UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ x ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a -12
VSE CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ x ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each Class of securities to which transaction applies: N/A
2. Aggregate number of securities to which transaction applies: N/A
3. Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
4. Proposed maximum aggregate value of transaction: N/A
5. Total fee paid: N/A
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount previously paid: N/A
2. Form, Schedule or Registration Statement No.: N/A
3. Filing Party: N/A
4. Date Filed: N/A
VSE CORPORATON
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of 2006
Annual Meeting of
Stockholders and
Proxy Statement
Fellow Stockholders:
You are cordially invited to attend the annual meeting of stockholders of
VSE Corporation to be held on Tuesday, May 2, 2006, commencing at 10:00 a.m.,
Washington, D.C. time, at the VSE Building, 2550 Huntington Avenue, Alexandria,
Virginia 22303-1499. The matters expected to be considered at the annual meeting
are described in the accompanying notice of meeting and proxy statement.
At the meeting we will also review the activities of the company during
the past year and its current activities. Stockholders will have an opportunity
to ask questions. I hope you will be able to join us.
To ensure that your VSE common stock is voted at the meeting, please
promptly sign and date the enclosed proxy card and return it to VSE in the
enclosed envelope. Your vote is important. Even if you return your proxy, you
may attend the meeting and vote in person.
Please note the location for this meeting. The VSE Building is located at
2550 Huntington Avenue, Alexandria, Virginia 22303-1499, just off I-95/I-495 at
Exit 176 (Telegraph Road - South). The building is also within walking distance
of the Huntington Avenue Metro Station (Yellow Line), using the Lower Level exit
to Huntington Avenue.
Very truly yours,
VSE CORPORATION
D. M. Ervine
Chairman, President, CEO and COO
March 31, 2006
VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 2, 2006
To the Stockholders of VSE Corporation:
Notice is hereby given that the annual meeting of stockholders of
VSE Corporation, a Delaware corporation ("VSE"), will be held on Tuesday, May 2,
2006, commencing at 10:00 a.m., Washington, D.C. time, at the VSE Building,
2550 Huntington Avenue, Alexandria, Virginia 22303-1499, for the following
purposes:
1. To elect seven directors to serve until the next annual meeting of
stockholders and until their successors are duly elected and
qualified;
2. To approve an amendment to VSE's Restated Certificate of
Incorporation to increase the authorized number of shares of
VSE Common Stock, par value $.05 per share, from 5,000,000 shares to
15,000,000 shares;
3. To approve the adoption of the VSE Corporation 2006 Restricted Stock
Plan;
4. To ratify the appointment of Ernst & Young LLP as VSE's independent
certified public accountants for the fiscal year ending December 31,
2006; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only record holders of VSE common stock as of the close of business on
March 20, 2006, will be entitled to notice of, and to vote at, the meeting or
any adjournments thereof. The list of stockholders entitled to vote at the
meeting or any adjournments thereof will be open to the examination of any
stockholder during the 10 days prior to the meeting at VSE's offices located at
2550 Huntington Avenue, Alexandria, Virginia 22303-1499, during ordinary
business hours.
The VSE Corporation 2005 Annual Report to Stockholders, which contains
consolidated financial statements and other information of interest to
stockholders, accompanies this proxy material.
EVEN IF YOU EXPECT TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY. TO RETURN YOUR PROXY YOU MAY USE THE SELF-
ADDRESSED STAMPED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY, IF YOU WISH,
WITHDRAW YOUR PROXY AND VOTE YOUR SHARES PERSONALLY.
By Order of the Board of Directors
C. S. Weber, Secretary
March 31, 2006
VSE CORPORATION
__________________________________
PROXY STATEMENT
Annual Meeting of Stockholders
to be held on May 2, 2006
__________________________________
INTRODUCTION
General
This proxy statement is being furnished to the stockholders of
VSE Corporation, a Delaware corporation ("VSE" or the "Company"), in connection
with the solicitation of proxies by VSE's board of directors (the "Board") for
use at VSE's annual meeting of stockholders to be held on Tuesday, May 2, 2006,
commencing at 10:00 a.m., Washington, D.C. time, at the VSE Building, 2550
Huntington Avenue, Alexandria, Virginia 22303-1499, and at any adjournments
thereof for the purposes specified in the accompanying notice of meeting (the
"Meeting").
The mailing address of VSE's principal executive office is 2550
Huntington Avenue, Alexandria, Virginia 22303-1499. VSE's telephone number is
(703) 960-4600. This proxy statement and the accompanying notice and form of
proxy are first being sent or given to the holders of VSE common stock, par
value $.05 per share, (the "stockholders") on or about March 31, 2006.
The close of business on March 20, 2006, is the record date for the
determination of stockholders entitled to notice of, and to vote at, the
Meeting. Holders of a majority of VSE's outstanding common stock, par value
$.05 per share (the "Stock" or "VSE Stock"), as of March 20, 2006, must be
present at the Meeting, either in person or represented by proxy, to constitute
a quorum for the transaction of business at the Meeting. As of the close of
business on February 10, 2006, there were 2,359,611 shares of Stock outstanding
and approximately 250 stockholders of record. Each stockholder is entitled to
one vote for each share of Stock held of record as of the close of business on
March 20, 2006, on all matters which may be submitted to the stockholders at
the Meeting.
Voting and Revocation of Proxies
All Stock represented by valid proxies will be voted at the Meeting in
accordance with the directions on the proxies. If no direction is indicated on a
proxy, the Stock represented thereby will be voted as recommended by the Board,
including for (a) the election as VSE directors of the seven nominees listed
below under Proposal No. 1, (b) the approval of the amendment to VSE's Restated
Certificate of Incorporation to increase VSE authorized Stock from 5,000,000 to
15,000,000 shares, as discussed below under Proposal No. 2, (c) the approval of
VSE's 2006 Restricted Stock Plan, as discussed below under Proposal No. 3, and
(d) the ratification of the appointment of Ernst & Young LLP as VSE's
independent certified public accountants for the fiscal year ending December 31,
2006, as discussed below under Proposal No. 4.
Votes cast by proxy or in person at the Meeting will be tabulated by the
inspectors of election appointed for the Meeting. The inspectors of election
will treat abstentions as Stock that is present and entitled to vote for
purposes of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to stockholders for a vote. If
a broker indicates on a proxy that such broker does not have discretionary
authority as to certain Stock to vote on a particular matter, such shares will
be included in determining the presence of a quorum, but will not be entitled to
be voted with respect to such matter.
As of the date of this proxy statement, the Board does not intend to
present, and has not been informed that any other person intends to present, any
matter for action at the Meeting other than those matters specifically referred
to herein. If, however, any other matters are properly presented to the Meeting
for action, the proxy holders will vote the proxies, which confer authority on
such holders to vote on such matters, in accordance with their best judgment.
The persons named as attorneys-in-fact in the proxies are VSE officers.
A stockholder returning a proxy to VSE may revoke it at any time before
it is exercised by granting a later proxy with respect to the same Stock or by
communicating such revocation in writing to VSE's secretary. In addition, any
stockholder who has executed a proxy but attends the Meeting may cancel a
previously given proxy by voting in person whether or not the proxy has been
revoked in writing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Stock as of February 10, 2006, based on VSE records, information
filed with the Securities and Exchange Commission (the "SEC"), and information
provided to VSE. The voting and investment powers of the Stock listed below are
held solely by the reported owner unless otherwise indicated.
________________________________________________________________________________
Shares beneficially Percent of
Name of Beneficial Owner owned class
________________________________________________________________________________
Certain Beneficial Owners
- -------------------------
VSE Corporation Employee
ESOP/401(k) Plan (a) 262,913 11.1%
Non-Employee Directors
- ----------------------
Clifford M. Kendall (b) 27,596 1.2%
Calvin S. Koonce (b) (c) 530,851 22.5%
James F. Lafond (b) 2,253 *
David M. Osnos (b) 6,813 *
Jimmy D. Ross (b) 9,647 *
Bonnie K. Wachtel (b) 28,581 1.2%
Executive Officers and Other Director
- -------------------------------------
Thomas G. Dacus (b) 13,345 *
Donald M. Ervine (b) 93,452 3.9%
James M. Knowlton (b) 47,429 2.0%
Thomas R. Loftus (b) 27,726 1.2%
James E. Reed (b) 0 *
Craig S. Weber (b) 59,851 2.5%
Group
- -----
Directors, Nominees, and
Executive Officers as a group
(12 persons) (b) (d) 847,544 34.2%
* Represents less than one percent.
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(a) These shares are held in trust for the benefit of the ESOP/401(k) Plan
participants. Three VSE officers serve as Plan trustees. The Plan
participants have voting power over 208,087 shares allocated to their
respective ESOP accounts, while the Plan trustees share voting and
investment power over the remaining 54,826 shares. The mailing address
for the ESOP/401(k) Plan is 2550 Huntington Avenue, Alexandria, Virginia
22303-1499.
(b) Includes the following number of shares of Stock which the non-employee
directors, executive officers, other directors, and all directors,
nominees, and executive officers as a group (12 persons) have the right
to purchase pursuant to the exercise of stock options which are
exercisable within the next 60 days: Clifford M. Kendall-969, Calvin S.
Koonce-2,563, James F. Lafond-1,063, David M. Osnos-2,563, Jimmy D.
Ross-1,813, and Bonnie K. Wachtel-2,063, Thomas G. Dacus-13,250,
Donald M. Ervine-38,500, James M. Knowlton-17,750, Thomas R.
Loftus-15,750, James E. Reed-0, Craig S. Weber-20,250, and all
directors, nominees, and executive officers as a group (12
persons)-116,534.
(c) Mr. Koonce's mailing address is 6550 Rock Spring Drive, Suite 600,
Bethesda, Maryland 20817. Includes 1,500 shares owned by Mr. Koonce's
spouse and 61,907 shares held in brokerage accounts for which Mr. Koonce
has discretionary authority.
(d) The group consists of 12 persons. The 847,544 shares beneficially owned
do not include the 54,826 shares beneficially owned or controlled by the
trustees of the ESOP/401(k) Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires VSE officers and directors and persons who own more
than 10% of VSE's Stock to file reports of ownership and changes in ownership
with the SEC. Such officers, directors and stockholders are required by SEC
regulations to furnish VSE with copies of all such reports that they file. Based
solely on a review of copies of reports filed with the SEC and written
representations by certain officers and directors, VSE believes that all VSE
officers, directors and stockholders subject to the reporting requirements of
Section 16(a) filed their reports on a timely basis in fiscal year 2005.
Proposal No. 1
--------------
ELECTION OF DIRECTORS
Nominees
At the Meeting, stockholders will elect, by a plurality of the votes
cast, seven VSE directors, who will constitute the entire Board. Each nominee
listed below is currently serving as a VSE director and was elected by the
stockholders at the last annual meeting of stockholders. Each nominee elected
as a director will serve until the next annual meeting of stockholders and until
his or her successor is elected and qualified. If any nominee should become
unable to serve for any reason, the proxies will be voted for such substitute
nominee as shall be designated by the Board.
The seven nominees for election as VSE directors and certain information
regarding them are as follows:
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Name and Principal Occupation Age Director since
_____________________________ ___ ______________
Donald M. Ervine 69 1987
VSE Chairman of the Board and Chief Executive Officer
since 1992. Also serving as President and Chief
Operating Officer since 2002.
James F. Lafond 63 2003
Retired executive and certified public accountant.
From 1998 to 2002, Mr. Lafond was Washington Area
Managing Partner, Pricewaterhouse-Coopers LLP. He
previously served in various leadership positions at
Coopers & Lybrand (1964 to 1998). He is also a director
of WGL Holdings, Inc.
Clifford M. Kendall 74 2001
Private Investor. Mr. Kendall is a member and former
Chairman of the Board of Regents of the University
System of Maryland. Mr. Kendall was one of the founders
of Computer Data Systems, Inc., in 1968, and he served
as its Chairman and Chief Executive Officer from 1970
to 1991 and as Chairman until December 1997.
Calvin S. Koonce 68 1992
Chairman, Koonce Securities, Inc., a securities
broker/dealer firm (for more than the past five years).
David M. Osnos 74 1968
Of counsel (previously senior partner) at Arent Fox
PLLC, attorneys-at-law (for more than the past five
years). He is also a director of EastGroup Properties,
Inc. and Washington Real Estate Investment Trust.
Jimmy D. Ross 69 1994
General, U.S. Army (Ret.), formerly Commanding General,
U.S. Army Materiel Command. General Ross is a senior
logistics consultant for, and from 2000 to 2003 was
an executive officer of, Cypress International, Inc.,
a defense business development consulting firm.
Bonnie K. Wachtel 50 1991
Vice President and General Counsel, Wachtel & Co.,
Inc., brokers and underwriters (for more than the past
five years). Ms. Wachtel is also a director of
Information Analysis Incorporated.
Board of Directors, Committees and Corporate Governance
There are currently seven members of our Board. Except for Mr. Ervine,
who serves as VSE's Chairman, Chief Executive Officer, President and Chief
Operating Officer, all of our current directors are "independent" as defined by
the applicable rules of The NASDAQ Stock Market, Inc. ("NASDAQ"). The
independent directors regularly have the opportunity to meet without Mr. Ervine
in attendance. During 2005, there were seven regular Board meetings and one
special Board meeting, and no director attended (during the period which he or
she was a director) less than 75% of the aggregate of (a) the total number of
Board meetings (in person or by telephone) and (b) meetings of Board committees
on which he or she served (during the period that he or she served). VSE does
not have a specific policy regarding attendance at the annual stockholders
meeting. All directors, however, are encouraged to attend if available, and VSE
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tries to ensure that at least one independent director is present at the annual
stockholder meetings and available to answer any stockholder questions. At last
year's annual stockholders meeting five directors, including four independent
directors, were present.
The Board has an Audit Committee, a Nominating and Corporate Governance
Committee, a Compensation Committee, a Finance Committee, and a Planning
Committee. The current charters of the Audit Committee, Nominating and Corporate
Governance Committee, and Compensation Committee are available on VSE's Internet
site, www.vsecorp.com.
Audit Committee. The primary purpose of the Audit Committee is to oversee
VSE's accounting and financial reporting processes and the audits of its
financial statements. The Audit Committee is directly responsible for, among
other things, the appointment, compensation, retention and oversight of the
Company's independent auditors.
During the past fiscal year, the Audit Committee was composed of
Mr. Lafond (Chairman), Mr. Kendall and Ms. Wachtel. All of the Audit Committee
members during the past fiscal year are independent in accordance with
applicable rules of the SEC and NASDAQ. Each member is able to read and
understand fundamental financial statements, including the Company's balance
sheet, income statement and cash flow statement. The Board has determined that
Mr. Lafond is an "audit committee financial expert" as defined in Exchange Act
Regulation S-K Item 401(h). During 2005, the Audit Committee met five times.
Compensation Committee. The primary purpose of the Compensation Committee
is to recommend to the Board the compensation to be paid to the Company's Chief
Executive Officer and review the salaries and bonuses of VSE's other officers.
The committee also administers the Company's stock option plans and meets either
independently or in conjunction with the full Board to grant options to eligible
individuals in accordance with the respective plans. Awards, however, of
discretionary stock option grants approved by the Compensation Committee are
subject to ratification by the Board. During the past fiscal year, the
Compensation Committee was composed of General Ross (Chairman), Mr. Kendall and
Mr. Koonce. Each of the committee members is independent in accordance with
applicable NASDAQ rules. During 2005, the Compensation Committee met five times.
Nominating and Corporate Governance Committee. The primary purpose of the
Nominating and Corporate Governance Committee is to make recommendations to the
Board with respect to nominees to be proposed for election as directors and with
corporate policies regarding, among other things, business conduct, securities
trading, indemnification of VSE officers and directors, and conflicts of
interest involving VSE officers, directors, and employees. During the past
fiscal year the Committee was composed of Mr. Kendall (Chairman), Mr. Lafond,
Mr. Osnos, Mr. Koonce, General Ross and Ms. Wachtel, all of whom are independent
in accordance with applicable NASDAQ rules. During 2005, the Nominating and
Corporate Governance Committee met two times.
Finance Committee. The Finance Committee is primarily concerned with
making recommendations to the Board with respect to VSE's capitalization and
long-term funding requirements. During the past fiscal year the Committee was
composed of Mr. Osnos (Chairman), Mr. Koonce and Ms. Wachtel. During 2005, the
Finance Committee met two times.
Planning Committee. The Planning Committee is primarily concerned with
making recommendations to the Board with respect to business development
opportunities, including acquisitions. The Committee is composed of Mr. Ervine
(Chairman), Mr. Lafond, Mr. Koonce, General Ross and Ms. Wachtel. During 2005,
the Planning Committee met one time.
- 5 -
Director Nominations and Qualifications. Stockholders may recommend
persons to be nominated for election as directors of VSE at the annual meeting
of stockholders. To be considered, such recommendation must be submitted in
accordance with VSE's by-laws and must be received in writing by the secretary
of VSE no later than 90 days before the date in the current year which
corresponds to the date on which the annual meeting was held during the
immediate prior year. (Nominations for the year 2007-2008 should be received by
the secretary no later than February 3, 2007.) Such recommendation shall be
accompanied by the proposing stockholder's name, evidence that such stockholder
is a beneficial owner of VSE Stock, and the candidate's name, biographical data
and qualifications.
The policy of the Nominating and Corporate Governance Committee is to
consider properly submitted stockholder nominations for candidates for Board
membership as described below. In evaluating such nominations, the Nominating
and Corporate Governance Committee seeks to achieve a balance of knowledge,
experience, and capability on the Board and to address the membership criteria
discussed below.
Under these criteria for Board nominations, Board members should have the
highest professional and personal ethics and values, consistent with
longstanding VSE values and standards. They should have broad experience at the
policy-making level in business, government, education, technology or public
interest. They should be committed to enhancing stockholder value and should
have sufficient time to carry out their duties and to provide insight and
practical wisdom based on experience. Their service on other boards of public
companies should be limited to a number that permits them, given their
individual circumstances, to perform responsibly all director duties. Each
director must represent the interests of all stockholders.
The Nominating and Corporate Governance Committee utilizes a variety of
methods for identifying and evaluating nominees for director. Such Committee
periodically assesses the appropriate size of the Board, and whether any
vacancies on the Board are expected due to retirement or otherwise. If vacancies
are anticipated, or otherwise arise, the Nominating and Corporate Governance
Committee will consider various potential candidates for director. Candidates
may come to the attention of the Nominating and Corporate Governance Committee
through current Board members, professional search firms, stockholders or other
persons. These candidates are evaluated at regular or special meetings of the
Nominating and Corporate Governance Committee and may be considered at any point
during the year. As described above, the Nominating and Corporate Governance
Committee will consider properly submitted stockholder nominations for
candidates for the Board. Following verification of the stockholder status of
persons proposing candidates, recommendations will be aggregated and considered
by the Nominating and Corporate Governance Committee at a regularly scheduled
meeting. If any materials are provided by a stockholder in connection with the
nomination of a director candidate, such materials will be forwarded to the
Nominating and Corporate Governance Committee. Such Committee also will review
materials provided by professional search firms or other parties in connection
with a nominee who is not proposed by a stockholder. In evaluating such
nominations, the Nominating and Corporate Governance Committee seeks to achieve
a balance of knowledge, experience, and capability on the Board. The Committee
has not in the past retained any third party to assist in identifying nominees
for Board membership.
Lead Independent Director
The Board has established the position of Lead Independent Director. The
Lead Independent Director will assist the Chairman and the other Board members
in assuring effective corporate governance. Mr. Kendall, who serves as Chairman
of the Nominating and Corporate Governance Committee, was appointed to serve as
the Lead Independent Director.
- 6 -
Communications with the Board
Individuals may communicate with the Board by submitting an e-mail to the
VSE Board at board@vsecorp.com. All directors have access to this e-mail
address. Communications that are intended specifically for non-employee
directors should be sent to the e-mail address above to the attention of the
Chair of the Nominating and Corporate Governance Committee. Communications to
the Board by mail can be addressed to The Board of Directors or a particular
Board member c/o VSE Corporation, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499.
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics that applies
to all of its directors, officers, including principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, and employees. The Code is posted on VSE's
Internet website www.vsecorp.com. VSE intends to satisfy the disclosure
requirements under Item 5.05 of Exchange Act Form 8-K regarding any waiver or
amendment of the Code with respect to VSE's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, by posting such required information on
VSE's Internet website.
Compensation of Directors
During the first seven months of 2005 (January 1 to August 1), each non-
employee director was compensated at an annual rate of $20,000, and the Chairman
of the Audit Committee was compensated in addition at an annual rate of $5,000.
Effective August 2, 2005, each non-employee director was compensated at an
annual rate of $24,000, and the Chairman of the Audit Committee was compensated
in addition at an annual rate of $5,000. In addition, effective August 2, 2005,
each non-employee director was compensated at a rate of $1,000 for each Board
meeting attended, and Committee members were compensated at a rate of $1,000 for
each Committee meeting attended.
Directors who are VSE employees receive no additional compensation for
service as a director. In addition, no compensation is paid to a director for
personal services rendered to VSE pursuant to a consulting services agreement
between the director and VSE, or any of VSE's subsidiaries, unless authorized as
a special assignment by the Board. No such authorization was requested for or on
behalf of any director in 2005. The foregoing procedures do not restrict
reimbursement for expenses incurred by a director for attending meetings of the
Board or its authorized committees.
Pursuant to the VSE Corporation 2004 Stock Option Plan, each non-employee
director (currently Messrs. Kendall, Koonce, Lafond, Osnos, General Ross, and
Ms. Wachtel), is granted, as of January 1 each year commencing with January 1,
2005, a nondiscretionary five-year option to purchase up to 1,000 shares of VSE
Stock (1,000 shares represents the maximum number of shares which may be covered
by options issued annually to each non-employee director pursuant to either or
both of the VSE Corporation 1998 and 2004 Stock Option Plans). Each option vests
25% on the date of the grant and on each of the first three successive
anniversary dates of the date of grant (100% vested after three years). The
option price per share for each nondiscretionary grant is not less than the fair
market value of VSE Stock as of the date the option is granted. See "Security
Ownership of Certain Beneficial Owners and Management" above for further
information on the stock options held by each VSE director.
On December 30, 2005, the Board directed VSE to discontinue, until and
unless the Board determined otherwise, awarding options, both discretionary and
nondiscretionary, to purchase VSE Stock under VSE's 2004 Stock Option Plan. For
a proposal regarding the adoption of a new incentive
- 7 -
compensation plan (the VSE Corporation 2006 Restricted Stock Plan) to replace
the 2004 Stock Option Plan, see "Proposal No. 3" below.
Pursuant to the VSE Corporation 2004 Non-Employee Directors Stock Plan
(the "Directors Stock Plan"), each non-employee director has the ability to
elect that all or a portion of his or her annual cash compensation for service
as a VSE director be paid in VSE Stock at fair market value determined in
accordance with the Directors Stock Plan. For 2005 Messrs. Kendall, Koonce and
Lafond elected to have all of their annual cash compensation paid in VSE Stock,
Ms. Wachtel elected to have 60% of her annual cash compensation paid in VSE
Stock, and General Ross elected to have 50% of his annual cash compensation paid
in VSE Stock.
Certain Relationships and Related Transactions
Pursuant to an agreement dated as of October 21, 1998, Donald M. Ervine
serves as the Chief Executive Officer of VSE at a base salary of $325,000 per
annum. Mr. Ervine is employed for a term ending on January 1, 2007, subject to
automatic extensions for successive one-year periods unless notice to terminate
is given by Mr. Ervine at least 90 days prior to the expiration of the term or
any such one-year extension of the term. Mr. Ervine's base salary is subject to
review in January of each year, provided that the base salary shall not be less
than $254,000 per annum. Mr. Ervine is also eligible to receive an annual
performance bonus each year as determined by the Board or its Compensation
Committee. Mr. Ervine's employment may be terminated by the Board for willful
and gross misconduct and in the case of death or disability which prevents
Mr. Ervine from substantially fulfilling his duties for a period in excess of
six months. If Mr. Ervine's employment is terminated because of death or illness
or disability, he or his beneficiary, as the case may be, will be paid his
annual base salary then in effect for one full year from the date of death or
disability. Mr. Ervine's employment may also be terminated without cause on 60
days prior notice and on payment of a lump sum severance compensation payment
equal to two times his annual base salary then in effect. The agreement includes
a covenant by Mr. Ervine not to be involved, directly or indirectly, in a
business enterprise that competes with VSE during the term of his employment and
for two years thereafter. The agreement also provides that Mr. Ervine will be
nominated as a director and elected Chairman of the Board during his employment
term. If a change of control of VSE, as defined, occurs, Mr. Ervine may
terminate the agreement and will be entitled to a lump sum severance
compensation payment equal to three times his annual base salary then in effect.
Pursuant to separate agreements entered into in 1997 and expiring on
January 1, 2007, Mr. Knowlton and Mr. Weber each serve in his executive
officer's capacity, subject to automatic extensions for successive one-year
periods unless notice to terminate is given by the officer at least 90 days
prior to the expiration of the then current term. The terms and conditions in
the executive officer agreements are similar to those of Mr. Ervine's 1998
agreement except that (a) each of the executive officers is employed at a
minimum base salary equal to the executive officer's annual base salary in
effect on the date the agreement was signed, subject to annual and special
reviews, (b) each of the executive officers will be reappointed to serve in the
executive officer's current or comparable capacity, (c) in the event of
termination without cause, each executive officer's lump sum severance
compensation payment shall equal his annual base salary then in effect, and
(d) in the event of a change of control of VSE, as defined, each executive
officer may terminate the agreement and will be entitled to a lump sum severance
compensation payment equal to two times his annual base salary then in effect.
Pursuant to separate agreements entered into in 2004 and expiring on
December 31, 2007, Mr. Dacus and Mr. Loftus each serve in his executive
officer's capacity, subject to automatic extensions for successive one-year
periods unless notice to terminate is given by either VSE or the officer at
least 90 days prior to the expiration of the then current term. The terms and
conditions in the executive officer agreements are similar to those of
Mr. Ervine's 1998 agreement except that (a) each of the executive
- 8 -
officers is employed at a minimum base salary equal to the executive officer's
annual base salary in effect on the date the agreement was signed, subject to
annual and special reviews, (b) each of the executive officers will be
reappointed to serve in the executive officer's current or comparable capacity,
(c) in the event of termination without cause, each executive officer's lump sum
severance compensation payment shall equal his annual base salary then in
effect, and (d) in the event of a change of control of VSE, as defined, each
executive officer may terminate the agreement and will be entitled to a lump
sum severance compensation payment equal to one times his annual base salary
then in effect.
Pursuant to an agreement dated as of February 10, 2005, James E. Reed
serves as the President of VSE's wholly owned subsidiary Energetics Incorporated
("Energetics") at a base salary of $175,000 per annum. Mr. Reed is employed for
a term ending on January 31, 2007, subject to automatic extensions for
successive one-year periods unless notice to terminate is given by either
Energetics or Mr. Reed at least 60 days prior to the expiration of the term or
any such one-year extension of the term. Mr. Reed's base salary is subject to
review in July of each year, provided that the base salary shall not be less
than $175,000 per annum. Mr. Reed is also eligible to receive an annual
performance bonus each year as determined by the Energetics' Board of Directors
in consultation with the Board and Compensation Committee. The terms and
conditions of Mr. Reed's agreement are similar to those of Mr. Ervine's 1998
agreement except that (a) Mr. Reed will be reappointed to serve in his current
or comparable capacity, (b) in the event of termination without cause,
Mr. Reed's lump sum severance compensation payment shall equal his annual base
salary then in effect, and (c) in the event of a change of control of VSE, as
defined, Mr. Reed may terminate the agreement for good reason, as defined, and
will be entitled to a lump sum severance compensation payment equal to his
annual base salary then in effect.
There is no family relationship between any director or executive officer
of VSE and any other director or executive officer of VSE.
The law firm of Arent Fox PLLC, of which Mr. Osnos is of counsel, has
represented and is expected to continue to represent VSE on various legal
matters.
VSE and the trustees of its employee benefit plans have in the past
effected certain of their transactions in VSE Stock through Wachtel & Co., Inc.,
of which Ms. Wachtel is a director, officer, and shareholder, and through
Koonce Securities, Inc., which is wholly owned by Mr. Koonce. No transactions
in VSE Stock occurred with Wachtel & Co., Inc. or Koonce Securities, Inc. in
2005.
The Board unanimously recommends that stockholders vote "for" the
election of each of the seven persons nominated to serve as a director of VSE
for the ensuing year.
- 9 -
Proposal No. 2
______________
AMENDMENT OF CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
On February 9, 2006, the Board adopted a resolution declaring it
advisable and in the best interests of VSE and its stockholders to amend VSE's
Restated Certificate of Incorporation (the "Certificate") to increase the
authorized number of shares of VSE's common stock, par value $.05 per share
("VSE Stock" or "Stock"), from 5,000,000 to 15,000,000 shares (the "Amendment").
As of February 10, 2006, 2,359,611 shares of VSE's 5,000,000 authorized
shares of Stock were issued and outstanding, 477,563 shares were reserved for
issuance upon the exercise of options granted or available for grant under VSE's
1998 Stock Option Plan and 2004 Stock Option Plan, and 46,389 shares were
reserved for issuance under VSE's 2004 Directors Stock Plan. Consequently, VSE
is currently limited to 2,116,437 authorized but unissued shares if it desires
to issue Stock for additional equity compensation, including, if approved by
stockholders, under VSE's 2006 Restricted Stock Plan (see "Proposal No. 3"
below) or for stock splits, stock dividends, or acquisitions or to obtain funds
through a private or public offering, or any other purpose.
The Board believes that it is in VSE's best interests to have additional
authorized but unissued Stock available for issuance to meet business needs as
they arise from time to time, without the expense and delay of seeking
stockholders approval for additional authorized shares at that time. Thus, the
Board believes that it is in the Company's best interest to increase the
authorized Stock beyond the currently available shares for such business needs.
Such business needs may include future stock splits or stock dividends, equity
financings, acquisitions, adoption of new or modifying current employee benefit
plans, and other proper corporate purposes identified by the Board in the
future. However, any future issuance of such Stock would remain subject to
separate stockholder approval if required by applicable law or NASDAQ rules.
Other than issuances of Stock pursuant (a) to the exercise of outstanding
stock options and future option grants under the 1998 Stock Option Plan and 2004
Stock Option Plan, (b) to elections under the 2004 Directors Stock Plan, and,
(c) if approved by stockholders, to the proposed 2006 Restricted Stock Plan, VSE
has no current plans, arrangements or understandings regarding the issuance of
any additional Stock for which authorization is sought, and there are no
negotiations pending with respect to the issuance of Stock for any purpose.
Additional Stock authorized pursuant to the proposed Amendment would be
identical in all respects to the VSE Stock currently authorized. While
authorization of the additional shares will not currently dilute the
proportionate voting power or other rights of existing stockholders, future
issuances of Stock could reduce the proportionate ownership of existing holders
of VSE Stock, and, depending on the price at which such shares are issued, may
be dilutive to the existing stockholders.
Stock (including the additional VSE Stock authorized pursuant to this
proposal) may be issued from time to time upon authorization of the Board,
without further approval by the stockholders, unless otherwise required by
applicable law or NASDAQ rules, and for the consideration that the Board may
determine is appropriate and as may be permitted by applicable law.
As provided for by the Delaware General Corporation Law, the Board has
directed that the proposed Amendment to increase the authorized Stock from
5,000,000 to 15,000,000 shares be submitted
- 10 -
to a vote of the stockholders at the Meeting. Approval of the proposed Amendment
requires the affirmative vote of the holders of a majority of the VSE Stock
entitled to vote thereon.
Although an increase in our authorized Stock could, under certain
circumstances, also be construed as having an anti-takeover effect (for example,
by permitting easier dilution of the Stock ownership of a person or group
seeking to effect a change in the composition of the Board or contemplating
a tender offer or other transaction resulting in our acquisition by another
company), the proposed increase is not in response to any effort by any person
or group to accumulate our Stock or to obtain control of VSE by any means. In
addition, the proposal is not part of any current plan by the Board to recommend
or implement a series of anti-takeover measures or any other corporate
transactions.
The proposed Amendment would amend Article Fourth of the Certificate by
striking out the entire text of Article FOURTH, as it currently exists and
inserting in lieu and instead thereof the following:
"FOURTH: The total number of shares of capital stock that the Corporation
shall have authority to issue is Fifteen Million (15,000,000) shares of Common
Stock, par value $0.05 per share."
If approved by the requisite number of shares, the amendment to our
Certificate will become effective upon filing the Certificate of Amendment with
the Secretary of State of the State of Delaware, which is expected to occur
promptly following the Meeting.
The Board unanimously recommends that stockholders vote "for" approval of
the proposal to amend our Certificate.
Proposal No. 3
______________
APPROVAL OF OUR 2006 RESTRICTED STOCK PLAN
Our 2006 Restricted Stock Plan was approved by the Board on February 9,
2006, subject to the approval of our stockholders at the Meeting (the "2006
Plan").
As described in this proxy statement, our employees and non-employee
directors have received, in addition to cash, equity-based compensation for
their services to VSE. Currently, the equity compensation is provided in the
form of options to purchase VSE Stock granted under VSE's 2004 Stock Option Plan
(the "2004 Option Plan") and for directors electing to receive Stock under the
2004 Directors Stock Plan, as such plans were approved by VSE's stockholders on
May 3, 2004. On December 30, 2005, however, the Board directed VSE to
discontinue, until and unless the Board determined otherwise, awarding stock
options to our employees and non-employee directors under the 2004 Option Plan.
The Board believes that compensating our employees and non-employee directors
with restricted VSE Stock and restricted VSE Stock units, rather than stock
options, is a more appropriate and effective form of equity-based compensation.
As with the former use of stock options, the use of restricted stock or
restricted stock units is intended to foster a long-term focus on our
performance and to provide our employees and non-employee directors with a means
to have an equity stake in VSE which will, in turn, align their interests with
those of our stockholders.
The primary reason for the Board's suspension of option awards under the
2004 Option Plan was the potential impact on VSE's results of operations from
the application of recent accounting pronouncements to share-based payments to
employees, including stock option awards. The Board believes that the potential
impact on VSE's results of operations due to the issuance of restricted stock
and restricted stock units under the 2006 Plan should be less than the potential
impact of issuing options
- 11 -
under the 2004 Option Plan. While the Board has no current intent to do so, the
Board may in the future authorize the issuances of additional options under the
2004 Option Plan. The Board did not discontinue the issuance of VSE Stock to
non-employee directors under the 2004 Directors Stock Plan, which as of
February 10, 2006, had 46,389 shares available for issuance thereunder.
As required by applicable NASDAQ rules, the Board is asking stockholders
to approve the 2006 Plan. If the 2006 Plan is not approved, employees and non-
employee directors will not be eligible to receive awards of restricted stock or
restricted stock units under the 2006 Plan. In this case, the Board would
reconsider its discontinuation of awarding options to VSE's employees and non-
employee directors under our 2004 Option Plan.
As of February 10, 2006, outstanding options granted under the 2004
Option Plan covered 68,250 shares of VSE Stock, and 256,000 shares of VSE Stock
and 24,000 shares of VSE Stock, respectively, were available under the 2004
Option Plan for discretionary option awards to executive officers and key
employees and nondiscretionary option awards to non-employee directors. The
options outstanding, as of February 10, 2006, to purchase up to 68,250 shares of
VSE Stock under the 2004 Option Plan are not affected by the above-referenced
Board action. Prior to the Board's suspension of option awards under the 2004
Option Plan, each non-employee director of VSE would receive as of January 1 of
each year a nondiscretionary option under the 2004 Option Plan covering 1,000
shares of VSE Stock.
In addition, the options outstanding, as of February 10, 2006, to
purchase up to 129,313 shares of VSE Stock under VSE's 1998 Stock Option Plan
approved by VSE's stockholders on May 7, 1998, are not affected by the above-
referenced Board action. No other options are available for issuance under VSE's
1998 Stock Option Plan.
Description of 2006 Plan
The following is a summary of the material features of the 2006 Plan. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the terms and conditions of the 2006 Plan, which is
attached to this proxy statement as Appendix A.
Types of Awards; Eligibility. Awards of restricted stock and restricted
stock units may be granted under the 2006 Plan. Awards of restricted stock are
shares of VSE Stock which are awarded subject to such restrictions on transfer
as the Compensation Committee or Board may establish. Awards of restricted stock
units are units valued by reference to shares of VSE Stock that entitle a
participant to receive, upon the settlement of the unit, one share of VSE Stock
for each unit. If the 2006 Plan is approved by stockholders, VSE employees,
including employees of VSE subsidiaries, and non-employee directors will be
eligible to receive awards under the 2006 Plan. As of February 15, 2006,
potentially eligible 2006 Plan participants included approximately 700
employees, of whom approximately 30 employees are expected to participate, and
six non-employee directors.
Shares Subject to the 2006 Plan. The aggregate maximum number of shares
that may be issued pursuant to awards under the 2006 Plan is 125,000 shares of
VSE Stock (subject to adjustments for recapitalization and certain other
corporate transactions). Shares issued under the 2006 Plan may be either
treasury shares or shares originally issued for this purpose. Rights to receive
shares forfeited pursuant to the terms of an Award will be available again for
grant under the 2006 Plan. As of February 15, 2006, the fair market value of VSE
Stock was $51.51 per share.
Term of the 2006 Plan. No awards may be granted under the 2006 Plan after
the fifth anniversary of the date on which the 2006 Plan is approved by
stockholders.
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Administration. The 2006 Plan will be administered by the Compensation
Committee. The Board, however, will be responsible for administering any awards
granted to non-employee directors.
Terms of Awards. The terms and conditions of each award of restricted
stock or restricted stock units granted to employees or non-employee directors
will be determined under the 2006 Plan. The Compensation Committee will
determine the terms and conditions of each Award to an employee, including the
period which generally will extend for at least six months from the date of
grant, during which the recipient of an Award (the "Grantee") cannot sell,
transfer, pledge or assign Awards (the "Restriction") under the Plan. The
Compensation Committee will determine the rights which Grantees have with
respect to Awards. When all Restrictions applicable to an Award lapse, the
Company will deliver to the Grantee a certificate for the number of shares of
VSE Stock without any legend or restriction (except as necessary to comply with
applicable federal and state securities laws).
Currently, the Board has not made any determination regarding the
granting of Awards to non-employee directors except if the 2006 Plan is approved
by the stockholders, the Board intends each non-employee director elected at the
Meeting to receive an Award of 300 shares of restricted stock. Each Award to a
non-employee of restricted stock will be fully vested on the grant date. Awards
of restricted stock to a non-employee director will also contain other terms and
conditions as determined by the Board.
Termination of Employment. Upon termination of employment, all Awards to
employees which are still subject to Restriction will be forfeited by the
Grantee. With respect to any Award, the Compensation Committee may, in its sole
discretion, waive Restrictions in whole or in part.
Withholding. Tax liabilities incurred in connection with the grant of an
Award or its vesting or lapse of restrictions or settlement will be satisfied by
our withholding a portion of the shares subject to the Award that have a fair
market value approximately equal to the minimum amount of taxes required to be
withheld by VSE under applicable law. Subject to certain conditions specified in
the 2006 Plan, a recipient of an Award may elect to have taxes withheld in
excess of the minimum amount required to be withheld or may satisfy his or her
tax withholding in cash.
Adjustments. The aggregate number of shares of VSE Stock available for
issuance under the 2006 Plan, the class of shares as to which awards may be
granted and the number of shares covered by each outstanding Award are subject
to adjustment in the event of a stock dividend, recapitalization or certain
other corporate transactions.
Terminating Events. In the event of our liquidation or a transaction or
series of transactions in which an unaffiliated third party acquires VSE Stock
ownership such that this person has the ability to direct the Company's
management, as determined by the Board in its sole discretion, the Compensation
Committee may provide that upon consummation of such an event, any outstanding
Awards will vest in full or in part or that all restricted stock or restricted
stock units which have been previously deferred be transferred to the recipient.
Amendment or Termination. The 2006 Plan may be amended by the Board or
the Compensation Committee and may be terminated by the Board at any time. No
award will be materially and adversely affected by any amendment or termination
without the written consent of the recipient of the Award.
Section 16(b). Approval of the 2006 Plan by the stockholders will exempt
the acquisition of VSE Stock pursuant to the 2006 Plan by a VSE director or
officer from the provisions of Section 16(b) of the Exchange Act. Section 16(b)
provides, among other things, that a director or officer who, within a six-month
period, purchase and sells (or sells and purchases) the stock of a corporation
which employees him or her is liable to the corporation for the difference
between the purchase price and the sale price.
- 13 -
Exchange Act Rule 16b-3 provides that the acquisition of a stock option by a
director or officer of a corporation pursuant to a stock option plan which meets
certain requirements (one of which is stockholder approval of the plan) is not
subject to Section 16(b).
Restrictions on Resale. The Company intends to register the VSE Stock
issuable under the 2006 Plan under the Securities Act of 1933, as amended, as
soon as practicable after receiving stockholders approval. Certain officers may
be deemed to be "affiliates" of VSE as that term is defined under the Securities
Act. Stock acquired under the 2006 Plan by an affiliate may be reoffered or
resold only pursuant to an effective registration statement or pursuant to Rule
144 promulgated under the Securities Act or another exemption from the
registration requirements of the Securities Act.
Code Section 162(m). Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), generally limits the allowable deduction for
compensation paid to an offer of a publicly held corporation who is the chief
executive officer or one of the four most highly compensated officers (other
than the chief executive officer) to $1 million for each taxable year.
Certain types of compensation are exempted from the deduction limit
imposed by Code Section 162(m), including payments contingent on the attainment
of one or more performance goals if the performance goals are established by a
compensation committee of the board of directors that is comprised solely of two
or more outside directors and the material terms of the compensation and
performance goals are disclosed to and approved by the stockholders of the
corporation before payment. In the case of an award of restricted stock or
restricted stock units, a payment will satisfy the requirement that compensation
be paid on the basis of a pre-established performance goal if the award is made
by the compensation committee comprised solely of outside directors, and the
plan is approved by the corporation's stockholders.
The 2006 Plan was designed to allow awards thereunder to quality for the
exemption from the $1 million limit on tax-deductible payments under Code
Section 162(m). Awards may, but need not, include performance criteria that
satisfy Code Section 162(m). Any Award intended to qualify as "performance-based
compensation" under Code Section 162(m), either will be conditioned on or
granted based upon the achievement of one or more of the following performance
measures, which shall be set by the Committee no later than 90 days following
the commencement of each performance period (or such other time as may be
required or permitted by Code Section 162(m): (a) total stockholder return,
(b) stock price, (c) operating earnings, (d) net earnings, (e) return on equity
or capital, (f) income, (g) level of expenses or (h) growth in revenue.
Performance goals may be established on a Company-wide basis or with respect to
one or more business units or divisions or subdivisions or subsidiaries. The
targeted level or levels of performance (which may include minimum, maximum and
target levels of performance) with respect to such performance measures may be
established at such levels and in such terms as the Committee may determine, in
its discretion. Each award intended to qualify as "performance-based
compensation" will be subject to a $1 million per award cap.
Following the completion of each performance period, the Committee will
certify in writing whether the applicable performance targets have been achieved
and the number of units or shares, if any, earned, or for which options become
exercisable, by a participant for such performance period. In determining the
number of units or shares earned by a participant, or for which options become
exercisable, for a given performance period, subject to any applicable Award
agreement, the Committee shall have the right to reduce (but not increase) the
amount earned at a given level of performance to take into account additional
factors that the Committee may deem relevant to the assessment of individual or
corporate performance for the performance period.
- 14 -
New Plan Benefits. Grants of awards to eligible employees will be subject
to the Compensation Committee's discretion and, therefore, are not determinable
at this time. If the 2006 Plan is approved by stockholders and non-employee
directors are eligible to participate in the Plan, each non-employee director
(currently six directors) will receive an award of 300 shares of restricted
stock on or about the date of the Meeting. Except for such awards of 300 shares
of restricted stock, VSE has not made any determination for the granting of
awards to non-employee directors.
Federal Income Taxation
The federal and state income tax consequences of restricted stock and
restricted stock units are complex and subject to change. The following
discussion is only a brief summary of the general U.S. federal income tax
consequences of restricted stock and restricted stock units granted under the
2006 Plan and does not cover all specific transactions that may arise. A
taxpayer's particular situation may be such that the general federal income tax
rules described below may not apply. Also, this summary does not cover the
state, local or foreign tax consequences of either the award of restricted stock
or restricted stock units or the subsequent sale or other transfer of the
underlying VSE Stock, or federal or state estate tax, inheritance or death
taxes. Therefore, each participant in the 2006 Plan is urged to consult with his
or her own tax advisor regarding federal, state, local and foreign tax
consequences relating to participation in the 2006 Plan.
Restricted Stock. Generally, the grant of an award of restricted stock
that is subject to restrictions on transfer and a substantial risk of forfeiture
is not a taxable event. The recipient of the award will recognize ordinary
compensation income in each year in which restrictions on the award lapse and
the award vests, in an amount equal to the fair market value of the common stock
received. An award of restricted stock that is fully vested on the grant date
generally will be taxable to the recipient on such date. A recipient's basis for
determining gain or loss on a subsequent disposition of common stock will be the
amount the recipient must include in income when the restrictions lapse or when
the award was granted, if not subject to restrictions. Any gain or loss
recognized on a disposition of the common stock generally will be short-term or
long-term capital gain or loss depending on the length of time the recipient
holds the shares.
Restricted Stock Units. Generally, the grant of an award of restricted
stock units is not a taxable event. The recipient of the award will recognize
ordinary compensation income in each year in which the units are settled, in an
amount equal to the fair market value of the common stock received. A
recipient's basis for determining gain or loss on a subsequent disposition of
common stock will be the amount the recipient must include in income when the
units vest and are settled. Any gain or loss recognized on a disposition of the
common stock generally will be short-term or long-term capital gain or loss
depending on the length of time the recipient holds the shares.
Section 83(b) Election. If a recipient of an award of restricted stock
properly makes an election pursuant to Code Section 83(b), he or she will
recognize ordinary compensation income equal to the fair market value of the
shares of common stock at the time the shares are awarded, without taking into
account the effect of the restrictions on the award. The recipient's basis for
determining gain or loss on a subsequent disposition of shares will be the
amount the recipient so included in income. Any gain or loss recognized on a
disposition of shares of common stock which were subject to the Section 83(b)
election will be short-term or long-term capital gain or loss, depending on the
length of time since the date of the award. If, however, the recipient forfeits
an award upon a termination of employment prior to the time the restrictions
lapse, he or she will generally not be entitled to deduct any loss upon such
forfeiture even though the recipient may have been required to include an amount
in income by virtue of the Section 83(b) election.
- 15 -
Approval of the 2006 Plan requires the affirmative vote of the holders of
a majority of the VSE Stock present or represented and entitled to be cast at
the Meeting.
The Board unanimously recommends that stockholders vote "for" approval
of our 2006 Restricted Stock Plan.
Proposal No. 4
______________
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Based on the recommendation of its Audit Committee, the Board has
appointed the firm of Ernst & Young LLP to be VSE's independent certified public
accountants for the year ending December 31, 2006, and recommends to
stockholders that they vote for ratification of that appointment. Although not
required to do so, the Board has determined that it would be desirable to
request stockholders' approval of this appointment. The ratification of the
appointment of VSE's independent certified public accountants will require the
affirmative vote by the holders of a majority of the outstanding Stock present
in person or represented by proxy at the Meeting. If such approval is not
received, the Board will reconsider the appointment.
In 2005 and 2004 Ernst & Young LLP services included an examination of
VSE's consolidated financial statements, the financial statements of certain
benefit plans, and reviews of the consolidated financial statements included in
VSE Form 10-Qs filed with the SEC for each of the quarters ended March 31,
June 30, and September 30.
Ernst & Young LLP billed VSE for professional services rendered for the
years ended December 31, 2005, and December 31, 2004, as follows:
2005 2004
---- ----
Audit fees (1) $235,900 $168,028
Audit-related fees (2) 20,000 27,500
Tax fees (3) 13,835 -
All other fees - -
_______________
(1) Includes fees and expenses related to the fiscal year audit
and to interim reviews and related accounting consultation.
(2) Includes fees and expenses for audits of the employee benefit
plan and, in 2004, consultation regarding internal control
reporting.
(3) Includes fees and expenses for tax advisory service.
The Audit Committee approves in advance all audit and non-audit services
provided by the independent auditors prior to their engagement with respect to
such services. The Audit Committee has delegated to the Chairman of the Audit
Committee the authority to pre-approve additional audit-related and non-audit
services not prohibited by law to be performed by VSE's independent auditors and
associated fees up to a maximum for any one non-audit service equal to the
lesser of $30,000 or 25% of the audit fees for VSE's most recent completed
fiscal year, provided that the Chair shall report any decisions to pre-approve
such audit-related or non-audit services and fees to the full Audit Committee at
its next regular meeting. The Audit Committee approved in advance all of the
audit and non-audit services provided by the independent auditors in fiscal 2005
and 2004.
- 16 -
A representative of Ernst & Young LLP is expected to attend the Meeting,
will have an opportunity to make a statement, if he or she desires to do so, and
will be available to respond to appropriate questions.
The Board unanimously recommends that stockholders vote "for" the
proposal to ratify the appointment of Ernst & Young LLP to serve as VSE's
independent certified public accountants for the fiscal year ending December 31,
2006.
AUDIT COMMITTEE REPORT
The Audit Committee (the "Committee") is composed of three non-employee
directors (Messrs. Lafond and Kendall and Ms. Wachtel), each of whom is
considered an "independent" director for the purposes of the applicable rules
of NASDAQ and the SEC. The Committee's responsibilities are set forth in its
charter, a copy of which is available on VSE's Internet site, www.vsecorp.com.
The Board and the Committee believe that the Committee members are and were at
the time of the actions described in this report "independent" directors as
independence is defined by NASDAQ Rule 4200(a)(15).
The Committee has reviewed and discussed with management VSE's audited
consolidated financial statements as of and for the year ended December 31,
2005, and has discussed with VSE's independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended, issued by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
The Committee has received and reviewed the written disclosures and the
letter from the independent auditors required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, issued by the
Independence Standards Board, and has discussed with the auditors the auditors'
independence and considered whether the provision of non-audit services by the
auditors is compatible with maintaining their independence.
Based on the foregoing reviews and discussions, the Committee recommended
to the Board that the above referenced consolidated financial statements be
included in VSE's Annual Report on Form 10-K for the year ended December 31,
2005, for filing with the SEC.
Audit Committee: James F. Lafond (Chairman), Clifford M. Kendall,
and Bonnie K. Wachtel
COMPENSATION COMMITTEE REPORT
The Board has established a Compensation Committee (the "Committee") to
(a) review corporate compensation policies, including incentive compensation,
(b) recommend to the Board for its determination the compensation of the Chief
Executive Officer (the "CEO"), and (c) review the compensation of other VSE
executive officers and employees. The Committee is composed entirely of non-
employee directors (see "Board of Directors, Committees and Corporate
Governance" above).
Compensation Philosophy
VSE's overall compensation philosophy is based on aligning executive
compensation with industry standards and with financial performance objectives
established by the Board. Under the Committee's supervision, VSE has established
compensation policies designed to attract and retain qualified executives and to
link total compensation to corporate goals. The key elements of VSE
- 17 -
executive compensation are base salary, a performance bonus incentive plan, and
a long-term incentive plan.
Base Salary
The base salaries for executive officers and other corporate officers are
established primarily on the basis of comparability to the range of compensation
paid by companies of similar size and industry, as determined by commercially
available wage and salary surveys. Size is determined primarily by reference to
annual revenues and number of employees. VSE's industry group is engineering and
technical services (formerly SIC Code 8711). National and geographic differences
in compensation are considered based on the executive's primary area of
operations and responsibility. VSE targets a competitive salary for executive
officers with performance incentives as indicated by such surveys.
Performance Bonus
During 2004 the Committee approved a performance bonus plan based on
achieving financial results in excess of certain financial thresholds or goals
specified at the beginning of the year. Such goals consist principally of
revenue and pretax income goals for operating units and group executive
officers, and return on equity for corporate staff, corporate officers, and
corporate executive officers. Annual bonus amounts are paid in February after
establishing the financial results for the prior calendar year.
For 2005 aggregate performance bonuses of about $3,700,000 were earned
and paid to VSE officers and employees under the performance bonus plan,
including about $1,079,000 paid to executive officers under the plan.
VSE's wholly owned subsidiary Energetics Incorporated ("Energetics")
maintains a performance bonus plan for its employees, including Mr. Reed.
Amounts contributed to the plan are determined by Energetics based on its
ability to utilize direct labor, contain costs, maintain competitive burden
rates, and achieve pretax profitability. Bonus amounts accrued are distributed
on the basis of individual and group contribution to meeting corporate goals for
revenue, profit, marketing, and new and repeat business. Annual bonus amounts
are paid in February after establishing the financial results for the prior
calendar year. Mr. Reed's bonus under the plan is approved by the Energetics
and VSE Board of Directors.
Long-term Compensation
During 2004 the Board recommended and the stockholders approved the
adoption of the VSE Corporation 2004 Stock Option Plan (the "2004 Plan"), which
replaced a substantially similar 1998 Plan. Under the 2004 Plan, an aggregate of
350,000 shares of VSE Stock may be purchased pursuant to the grant of options.
The purpose of the 2004 Plan is to provide non-employee directors,
executive officers, and key personnel with long-term performance incentives and
an identity of interests with the stockholders. VSE operates in a highly
specialized field in which success is substantially dependent on the expertise
of qualified and highly motivated key personnel. Management believes that the
plans have been of material assistance in recruiting, motivating, and retaining
key personnel.
Discretionary stock options granted under the 2004 Plan are approved by
the Committee after considering recommendations submitted by management based on
the perceived long-term contribution of key personnel. The Committee
independently determines the number of stock options to be awarded to the
Chairman and CEO and President and COO. Awards of discretionary stock option
grants approved by the Committee are subject to ratification by the Board.
- 18 -
On December 30, 2005, the Board directed VSE to discontinue, until and
unless the Board determined otherwise, awarding options, both discretionary and
nondiscretionary, to purchase VSE Stock under the 2004 Plan. As of December 30,
2005, outstanding options issued under the 2004 Plan covered 68,250 shares of
VSE Stock, and 256,000 shares and 24,000 shares, respectively, were available
under the 2004 Plan for discretionary option awards to executive officers and
key employees of VSE and nondiscretionary option awards to non-employee
directors of VSE.
The options outstanding, as of December 30, 2005, to purchase up to
68,250 shares of VSE Stock under the 2004 Plan are not affected by the above-
referenced Board action. Prior to the Board's action, each non-employee director
of VSE would receive as of January 1 of each year a nondiscretionary option
under the 2004 Plan covering 1,000 shares of VSE Stock at a purchase price not
less than the fair market value of VSE Stock as of the award date. In addition,
the options outstanding, as of December 30, 2005, to purchase up to 129,313
shares of VSE Stock under VSE's 1998 Stock Option Plan are not affected by the
above-referenced Board action.
The primary reason for the Board's suspension of option awards under the
2004 Plan was the potential adverse affect on VSE's results of operations from
the application of recent accounting pronouncements to share-based payments to
employees, including stock option awards. While the Board has no current intent
to do so, the Board may in the future authorize the issuances of additional
options under the 2004 Plan.
For a proposal regarding the adoption of a new incentive compensation
plan (VSE's 2006 Restricted Stock Plan) see "Proposal No. 3" above.
All Other Compensation
All VSE officers are entitled to participate in company fringe benefit
programs, including the VSE Employee ESOP/401(k) Plan, which is an IRS qualified
plan available to all eligible employees. Effective April 1, 1999, employer
contributions to the ESOP portion of the plan were discontinued and replaced by
employer contributions to the 401(k) portion of the plan based on employee
401(k) deferrals. The employer 401(k) contribution is equal to 50% of the first
6% of employee pay deferred into the employee's 401(k) account. Amounts
contributed to the VSE ESOP/401(k) plan on behalf of the named executive
officers are included in the "Summary Compensation Table."
VSE has a non-qualified Deferred Supplemental Compensation Plan (the
"DSC Plan") for all VSE officers. The DSC Plan provides, at the Board's
discretion, for an annual contribution not to exceed 12% of VSE's consolidated
net income for the year. Each officer's allocation from the annual contribution
bears the same percentage to the annual contribution as that officer's salary
bears to total annual officer salaries. Pursuant to the DSC Plan, an annual
contribution of approximately $420,000 was authorized for 2005. Benefits under
the DSC Plan are payable to the participant on retirement or resignation,
subject to a vesting schedule, non-competition agreement, and other plan
provisions, or in the event of a change of control of VSE. Amounts contributed
to the DSC Plan on behalf of the named executive officers are included in the
Summary Compensation Table.
Energetics maintains a profit sharing plan (the Energetics Incorporated
Profit Sharing Plan and Trust) for its employees, including Mr. Reed. All
Energetics employees who have completed two years of service are members of the
profit sharing plan. At the discretion of its Board of Directors, Energetics
makes contributions to the plan approximately equal to 10% of eligible employee
compensation. Eligible employee compensation under the plan is capped at
$200,000 per year.
- 19 -
Chief Executive Officer Compensation
During 2005, 2004, and 2003, VSE Chairman, Chief Executive Officer
("CEO"), President and Chief Operating Officer (Mr. Ervine) was compensated in
accordance with an employment agreement negotiated and approved by the Committee
in 1998. The agreement with Mr. Ervine presently extends through January 1,
2007, and is subject thereafter to automatic extensions for successive one-year
periods unless notice to terminate is given by Mr. Ervine at least 90 days prior
to the expiration of the term or any such one-year extension of the term. The
agreement provides for a minimum base salary, with other terms and conditions
substantially similar to a predecessor January 1, 1996, employment agreement
(see "Certain Relationships and Related Transactions" above for a description of
the current employment agreement).
During 2005, Mr. Ervine was paid a base salary of $300,000 and served as
VSE Chairman, CEO, President, and Chief Operating Officer. Effective January 1,
2006, the Committee approved an increase in Mr. Ervine's base salary to
$325,000. The Committee based the salary increase primarily on the performance
of the Corporation in 2005, including significant increases in revenues,
backlog, net income, return on equity, number of employees, and the public
market value of VSE Stock. The Committee also considered compensation survey
data for executive officers at similarly situated companies, Mr. Ervine's
leadership role in VSE, and his performance as both Chairman and Chief
Executive Officer and President and Chief Operating Officer of the Corporation.
The CEO's performance bonus for each of the years ended December 31,
2005, 2004, and 2003 was determined on the basis of the performance bonus plan
described above. VSE's return on equity for the years ended December 31, 2005,
2004, and 2003, used in determining the CEO's performance bonus was
approximately 26.6%, 18.1%, and 11.8%, respectively.
On December 30, 2005, the Board directed VSE to discontinue, until and
unless the Board determined otherwise, awarding options, both discretionary and
nondiscretionary, to purchase VSE Stock under the 2004 Plan, and accordingly,
the CEO received no long-term compensation award for the year ended December 31,
2005. For a proposal regarding the adoption of a new incentive compensation plan
(the VSE Corporation 2006 Restricted Stock Plan) to replace the 2004 Plan,
please see "Proposal No. 3" above.
Compensation Committee: Jimmy D. Ross (Chairman), Clifford M. Kendall,
and Calvin S. Koonce
Compensation Committee Interlocks and Insider Participation
No executive officer of VSE serves or has served as a member of the
Compensation Committee of another entity which has an executive officer who
serves on VSE's Compensation Committee. No executive officer of VSE serves or
has served as a director of another entity which has an executive officer who
serves on VSE's Compensation Committee.
Mr. Koonce is a major stockholder of VSE. See "Security Ownership of
Certain Beneficial Owners and Management."
VSE and the trustees of its employee benefit plans have in the past
effected certain of their transactions in VSE Stock through Wachtel & Co., Inc.,
of which Ms. Wachtel is a director, officer and shareholder, and through Koonce
Securities, Inc., which is wholly owned by Mr. Koonce. No transactions in VSE
Stock occurred with Wachtel & Co., Inc. or Koonce Securities, Inc. in 2005.
- 20 -
Mr. Osnos is of counsel at the law firm of Arent Fox PLLC, which has
represented and is expected to continue to represent VSE on various legal
matters. See "Certain Relationships and Related Transactions."
Summary Compensation Table
The following table reports the compensation paid for the past three
years for each of the five most highly compensated VSE executive officers,
including the Chief Executive Officer.
Long-term All
Annual Compensation Other
Compensation Awards Compensation
---------------- ------- ------------
Fiscal Salary Bonus Options
Name and Principal Position Year ($) ($) (#) ($)(1)
- --------------------------- ---- ------- ------- ------- -------
Thomas G. Dacus 2005 165,000 165,000 0 28,048
Senior Vice President and 2004 155,000 85,000 9,000 18,064
Director, Federal Group 2003 150,200 60,000 9,000 7,253
Donald M. Ervine 2005 300,000 300,000 0 48,699
Chairman of the Board, 2004 264,000 119,000 15,000 28,814
President and CEO/COO 2003 264,000 35,000 12,000 105,739
James M. Knowlton 2005 200,100 200,100 0 33,485
Executive Vice President and 2004 184,400 92,000 10,000 20,810
Director, International Group 2003 183,200 50,000 9,000 8,223
Thomas R. Loftus 2005 168,000 168,000 0 28,738
Senior Vice President and 2004 150,000 66,100 6,000 17,445
Chief Financial Officer 2003 130,000 17,200 7,000 16,731
Craig S. Weber 2005 165,000 165,000 0 28,250
Executive Vice President, 2004 161,000 70,900 6,000 18,636
Chief Administrative Officer, 2003 156,800 20,800 7,000 17,264
and Secretary
(1) The column headed "All Other Compensation" includes, for each of the
named executive officers, contributions made by VSE to two defined
contribution employee benefit plans, the VSE Employee ESOP/401(k) Plan,
which is generally available to all VSE employees, and the DSC Plan, and
in 2003, $95,197 paid to Mr. Ervine for cashed-in unused accrued vacation
and $10,000 paid to each of Mr. Loftus and Mr. Weber pursuant to VSE's
employee spot bonus program.
Option Grants in Last Fiscal Year
No options were granted in fiscal year 2005. On December 30, 2005, the
Board directed VSE to discontinue, until and unless the Board determined
otherwise, awarding options, both discretionary and nondiscretionary, to
purchase VSE Stock under the 2004 Plan. For a proposal regarding the adoption
of a new incentive compensation plan (the VSE Corporation 2006 Restricted Stock
Plan), see "Proposal No. 3" above.
- 21 -
Aggregate Options Exercised in Last Fiscal Year and Fiscal Year-end Option
Values
The following table reports the options exercised, exercisable, and
unexercisable as of the end of VSE's fiscal year 2005 for each of the five most
highly compensated VSE executive officers, including the chief executive
officer.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
at 12/31/05 at 12/31/05 ($)(2)
- ---------------------------------------------------------------------------------------------------
Shares acquired Value ($)
Name on exercise realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------
Thomas G. Dacus -- -- 13,250 6,750 414,400 202,320
Donald M. Ervine 22,000 567,124 38,500 10,500 1,282,400 313,680
James M. Knowlton 11,500 301,253 17,750 7,250 570,960 216,960
Thomas R. Loftus 4,000 133,320 15,750 4,750 518,580 142,720
Craig S. Weber 8,000 246,262 20,250 4,750 678,240 142,720
(1) Value realized is determined by subtracting the exercise price from the
fair market value on the date the options were exercised and multiplying
the resulting number by the underlying shares of Stock.
(2) Value is determined by subtracting the exercise price from the fair
market value of the Stock as of December 31, 2005 ($42.10 per share) and
multiplying the resulting number if positive by the underlying Stock.
Performance Graph
Set forth below is a line graph comparing the cumulative total return of
VSE Stock with (a) a performance index for the broad market in which VSE Stock
is traded and (b) a published industry index. VSE Stock is traded on the NASDAQ
National Market System, and VSE's industry group is engineering and technical
services (formerly SIC Code 8711). Accordingly, the performance graph compares
the cumulative total return for VSE Stock with (a) an index for the NASDAQ
National Market System (U.S. companies) ("NASDAQ Index") and (b) a published
industry index for SIC Code 8711 ("Industry Index").
- 22 -
[insert graph]
* Total return assumes reinvestment of dividends and assumes $100 invested
on December 31, 2000, in VSE Stock, the NASDAQ Index, and the Industry Index.
Performance Graph Table
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
VSE Stock 100 138 205 256 491 827
NASDAQ Index 100 79 56 83 91 93
Industry Index 100 120 94 142 161 235
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at VSE's 2007 annual
meeting of stockholders must have been received by VSE's Secretary at VSE's
principal executive offices, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, by no later than the close of business on February 3, 2007, to be
considered for inclusion in VSE's proxy material relating to such meeting.
- 23 -
OTHER MATTERS
VSE will bear the costs of the solicitation of proxies for use at the
Meeting. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by directors, officers and employees
of VSE. Arrangements will also be made with brokerage houses and other
custodians, nominees, and fiduciaries, who are record holders of Stock, for
forwarding solicitation material to the beneficial owners of the Stock. VSE
will, on the request of such record holders, pay the reasonable expenses for
completing the mailing of such materials to the beneficial owners.
Please sign and promptly return your proxy in the enclosed envelope. Your
vote is important.
By Order of the Board of Directors
C. S. Weber, Secretary
- 24 -
Appendix A
VSE CORPORATION
2006 RESTRICTED STOCK PLAN
1. Purpose
The purpose of the VSE Corporation 2006 Restricted Stock Plan (the
"Plan") is to promote the ability of VSE Corporation, a Delaware corporation,
to recruit and retain employees and non-employee directors and enhance the
growth and profitability of VSE Corporation by providing the incentive of long-
term awards for continued employment and directorship and the attainment of
performance objectives.
2. Definitions
(a) "Affiliate" means, with respect to any Person, any other person
that, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition, the term
"control," including its correlative terms "controlled by" and "under common
control with," mean, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
(b) "Award" means an award of Restricted Stock or Restricted Stock
Units granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means any transaction or series of transactions
as a result of which any Person who was a Third Party immediately before such
transaction or series of transactions owns then outstanding securities of the
Company such that such Person has the ability to direct the management of the
Company, as determined by the Board in its discretion. The Board may also
determine that a Change of Control shall occur upon the completion of one or
more proposed transactions. The Board's determination shall be final and
binding.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "VSE Plan" means any restricted stock, restricted stock unit, stock
bonus, stock option or other compensation plan, program or arrangement
established or maintained by the Company or an Affiliate, including the Plan,
the VSE Corporation 2004 Stock Option Plan, the VSE Corporation 1998 Stock
Option Plan and the VSE Corporation 2004 Directors Stock Plan.
(g) "Committee" means the Compensation Committee of the Board.
(h) "Common Stock" means Common Stock, par value $0.05 per share, of
the Company.
(i) "Company" means VSE Corporation, a Delaware corporation, including
any successor thereto by merger, consolidation, acquisition of all or
substantially all the assets thereof, or otherwise.
(j) "Date of Grant" means the date on which an Award is granted.
A-1
(k) "Eligible Employee" means an employee of a Participating Company,
as determined by the Committee.
(l) "Fair Market Value" means:
(i) If trades of Shares are reported on the Nasdaq National
Market, Fair Market Value shall be determined based on the last quoted
sale price of a Share on the Nasdaq National Market on the date of
determination, or if such date is not a trading day, the next trading
date.
(ii) If trades of Shares are not reported on the Nasdaq National
Market but Shares are listed on a stock exchange, Fair Market Value
shall be determined based on the last reported sale price of a Share on
the principal exchange on which Shares are listed on the date of
determination, or if such date is not a trading day, the next trading
date.
(iii) If Shares are not so listed nor trades of Shares so reported,
Fair Market Value shall be determined by the Committee in good faith.
(m) "Grantee" means an Eligible Employee or Non-Employee Director who
is granted an Award.
(n) "Non-Employee Director" means an individual who is a member of the
Board, and who is not an employee of the Company, including an individual who is
a member of the Board and who previously was an employee of the Company.
(o) "Other Available Shares" means, as of any date, the sum of:
(i) The total number of Shares owned by a Grantee that were not
acquired by such Grantee pursuant to a VSE Plan or otherwise in
connection with the performance of services to the Company or an
Affiliate thereof; plus
(ii) The excess, if any of:
(1) The total number of Shares owned by a Grantee other
than the Shares described in Section 2(o)(i); over
(2) The sum of:
(A) The number of such Shares owned by such Grantee
for less than six months; plus
(B) The number of such Shares owned by such Grantee
that has, within the preceding six months, been the subject
of a withholding certification pursuant to Section 8(c)(ii)
or any similar withholding certification under any other VSE
Plan; plus
(p) "Participating Company" means the Company and each of the
Subsidiary Companies.
(q) "Person" means an individual, a corporation, a partnership, a
limited liability company, an association, a trust or any other entity or
organization.
(r) "Plan" means the VSE Corporation 2006 Restricted Stock Plan, as set
forth herein, and as amended from time to time.
A-2
(s) "Restricted Stock" means Shares subject to restrictions as set
forth in an Award.
(t) "Restricted Stock Unit" means a unit that entitles the Grantee,
upon the Vesting Date set forth in an Award, to receive one Share.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act.
(v) "Senior Executive" means an Eligible Employee whom the Committee
has identified as a "covered employee" for purposes of Code Section 162(m).
(w) "Share" or "Shares" means a share or shares of Common Stock.
(x) "Subsidiary Companies" means all business entities that, at the
time in question, are subsidiaries of the Company, within the meaning of Code
Section 424(f).
(y) "Successor-in-Interest" means the estate or beneficiary to whom
the right to payment under the Plan shall have passed by will or the laws of
descent and distribution.
(z) "Terminating Event" means any of the following events:
(i) the liquidation of the Company; or
(ii) a Change of Control.
(aa) "Third Party" means any Person, together with such Person's
Affiliates, provided that the term "Third Party" shall not include the Company
or an Affiliate of the Company.
(bb) "Vesting Date" means, as applicable: (i) the date on which the
restrictions imposed on a Share of Restricted Stock lapse or (ii) the date on
which the Grantee vests in a Restricted Stock Unit.
(cc) "1933 Act" means the Securities Act of 1933, as amended.
(dd) "1934 Act" means the Securities Exchange Act of 1934, as amended.
3. Rights to be Granted
Rights that may be granted under the Plan are:
(i) Rights to Restricted Stock which gives the Grantee ownership
rights in the Shares pursuant to the Award, subject to a substantial risk
of forfeiture, as set forth in Section 7, and
(ii) Rights to Restricted Stock Units which give the Grantee a
contractual right granted under Section 7 that is denominated in Shares,
each of which represents a right to receive the value of Shares upon the
terms and conditions set forth in the Plan and the applicable Award.
4. Shares Subject to the Plan or Awards
(a) Not more than 125,000 Shares in the aggregate may be issued under
the Plan pursuant to the grant of Awards, subject to adjustment in accordance
with Section 9. The Shares issued under the Plan may, at the Company's option,
be either Shares held in treasury or Shares originally issued for such purpose.
A-3
(b) If Restricted Stock or Restricted Stock Units are forfeited
pursuant to the term of an Award, other Awards with respect to such Shares may
be granted.
5. Administration of the Plan
(a) Administration. The Plan shall be administered by the Committee,
provided that with respect to Awards to Non-Employee Directors, the rules of
this Section 5 shall apply so that all references in this Section 5 to the
Committee shall be treated as references to either the Board or the Committee
acting alone.
(b) Grants. Subject to the express terms and conditions set forth in
the Plan, the Committee shall have the power, from time to time, to:
(i) select those Employees and Non-Employee Directors to whom
Awards shall be granted under the Plan, to determine the number of Shares
or Restricted Stock Units, as applicable, to be granted pursuant to each
Award, and, pursuant to the provisions of the Plan, to determine the
terms and conditions of each Award, including the restrictions applicable
to such Shares and the conditions upon which a Vesting Date shall occur;
and
(ii) interpret the Plan's provisions, prescribe, amend and rescind
rules and regulations for the Plan, and make all other determinations
necessary or advisable for the administration of the Plan.
The determination of the Committee in all matters as stated above shall
be final, binding and conclusive.
(c) Meetings. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(d) Exculpation. No member of the Committee shall be personally liable
for monetary damages for any action taken or any failure to take any action in
connection with the administration of the Plan or the granting of Awards
thereunder unless (i) the member of the Committee has breached or failed to
perform the duties of his office, and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness; provided, however,
that the provisions of this Section 5(d) shall not apply to the responsibility
or liability of a member of the Committee pursuant to any criminal statute.
(e) Indemnification. Service on the Committee shall constitute service
as a member of the Board. Each member of the Committee shall be entitled without
further act on his part to indemnity from the Company to the fullest extent
provided by applicable law and the Company's certificate of incorporation and
by-laws in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan or the granting of Awards thereunder
in which he may be involved by reason of his being or having been a member of
the Committee, whether or not he continues to be such member of the Committee at
the time of the action, suit or proceeding.
(f) Delegation of Authority. The Committee may delegate to an officer
of the Company, or a committee of two or more officers of the Company,
discretion under the Plan to grant Restricted Stock or Restricted Stock Units to
any Grantee other than a Grantee who, at the time of the grant:
(i) has a base salary of $100,000 or more;
A-4
(ii) is subject to the short-swing profit recapture rules of
section 16(b) of the 1934 Act; or
(iii) is a Senior Executive.
(g) Termination of Delegation of Authority. Any delegation of authority
described in Section 5(f) shall continue in effect until the earliest of:
(i) such time as the Committee shall, in its discretion, revoke
such delegation of authority;
(ii) the delegate shall cease to be an employee of the Company for
any reason; or
(iii) the delegate shall notify the Committee that he declines to
continue exercise such authority.
6. Eligibility
Awards may be granted only to Eligible Employees and Non-Employee
Directors.
7. Restricted Stock and Restricted Stock Unit Awards
The Committee may grant Awards in accordance with the Plan, provided
that the Board or the Committee may grant Awards to Non-Employee Directors, or
otherwise. With respect to Awards to Non-Employee Directors, the rules of this
Section 7 shall apply so that either the Board or the Committee acting alone
shall have all of the authority otherwise reserved in this Section 7 to the
Committee.
The terms and conditions of Awards shall be set forth in writing as
determined from time to time by the Committee, consistent, however, with the
following:
(a) Time of Grant. No Awards shall be granted after the fifth
anniversary of the Effective Date.
(b) Terms of Awards. The provisions of Awards need not be the same with
respect to each Grantee. No cash or other consideration shall be required to be
paid by the Grantee in exchange for an Award.
(c) Awards and Agreements. Each Grantee shall be provided with an
agreement specifying the terms and conditions of an Award. In addition, a
certificate shall be issued to each Grantee in respect of Restricted Stock
subject to an Award. Such certificate shall be registered in the Grantee's name
and shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Award. The Company may require that the
certificate evidencing such Restricted Stock be held by the Company until all
restrictions on such Restricted Stock have lapsed.
(d) Restrictions. Subject to the provisions of the Plan and the Award,
the Committee may establish a period commencing with the Date of Grant during
which the Grantee shall not be permitted to sell, transfer, pledge or assign
Restricted Stock awarded under the Plan.
(e) Vesting / Lapse of Restrictions. Subject to the provisions of the
Plan and the Award, a Vesting Date for Restricted Stock or Restricted Stock
Units subject to an Award shall occur at such time or times and on such terms
and conditions as the Committee may determine and as are set forth in the Award;
A-5
provided, however, that except as otherwise provided by the Committee, a Vesting
Date shall occur only if the Grantee is an employee of a Participating Company
as of such Vesting Date, and has been an employee of a Participating Company
continuously from the Date of Grant. The Award may provide for Restricted Stock
or Restricted Stock Units to vest in installments, as determined by the
Committee. The Committee may, in its sole discretion, waive, in whole or in
part, any remaining conditions to vesting with respect to such Grantee's
Restricted Stock or Restricted Stock Units.
(f) Rights of the Grantee. Grantees may have such rights with respect
to Shares subject to an Award as may be determined by the Committee and set
forth in the Award, including the right to vote such Shares, and the right to
receive dividends paid with respect to such Shares. A Grantee whose Award
consists of Restricted Stock Units shall not have the right to vote or to
receive dividend equivalents with respect to such Restricted Stock Units.
(g) Termination of Grantee's Employment. A transfer of an Eligible
Employee between two employers, each of which is a Participating Company, shall
not be deemed a termination of employment. If a Grantee terminates employment
with all Participating Companies, all Restricted Shares or Restricted Stock
Units as to which a Vesting Date has not occurred shall be forfeited by the
Grantee and deemed canceled by the Company.
(h) Delivery of Shares. When a Vesting Date occurs with respect to all
or a portion of an Award of Restricted Stock or Restricted Stock Units, the
Company shall notify the Grantee that a Vesting Date has occurred, and shall
deliver to the Grantee (or the Grantee's Successor-in-Interest) a certificate
for the number of Shares as to which a Vesting Date has occurred (or in the case
of Restricted Stock Units, the number of Shares represented by such Restricted
Stock Units) without any legend or restrictions (except those that may be
imposed by the Committee, in its sole judgment, under Section 8(a)). All Awards
shall be settled no later than the March 15th following the calendar year in
which such Award is vested. The right to payment of any fractional Shares that
may have accrued shall be satisfied in cash, measured by the product of the
fractional amount times the Fair Market Value of a Share at the Vesting Date,
as determined by the Committee.
(i) Qualified Performance-Based Awards. A Subcommittee of the
Committee ("Subcommittee"), comprised solely of two or more Non-Employee
Directors who otherwise meet the requirements of being "outside directors" as
defined in Code Section 162(m), may designate whether any Award granted to a
Senior Executive is intended to qualify as "performance-based compensation"
within the meaning of Code Section 162(m).
(i) Any Award designated as intended to be performance-based
compensation shall be, to the extent required by Code Section 162(m)
either (A) conditioned upon the achievement of one or more of the
following performance measures, or (B) granted based upon the achievement
of one or more of the following performance measures: total shareholder
return, stock price, operating earnings, net earnings, return on equity
or capital, income, level of expenses, growth in revenue, or other
performance measures deemed by the Subcommittee to be appropriate. The
provisions describing the performance goals associated with an Award to
a Senior Executive must be expressed in an objective rather than
subjective manner such that a Third Party having knowledge of the
relevant performance results could calculate the extent, if any, to which
an Award has become vested. Performance goals may be established on a
Company-wide basis or with respect to one or more business units or
divisions or subsidiaries. The targeted level or levels of performance
(which may include minimum, maximum and target levels of performance)
with respect to such performance measures may be established at such
levels and in such terms as the Subcommittee may determine, in its
discretion, including in absolute terms, as a global performance in prior
periods, or as a goal compared to the performance of one or more
comparable companies or an index covering multiple companies. When
establishing performance goals for a performance period, the Subcommittee
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may exclude any or all "extraordinary items" as determined under U.S.
generally accepted accounting principles including, the charges or costs
associated with restructurings of the Company, discontinued operations,
other unusual or non recurring items, and the cumulative effects of
accounting changes. The Subcommittee may also adjust the performance
goals for any performance period as it deems equitable in recognition of
unusual or non-recurring events affecting the Company, changes in
applicable tax laws or accounting principles, or such factors as the
Subcommittee may determine; including, any adjustments that would result
in the Company paying non-deductible compensation to a Participant. For
any Award subject to such pre-established formula, no more than
$1,000,000 can be paid in satisfaction of such Award to any Senior
Executive.
(ii) Any Award that is intended to qualify as "performance-based
compensation" shall also be subject to the following:
(A) No later than 90 days following the commencement of each
performance period (or such other time as may be required or permitted by
Code Section 162(m)), the Subcommittee shall, in writing, (1) grant a
target number of shares or units, (2) select the performance goal or
goals applicable to the performance period and (3) specify the
relationship between performance goals the number of shares or units that
may be earned by a Participant for such performance period.
(B) Following the completion of each performance period, the
Subcommittee shall certify in writing whether the applicable performance
targets have been achieved and the number of units or shares if any,
earned by a Participant for such performance period. All decisions by
the Subcommittee as to the terms and conditions of an Award and the
extent to which an Award has become vested shall be binding and
conclusive on the Senior Executives.
(C) In determining the number of units or shares earned by a
Participant for a given performance period, subject to any applicable
Award Agreement, the Subcommittee shall have the right to reduce (but not
increase) the amount earned at a given level of performance to take into
account additional factors that the Subcommittee may deem relevant to the
assessment of individual or corporate performance for the performance
period.
(D) In the case of Senior Executives being granted Awards
subject to Section 7(i) at least six months must elapse from the date of
the grant of the Award to the date of disposition of underlying Shares.
(j) Retirement, Death or Disability. The Committee may, in its
discretion, waive the Vesting Date or any restrictions imposed on an Award in
the event of the retirement, death or disability of a Participant (each as
determined by the Committee, in its discretion). Exercise of such discretion by
the Committee in any individual case, however, shall not be deemed to require,
or to establish a precedent suggesting such exercise in any other case.
8. Securities Laws; Taxes
(a) Securities Laws. The Committee shall have the power to make each
grant of Awards under the Plan subject to such conditions as it deems necessary
or appropriate to comply with the then existing requirements of the 1933 Act and
the 1934 Act, including Rule 16b-3. Such conditions may include the delivery by
the Grantee of an investment representation to the Company in connection with a
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Vesting Date occurring with respect to Shares subject to an Award, or the
execution of an agreement by the Grantee to refrain from selling or otherwise
disposing of the Shares acquired for a specified period of time or on specified
terms.
(b) Taxes. Subject to the rules of Section 8(c), the Company shall be
entitled, if necessary or desirable, to withhold the amount of any tax, charge
or assessment attributable to the grant of any Award or the occurrence of a
Vesting Date with respect to any Award. The Company shall not be required to
deliver Shares pursuant to any Award until it has been indemnified to its
satisfaction for any such tax, charge or assessment.
(c) Payment of Tax Liabilities; Election to Withhold Shares or Pay Cash
to Satisfy Tax Liability.
(i) In connection with the grant of any Award or the occurrence
of a Vesting Date under any Award, the Company shall have the right to
(A) require the Grantee to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to
the delivery or transfer of any certificate or certificates for Shares
subject to such Award, or (B) take any action whatever that it deems
necessary to protect its interests with respect to tax liabilities. The
Company's obligation to make any delivery or transfer of Shares shall be
conditioned on the Grantee's compliance, to the Company's satisfaction,
with any withholding requirement.
(ii) Except as otherwise provided in this Section 8(c)(ii), any
tax liabilities incurred in connection with grant of any Award or the
occurrence of a Vesting Date under any Award under the Plan shall be
satisfied by the Company's withholding a portion of the Shares subject to
such Award having a Fair Market Value approximately equal to the minimum
amount of taxes required to be withheld by the Company under applicable
law, unless otherwise determined by the Committee with respect to any
Grantee. Notwithstanding the foregoing, the Committee may permit a
Grantee to elect one or both of the following: (A) to have taxes withheld
in excess of the minimum amount required to be withheld by the Company
under applicable law; provided that the Grantee certifies in writing to
the Company at the time of such election that the Grantee owns Other
Available Shares having a Fair Market Value that is at least equal to the
Fair Market Value to be withheld by the Company in payment of withholding
taxes in excess of such minimum amount; and (B) to pay to the Company in
cash all or a portion of the taxes to be withheld in connection with such
grant or Vesting Date. In all cases, the Shares so withheld by the
Company shall have a Fair Market Value that does not exceed the amount of
taxes to be withheld minus the cash payment, if any, made by the Grantee.
Any election pursuant to this Section 8(c)(ii) must be in writing made
prior to the date specified by the Committee, and in any event prior to
the date the amount of tax to be withheld or paid is determined. An
election pursuant to this Section 8(c)(ii) may be made only by a Grantee
or, in the event of the Grantee's death, by the Grantee's legal
representative. No Shares withheld pursuant to this Section 8(c)(ii)
shall be available for subsequent grants under the Plan. The Committee
may add such other requirements and limitations regarding elections
pursuant to this Section 8(c)(ii) as it deems appropriate.
9. Changes In Capitalization
The aggregate number of Shares and class of Shares as to which Awards may
be granted and the number of Shares covered by each outstanding Award shall be
appropriately adjusted in the event of a stock dividend, stock split,
recapitalization or other change in the number or class of issued and
outstanding equity securities of the Company resulting from a subdivision or
consolidation of the Shares or other outstanding equity security or a
recapitalization or other capital adjustment (not including the issuance of
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Shares or other outstanding equity securities on the conversion of other
securities of the Company which are convertible into Shares or other outstanding
equity securities) affecting the Shares which is effected without receipt of
consideration by the Company. The Committee shall have authority to determine
the adjustments to be made under this Section 9 and any such determination by
the Committee shall be final, binding and conclusive.
10. Terminating Events
The Committee shall give Grantees at least ten (10) days' notice (or, if
not practicable, such shorter notice as may be reasonably practicable) prior to
the anticipated date of the consummation of a Terminating Event. The Committee
may, in its discretion, provide in such notice that upon the consummation of
such Terminating Event, any conditions to the occurrence of a Vesting Date with
respect to an Award of Restricted Stock or Restricted Stock Units (other than
Restricted Stock or Restricted Stock Units that have previously been forfeited)
shall be eliminated, in full or in part.
Claims for benefits under the Plan must be filed with the Committee at
the following address:
VSE Corporation
2550 Huntington Avenue
Alexandria, VA 22303-1499
Attention: Corporate Secretary
11. Amendment and Termination
The Plan may be terminated by the Board at any time. The Plan may be
amended by the Board or the Committee at any time. No Award shall be materially
and adversely affected by any such termination or amendment without the written
consent of the Grantee.
12. Construction and Certain Terms and Phrases
(a) Unless the context of the Plan otherwise requires, (i) words of any
gender include each other gender; (ii) words using the singular or plural number
also include the plural or singular number, respectively; (iii) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to the entire
Plan and not to any particular provision of the Plan and (iv) the term "Section"
without any reference to a specified document refer to the specified Section of
the Plan.
(b) The words "including," "include" and "includes" are not exclusive
and shall be deemed to be followed by the words "without limitation"; if
exclusion is intended, the word "comprising" is used instead.
(c) The word "or" shall be construed to mean "and/or" unless the
context clearly prohibits that construction.
(d) Whenever the Plan refers to a number of days, such number shall
refer to calendar days unless business days are specified.
(e) All accounting terms used herein and not expressly defined herein
shall have the meanings ascribed to them under United States generally accepted
accounting principles.
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(f) Any reference to any federal, state, local or foreign statute or
law, including the Code, 1933 Act and the 1934 Act, shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise.
13. Effective Date
The Plan was approved and adopted by the Board on February 9, 2006,
subject to the approval of the holders of a majority of the Common Stock
entitled to vote thereon. The effective date of the Plan shall be the date
on which the Plan is approved by VSE's stockholders as contemplated by the
immediately preceding sentence (the "Effective Date").
14. Governing Law
The Plan and all determinations made and actions taken pursuant to the
Plan shall be governed in accordance with the laws (excluding conflict of law
rules and principles) of the State of Delaware.
Executed as of February 9, 2006.
VSE CORPORATION
By:__________________________________
Donald M. Ervine, Chairman of the
Board, Chief Executive Officer and
President
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Form of Proxy
________________________________________________________________________________
VSE Corporation PROXY This Proxy is solicited on behalf of the
2550 Huntington Avenue Board of Directors
Alexandria, Virginia 22303-1499 The undersigned hereby appoints D. M. Ervine
and C. S. Weber as Proxies, each with the
power to appoint his substitute, and hereby
authorizes them to vote as designated below,
all the shares of Common Stock of
VSE Corporation held of record by the
undersigned on March 20, 2006, at the annual
meeting of stockholders scheduled to be held
on May 2, 2006, and at any adjournment
thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) ___ to vote for all nominees
listed below ___
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Donald M. Ervine, Clifford M. Kendall, Calvin S. Koonce, James F. Lafond,
David M. Osnos, Jimmy D. Ross, and Bonnie K. Wachtel
2. PROPOSAL TO APPROVE AN AMENDMENT TO VSE'S RESTATED CERTIFICATE OF
INCORPORATION to increase the authorized number of shares of VSE Common
Stock, par value $.05 per share, from 5,000,000 shares to 15,000,000 shares.
___ FOR ___ AGAINST ___ ABSTAIN
3. PROPOSAL TO APPROVE THE ADOPTION OF THE VSE CORPORATION 2006 RESTRICTED STOCK
PLAN.
___ FOR ___ AGAINST ___ ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP as the independent
auditor of VSE Corporation.
___ FOR ___ AGAINST ___ ABSTAIN
5. In their discretion, the Proxies are authorized to vote on such other
business as may properly come before this meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
Please sign exactly as it appears printed hereon. When
shares are held by joint tenants, both should sign. When
signing as an attorney, executor, administrator, trustee,
or guardian, please give full title as such. If signing as
a corporation, please sign full corporate name by President
or other authorized officer. If signing as a partnership,
please sign in partnership name by authorized person.
Dated: _______________, 2006 ___________________________
Please vote, sign, date, and, Signature
return the Proxy Card using
the enclosed envelope. ___________________________
Signature if held jointly
________________________________________________________________________________