VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of 1996
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 Saturday, May 4, 1996,
commencing at 10:00 a.m., Washington, D.C. time, at the Value Engineering
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.
In addition, at the meeting we will 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 in the
enclosed envelope. Your vote is important.
Very truly yours,
VSE CORPORATION
/s/ D. M. Ervine
D. M. Ervine
Chairman of the Board
and Chief Executive Officer
April 3, 1996
VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of Annual Meeting of Stockholders
to be Held ON May 4, 1996
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 Saturday,
May 4, 1996, commencing at 10:00 a.m., Washington, D.C. time, at the Value
Engineering Building, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, for the following purposes:
1. To elect nine directors to serve until the next annual
meeting of stockholders and until their successors are duly
elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as VSE's
independent certified public accountants for the year ending
December 31, 1996;
3. To consider and act on the proposed VSE Corporation 1996
Stock Option Plan; and
4. To transact such other business as may properly come before
the meeting or at any adjournment thereof.
Only record holders of VSE common stock as of the close of business
on March 20, 1996, will be entitled to notice of, and to vote at, the
annual meeting or at any adjournments thereof. The list of stockholders
entitled to vote at the meeting or at 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 1995 Annual Report to Stockholders, which
contains consolidated financial statements and other information of
interest to stockholders, accompanies this proxy material.
Whether or not 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 envelope, which requires no postage if
mailed within the United States of America. 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,
/s/ C. S. Weber
C. S. Weber
Secretary
April 3, 1996
VSE CORPORATION
PROXY STATEMENT
Annual Meeting of Stockholders
to be held on May 4, 1996
INTRODUCTION
General
This proxy statement is being furnished to the stockholders of VSE
Corporation, a Delaware corporation ("VSE"), in connection with the
solicitation of proxies by the board of directors of VSE (the "Board") for
use at VSE's annual meeting of stockholders to be held on Saturday, May 4,
1996, commencing at 10:00 a.m., Washington, D.C. time, at the Value
Engineering Building, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, and at any adjournments thereof (the "Meeting") for the
purposes specified in the accompanying notice of 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 provided to the holders of VSE
common stock, par value $.05 per share (the "stockholders"), on or about
April 3, 1996.
The close of business on March 20, 1996, is the record date for the
determination of stockholders entitled to notice of, and to vote at, the
Meeting. Holders of a majority of the outstanding VSE common stock, par
value $.05 per share (the "Stock" or "VSE Stock"), as of March 20, 1996,
must be present at the Meeting, either in person or represented by proxy,
to constitute a quorum for the transaction of business. As of the close of
business on March 20, 1996, there were 869,167 shares of Stock outstanding
and approximately 320 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, 1996, 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 for (a)
the election as VSE directors of the nine nominees listed below under
"Election of Directors," (b) the ratification of the appointment of Arthur
Andersen LLP as VSE's independent certified public accountants for the
year ending December 31, 1996, and (c) the adoption of the VSE Corporation
1996 Stock Option Plan, all as discussed below.
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 not be considered as present and
entitled to vote 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
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 March 20, 1996, (a) by each person
known by VSE to beneficially own more than 5% of the then outstanding
Stock, (b) by each VSE director, (c) by each of the named VSE executive
officers, and (d) by all VSE directors and executive officers as a group.
The voting and investment powers of the Stock listed below are held solely
by the reported owner unless otherwise indicated.
Amount of Beneficial Percent of
Name of Beneficial Owner Ownership (Shares) (1) Outstanding Stock
------------------------ ---------------------- -----------------
VSE Corporation
ESOP/401(k) Plan 345,573 (2) 39.8%
B. S. Bartholomew 6,255 (3) *
Sarah Clements 0 0
D. M. Ervine 12,204 1.4%
R. J. Kelly 500 *
C. S. Koonce 155,552 (4) 17.9%
J. M. Knowlton 6,076 *
J. M. Marchello 2,100 *
R. B. McFarland 3,865 *
D. M. Osnos 0 0
J. D. Ross 0 0
B. K. Wachtel 11,300 1.3%
C. S. Weber 19,912 (3) 2.3%
All directors and executive officers
as a group (5) 280,915 32.3%
* Represents less than 1% of outstanding Stock.
(1) Excludes the following shares that may be acquired within 60 days
pursuant to outstanding option grants. The grants are subject to
stockholder approval of the VSE Corporation 1996 Stock Option Plan (see
"Item No. 3" below): Mr. Bartholomew, 1,708 shares; Mrs. Clements, 469
shares; Mr. Ervine, 3,941 shares; Mr. Kelly, 469 shares; Mr. Koonce, 469
shares; Mr. Knowlton, 1,051 shares; Mr. Marchello, 469 shares; Mr.
McFarland, 2,233 shares; Mr. Osnos, 469 shares; Mr. Ross, 469 shares;
Miss Wachtel, 469 shares; Mr. Weber, 1,051 shares, and all directors and
executive officers as a group, 16,432 shares.
(2) These shares are held in trust for the benefit of the participants of
the Plan. Three VSE officers serve as trustees of the Plan. The
participants of the Plan have voting power over 286,159 shares allocated
to their respective ESOP accounts, while the Plan trustees share voting
and investment power over the remaining 59,414 shares. The mailing address
for the Plan is 2550 Huntington Avenue, Alexandria, Virginia 22303-1499.
(3) Excludes 59,414 shares beneficially owned or controlled as a trustee
of the ESOP/ 401(k) Plan.
(4) Mr. Koonce's mailing address is 6550 Rock Spring Drive, Suite 600,
Bethesda, Maryland 20817. Excludes 29,800 shares owned by members of his
family. Mr. Koonce disclaims any beneficial interest in the shares owned
by his family.
(5) The group, including the trustees of the ESOP/401(k) Plan, consists
of 16 persons. The 280,415 shares beneficially owned include 59,414 shares
beneficially owned or controlled by the trustees of the ESOP/401(k) Plan.
Item No. 1
Election of Directors
Nominees
At the Meeting, stockholders will elect, by a plurality of the votes cast,
nine 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, except for Robert
J. Kelly, who was appointed as a director by the Board in December 1995,
effective as of January 1, 1996. 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.
Harold P. Weinberg, who served as a VSE director from 1961 through 1995,
retired from the Board as of December 31, 1995, and accordingly, is not
seeking reelection.
The nine nominees for election as VSE directors and certain information
regarding them are as follows:
Director
Name and Principal Occupation Age since
-----------------------------------------------------------
David M. Osnos 64 1968
Senior partner of Arent Fox Kintner Plotkin & Kahn,
attorneys-at-law (for more than the past five years);
also a director of EastGroup Properties and Washington
Real Estate Investment Trust.
Director
Name and Principal Occupation Age since
-----------------------------------------------------------
Sarah Clements 85 1987
Private consultant and formerly Deputy for Material
Acquisition Management in the Office of the Assistant
Secretary of the Army (RDA) (1975 to 1981). Before
retiring in 1981, she served for 35 years in the Federal
Aviation Administration and the Department of the Army.
Donald M. Ervine 59 1987
VSE Chairman of the Board and Chief Executive Officer
since 1992, VSE President and Chief Operating Officer
from 1988 to 1992, and prior thereto, senior program
manager, vice president, senior vice president, and
executive vice president since 1983.
Richard B. McFarland 62 1988
VSE President and Chief Operating Officer since February
1993 and a private consultant to VSE from 1988 to 1993;
formerly executive director of the Navy Ships Parts
Control Center (1982 to 1988). Before retiring in 1988,
he served for 25 years in the Department of the Navy.
Joseph M. Marchello 62 1990
Professor at Old Dominion University in Norfolk,
Virginia, chemical engineering; Chancellor of the
University of Missouri-Rolla from 1976 to 1985 and
President of Old Dominion University from 1985 to 1988.
Bonnie K. Wachtel 40 1991
Vice President and General Counsel, Wachtel & Co. Inc.,
Brokers and Underwriters (for more than the past five
years). Also a director of Integral Systems Inc. and
Information Analysis Inc.
Calvin S. Koonce 58 1992
President, Koonce Securities, Inc., a securities
broker/dealer firm (for more than the past five years).
Also a director of Exotech Inc.
Jimmy D. Ross 59 1994
General, U. S. Army (Ret.), formerly Commanding General,
U. S. Army Materiel Command. Since retiring in 1994,
General Ross has served as Senior Vice President,
Biomedical Services, for the American Red Cross.
Robert J. Kelly 58 1996
Admiral, U.S. Navy (Ret.), formerly Commander in Chief of
the U. S. Pacific Fleet. Since retiring in 1994, Admiral
Kelly has served as Director of International Operations
for The Wing Group, a developer of large-scale energy
projects, and since August 1995 as Chairman of the Board
of Energetics Incorporated, a VSE subsidiary.
Committees of the Board
Audit Committee. The audit committee met three times during 1995 and
consists of all non-employee directors including Mr. Kelly, Chairman, Mrs.
Clements, and Mr. Osnos. The audit committee is primarily concerned with
the effectiveness of VSE accounting policies and practices, financial
reporting, and internal controls. The committee recommends to the Board
the firm to be appointed as VSE's independent certified public
accountants, subject to ratification by the stockholders, and reviews the
scope of the annual examination of VSE's books and records. The committee
also reviews the audit findings and recommendations of the independent
public accountants, considers the organization and work of VSE's internal
audit function, and monitors the extent to which the findings and
recommendations of these groups have been implemented.
Compensation Committee. The compensation committee met three times during
1995 and consists of all non-employee directors including Mr. Ross,
Chairman, Mr. Koonce, Mr. Marchello, and Miss Wachtel. The committee is
primarily concerned with corporate compensation policies, including
incentive compensation, the compensation of the chief executive officer,
and the compensation of certain other executive officers and employees.
Nominating Committee. The nominating committee met three times during
1995 and consists of all non-employee directors including Mr. Koonce,
Chairman, and Mr. Osnos. The committee is primarily concerned with
making recommendations to the Board with respect to nominees to be
proposed for election as directors. Stockholders of VSE may recommend
persons to be nominated for election as directors of VSE at the Meeting.
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 generally by February 15th, but in any event no later than 90 days
before the date in the current year which corresponds to the date on
which the Meeting was held during the immediate prior year.
Planning Committee. The planning committee met two times during 1995 and
consists of Mr. McFarland, Chairman, Mr. Marchello, Mr. Ross, and Miss
Wachtel. The committee is primarily concerned with making recommendations
to the Board with respect to business development and opportunities,
including acquisitions.
Finance Committee. A finance committee was established in late 1995 and
met once. The committee consists of Mr. Osnos, Chairman, Mr. Ervine, Mr.
Koonce, and Miss Wachtel. The committee is primarily concerned with
making recommendations to the Board with respect to VSE's capitalization
and long-term funding requirements.
VSE's chairman and chief executive officer (Mr. Ervine) is an ex officio
member of all standing committees of the Board. Mr. Ervine does not
participate in meetings or discussions of the compensation committee
concerned with establishing his salary or bonus.
Board Meetings
During 1995 the Board held six regular meetings. No director attended
fewer than 75% of the aggregate of (a) the total number of Board meetings
held (during the period during which he or she has been a director) and
(b) the total number of meetings held by all committees of the Board on
which he or she served.
1995 Director Compensation
Directors of VSE, excluding directors who are also VSE officers, receive
an annual retainer of $10,000 plus $600 per meeting for each regular
Board meeting or committee attended, not to exceed an aggregate of
$17,200 in retainer and meeting fees for the year. Directors who are
also VSE officers (Mr. Ervine and Mr. McFarland) are compensated at a
rate equal to one-half of the rate of non-employee directors, not to
exceed an aggregate of $8,600 for the year.
Pursuant to a consulting agreement between Mrs. Clements and VSE, Mrs.
Clements agreed to provide technical and management consulting services to
VSE. VSE agreed to pay consulting fees at the rate of $60 per hour and to
reimburse certain related out-of-pocket expenses.
Pursuant to a consulting agreement between JMM Corporation ("JMM"), which
is wholly owned by Mr. Marchello, and VSE, JMM agreed to provide technical
and management consulting services to VSE. VSE agreed to pay consulting
fees at the rate of $150 per hour for up to the first 20 hours of
consulting services rendered in any one month and at the rate of $50 per
hour for each hour in excess of 20 hours in any month, and to reimburse
certain related out-of-pocket expenses. No services were rendered to VSE
pursuant to this agreement in 1995.
Pursuant to a consulting agreement between Mr. Ross and VSE, Mr. Ross
agreed to provide technical and management consulting services to VSE.
VSE agreed to pay consulting fees at the rate of $100 per hour, not to
exceed $50,000 per year.
For services rendered to VSE during 1995, Mrs. Clements and Mr. Ross
received consulting fees and reimbursements for certain related
out-of-pocket expenses in the aggregate amounts of approximately $15,125
and $6,400, respectively. VSE believes that the fees paid under the
consulting agreements are no more than would be paid for similar services
to non-affiliated parties.
Changes in Director Compensation
Effective January 1, 1996, the Board made the following changes in
compensating VSE directors. Each non-employee director will be
compensated at an annual rate of $17,200, prorated for a partial year of
service. Directors who are employees of VSE will receive no additional
compensation for service as a director. In addition, no compensation
will be 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 or divisions, unless authorized as a
special assignment by the Board. The foregoing changes do not restrict
reimbursement for expenses incurred by a director for attending meetings
of the Board or its authorized committees.
Also effective in 1996, directors may be awarded stock option grants,
subject to stockholder approval of the VSE Corporation 1996 Stock Option
Plan (see "Item No. 3").
Certain Relationships and Related Transactions
Pursuant to an agreement dated as of January 1, 1996, Donald M. Ervine
serves as the Chief Executive Officer of VSE. Mr. Ervine is paid a base
salary of $225,000 per annum and is employed for a term ending on
January 1, 1999. This term is automatically extended for successive
one-year periods unless notice to terminate is given 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 shall be subject to review in
January of each year in which the agreement is in effect, provided that
the base salary shall not be less than $225,000 per annum. Mr. Ervine
shall also be 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 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. Under the terms of the agreement, Mr. Ervine will be
nominated to serve as a director and will be elected Chairman of the
Board during the term of his employment. In the event of a change of
control of VSE, as defined, and without his consent, Mr. Ervine is
assigned duties materially inconsistent with his position and status
with VSE, Mr. Ervine may terminate the agreement and will be entitled to
a lump sum severane compensation payment equal to three times his annual
base salary then in effect.
Pursuant to an agreement dated as of January 1, 1996, Richard B. McFarland
serves as the President and Chief Operating Officer of VSE. The terms and
conditions of Mr. McFarland's agreement are in all respects identical to
those of Mr. Ervine's agreement except that (a) Mr. McFarland is employed
at a minimum base salary of $175,000 per annum, (b) in the event of
termination without cause, the lump sum severance compensation payment
shall equal his annual base salary then in effect, (c) Mr. McFarland will
be nominated to serve as a director of VSE during the term of the
agreement, and (d) in the event of a change of control of VSE, as defined,
Mr. McFarland 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.
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 Kintner Plotkin & Kahn, of which Mr. Osnos is a
senior partner, has represented and is expected to continue to represent
VSE on various legal matters.
See "1995 Director Compensation" above for a description of certain
individual consulting agreements between VSE and Mrs. Clements, Mr.
Marchello, and Mr. Ross which were effective in 1995 and were canceled as
of January 1, 1996.
VSE and the trustees of its employee benefit plans effect certain of their
transactions in VSE stock and employee benefit plan investments,
respectively, 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.
The Board recommends a vote FOR the proposal to elect each of the nine
persons nominated to serve as a director for the ensuing year, and your
proxy will be so voted unless you specify otherwise.
Item No. 2
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Base on the recommendation of its audit committee, the Board has appointed
the firm of Arthur Andersen LLP to be VSE's independent certified public
accountants for the year ending December 31, 1996, 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 approval of this appointment by stockholders. 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 1995 Arthur Andersen LLP services included an examination
of VSE's consolidated financial statements, the financial statements of
certain subsidiaries and benefit plans, and tax consulting.
A representative of Arthur Andersen 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 recommends a vote FOR the proposal to ratify the appointment of
Arthur Andersen LLP to serve as VSE's independent certified public
accountants for the year 1996, and your proxy will be so voted unless you
specify otherwise.
Item No. 3
VSE CORPORATION 1996 STOCK OPTION PLAN
The stockholders are asked to consider and vote on a proposal to adopt
the VSE Corporation 1996 Stock Option Plan (the "Plan"), which was
adopted by the Board on February 6, 1996. Adoption of the Plan 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 Plan. (The following summary of the Plan is qualified in its
entirety by reference to the text of the Plan which is set forth as
Exhibit A to this Proxy Statement.)
VSE does not currently have a stock option plan. Under the proposed
five-year Plan, an aggregate of up to 109,479 shares of Stock
(representing approximately 12.5% of the currently outstanding Stock) may
be purchased pursuant to the grant of options. Approximately 20% of the
shares covered by the Plan will be available for grants to non-employee
directors of VSE, and approximately 80% of the shares will be available
for grants to executive officers and key employees. Options under the
Plan are not intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
(See "Federal Income Tax Consequences" below). The Plan will terminate on
the earliest of February 5, 2006, or the date on which all options under
the Plan have been exercised or terminated.
The purpose of the Plan is to make awards to non-employee directors,
executive officers, and key employees of VSE and its subsidiaries and
divisions, and thereby, to further VSE's growth by providing long-term
incentives and an identity of interests with VSE's stockholders.
(Initially, approximately 15 persons will be eligible to receive options
under the Plan.) 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 adoption of the
Plan will be of material assistance in recruiting, motivating, and
retaining key personnel.
The Board is authorized, subject to the provisions of the Plan, to
construe and interpret the Plan, and to make all determinations
necessary or advisable for the administration of the Plan. The Board
may designate persons other than Board members to carry out its
responsibilities under the Plan, under such conditions and limitations
as it may prescribe, except that the Board may not delegate its
authority with respect to the grant of options under the Plan. The
portion of the Plan which relates to the grant of options will be
administered by the Board, provided that a majority of the Board and a
majority of the members acting on the matter are non-employee directors.
Alternatively, if the Board shall not satisfy the foregoing provisions,
or if the Board shall otherwise so specify, the portion of the Plan
which relates to the grant of options shall be administered by a
committee of at least three directors, all of whom must be non-employee
directors. In administering the Plan, the Board may (but is not
required to) consider the recommendations of its compensation committee.
Under the Plan, the option price per share shall not be less than
the fair market value of the Stock as of the date each option is granted.
The fair market value of the Stock, as defined in the Plan, means on any
given date the average closing price of the Stock as reported on the
consolidated transaction reporting system for the National Association of
Securities Dealers for such of the 30 calendar days prior to the date of
the award during which trades of the Stock occurred. The closing price of
the Stock on March 21, 1996, was $27 per share.
Options will be exercisable over the exercise period specified by
the Board, but in no event will such period exceed five years from the
date of grant. Options will terminate upon voluntary termination of
employment, except (i) if the participant dies while an employee, vested
options may be exercised within one year after the participant's death
(but not after the option termination date), (ii) upon the participant's
retirement, vested options may be exercised within three years after the
retirement date (but not after the option termination date), and (iii) if
the participant's employment is terminated for disability or due to a lay
off by VSE, vested options may be exercised within one year after
termination (but not after the option termination date). Also, if a
participant's employment is terminated for cause (as defined in the Plan),
all of his or her options will terminate on the date of such termination
for cause.
The option price shall be paid in full at the time of exercise in cash
or, with the Board's approval, Stock held by the participant for at
least six months having an aggregate fair market value equal to the
aggregate option price of the options exercised or in a combination of
cash and Stock.
Each option granted under the Plan will vest 25% immediately on the
date of the grant and 25% on each successive anniversary date after the
date of the grant (100% vested after three years). In the event of a
"change of control" of VSE (as defined in the Plan), all options granted
under the Plan which have not terminated and are held by participants will
become immediately vested and may be exercised without regard to any
vesting period.
Subject to stockholder approval of the Plan, it is anticipated that grants
covering approximately 65,690 shares of Stock will be awarded, effective
as of February 7, 1996, as follows: (a) each of the seven non-employee
directors who has been nominated to serve as a director of VSE for the
ensuing year (see "Election of Directors" above) will receive an option
grant for 1,877 shares and (b) individual option grants will be made to
each of eight key executives, as follows: Mr. Ervine (15,765 shares), Mr.
McFarland (8,934 shares), Mr. Bartholomew (6,832 shares), and Messrs.
Corridon, Karl, Knowlton, Robin and Weber (4,204 shares each). The fair
market value of the Stock on February 7, 1996, as defined, was $27.28 per
share. After giving effect to the foregoing grants, an aggregate of
43,789 shares will remain available for purchase pursuant to the grant of
options during the remaining life of the Plan. Under the Plan, each year
commencing with 1997, each then outside director, as defined, will be
granted an option to purchase 300 shares.
Federal Income Tax Consequences
The following is a brief summary of certain federal income tax
consequences relating to options granted under the Plan. This summary is
solely for general information and does not make specific representations
to any participant. Therefore, each participant is urged to consult with
his or her own tax adviser regarding the exercise of options and the sale
of Stock acquired under the Plan regarding federal, state, and local tax
consequences.
The grant of stock options will have no immediate tax consequences to
VSE or the optionee. If Stock received on the exercise of an option is
not subject to a substantial risk of forfeiture, the optionee will
recognize ordinary income equal to the excess, if any, of the fair
market value of the shares at the time of exercise over the exercise
price. It is not contemplated that VSE will, upon the exercise of an
option, issue or deliver Stock that is subject to a substantial risk of
forfeiture, except as noted in the next paragraph.
Stock received on the exercise of an option will be treated as
subject to a substantial risk of forfeiture for up to a six month period
if the sale of the shares at a profit during such six months could subject
the optionee to suit under Section 16(b) of the Securities Exchange Act of
1934, as amended ("Section 16(b)"). Under these circumstances, however,
the optionee has a right to elect, within a 30-day period from the date of
transfer of the shares, to include in his or her taxable income for the
taxable year of exercise an amount equal to the excess of the fair market
value of such shares at the time of the exercise over the exercise price.
If the optionee does not make the preceding election, the optionee will
recognize ordinary income upon the expiration of the above-referenced six
month period. The amount of such income will be equal to the excess of
the fair market value of the shares at that time over the exercise price,
and the holding period for determining whether any capital gain or loss on
the subsequent sale or exchange of the shares is long-term or short-term
capital gain or loss will commence at that time.
Where ordinary income is recognized by an optionee as described above in
connection with shares received on the exercise of an option, VSE will
be entitled to a deduction in the amount of ordinary income so
recognized by the optionee, provided appropriate tax withholding
procedures are implemented or VSE otherwise establishes that the
optionee has reported the income on his or her tax return. The Plan
requires the employee to pay or make arrangements acceptable to the
Board regarding withholding taxes due upon exercise of an option. With
the Board's approval, the optionee may make such payments in whole or in
part by surrendering Stock.
Section 16
Approval of the Plan by the stockholders will exempt the acquisition
pursuant to the Plan of a stock option by a VSE director or officer from
the provisions of Section 16(b). Section 16(b) provides, among other
things, that a director or officer who, within a six-month period,
purchases and sells (or sells and purchases) the stock of a corporation
which employs him or her is liable to the corporation for the difference
between the purchase price and the sale price. Rule 16b-3 under the
Exchange Act 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).
The Board recommends a vote FOR the proposal to adopt the VSE Corporation
1996 Stock Option Plan, and your proxy will be so voted unless you specify
otherwise.
COMPENSATION COMMITTEE REPORT
The Board has established a compensation committee to (a) review corporate
compensation policies, including incentive compensation, (b) set the
compensation of the chief executive officer (the "CEO"), and (c) review
the compensation of certain other executive officers and employees. The
committee is composed entirely of non-employee directors (see "Committees
of the Board" above).
Compensation Philosophy
VSE's overall compensation philosophy is based on aligning employee
compensation with industry standards and with financial performance
objectives established by the Board. Under the supervision of the
committee, VSE has established compensation policies which are designed to
(a) attract and retain qualified executive and corporate officers and (b)
link total executive compensation to corporate goals and to specific
individual goals appropriate for each executive and corporate officer.
The key elements of VSE executive compensation are base salary and an
annual performance bonus. VSE does not have a long-term incentive plan.
During 1995 the committee retained an independent, professional
compensation firm to review VSE compensation policies and to make
recommendations with respect to a long-term incentive plan. Subject to
stockholder approval, the committee recommended and the Board adopted on
February 6, 1996, the VSE Corporation 1996 Stock Option Plan (see "Item
No. 3" above).
Base Salary
The base salaries for executive officers and other corporate officers are
based primarily on comparability to the range of compensation paid by
companies of similar size and industry, based on 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 (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
salary range generally between the 25th and the 50th percentile indicated
by such surveys.
During 1993 the committee approved a compensation plan whereby salary
ranges and ceilings were set for each of six specified executive and
corporate officer pay grades. The intent of this policy was to enhance
corporate competitiveness by (a) holding base salaries within a fixed
salary range and (b) emphasizing the compensation incentive provided by
the performance bonus program.
Performance Bonus
Consistent with the emphasis placed on competitiveness by holding salary
increases in check, the committee approved a performance bonus plan in
1993 based on achieving corporate and business unit goals. This plan
provides for the payment of a performance bonus, generally not to exceed
30% of base salary, on meeting certain specified performance criteria. A
performance bonus in excess of 30% of base salary may be authorized when
required to comply with incentives established pursuant to a written
acquisition or employment agreement and as authorized by the Board.
The performance criteria or factors used to administer the incentive
bonus program are established with the executive officer or manager at
the beginning of each year. The performance factors are weighted
approximately as follows: 20% on achieving corporate revenue and profit
targets, 20% on achieving business unit revenue and profit targets, 15%
on achieving budgeted efficiency ratios or cost reduction targets within
a business unit, and 45% on achieving specified performance objectives
within the business unit, such as proposals submitted and won, new
business development, and total quality management.
Except for the 20% weighting factor assigned for corporate revenue and
profit goals, the factors and weightings used to measure the performance
of an individual executive or corporate officer depend on the conditions
and corporate objectives with respect to the business unit or
administrative function in which the executive or corporate officer works.
All Other Compensation
All VSE officers are entitled to participate in all company fringe benefit
programs, including the VSE ESOP/401(k) plan, which is an IRS qualified
plan available to all eligible employees. Amounts contributed to the VSE
ESOP/401(k) on behalf of the named executive officers are included in the
"Summary Compensation Table."
During 1994 the Board adopted a non-qualified Deferred Supplemental
Compensation Plan (the "DSC Plan") for all VSE officers to replace the
former deferred compensation plan (the"DCU Plan"). The DSC Plan
provides, at the Board's discretion, for an annual bonus pool not to
exceed 12% of consolidated net income for the year. The annual bonus
pool is allocated to the participant accounts of corporate officers in
proportion to the ratio of the officer's performance bonus for the year
(see "Performance Bonus" above) to total officer performance bonuses for
the year. Pursuant to the DSC Plan, a bonus pool of approximately
$165,000 was authorized for 1995 for allocation to 27 participant
officer accounts. Benefits under the DSC Plan and predecessor DCU 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 during 1995 and 1994 and to the DCU Plan
during 1993 on behalf of the named executive officers are included in
the Summary Compensation Table.
Chief Executive Officer Compensation
During 1995, 1994 and 1993, VSE's chairman and chief executive officer
("CEO") (Mr. Ervine) was compensated in a manner consistent with the
foregoing. The committee recommended a base salary of approximately
$200,000 per annum for the CEO based on the salaries paid to CEO's at
similarly situated companies. See "Base Salary" discussion.
The CEO's performance bonus for each of the years presented was determined
by the committee on the basis of five factors of approximately equal
weight: revenue growth, return on equity, return on sales, leadership, and
long-term shareholder goals. The first three factors are measured based
on interim consolidated financial statements or management reports which
are subject to adjustment based on annual audited financial statements.
The last two factors are subjective measures evaluated by the committee in
executive session. Based on its evaluation, and giving consideration to
the CEO's contribution and leadership in the award of a major, ten-year
contract to VSE and the timely completion of two significant corporate
acquisitions, the committee recommended a CEO performance bonus of
$200,000 for 1995.
The performance bonus for VSE's president and chief operating officer
("COO") (Mr. McFarland) was similarly based. See "Performance Bonus"
discussion.
Employment Agreements
The committee also considered the performance of the CEO and COO (Mr.
Ervine and Mr. McFarland) in managing the growth and operations of VSE
during the prior three year period of industry consolidation, Government
downsizing, and spending restraint. In the opinion of the committee,
the retention of the CEO and COO and their continued motivation to
manage VSE growth and lead the VSE management team are essential to
maintaining corporate momentum and increasing shareholder value in the
years immediately ahead. Accordingly, the committee recommended and the
Board approved employment agreements with Mr. Ervine and Mr. McFarland
effective January 1, 1996 (see "Certain Relationships and Related
Transactions" above for a description of the employment agreements).
COMPENSATION COMMITTEE:
Jimmy D. Ross (Chair)
Calvin S. Koonce
Joseph M. Marchello
Bonnie K. Wachtel
Compensation Committee Interlocks and Insider Participation
The compensation committee consists of four non-employee directors,
including two directors (Messrs. Marchello and Ross) who had consulting
services agreements with VSE in 1995. See "1995 Director Compensation"
and "Changes in Director Compensation" above.
Mr. Koonce is a major stockholder of VSE. See "Security Ownership of
Certain Beneficial Owners and Management." The trustees of VSE's employee
benefit plans effect certain of their transactions through Koonce
Securities, Inc., which is wholly owned by Mr. Koonce, and through Wachtel
& Co., Inc., of which Ms. Wachtel is a director, officer, and shareholder.
Mr. Osnos is a senior partner of the law firm of Arent Fox Kintner Plotkin
& Kahn, which firm has represented and is expected to continue to
represent VSE on various legal matters. See "Certain Relationships and
Related Transactions."
VSE's chairman and chief executive officer (Mr. Ervine) is an ex officio
member of all Board committees, including the compensation committee. Mr.
Ervine does not participate in meetings or discussions of the compensation
committee concerned with establishing his salary or bonus.
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 (1) (2).
Annual Compensation All Other (3)
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- -------- -------- ------------
Donald M. Ervine 1995 $203,700 $200,000 $62,400
Chairman of the Board and 1994 203,700 59,100 35,600
Chief Executive Officer 1993 203,700 47,700 30,400
Richard B. McFarland 1995 $146,500 $160,000 $51,300
President and 1994 146,500 49,400 30,200
Chief Operating Officer 1993 139,500 37,000 21,900
Byron S. Bartholomew 1995 $139,400 $12,700 $31,100
Executive Vice President 1994 139,400 15,600 11,900
and Marketing Director 1993 139,400 16,500 24,200
James M. Knowlton 1995 $101,400 $45,000 $14,300
Senior Vice President 1994 97,800 13,800 7,100
and General Manager 1993 89,800 13,500 10,400
Craig S. Weber 1995 $114,000 $30,000 $21,400
Senior Vice President, 1994 108,200 13,100 11,700
Chief Financial Officer, 1993 108,200 14,400 18,500
Secretary and Treasurer
(1) The column "Other Annual Compensation" has been omitted because
the amounts paid by VSE, if any, aggregate less than the minimum
disclosure levels.
(2) The column "Long-Term Compensation" has been omitted because VSE
has no long-term compensation plan (see "Item No. 3" above).
(3) The column headed "All Other Compensation" includes contributions
made to two "defined contribution" employee benefit plans: (a) the VSE
ESOP, which is generally available to all VSE employees, and (b) the DSC
Plan or its predecessor (see plan description in "All Other Compensation"
in the "Compensation Committee Report"). This column also includes (c)
Board and committee meeting fees paid to named executive officers (see
"1995 Director Compensation" and "Changes in Director Compensation"
above). The component amounts for 1995 for the named executive officers
in the order listed above were approximately as follows: (a) $3,000,
$3,000, $3,000, $2,935, and $3,000; (b) $50,814, $40,651, $25,530,
$11,433, and $14,189; and (c) $8,600, $7,700, $2,650, $0, and $4,300.
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 Stock Market, and VSE's 4-digit industry SIC Code is 8711,
Engineering Services. Accordingly, the performance graph compares the
cumulative total return for VSE Stock with (a) an index for the Nasdaq
Stock Market (U. S. companies) ("Nasdaq Index") and (b) a published
industry index for SIC Code 8711 ("Industry Index").
Total Return to Stockholders*
[insert graph]
* Total return assumes reinvestment of dividends and assumes $100
invested on January 1, 1990, in VSE Stock, the Nasdaq Index, and the
Industry Index.
Performance Graph Table
1990 1991 1992 1993 1994 1995
VSE Stock 100 78 125 163 202 392
Nasdaq Index 100 128 130 155 163 212
Industry Index 100 122 101 96 67 85
Stockholder Proposals
Proposals of stockholders intended to be presented at VSE's 1997 annual
meeting of stockholders must be received by VSE's secretary at its
principal executive offices, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, by no later than the close of business on December 5, 1996, to
be considered for inclusion in VSE's proxy material relating to such
meeting.
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
April 3, 1996