferred Stock shall have a liquidation preference per share, equal to the purchase price per share, together with accrued and unpaid dividends.

1

III. Voting Rights. Except as otherwise required by applicable law, the Class A Preferred Stock shall have no voting rights.

IV. Redemption. The Class A Preferred Stock shall have no redemption rights.

V. Conversion. (a) Subject to the terms and conditions of subsections (a) and (b) of this Section V, and unless previously redeemed, issued and outstanding shares of Class A Preferred Stock, shall be convertible at the option of the holder (the “Conversion Right”) prior to the Maturity Date, in the manner and on the terms hereinafter set forth, into shares of common stock of the Corporation, par value ($.10) at any time prior to the Maturity Date at a conversion price equal to the greater of market value on the date that the election to convert is made or fifty cents ($.50) per shares, subject to adjustment; provided however, that in the event the assets of the optoelectronics division of the Corporation have been transferred to another business enterprise [in which the Corporation has a controlling shareholder interest] (“Transferee”), and at the election of the holder, the unpaid principal amount of the Preferred Stock and the accrued dividends thereon, shall be convertible into a percentage equity interest of the Transferee determined pursuant to the following formula:

x/y where x is the dollar amount converted and y is the fair market value (or mean fair market value, if more than one valuation methodology is utilized) as determined by a third party expert in providing such valuations retained by the Company.

(b) The Conversion Price shall be subject to adjustment as follows:

(i) In case the Corporation shall subdivide the number of outstanding shares of the Common Stock into a greater number of shares or shall contract the number of outstanding shares of its Common Stock into a lesser number of shares, the Conversion Price then in effect shall be adjusted, effective at the close of business on the record date for the determination of stockholders entitled to receive the same, to the price (computed to the nearest cent) determined by dividing (A) the product obtained by multiplying the Conversion Price in effect immediately prior to the close of business on such record date by the number of shares of Common Stock outstanding prior to such subdivision or contraction, by (B) the number of shares of Common Stock outstanding immediately after such subdivision or contraction.

(ii) Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the date hereof effect a subdivision of its outstanding shares of Common Stock, the Conversion Price then in effect immediately before such subdivision shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the date hereof combine its outstanding shares of Common Stock, the Conversion Price then in effect immediately before such combination shall

2

be proportionately increased. Any adjustment under this section shall become effective upon the close of business on the date the subdivision or combination becomes effective.

(iii) Certain Dividends and Distributions. In the event that the Corporation shall at any time or from time to time after the date hereof make or issue, or fix a record date for the determination of holders of shares of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event, the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event that such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction: (a) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and (b) the denominator of which shall be the sum of the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date and the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter such Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions.

(iv) Other Dividends and Distributions. In the event that the Corporation at any time or from time to time after the date hereof shall make or issue, or fix a record date for the determination of holders of shares of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provisions shall be made so that the holder of the Preferred Stock shall receive, upon conversion of the Preferred Stock, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation which such holder would have received had its Preferred Stock been converted into shares of Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period) receivable by the holder as aforesaid during such period, giving application to all adjustments called for during such period under this section with respect to the rights of the holder of the Preferred Stock.

(v) Reclassification, Exchange or Substitution. If the shares of Common Stock issuable upon the conversion of the Preferred Stock shall be

3

changed into the same or different number of shares of any class or classes of capital stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for in subsection (e) below), then and in each such event, the holder of the Preferred Stock shall have the right thereafter to convert the Preferred Stock into the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, reclassification or other change, as the holder of the number of shares of Common Stock into which the Preferred Stock might have been converted immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein.

(vi) Reorganization, Merger, Consolidation or Sale of Assets. If, at any time or from time to time, there shall be a capital reorganization of the shares of Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this section) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation’s properties and assets to any other person or entity, then as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holder of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock, the number of shares of capital stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger or consolidation or sale, to which the holder of shares of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this section with respect to the rights of the holder of the Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this section (including adjustment of the Conversion Price then in effect and the number of shares of Common Stock receivable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalent hereto as may be practicable.

(vii) Material Financing. If the Corporation at an time during a twelve (12) month period commencing on the date of issuance of the Class A Preferred Stock, enters into a transaction with a third party which is entitled to provide material financing to the Corporation, and such transaction includes a right of conversion to purchase Newco Common Stock or Common Stock at a per share purchase price lower than the Conversion Price set forth herein, then the Conversion Price shall be adjusted downward to be equal to the Conversion Price granted to such third party.

4

(viii) Minimum Adjustment. Notwithstanding anything to the contrary set forth herein, no adjustment of the Conversion Price shall be made in an amount equal to less than one cent ($.01), but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to one cent ($.01) or more.

(ix) Certificate of Adjustment. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this section, the Corporation shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the holder of the Preferred Stock a certificate, signed by the Chairman of the Board, the President or the Chief Financial Officer, setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.

(c) Promptly after the receipt of certificates representing Class A Preferred Stock and surrender of Class A Preferred Stock, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder a certificate or certificates for the number of whole shares of Newco Common Stock or Corporation Common Stock issuable upon the conversion of such Class A Preferred Stock. No fractional shares shall be issued upon conversion of the Class A Preferred Stock into shares of Newco Common Stock or Corporation Common Stock. To the extent permitted by law, the conversion shall be deemed to have been effected as of the close of business on the Conversion Date (or on the next preceding business day if the Conversion Date is not a business day) and at that time the rights of the holder of Class A Preferred Stock, as such holder, shall cease, and the holder of the Class A Preferred Stock shall become the holder of record of shares of Newco Common Stock or Corporation Common Stock.

(d) Notwithstanding anything herein to the contrary, on any liquidation of the Corporation, the right of conversion of the Class A Preferred Stock shall terminate at the close of business on the last full business day before the date fixed for payment of the amount distributable on the Class A Preferred Stock.

VI. Registration Rights. In the event that (but without any obligation to do so) the Corporation proposes to register any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-4, Form S-8 or any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Corporation shall promptly give each Holder written notice of such registration (the “Piggy-Back Notice”); provided, however, that the Corporation shall have no obligation to so notify Holders with respect to any registration subsequent to the first of such registrations to occur after the issuance of the Corporation Common Stock and shall have no obligation if such registration relates to

5

an underwritten offering by the Corporation and the managing underwriter of the subject proposed offering expresses its objection thereto to the Corporation.

VII. Rank. With respect to the payment of dividends and rights to redemption and upon liquidation, the shares of the Class A Preferred Stock shall rank senior to the shares of Common Stock of the Corporation.

Common Stock

The aggregate number of shares of Common Stock which the Corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Par Value Per Share
Common	25,000,000	$	0.10

3. The date of adoption of the amendment herein with respect to approval of the class of Preferred Stock provided for was as of January 31, 1997; the date of adoption of the amendment herein with respect to the increase in the number of authorized shares of Common Stock was as of November 13, 1996; and the foregoing amendment herein with respect to the designation, preferences, limitations and relative rights of the Class A Preferred Stock was duly adopted by the Board of Directors by unanimous written consent of the Board of Directors dated June 17, 1997, pursuant to the provisions of the Virginia Stock Corporation Act. The foregoing amendment relating to the designation, preferences, limitations and relative rights of the Class A Preferred Stock does not require shareholder approval.

6

IN WITNESS WHEREOF, ESSEX CORPORATION has caused this Certificate of Amendment to be executed by its Chief Executive Officer and attested to by its Assistant Secretary this 24th day of June, 1997.

ESSEX CORPORATION
By:	/s/ Harry Letaw
	Harry Letaw, Jr., Chief Executive Officer

ATTEST:

/s/ Sarah E. Roberts

Sarah E. Roberts, Assistant Secretary

7

COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

June 27, 1997

The State Corporation Commission has found the accompanying articles submitted on behalf of

ESSEX CORPORATION

to comply with the requirements of law, and confirms payment of all related fees.

Therefore, it is ORDERED that this

CERTIFICATE OF AMENDMENT

be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective June 27, 1997 at 02:26 PM.

The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.

STATE CORPORATION COMMISSION
By:	/s/ T.V. Morrison Jr.
	Commissioner

AMENACPT

CIS20436

97-06-27-0107

ARTICLES OF AMENDMENT

OF

ESSEX CORPORATION

To the State Corporation Commission

Commonwealth of Virginia

The following Articles of Amendment are hereby submitted pursuant to the provisions of the Virginia Stock Corporation Act on behalf of the corporation hereinafter named.

I. The name of the corporation (hereinafter referred to as the “Corporation”) is Essex Corporation.

II. Article (c) of the Articles of Incorporation of the Corporation is hereby amended to designate a new series of the Corporation’s Preferred Stock to be known as “Series B Convertible Preferred Stock” by adding the following as new Section (c)(B):

(c)(B) Series B Convertible Preferred Stock. Five Hundred Thousand (500,000) shares of Preferred Stock of the Corporation are hereby designated as Series B Convertible Preferred Stock (“Series B Preferred”). The preferences, privileges and relative rights relating to the Series B Preferred are as follows:

1. Dividend Provisions. The Corporation shall not declare or pay any distributions on shares of Common Stock (other than a distribution described in Section 3(d)(i) below) until the holders of the Series B Preferred then outstanding shall have first received, or simultaneously receive, out of any assets legally available therefor a distribution on each outstanding share of Series B Preferred in an amount at least equal to the product of (i) the per share amount, if any, of the dividends or other distributions to be declared, paid or set aside for the Common Stock, multiplied by (ii) the number of whole shares of Common Stock into which such share of Series B Preferred is then convertible. Such dividends shall not be cumulative.

2. Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock and Series B Preferred pro rata based on the number of shares of Common Stock held by each such holder or into which such holder’s shares of Series B Preferred are then convertible.

3. Conversion. The holders of Series B Preferred shall have conversion rights as follows (the “Conversion Rights”):

(a) Right to Convert. Subject to Section 3(c), each share of Series B Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into four (4) fully paid and nonassessable shares of Common Stock (the “Series B Conversion Rate”). The Series B Conversion Rate shall be subject to adjustment as set forth in Section 3(d).

(b) Automatic Conversion. Each share of Series B Preferred shall automatically be converted into shares of Common Stock at the Series B Conversion Rate at the time in effect for such share on the second anniversary of the filing of these Articles of Amendment with the Virginia State Corporation Commission.

(c) Mechanics of Conversion. Before any holder of Series B Preferred shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such series of Series B Preferred, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, immediately thereafter, issue and deliver at such office to such holder of Series B Preferred, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Preferred to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an acquisition or an underwritten offering of securities registered pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of any holder tendering such Series B Preferred for conversion, be conditioned upon the closing of such acquisition or the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive Common Stock upon conversion of such Series B Preferred shall not be deemed to have converted such Series B Preferred until immediately prior to the closing of such acquisition or such sale of securities.

(d) Conversion Rate Adjustments of Series B Preferred for Certain Splits and Combinations. The Series B Conversion Rate shall be subject to adjustment from time to time as follows:

(i) Stock Splits and Dividends. In the event the Corporation should at any time or from time to time fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “Common Stock Equivalents”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Series B Conversion Rate shall be appropriately adjusted so that the number of shares of Common Stock issuable on conversion of each share of Series B Preferred shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and the number of shares issuable with respect to such Common Stock Equivalents.

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(ii) Reverse Stock Splits. If the number of shares of Common Stock outstanding at any time is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Series B Conversion Rate for each share of Series B Preferred shall be appropriately adjusted so that the number of shares of Common Stock issuable on conversion of each share of Series B Preferred shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

(e) Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights then, in each such case for the purpose of this Section 3(e), the holders of Series B Preferred shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series B Preferred are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

(f) Mergers, etc. If, at any time or from time to time, there shall be a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation’s properties and assets to any other person and entity, then as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holder of the Series B Preferred shall thereafter be entitled to receive upon conversion of the Series B Preferred, the number of shares of capital stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger or consolidation or sale, to which the holder of shares of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this section with respect to the rights of the holders of the Series B Preferred after the reorganization, merger, consolidation or sale to the end that the provisions of this section (including adjustment of the Series B Conversion Rate then in effect and the number of shares of Common Stock receivable upon conversion of the Series B Preferred) shall be applicable after that event as nearly equivalent hereto as may be practicable.

(g) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or other transaction provided for elsewhere in this Section 3) provision shall be made so that the holders of the Series B Preferred shall thereafter be entitled to receive upon conversion of such Series B Preferred the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of such Series B Preferred after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Series B Conversion Rate then in effect and the number of shares purchasable upon conversion of such Series B Preferred) shall be applicable after that event and be as nearly equivalent as practicable.

(h) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets,

-3-

consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series B Preferred against impairment.

(i) No Fractional Shares and Certificate as to Adjustments.

(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series B Preferred, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series B Preferred the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.

(ii) Upon the occurrence of each adjustment or readjustment of the Series B Conversion Rate pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of shares of a series of Series B Preferred, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the new Series B Conversion Rate, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series B Preferred.

(j) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall send to each holder of Series B Preferred, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(k) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series B Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of such Series B Preferred; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series B Preferred, in addition to such other remedies as shall be available to the holder of such Series B Preferred, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient

-4-

for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Corporation’s Articles of Incorporation.

(l) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series B Preferred shall be deemed given if delivered to such shareholder by a nationally recognized overnight delivery service at his address appearing on the books of the Corporation.

4. Voting Rights.

(a) Except as provided in Section 4(b) or Section 4(c) below, the holders of record of shares of Series B Preferred shall be entitled to such number of votes for each share of Series B Preferred standing in each such person’s name on the stock transfer records of the Corporation as shall be necessary to entitle the holders of all shares of Series B Preferred to vote, in. the aggregate, 51 % of the total voting power of all holders of all capital stock of the Corporation. Promptly following the fixing of a record date for each annual or special meeting of shareholders or prior to the taking of any action by written consent, the Board of Directors of the Corporation (the “Board”) shall determine the number of votes per share of Series B Preferred that each holder of record of Series B Preferred shall be entitled to cast to implement the foregoing voting provisions. The determination of such number of votes by the Board shall be final and shall be set forth in the notice of such meeting of shareholders or notice of consent delivered to the holders of capital stock of the Corporation.

(b) Notwithstanding the provisions of Section 4(a) above, on any matter set forth in clauses (i) or (ii) below submitted for consideration or action by the shareholders at any meeting of shareholders (or by written consent of shareholders in lieu of meeting) each holder of record of shares of Series B Preferred shall be entitled to one vote for each share of Common Stock into which such holder’s shares of Series B Preferred are convertible as of the record date for determining shareholders entitled to vote on such matter:

(i) any sale of all or substantially all of the assets of the Corporation which values the Corporation at less than $50,000,000; or

(ii) any merger (other than a merger in which the holders of capital stock of the Corporation before the transaction continue to hold more than 50% of the capital stock of the Corporation after the transaction) or consolidation to which the Corporation is a party which values the Corporation at less than $50,000,000.

Insofar as the consideration paid in a sale of assets, merger or consolidation referenced in clause (i) or (ii) above consists of property other than cash, the value of the Corporation shall be computed based on the fair market value of such property as of the applicable record date. In the event any consideration in such transaction is to be paid on a deferred basis, such consideration shall be valued on a present value basis, applying a discount factor of 8%. Any dispute concerning valuation of the Corporation shall be resolved by an investment banking firm selected by the Board.

(c) Notwithstanding the provisions of Section 4(a) above, each holder of record of shares of Series B Preferred shall be entitled to one vote for each share

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of Common Stock into which such holder’s shares of Series B Preferred are convertible at such time as the holders of Series B Preferred default beyond applicable grace and cure periods on any obligation they have to purchase Series B Preferred after the date of these Articles of Amendment.

III. The capital stock of the Corporation shall have no par value.

IV. The date of adoption of the amendments herein was September 6, 2000. Such amendments were duly adopted by the Board of Directors of the Corporation at a meeting held on September 6, 2000, pursuant to the provisions of the Virginia Stock Corporation Act. The foregoing amendments do not require shareholder approval.

IN WITNESS WHEREOF, Essex Corporation has caused these Articles of Amendment to be executed by its President and attested to by its Secretary as of this 7 day of September, 2000.

ESSEX CORPORATION
By:	/s/ Leonard E. Moodispaw
	Leonard E. Moodispaw, President

ATTEST:

/s/ Kimberly J. DeChello

Kimberly J. DeChello, Secretary

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COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

September 8, 2000

The State Corporation Commission has found the accompanying articles submitted on behalf of

ESSEX CORPORATION

to comply with the requirements of law, and confirms payment of all related fees.

Therefore, it is ORDERED that this

CERTIFICATE OF AMENDMENT

be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective September 8, 2000, at 10:25 AM.

The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.

STATE CORPORATION COMMISSION
By:	/s/ T.V. Morrison Jr.
	Commissioner

00-09-08-0603

AMENACPT

CIS0317

[LETTERHEAD] COMMONWEALTH OF VIRGINIA

September 8, 2000

	DWIGHT HOPEWELL CANTOR ARKEMA & EDMONDS 823 EAST MAIN ST “CALL FOR PICKUP CRYSTAL SMITH 644 1400 RICHMOND, VA 23218-0561
RE:	ESSEX CORPORATION
ID:	0119524-7
DCN:	00-09-08-0603

This is your receipt for $25.00 covering the fees for filing the following with this office:

articles of amendment to change authorized shares of stock

The effective date of the certificate of amendment is September 8, 2000.

If you have any questions, please call (804) 371-9733.

Sincerely,

/s/ Joel H. Peck

Joel H. Peck

Clerk of the Commission

AMENACPT

CIS0317

COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

AT RICHMOND, SEPTEMBER 24, 2004

The State Corporation Commission has found the accompanying articles submitted on behalf of

ESSEX CORPORATION

to comply with the requirements of law, and confirms payment of all required fees. Therefore, it is ORDERED that this

CERTIFICATE OF AMENDMENT

be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective September 24, 2004.

The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.

STATE CORPORATION COMMISSION
By:	/s/ Mark C. Christie
	Commissioner

04-09-23-0059

AMENACPT

CIS0436

Commonwealth of Virginia

[SEAL] State Corporation Commission

I Certify the Following from the Records of the Commission:

The foregoing is a true copy of the certificate of amendment of ESSEX CORPORATION issued September 24, 2004.

Nothing more is hereby certified.

	Signed and Sealed at Richmond on this Date: September 29, 2004
[SEAL]	/s/ Joel H. Peck
	Joel H. Peck, Clerk of the Commission

CIS0448

ARTICLES OF AMENDMENT

OF

ESSEX CORPORATION

To the State Corporation Commission

Commonwealth of Virginia

The following Articles of Amendment are hereby submitted pursuant to Title 13.1, Chapter 9, Article 11 of the Code of Virginia on behalf of the corporation hereinafter named.

1. The name of the corporation (hereinafter referred to as the “Corporation”) is ESSEX CORPORATION.

2. Article (c) of the Articles of Incorporation of the Corporation is hereby amended to read as follows:

(c)(A) Common Stock

The aggregate number of shares of Common Stock which the Corporation shall have authority to issue and the par value per share are as follows:

Class and Series	Number of Shares	Per Value Per Share
Common	50,000,000	No Par Value

3. Not applicable.

4. The date of adoption of the amendment herein provided for was as of July 21, 2004.

5. The amendment herein provided for was proposed by the Board of Directors of the Corporation and submitted to the shareholders of the Corporation in accordance with the provisions of Chapter 9 of Title 13.1 of the Code of Virginia.

The designation, number of outstanding shares, and number of votes entitled to be cast by each voting group entitled to vote separately on the amendment herein provided for are as follows:

Designation	Number of Outstanding Shares	Number of Votes
Common Stock no par value	15,098,929	15,098,929

The total number of votes cast for and against the amendment herein provided for by each voting group entitled to vote separately on the said amendment is as follows:

Voting Group	Number of Votes Cast FOR Amendment to Increase the Authorized Common Stock	Number of Votes Cast AGAINST Amendment to Increase the Authorized Common Stock
Shareholders as of the record date of June 1, 2004	14,169,153	228,288

The number of votes cast for the amendment herein provided for by the said voting group was sufficient for approval by that voting group.

IN WITNESS WHEREOF, ESSEX CORPORATION has caused this Certificate of Amendment to be executed by its Chief Executive Officer and attested to by its Assistant Secretary this 16^th day of September 2004.

	ESSEX CORPORATION (Corporate I.D. 0119524-7)
By:	/s/ Leonard E. Moodispaw
	Leonard E. Moodispaw, Chief Executive Officer

ATTEST:

/s/ Sarah E. Roberts

Sarah E. Roberts, Assistant Secretary

EX-10.1

EXHIBIT 10.1

ESSEX CORPORATION

2004 STOCK INCENTIVE PLAN

1. Purposes of the Plan. The purposes of this Plan are to attract and retain the best available personnel, to provide additional incentives to Employees, Directors and Consultants and to promote the success of the Company’s business.

2. Definitions. The following definitions shall apply as used herein and in the individual Award Agreements except as defined otherwise in an individual Award Agreement. In the event a term is separately defined in an individual Award Agreement, such definition shall supercede the definition contained in this Section 2.

a. “ADMINISTRATOR” means the Board or any of the Committees appointed to administer the Plan.

b. “AFFILIATE” and “ASSOCIATE” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

c. “APPLICABLE LAWS” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein.

d. “ASSUMED” means that pursuant to a Corporate Transaction either (i) the Award is expressly affirmed by the Company or (ii) the contractual obligations represented by the Award are expressly assumed (and not simply by operation of law) by the successor entity or its Parent in connection with the Corporate Transaction with appropriate adjustments to the number and type of securities of the successor entity or its Parent subject to the Award and the exercise or purchase price thereof which at least preserves the compensation element of the Award existing at the time of the Corporate Transaction as determined in accordance with the instruments evidencing the agreement to assume the Award.

e. “AWARD” means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Restricted Stock Unit or other right or benefit under the Plan.

f. “AWARD AGREEMENT” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.

g. “BOARD” means the Board of Directors of the Company.

h. “CAUSE” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Service, that such termination is for “Cause” as such

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term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s: (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (ii) dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.

i. “CHANGE IN CONTROL” means a change in ownership or control of the Company effected through either of the following transactions:

(i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or

(ii) a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors.

j. “CODE” means the Internal Revenue Code of 1986, as amended.

k. “COMMITTEE” means any committee composed of members of the Board appointed by the Board to administer the Plan.

l. “COMMON STOCK” means the common stock of the Company.

m. “COMPANY” means Essex Corporation, a Virginia corporation, or any successor corporation that adopts the Plan in connection with a Corporate Transaction.

n. “CONSULTANT” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.

o. “CONTINUING DIRECTORS” means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36) months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.

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p. “CONTINUOUS SERVICE” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant is not interrupted or terminated. In jurisdictions requiring notice in advance of an effective termination as an Employee, Director or Consultant, Continuous Service shall be deemed terminated upon the actual cessation of providing services to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an Employee, Director or Consultant can be effective under Applicable Laws. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds ninety (90) days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such ninety (90) day period.

q. “CORPORATE TRANSACTION” means any of the following transactions:

(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;

(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company;

(iii) the complete liquidation or dissolution of the Company;

(iv) any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of Common Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than forty percent (40%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger, but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or

(v) acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or

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series of related transactions that the Administrator determines shall not be a Corporate Transaction.

r. “COVERED EMPLOYEE” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code.

s. “DIRECTOR” means a member of the Board or the board of directors of any Related Entity.

t. “DISABILITY” means as defined under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.

u. “DIVIDEND EQUIVALENT RIGHT” means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock.

v. “EMPLOYEE” means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.

w. “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended.

x. “FAIR MARKET VALUE” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on one or more established stock exchanges or national market systems, including without limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Common Stock is listed (as determined by the Administrator) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such stock as quoted on such system on the date

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of determination, but if selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(iii) In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Administrator in good faith.

y. “GRANTEE” means an Employee, Director or Consultant who receives an Award under the Plan.

z. “INCENTIVE STOCK OPTION” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code

aa. “NON-QUALIFIED STOCK OPTION” means an Option not intended to qualify as an Incentive Stock Option.

bb. “OFFICER” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

cc. “OPTION” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.

dd. “PARENT” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

ee. “PERFORMANCE-BASED COMPENSATION” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code.

ff. “PLAN” means this 2003 Stock Incentive Plan.

gg. “RELATED ENTITY” means any Parent or Subsidiary of the Company and any business, corporation, partnership, limited liability company or other entity in which the Company or a Parent or a Subsidiary of the Company holds a substantial ownership interest, directly or indirectly.

hh. “REPLACED” means that pursuant to a Corporate Transaction the Award is replaced with a comparable stock award or a cash incentive program of the Company, the successor entity (if applicable) or Parent of either of them which preserves the compensation element of such Award existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same (or a more favorable) vesting schedule applicable to such Award. The determination of Award comparability shall be made by the Administrator and its determination shall be final, binding and conclusive.

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ii. “RESTRICTED STOCK” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.

jj. “RESTRICTED STOCK UNITS” means an Award which may be earned in whole or in part upon the passage of time or the attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.

kk. “RULE 16B-3” means Rule 16b-3 promulgated under the Exchange Act or any successor thereto.

ll. “SAR” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock.

mm. “SHARE” means a share of the Common Stock.

nn. “SUBSIDIARY” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. STOCK SUBJECT TO THE PLAN.

a. Subject to the provisions of Section 8, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is 1,000,000 Shares. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.

b. Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at the lower of their original purchase price or their Fair Market Value at the time of repurchase, such Shares shall become available for future grant under the Plan. To the extent not prohibited by Section 422(b)(1) of the Code (and the corresponding regulations thereunder), the listing requirements of The Nasdaq National Market (or other established stock exchange or national market system on which the Common Stock is traded) and Applicable Law, any Shares covered by an Award which are surrendered (i) in payment of the Award exercise or purchase price or (b) in satisfaction of tax withholding obligations incident to the exercise of an Award shall be deemed not to have been issued for purposes of determining the maximum number of Shares which may be issued pursuant to all Awards under the Plan, unless otherwise determined by the Administrator.

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4. ADMINISTRATION OF THE PLAN.

a. PLAN ADMINISTRATOR.

(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by

(A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.

(ii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time.

(iii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES. Notwithstanding the foregoing, grants of Awards to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation. In the case of such Awards granted to Covered Employees, references to the “Administrator” or to a “Committee” shall be deemed to be references to such Committee or subcommittee.

(iv) ADMINISTRATION ERRORS. In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws.

b. POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:

(i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;

(ii) to determine whether and to what extent Awards are granted hereunder;

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(iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;

(iv) to approve forms of Award Agreements for use under the Plan;

(v) to determine the terms and conditions of any Award granted hereunder;

(vi) to amend the terms of any outstanding Award granted under the Plan, provided that (A) any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent, (B) the reduction of the exercise price of any Option awarded under the Plan shall be subject to stockholder approval and ^© canceling an Option at a time when its exercise price exceeds the Fair Market Value of the underlying Shares, in exchange for another Option, Restricted Stock, or other Award shall be subject to stockholder approval, unless the cancellation and exchange occurs in connection with a Corporate Transaction;

(vii) to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of award or Award Agreement, granted pursuant to the Plan;

(viii) to grant Awards to Employees, Directors and Consultants employed outside the United States on such terms and conditions different from those specified in the Plan as may, in the judgment of the Administrator, be necessary or desirable to further the purpose of the Plan; and

(ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.

c. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act for the Board, the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on an after-tax basis against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within thirty (30) days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to defend the same.

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5. ELIGIBILITY. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company or a Parent or a Subsidiary of the Company. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in non-U.S. jurisdictions as the Administrator may determine from time to time.

6. TERMS AND CONDITIONS OF AWARDS.

a. TYPES OF AWARDS. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) cash or (iii) an Option, a SAR, or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Restricted Stock Units or Dividend Equivalent Rights, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative.

b. DESIGNATION OF AWARD. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive STOCK OPTIONS shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the grant date of the relevant Option.

c. CONDITIONS OF AWARD. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, the following: (i) increase in share price, (ii) earnings per share, (iii) total stockholder return, (iv) operating margin, (v) gross margin, (vi) return on equity, (vii) return on assets, (viii) return on investment, (ix) operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and depreciation, (xvi) economic value added, (xvii) market share, (xviii) personal management objectives, and (xix) other measures of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.

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d. ACQUISITIONS AND OTHER TRANSACTIONS. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction.

e. DEFERRAL OF AWARD PAYMENT. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.

f. SEPARATE PROGRAMS. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.

g. INDIVIDUAL LIMITATIONS ON AWARDS.

(i) INDIVIDUAL LIMIT FOR OPTIONS AND SARS. The maximum number of Shares with respect to which Options and SARs may be granted to any Grantee in any fiscal year of the Company shall be 500,000 Shares. In connection with a Grantee’s commencement of Continuous Service, a Grantee may be granted Options or SARs for up to an additional 500,000 Shares which shall not count against the limit set forth in the previous sentence. The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 9, below. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitations with respect to a Grantee, if any Option or SAR is canceled, the canceled Option or SAR shall continue to count against the maximum number of Shares with respect to which Options and SARs may be granted to the Grantee. For this purpose, the repricing of an Option (or in the case of a SAR, the base amount on which the stock appreciation is calculated is reduced to reflect a reduction in the Fair Market Value of the Common Stock) shall be treated as the cancellation of the existing Option or SAR and the grant of a new Option or SAR.

(ii) INDIVIDUAL LIMIT FOR RESTRICTED STOCK AND RESTRICTED STOCK UNITS. For awards of Restricted Stock and Restricted Stock Units that are intended to be Performance-Based Compensation, the maximum number of Shares with respect to which such Awards may be granted to any Grantee in any fiscal year of the Company shall be 500,000 Shares. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 9, below.

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(iii) DEFERRAL. If the vesting or receipt of Shares under an Award is deferred to a later date, any amount (whether denominated in Shares or cash) paid in addition to the original number of Shares subject to such Award will not be treated as an increase in the number of Shares subject to the Award if the additional amount is based either on a reasonable rate of interest or on one or more predetermined actual investments such that the amount payable by the Company at the later date will be based on the actual rate of return of a specific investment (including any decrease as well as any increase in the value of an investment).

h. EARLY EXERCISE. The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.

i. TERM OF AWARD. The term of each Award shall be no more than seven (7) years from the date of grant thereof (excluding any period for which the Grantee has elected to defer the receipt of the Shares or cash issuable pursuant to the Award). However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement (excluding any period for which the Grantee has elected to defer the receipt of the Shares issuable pursuant to the Incentive Stock Option).

j. TRANSFERABILITY OF AWARDS. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee. Non-Qualified Stock Options and other Awards shall be transferable (i) by will or by the laws of descent and distribution and (ii) during the lifetime of the Grantee, to the extent and in the manner authorized by the Administrator. Notwithstanding the foregoing, the Grantee may designate one or more beneficiaries of the Grantee’s Incentive Stock Option or Non-Qualified Stock Option in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator.

k. TIME OF GRANTING AWARDS. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator.

7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION AND TAXES.

a. EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if any, for an Award shall be as follows:

(i) In the case of an Incentive Stock Option:

(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or

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(B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

(ii) In the case of Non-Qualified Stock Options, the exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

(iii) In the case of SARs, the base appreciation amount shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

(iv) In the case of other Awards, such price as is determined by the Administrator.

(v) Notwithstanding the foregoing provisions of this Section 6(a), in the case of an Award issued pursuant to Section 5(d), above, the exercise or purchase price for the Award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such Award.

b. CONSIDERATION. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following:

(i) cash;

(ii) check;

(iii) surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised, provided, however, that Shares acquired under the Plan or any other equity compensation plan or agreement of the Company must have been held by the Grantee for a period of more than six (6) months (and not used for another Award exercise by attestation during such period);

(iv) with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a

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Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or

(v) any combination of the foregoing methods of payment.

c. TAXES. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any non-U.S., federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations.

8. EXERCISE OF AWARD.

a. PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.

(i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.

(ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 6(b)(iv).

b. EXERCISE OF AWARD FOLLOWING TERMINATION OF CONTINUOUS SERVICE.

(i) An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee’s Continuous Service only to the extent provided in the Award Agreement.

(ii) Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee’s Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first.

(iii) Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee’s Continuous Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement.

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9. CONDITIONS UPON ISSUANCE OF SHARES.

a. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

b. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.

10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the maximum number of Shares with respect to which Awards may be granted to any Grantee in any fiscal year of the Company, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.

11. CORPORATE TRANSACTIONS AND CHANGES IN CONTROL.

a. TERMINATION OF AWARD TO EXTENT NOT ASSUMED IN CORPORATE TRANSACTION. Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate. However, all such Awards shall not terminate to the extent they are Assumed in connection with the Corporate Transaction.

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b. ACCELERATION OF AWARD UPON CORPORATE TRANSACTION OR CHANGE IN CONTROL.

(i) CORPORATE TRANSACTION. Except as provided otherwise in an individual Award Agreement, in the event of a Corporate Transaction, for the portion of each Award that is neither Assumed nor Replaced, such portion of the Award shall automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value) for all of the Shares at the time represented by such portion of the Award, immediately prior to the specified effective date of such Corporate Transaction.

(ii) CHANGE IN CONTROL. Except as provided otherwise in an individual Award Agreement, in the event of a Change in Control (other than a Change in Control which also is a Corporate Transaction), each Award which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value), immediately prior to the specified effective date of such Change in Control, for all of the Shares at the time represented by such Award.

c. EFFECT OF ACCELERATION ON INCENTIVE STOCK OPTIONS. Any Incentive Stock Option accelerated under this Section 10 in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded. To the extent such dollar limitation is exceeded, the excess Options shall be treated as Non-Qualified Stock Options.

12. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. Subject to Applicable Laws, Awards may be granted under the Plan upon its becoming effective.

13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.

a. The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by Applicable Laws, or if such amendment would change any of the provisions of Section 4(b)(vi) or this Section 13(a).

b. No Award may be granted during any suspension of the Plan or after termination of the Plan.

c. No suspension or termination of the Plan (including termination of the Plan under Section 11, above) shall adversely affect any rights under Awards already granted to a Grantee.

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14. RESERVATION OF SHARES.

a. The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

b. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it interfere in any way with his or her right or the right of the Company or any Related Entity to terminate the Grantee’s Continuous Service at any time, with or without Cause, and with or without notice. The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way affected by its determination that the Grantee’s Continuous Service has been terminated for Cause for the purposes of this Plan.

16. No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.

17. Unfunded Obligation. Grantees shall have the status of general unsecured creditors of the Company. Any amounts payable to Grantees pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended. Neither the Company nor any Related Entity shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Grantee account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Related Entity and a Grantee, or otherwise create any vested or beneficial interest in any Grantee or the Grantee’s creditors in any assets of the Company or a Related Entity. The Grantees shall have no claim against the Company or any Related Entity for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.

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EX-10.2

EXHIBIT 10.2

ESSEX CORPORATION

2004 EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the 2004 Employee Stock Purchase Plan of Essex Corporation.

1. PURPOSE. The purpose of the Plan is to provide Employees of the Company and its Designated Parents or Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions and direct payments. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code and the applicable regulations thereunder. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.

2. DEFINITIONS. AS USED HEREIN, THE FOLLOWING DEFINITIONS SHALL APPLY:

a. “ADMINISTRATOR” means either the Board or a committee of the Board that is responsible for the administration of the Plan as is designated from time to time by resolution of the Board.

b. “APPLICABLE LAWS” means the legal requirements relating to the administration of employee stock purchase plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code and the applicable regulations thereunder, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to participation in the Plan by residents therein.

c. “BOARD” means the Board of Directors of the Company.

d. “CODE” means the Internal Revenue Code of 1986, as amended.

e. “COMMON STOCK” means the common stock of the Company.

f. “COMPANY” means Essex Corporation, a Virginia corporation.

g. “COMPENSATION” means an Employee’s base salary from the Company or one or more Designated Parents or Subsidiaries, including such amounts of base salary as are deferred by the Employee (i) under any qualified or non-qualified cash or deferred arrangement established by the Company or any Parent or Subsidiary of the Company whether or not described in Section 401(k) of the Code, or (ii) to a plan qualified under Section 125 of the Code. Compensation does not include overtime, bonuses, annual awards, other incentive payments, reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, contributions (other than contributions described in the first sentence) made on the Employee’s behalf by the Company or one or more Designated Parents or Subsidiaries under

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any employee benefit or welfare plan now or hereafter established, and any other payments not specifically referenced in the first sentence.

h. “CORPORATE TRANSACTION” means any of the following transactions:

(1) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;

(2) the sale, transfer or other disposition of all or substantially all of the assets of the Company;

(3) the complete liquidation or dissolution of the Company;

(4) any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of Common Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than forty percent (40%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger, but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or

(5) acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction.

i. “DESIGNATED PARENTS OR SUBSIDIARIES” means the Parents or Subsidiaries which have been designated by the Administrator from time to time as eligible to participate in the Plan.

j. “EFFECTIVE DATE” means the date determined by the Administrator.

k. “EMPLOYEE” means any individual, including an officer or director, who is an employee of the Company or a Designated Parent or Subsidiary for purposes of Section 423 of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the individual’s employer. Where the period of leave exceeds ninety (90) days and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the ninety-first (91st) day of such leave, for purposes of determining eligibility to participate in the Plan.

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l. “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended.

m. “FAIR MARKET VALUE” means, as of any date, the value of Common Stock determined as follows:

(1) If the Common Stock is listed on one or more established stock exchanges or national market systems, including without limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Common Stock is listed (as determined by the Administrator) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(2) If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such stock as quoted on such system on the date of determination, but if selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(3) In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Administrator in good faith.

n. “PARENT” means a “parent corporation” of the Company, whether now or hereafter existing, as defined in Section 424(e) of the Code.

o. “PARTICIPANT” means an Employee of the Company or Designated Parent or Subsidiary who is automatically enrolled in the Plan pursuant to Section 5(a).

p. “PLAN” means this 2004 Employee Stock Purchase Plan.

q. “PURCHASE DATE” means the last day of each Purchase Interval. Purchase Dates shall occur on each March 31, June 30, September 30 and December 31. The first Purchase Date for the Plan shall be September 30, 2004, unless a later date is determined by the Administrator.

r. “PURCHASE INTERVAL” means a Purchase Interval established pursuant to Section 4.

s. “PURCHASE PRICE” shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Purchase Date.

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t. “RESERVES” means, as of any date, the number of shares of Common Stock which have been authorized for issuance under the Plan but not then subject to an outstanding option.

u. “SUBSIDIARY” means a “subsidiary corporation” of the Company, whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. ELIGIBILITY.

a. GENERAL. Any individual who is an Employee shall be eligible to participate in the Plan. Employees who are subject to rules or laws of a foreign jurisdiction that prohibit or make impractical the participation of such Employees in the Plan shall not be eligible to participate in the Plan. No individual who is not an Employee shall be eligible to participate in the Plan.

b. LIMITATIONS ON GRANT AND ACCRUAL. Any provisions of the Plan to the contrary notwithstanding, no Employee shall be permitted to purchase shares under the Plan if, immediately prior to purchase, (i) such Employee (taking into account stock owned by any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Parent or Subsidiary, or (ii) such Employee’s rights to purchase stock under all employee stock purchase plans of the Company and its Parents or Subsidiaries exceed Twenty-Five Thousand Dollars (US$25,000) worth of stock (determined at the Fair Market Value of the shares at the time such option is granted) for each calendar year. The determination of the accrual of the right to purchase stock shall be made in accordance with Section 423(b)(8) of the Code and the regulations thereunder.

4. PURCHASE INTERVALS.

a. Initially, the Plan shall be implemented through consecutive Purchase Intervals of three (3) months’ duration commencing each January 1, April 1, July 1 and October 1 following the Effective Date (except that the initial Purchase Interval shall commence on the Effective Date and the first Purchase Date for the Plan shall be September 30, 2004, unless a later date is determined by the Administrator). However, the Administrator may provide for shorter or longer Purchase Intervals and may specify one or more additional Purchase Dates within Purchase Intervals. The maximum duration of a Purchase Interval shall be twenty-seven (27) months. Participants shall purchase shares on the applicable Purchase Dates until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Section 19 hereof.

b. Except as specifically provided herein, the acquisition of Common Stock on any Purchase Date through participation in the Plan shall neither limit nor require the acquisition of Common Stock by a Participant on any subsequent Purchase Date.

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5. PARTICIPATION.

a. GENERAL. All Employees eligible to participate in the Plan as of the Effective Date shall automatically become Participants in the initial Purchase Interval and be eligible to purchase shares of Common Stock on the Purchase Date of the initial Purchase Interval. All Employees eligible to participate in the Plan as of the first day of subsequent Purchase Intervals shall automatically become Participants in such Purchase Intervals and be eligible to purchase shares of Common Stock on the Purchase Date of such Purchase Intervals. Notwithstanding the automatic participation in the Purchase Intervals by all eligible Employees, no shares of Common Stock shall be purchased on behalf of a Participant on the Purchase Date of a Purchase Interval unless a Participant has filed a subscription agreement in accordance with Section 6 hereof.

b. PURCHASE OF SHARES. An eligible Employee may purchase shares of Common Stock by completing a subscription agreement in the form of Exhibit 1 to this Plan (or such other form or method (including electronic forms) as the Administrator may designate from time to time) and filing it (as well as a direct payment, if applicable) with the Company at least three (3) business days prior to the next Purchase Date, unless a later time for filing the subscription agreement is set by the Administrator for all eligible Employees with respect to a given Purchase Date.

6. PAYROLL DEDUCTIONS AND DIRECT PAYMENT.

a. At the time a Participant files a subscription agreement, the Participant may elect to have payroll deductions made during the Purchase Interval in either (i) amounts between one percent (1%) and not exceeding ten percent (10%) of the Compensation which the Participant receives during the Purchase Interval or (ii) fixed dollar amounts not exceeding ten percent (10%) of the Compensation which the Participant receives during the Purchase Interval. All payroll deductions made for a Participant shall be credited to the Participant’s account under the Plan and will be withheld in either whole percentages or whole dollar amounts. Payroll deductions shall commence with the first partial or full payroll period beginning after the Participant’s submission of a subscription agreement and shall end on the last complete payroll period prior to a Purchase Date, unless sooner terminated by the Participant as provided in Section 10.

b. A Participant may make one or more direct payments into his or her account by completing and filing with the Company either (i) a subscription agreement in the form of Exhibit 1 to this Plan or (ii) a notice in the form of Exhibit 2 to this Plan (or such other form or method (including electronic forms) as the Administrator may designate from time to time) designating the amount of the direct payment. Notwithstanding the foregoing, the total amount of the direct payment(s) and the payroll deductions pursuant to Section 6(a) may not exceed ten percent (10%) of the Compensation which the Participant receives during the Purchase Interval.

c. A Participant may discontinue participation in a Purchase Interval as provided in Section 10, or may increase or decrease the rate of payroll deductions during the Purchase Interval by completing and filing with the Company a notice in the form of Exhibit 2 to

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this Plan (or such other form or method (including electronic forms) as the Administrator may designate from time to time) authorizing an increase or decrease in the payroll deduction rate. Any increase or decrease in the rate of a Participant’s payroll deductions shall be effective with the first full payroll period commencing ten (10) business days after the Company’s receipt of such notice unless the Company elects to process a given change in participation more quickly. A Participant’s subscription agreement (as modified by any subsequently filed notice) shall remain in effect for successive Purchase Dates unless terminated as provided in Section 10. The Administrator shall be authorized to limit the number of payroll deduction rate changes during any Purchase Interval.

d. Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant’s payroll deductions shall be decreased to 0% or zero dollars and one or more direct payments made by the Participant pursuant to Section 6(b) may be rejected by the Administrator and returned to the Participant. Payroll deductions shall recommence at the rate provided in such Participant’s subscription agreement, as amended, at the time when permitted under Section 423(b)(8) of the Code and Section 3(b) herein, unless such participation is sooner terminated by the Participant as provided in Section 10.

7. MAXIMUM SHARE PURCHASE. On a Purchase Date, each Participant may purchase (at the applicable Purchase Price) no more than two hundred and fifty (250) shares of Common Stock, subject to adjustment as provided in Section 18 hereof; provided that such purchase of shares shall be subject to the limitations set forth in Sections 3(b), 6 and 12 hereof. The purchase of shares on the applicable Purchase Date shall occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10.

8. PURCHASE OF SHARES. Unless a Participant withdraws from a Purchase Interval as provided in Section 10, below, shares of Common Stock will be automatically purchased for a Participant on each Purchase Date, by applying the accumulated payroll deductions and direct payments (if any) in the Participant’s account to purchase the number of full shares determined by dividing such Participant’s payroll deductions and direct payments (if any) accumulated prior to such Purchase Date and retained in the Participant’s account as of the Purchase Date by the applicable Purchase Price. No fractional shares will be purchased; any amount remaining in a Participant’s account which is not sufficient to purchase a full share shall be carried over to the next Purchase Date or returned to the Participant, if the Participant withdraws from the Plan. Notwithstanding the foregoing, any amount remaining in a Participant’s account following the purchase of shares on the Purchase Date due to the application of Section 423(b)(8) of the Code or Section 7, above, shall be returned to the Participant and shall not be carried over to the next Purchase Date.

9. DELIVERY AND SALE OF SHARES. Within ten (10) calendar days after the applicable Purchase Date, the Company will deliver the Shares purchased on such Purchase Date to the Participant’s account maintained by the Company’s designated broker. In no event may a Participant sell Shares acquired on a Purchase Date prior to the delivery of such Shares to the Participant’s account maintained by the Company’s designated broker.

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10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.

a. A Participant may either (i) withdraw all but not less than all the payroll deductions and direct payments (if any) credited to the Participant’s account and not yet used to purchase shares under a Purchase Interval or (ii) terminate future payroll deductions, but allow accumulated payroll deductions and prior direct payments (if any) to be used to purchase shares on the next Purchase Date at any time by giving written notice to the Company in the form of Exhibit 2 to this Plan (or such other form or method (including electronic forms) as the Administrator may designate from time to time). If the Participant elects withdrawal alternative (i) described above, all of the Participant’s payroll deductions and direct payments (if any) credited to the Participant’s account will be paid to such Participant as promptly as practicable after receipt of notice of withdrawal and no further payroll deductions for the purchase of shares will be made during the Purchase Interval; provided that notice in the form of Exhibit 2 to this Plan (or such other form or method (including electronic forms) as the Administrator may designate from time to time) is delivered to the Company at least ten (10) business days prior to the next Purchase Date. If the Participant elects withdrawal alternative (ii) described above, no further payroll deductions for the purchase of shares will be made during the Purchase Interval, all of the Participant’s payroll deductions and direct payments (if any) credited to the Participant’s account will be applied to the purchase of shares on the next Purchase Date (subject to Sections 3(b), 6, 7 and 12) and all remaining accumulated payroll deduction amounts shall be returned to the Participant. If a Participant withdraws from a Purchase Interval, payroll deductions will not resume at the beginning of the succeeding Purchase Interval unless the Participant delivers to the Company a new subscription agreement.

b. Upon termination of a Participant’s employment relationship (as described in Section 2(k)) at any time, the payroll deductions and direct payments (if any) credited to such Participant’s account during the Purchase Interval but not yet used to purchase shares will be applied to the purchase of Common Stock on the next Purchase Date, unless the Participant (or in the case of the Participant’s death, the person or persons entitled to the Participant’s account balance under Section 14) withdraws from the Plan by submitting a notice in accordance with subsection (a) of this Section 10. In such a case, the payroll deductions and direct payments (if any) credited to such Participant’s account during the Purchase Interval but not yet used to purchase shares will be returned to such Participant or, in the case of his/her death, to the person or persons entitled thereto under Section 14.

11. INTEREST. No interest shall accrue on the payroll deductions and direct payments (if any) credited to a Participant’s account under the Plan.

12. STOCK.

a. The maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be one million (1,000,000) shares, subject to adjustment upon changes in capitalization of the Company as provided in Section 18. With respect to any amendment to increase the total number of shares of Common Stock under the Plan, the Administrator shall have discretion to disallow the purchase of any increased shares of Common Stock for the Purchase Interval in existence at the time of such increase. If the Administrator determines that on a given Purchase Date the number of shares that may be purchased may

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exceed the number of shares then available for sale under the Plan the Administrator may make a pro rata allocation of the shares remaining available for purchase on such Purchase Date. Any amount remaining in a Participant’s payroll account following such pro rata allocation shall be returned to the Participant and shall not be carried over to any future Purchase Date, as determined by the Administrator.

b. Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and his or her spouse, as designated in the Participant’s subscription agreement.

13. ADMINISTRATION. The Plan shall be administered by the Administrator which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Any question or dispute regarding the administration or interpretation of the Plan shall be submitted by the Participant or by the Company to the Administrator. The resolution of such question or dispute as well as every finding, decision and determination made by the Administrator shall, to the full extent permitted by Applicable Law, be final and binding upon all persons.

14. DESIGNATION OF BENEFICIARY.

a. Each Participant will file a written designation of a beneficiary who is to receive any shares and cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death. If a Participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.

b. Such designation of beneficiary may be changed by the Participant (and the Participant’s spouse, if any) at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living (or in existence) at the time of such Participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Administrator), the Administrator shall deliver such shares and/or cash to the spouse (or domestic partner, as determined by the Administrator) of the Participant, or if no spouse (or domestic partner) is known to the Administrator, then to the issue of the Participant, such distribution to be made per stirpes (by right of representation), or if no issue are known to the Administrator, then to the heirs at law of the Participant determined in accordance with Section 27.

15. TRANSFERABILITY. No payroll deductions or direct payments credited to a Participant’s account or any rights with regard to the purchase of shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 14 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Administrator may, in its sole discretion, treat such act as an election to withdraw funds in accordance with Section 10.

16. USE OF FUNDS. All payroll deductions and direct payments (if any) received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the

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Company shall not be obligated to segregate such payroll deductions and direct payments (if any) or hold them exclusively for the benefit of Participants. All payroll deductions and direct payments (if any) received or held by the Company may be subject to the claims of the Company’s general creditors. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Designated Parent or Subsidiary and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of the Company or a Designated Parent or Subsidiary. The Participants shall have no claim against the Company or any Designated Parent or Subsidiary for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.

17. REPORTS. Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to Participants at least annually, which statements will set forth the amounts of payroll deductions and direct payments (if any), the Purchase Price, the number of shares purchased and the remaining cash balance, if any.

18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.

a. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the Reserves, the maximum number of shares that may be purchased on any Purchase Date, as well as any other terms that the Administrator determines require adjustment may be proportionately adjusted for (i) any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, (ii) any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment, if any, shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to the Reserves.

b. CORPORATE TRANSACTIONS. In the event of a proposed Corporate Transaction, each stock purchase right under the then existing Purchase Interval under the Plan shall be assumed by such successor corporation or a parent or subsidiary of such successor corporation, unless the Administrator, in the exercise of its sole discretion and in lieu of such assumption, determines to shorten the Purchase Interval then in progress by setting a new Purchase Date (the

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“New Purchase Date”). If the Administrator shortens the Purchase Interval then in progress in lieu of assumption in the event of a Corporate Transaction, the Administrator shall notify each Participant in writing at least ten (10) business days prior to the New Purchase Date, that the Purchase Date has been changed to the New Purchase Date and that EITHER:

(1) the Participant will purchase shares on the New Purchase Date, unless prior to such date the Participant has withdrawn from the Purchase Interval as provided in Section 10; or

(2) the Company shall pay to the Participant on the New Purchase Date an amount in cash, cash equivalents, or property as determined by the Administrator that is equal to the excess, if any, of (i) the Fair Market Value of the shares over (ii) the Purchase Price due had the Participant purchased shares under Subsection (b)(1) above. In addition, all remaining accumulated payroll deduction amounts and direct payments (if any) shall be returned to the Participant.

c. For purposes of Subsection 18, a stock purchase right under the then existing Purchase Interval under the Plan shall be deemed to be assumed if, in connection with the Corporate Transaction, the stock purchase right is replaced with a comparable stock purchase right with respect to shares of capital stock of the successor corporation or Parent thereof. The determination of comparability shall be made by the Administrator prior to the Corporate Transaction and its determination shall be final, binding and conclusive on all persons.

19. AMENDMENT OR TERMINATION.

a. The Administrator may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18, no such termination can adversely affect the purchase rights of a Participant with respect to the then existing Purchase Interval under the Plan, provided that the Plan or then existing Purchase Interval may be terminated by the Administrator establishing an earlier Purchase Date with respect to the Purchase Interval then in progress if the Administrator determines that the termination of the Plan or such Purchase Interval is in the best interests of the Company and its stockholders. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other Applicable Law), the Company shall obtain stockholder approval of any amendment in such a manner and to such a degree as required.

b. Without stockholder consent, the Administrator shall be entitled to limit the frequency and/or number of changes in the amount withheld during Purchase Intervals, determine the length of any future Purchase Intervals, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion

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advisable and which are consistent with the Plan, in each case to the extent consistent with the requirements of Code Section 423 and other Applicable Laws.

20. NOTICES. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Administrator at the location, or by the person, designated by the Administrator for the receipt thereof.

21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued under the Plan unless the purchase and the issuance and delivery of such shares shall comply with all Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the purchase of shares on a Purchase Date, the Company may require the Participant to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned Applicable Laws or is otherwise advisable. In addition, no shares shall be purchased hereunder before the Plan shall have been approved by stockholders of the Company as provided in Section 23.

22. TERM OF PLAN. The Plan shall become effective upon its approval by the stockholders of the Company. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Section 19.

23. NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly, create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Company or a Designated Parent or Subsidiary, and it shall not be deemed to interfere in any way with such employer’s right to terminate, or otherwise modify, an employee’s employment at any time.

24. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS. Except as specifically provided in a retirement or other benefit plan of the Company or a Designated Parent or Subsidiary, participation in the Plan shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Designated Parent or Subsidiary, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.

25. EFFECT OF PLAN. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Participant, including, without limitation, such Participant’s estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant.

26. GOVERNING LAW. The Plan is to be construed in accordance with and governed by the internal laws of the State of Maryland without giving effect to any choice of law rule that

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would cause the application of the laws of any jurisdiction other than the internal laws of the State of Maryland to the rights and duties of the parties, except to the extent the internal laws of the State of Maryland are superseded by the laws of the United States. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

27. VENUE AND WAIVER OF JURY TRIAL. The Company and the Participant, or their respective successors (the “parties”) agree that any suit, action, or proceeding arising out of or relating to the Plan shall be brought in the United States District Court for the District of Maryland (or should such court lack jurisdiction to hear such action, suit or proceeding, in a Maryland state court in the County of Howard) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 27 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

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EXHIBIT 1

Essex Corporation 2004 Employee Stock Purchase Plan

SUBSCRIPTION AGREEMENT

1. PERSONAL INFORMATION. All shares of the Company’s Common Stock purchased under the Essex Corporation 2004 Employee Stock Purchase Plan (the “ESPP”) must be registered in the Employee’s name. Please complete your personal information requested below.

Shares may also be registered in the name of the Employee’s spouse. Complete the information about your spouse ONLY IF YOU WOULD LIKE YOUR SPOUSE TO BE REGISTERED AS THE JOINT OWNER OF ANY COMMON STOCK OF THE COMPANY THAT YOU PURCHASE UNDER THE ESPP. PLEASE PRINT CLEARLY:

Your Legal Name
	(Last)        (First)        (MI)	Location	Depart

Street Address
	Daytime Telephone

City, State/Country, Zip
	E-Mail Address

Social Security No. __ __ __ - __ __ - __ __ __ __

Employee I.D. No.
	Manager	Mgr.

Location

Legal Name of Spouse
	(Last)	(First)	(MI)

Street Address
	Daytime Telephone

City, State/Country, Zip
	E-Mail Address

Social Security No. __ __ __ - __ __ - __ __ __ __

2. ELIGIBILITY. Any Employee who does not hold (directly or indirectly) five percent (5%) or more of the combined voting power of the Company, a parent or a subsidiary, whether in stock or options to acquire stock is eligible to participate in the ESPP; provided, however, that Employees who are subject to the rules or laws of a foreign jurisdiction that prohibit or make impractical the participation of such Employees in the ESPP are not eligible to participate.

3. DEFINITIONS. Each capitalized term in this Subscription Agreement shall have the meaning set forth in the ESPP.

4. SUBSCRIPTION. I hereby subscribe to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the ESPP. I have received a complete copy of the ESPP and a prospectus describing the ESPP and understand that my participation in the ESPP is in all respects subject to the terms of the ESPP. The effectiveness of this Subscription Agreement is dependent on my eligibility to participate in the ESPP.

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5. PAYROLL DEDUCTION AUTHORIZATION/DIRECT PAYMENT. I hereby authorize payroll deductions from my Compensation during the Purchase Interval in either (a) the percentage specified below OR (b) the whole dollar amount specified below (payroll deductions may not exceed 10% of Compensation nor the limitation under Section 423(b)(8) of the Code and the regulations thereunder):

Percentage to be Deducted
(circle one)	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%

Dollar Amount to be Deducted
(whole dollars only)	$

Alternatively or in addition to the payroll deductions authorized above, I hereby submit the following amount as a direct payment to my account to be used to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the ESPP:

$                    

The total of payroll deductions authorized above and the direct payment submitted herewith (if any) may not exceed 10% of Compensation nor the limitation under Section 423(b)(8) of the Code and the regulations thereunder. Any direct payments in excess of 10% of Compensation or the limitation under Section 423(b)(8) of the Code shall be returned to me.

I understand that the Company is not obligated to segregate my payroll deductions and direct payments (if any) or hold them exclusively for my benefit.

6. ESPP ACCOUNTS AND PURCHASE PRICE. I understand that all payroll deductions and direct payments (if any) will be credited to my account under the ESPP. No interest will be credited on funds held in the account at any time including any refund of the account caused by withdrawal from the ESPP. All payroll deductions and direct payments (if any) shall be accumulated for the purchase of Company Common Stock at the applicable Purchase Price determined in accordance with the ESPP.

7. WITHDRAWAL AND CHANGES IN PAYROLL DEDUCTION. I understand that I may discontinue my participation with respect to a particular Purchase Interval at any time prior to the applicable Purchase Date as provided in Section 10 of the ESPP, but if I do not withdraw from the ESPP, any accumulated payroll deductions and prior direct payments will be applied automatically to purchase Company Common Stock. I may increase or decrease the rate of my payroll deductions on only one occasion during any Purchase Interval by completing and timely filing a Change of Status or Direct Payment Notice. Any increase or decrease will be effective for the first full payroll period commencing no fewer than ten (10) business days following the Company’s receipt of the Change of Status or Direct Payment Notice.

8. PERPETUAL SUBSCRIPTION. I understand that this Subscription Agreement shall remain in effect for successive Purchase Intervals until I withdraw from participation in a particular Purchase Interval, or termination of the ESPP.

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9. TAXES. I have reviewed the ESPP prospectus discussion of the federal tax consequences of participation in the ESPP and consulted with tax consultants as I deemed advisable prior to my participation in the ESPP. I hereby agree to notify the Company in writing within thirty (30) days of any disposition (transfer or sale) of any shares purchased under the ESPP if such disposition occurs within two (2) years of the first day of the Purchase Interval during which the shares were purchased or within one (1) year of the Purchase Date (the date I purchased such shares), and I will make adequate provision to the Company for foreign, federal, state or other tax withholding obligations, if any, which arise upon the disposition of the shares. In addition, the Company may withhold from my Compensation any amount necessary to meet applicable tax withholding obligations incident to my participation in the ESPP, including any withholding necessary to make available to the Company any tax deductions or benefits contingent on such withholding.

10. ADMINISTRATION AND INTERPRETATION. I agree that any question or dispute regarding the administration or interpretation of the Plan shall be submitted by me or by the Company to the Administrator. I further agree that the resolution of such question or dispute by the Administrator shall be final and binding on all persons.

11. VENUE AND WAIVER OF JURY TRIAL. The Company and I, or our respective successors (the “parties”) agree that any suit, action, or proceeding arising out of or relating to the Plan shall be brought in the United States District Court for the District of Maryland (or should such court lack jurisdiction to hear such action, suit or proceeding, in a Maryland state court in the County of Howard) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 11 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

12. DESIGNATION OF BENEFICIARY. In the event of my death, I hereby designate the following person or trust as my beneficiary to receive all payments and shares due to me under the ESPP:

                     I am single                      I am married

Beneficiary (please print)                                      Relationship to Beneficiary (if any)

                        (Last)  (First)  (MI)

Street Address                                                                                                                                                                                                                                

City, State/Country, Zip                                                                                                                                                                                                              

13. TERMINATION OF ESPP. I understand that the Company has the right, exercisable in its sole discretion, to amend or terminate the ESPP at any time, and a termination may be effective as early as a Purchase Date, including the establishment of an alternative Purchase Date.

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14. EFFECTIVE DATE OF SUBSCRIPTION AGREEMENT. With respect to the commencement of payroll deductions, this Subscription Agreement will be effective for the first partial or full payroll period beginning (a) after the Company’s receipt of this Subscription Agreement or (b) if later, after the commencement of the initial Purchase Interval under the ESPP. Direct payments submitted in connection with this Subscription Agreement will be applied to the next Purchase Date provided this Subscription Agreement is received by Company at least three (3) business days prior to such Purchase Date.

Date:   Employee Signature:

Spouse’s signature (if beneficiary is other than spouse)

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EXHIBIT 2

Essex Corporation 2004 Employee Stock Purchase Plan

CHANGE OF STATUS OR DIRECT PAYMENT NOTICE

Participant Name (Please Print)

Social Security Number

	WITHDRAWAL FROM ESPP
¨	I hereby withdraw from the current Purchase Interval under the Essex Corporation 2004 Employee Stock Purchase Plan (the “ESPP”) and agree that all accumulated payroll deductions and prior direct payments (if any) credited to my account will be refunded to me or applied to the purchase of Common Stock depending on the alternative indicated below. No further payroll deductions will be made for the purchase of shares in the applicable Purchase Interval and I may purchase shares in future Purchase Intervals only by timely delivery to the Company of a new Subscription Agreement.
¨	WITHDRAWAL AND PURCHASE OF COMMON STOCK
	Payroll deductions will terminate, but your account balance will be applied to purchase Common Stock on the next Purchase Date. Any remaining balance will be refunded.
¨	WITHDRAWAL WITHOUT PURCHASE OF COMMON STOCK
	Entire account balance will be refunded to me and no Common Stock will be purchased on the next Purchase Date provided this notice is submitted to the Company at least ten (10) business days prior to the next Purchase Date.
¨	CHANGE IN PAYROLL DEDUCTION
I hereby elect to change my rate of payroll deduction under the ESPP as follows (select one):

Percentage to be Deducted
(circle one)	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%

Dollar Amount to be Deducted
(whole dollars only)	$

1

Payroll deductions may not exceed 10% of Compensation nor the limitation under Section 423(b)(8) of the Code and the regulations thereunder. An increase or a decrease in payroll deduction will be effective for the first full payroll period commencing no fewer than ten (10) business days following the Company’s receipt of this notice, unless this change is processed more quickly.

¨ SUBMISSION OF DIRECT PAYMENT

I hereby submit the following amount as a direct payment to my account to be used to purchase shares of the Company’s Common Stock in accordance with the terms of the ESPP:

$                    

The total of payroll deductions authorized by me and the direct payment submitted herewith (and prior direct payments, if any) may not exceed 10% of Compensation nor the limitation under Section 423(b)(8) of the Code and the regulations thereunder. Any direct payments in excess of 10% of Compensation or the limitation under Section 423(b)(8) of the Code shall be returned to me.

Direct payments submitted in connection with this notice will be applied to the next Purchase Date provided this notice is received by Company at least three (3) business days prior to such Purchase Date.

CHANGE OF BENEFICIARY I am single I am married

This change of beneficiary shall terminate my previous beneficiary designation under the ESPP. In the event of my death, I hereby designate the following person or trust as my beneficiary to receive all payments and shares due to me under the ESPP:

Beneficiary (please print)
Relationship to Beneficiary	(if any)                     (Last)                 (First)                     (MI)

Street Address

City, State/Country, Zip

Date:     Employee Signature:

Spouse’s signature (if beneficiary is other than spouse)

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EX-31.1

Exhibit 31.1

Essex Corporation

CERTIFICATION

I, Leonard E. Moodispaw, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Essex Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2004	/s/ Leonard E. Moodispaw
	Leonard E. Moodispaw
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Essex Corporation

CERTIFICATION

I, Lisa G. Jacobson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Essex Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2004	/s/  Lisa G. Jacobson
	Lisa G. Jacobson
	Executive Vice-President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Essex Corporation

Section 1350 Certification

In connection with the quarterly report of Essex Corporation (the “Company”) on Form 10-Q for the period ended September 26, 2004 as filed with the Securities and Exchange Commission (the “Report”), I, Leonard E. Moodispaw, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: November 8, 2004	/s/ Leonard E. Moodispaw
	Leonard E. Moodispaw
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Essex Corporation

Section 1350 Certification

In connection with the quarterly report of Essex Corporation (the “Company”) on Form 10-Q for the period ended September 26, 2004 as filed with the Securities and Exchange Commission (the “Report”), I, Lisa G. Jacobson, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: November 8, 2004	/s/ Lisa G. Jacobson
	Lisa G. Jacobson
	Executive Vice-President and Chief Financial Officer