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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ x ] 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
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of 2008
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 6, 2008, 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 176A (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
April 1, 2008
VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 2008
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 6,
2008, 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 eight 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 Ernst & Young LLP as VSE's independent
registered public accounting firm for the year ending December 31,
2008; and
3. 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 24, 2008, 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 2007 Annual Report to Stockholders, which contains
the company's 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
ENCLOSED 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
April 1, 2008
VSE CORPORATION
__________________________________
PROXY STATEMENT
Annual Meeting of Stockholders
to be held on May 6, 2008
__________________________________
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 6, 2008, 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 April 1, 2008.
The close of business on March 24, 2008, 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 24, 2008, 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 March 24, 2008, there were 5,063,509 shares of Stock
outstanding and approximately 213 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 24, 2008, 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 eight nominees
listed below under Proposal No. 1, and (b) the ratification of the appointment
of Ernst & Young LLP as VSE's independent registered public accounting firm
for the year ending December 31, 2008, as discussed below under Proposal No.
2.
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.
- 1 -
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 March 24, 2008, 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 (a)
________________________________________________________________________________
Certain Beneficial Owners
- -------------------------
VSE Corporation Employee
ESOP/401(k) Plan (b) 446,978 8.8%
O'Shaughnessy Asset Management, LLC (c) 303,671 6.0%
Non-Employee Directors
- ----------------------
Ralph E. Eberhart 800 *
Clifford M. Kendall 32,314 *
Calvin S. Koonce (d) 800,344 15.8%
James F. Lafond (e) 7,694 *
David M. Osnos (e) 16,900 *
Jimmy D. Ross (e) 3,092 *
Bonnie K. Wachtel (e) 49,336 *
Executive Officers and Other Director
- -------------------------------------
Thomas G. Dacus (e) 5,422 *
Donald M. Ervine (e) 54,524 1.1%
Michael E. Hamerly (e) 10,874 *
James M. Knowlton (e) 38,249 *
James W. Lexo, Jr. 100 *
Thomas R. Loftus (e) 24,871 *
James E. Reed 0 -
Craig S. Weber (e) 64,255 1.3%
Carl E. Williams 0 -
- 2 -
________________________________________________________________________________
Shares beneficially Percent of
Name of Beneficial Owner owned class (a)
________________________________________________________________________________
Group
- -----
Directors, Nominees, and
Executive Officers as a group
(16 persons) (e) (f) 1,107,036 21.7%
* Represents less than one percent.
(a) Based on 5,063,509 shares of VSE Stock outstanding as of the March 24,
2008, record date.
(b) 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 352,585 shares allocated to their
respective ESOP accounts, while the Plan trustees share voting and
investment power over the remaining 94,393 shares. The mailing address
for the ESOP/401(k) Plan is 2550 Huntington Avenue, Alexandria, Virginia
22303-1499.
(c) According to a Schedule 13G/A filed with the Securities and Exchange
Commission on February 14, 2008, O'Shaughnessy Asset Management, LLC, an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, as amended, had at December 31, 2007, sole voting
and dispositive power with respect to 303,671 shares of VSE Stock. The
business address of O'Shaughnessy Asset Management, LLC, is 6 Suburban
Avenue, Stamford, CT 06901.
(d) Mr. Koonce's mailing address is 6550 Rock Spring Drive, Suite 600,
Bethesda, Maryland 20817.
(e) 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 have the right to purchase
pursuant to the exercise of stock options which are exercisable within
the next 60 days: James F. Lafond-3,500, David M. Osnos-3,500,
Jimmy D. Ross-500, Bonnie K. Wachtel-3,500, Thomas G. Dacus-4,500,
Donald M. Ervine-7,500, Michael E. Hamerly-3,000, James M. Knowlton-
6,000, Thomas R. Loftus-12,000, Craig S. Weber-3,000, and all directors,
nominees, and executive officers as a group-47,000.
(f) The shares beneficially owned by the Group do not include the 94,393
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 the VSE 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 during
2007, except for one SEC Form 3 that was filed late on behalf of Carl E.
Williams, an executive officer, reporting that Mr. Williams owned no shares of
VSE Stock.
- 3 -
Proposal No. 1
______________
ELECTION OF DIRECTORS
Nominees
At the Meeting, stockholders will elect, by a plurality of the votes
cast, in person or by proxy eight 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 General Eberhart who was appointed by the Board on August 15, 2007.
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 eight nominees for election as VSE directors and certain information
regarding them are as follows:
Name and Principal Occupation Age Director since
_____________________________ ___ ______________
Ralph E. Eberhart 61 2007
General, U.S. Air Force (Ret.), formerly Commander-in-
Chief, North American Aerospace Defense Command
(NORAD) and U.S. Northern Command. General Eberhart
retired from the Air Force in 2005 after 36 years of
service. He was then appointed and continues to serve
as President of the Armed Forces Benefit Association
(AFBA) and as Chairman of its related enterprises:
5Star Bank, 5Star Life Insurance Company, AFBA 5Star
Investment Management Company, and AFBA 5Star Fund,
Inc. He is also a director of Rockwell Collins, Inc.
Donald M. Ervine 71 1987
VSE Chairman of the Board and Chief Executive Officer
since 1992. Also serving as President and Chief
Operating Officer since 2002.
Clifford M. Kendall 76 2001
Private Investor (for more than the past five years).
Mr. Kendall is 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 70 1992
Chairman, Koonce Securities, Inc., a securities
broker/dealer firm (for more than the past five
years).
- 4 -
Name and Principal Occupation Age Director since
_____________________________ ___ ______________
James F. Lafond 65 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.
David M. Osnos 76 1968
Of counsel (previously senior partner) at Arent Fox
LLP, attorneys-at-law (for more than the past five
years). He is also a director of EastGroup Properties,
Inc.
Jimmy D. Ross 70 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.
He is also a director of Stanley, Inc.
Bonnie K. Wachtel 52 1991
Vice President and General Counsel, Wachtel & Co.,
Inc., brokers and underwriters (for more than the past
five years). She is also a director of Information
Analysis Incorporated and Acies Corporation.
Board of Directors, Committees, and Corporate Governance
There are currently eight 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 2007, there were six regular Board meetings and
two special Board meetings, and no director attended 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 tries to ensure that
at least one independent director attends the annual stockholder meeting and
is available to answer stockholder questions. Six directors, including five
independent directors, attended last year's annual meeting.
The Board has an Audit Committee, a Nominating and Corporate Governance
Committee, a Compensation Committee, and a Planning and Finance Committee. The
current charters for each of the Committees 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
VSE's 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 2007, 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
- 5 -
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 Regulation S-K Item 407(d)(5).
During 2007, the Audit Committee met ten times, including four meetings
targeted primarily at VSE's initial year compliance with Section 404
(Management Assessment of Internal Controls) of the Sarbanes-Oxley Act of
2002.
Compensation Committee. The primary purpose of the Compensation
Committee is to oversee VSE's compensation structure, to review and provide
guidance to the Board with respect to the compensation of VSE's officers and
directors, including the compensation of the Chief Executive Officer and other
executive officers, to review and provide guidance with respect to employment
agreements, to administer certain compensation plans including stock option,
restricted stock, and deferred compensation plans, and to perform such other
duties and responsibilities as are consistent with its charter. During 2007,
the Compensation Committee was composed of General Ross (Chairman), Mr.
Kendall, Mr. Koonce, and from the date of his appointment, General Eberhart.
Each of the committee members is independent in accordance with applicable
NASDAQ rules. The Compensation Committee met six times during 2007.
Matters recommended by the Compensation Committee, and any delegation of
its authority, are subject to approval by the Board; if such approval is not
received, the Compensation Committee will reconsider the recommendation or
proposed delegation. The Compensation Committee has the authority to retain
outside counsel or other experts or consultants as needed. Additional
information on the role and responsibilities of the Compensation Committee is
provided under the heading "Compensation Discussion and Analysis," below.
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
2007 the Committee was composed of Mr. Kendall (Chairman), Mr. Koonce, Mr.
Lafond, Mr. Osnos, General Ross, Ms. Wachtel, and from the date of his
appointment, General Eberhart, all of whom are independent in accordance with
applicable NASDAQ rules. During 2007, the Nominating and Corporate Governance
Committee met two times.
Planning and Finance Committee. The primary purpose of the Planning and
Finance Committee is to consider and make recommendations to the Board with
respect to (a) strategic planning, acquisitions, mergers, and succession
planning, (b) capitalization and long-term funding requirements, and (c)
proposals concerning the financial policies and substantive financial
transactions of the Corporation. The Committee is composed of Mr. Ervine
(Chairman), Mr. Koonce, Mr. Lafond, Mr. Osnos, General Ross, Ms. Wachtel, and
from the date of his appointment, General Eberhart. During 2007, the Planning
and Finance Committee met two times.
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 2009-2010 should be received
by the secretary no later than February 6, 2009.) 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.
- 6 -
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. 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 assists the Chairman and the other Board members in
assuring effective corporate governance. On March 2, 2007, Mr. Osnos was
appointed as Lead Independent Director and since such date he has served in
such capacity.
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
Chairman of the Nominating and Corporate Governance/Finance 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.
- 7 -
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 its 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
Please refer to "Compensation Discussion and Analysis-Director
Compensation" and associated director compensation table, notes, and narrative
contained elsewhere in this Proxy Statement.
Certain Relationships and Related Transactions
On June 4, 2007, VSE acquired all of the outstanding capital stock of
Integrated Concepts and Research Corporation ("ICRC") from (a) Koniag
Development Corporation ("KDC"), which owned 80% of ICRC's capital stock, and
(b) the Nancy Ellen Lexo Living Trust (the "Trust"), which owned 20% of ICRC's
capital stock, for approximately $11.65 million paid at the closing, of which
$1.67 million will be held in escrow for up to two years to secure KDC's and
the Trust's post-closing indemnity obligations. Up to an additional $5.815
million in purchase price will be payable by VSE to KDC and the Trust, on a
pro rata basis, if ICRC achieves certain revenues during an approximate six-
year period after the closing, as provided in the purchase agreement among
VSE, KDC, the Trust, James R. Lexo, Jr. ("Mr. Lexo"), ICRC and Koniag, Inc.
Mr. Lexo is the sole trustee of the Trust and the beneficiaries of the Trust
are Mr. Lexo and his adult children.
As part of VSE's acquisition of ICRC, ICRC's chief executive officer Mr.
Lexo and VSE entered into an employment agreement under which Mr. Lexo is
serving as a VSE executive vice president for strategic initiatives and
business development and ICRC's chief executive officer, for an initial term
expiring on December 31, 2008 (subject to renewal periods). The employment
agreement also provides Mr. Lexo with "change of control" benefits and other
benefits generally provided to VSE officers. Mr. Lexo's initial base salary
is $185,000 per annum.
There is no family relationship between any director or executive
officer of VSE and any other director or executive officer of VSE.
Please refer to "Compensation Discussion and Analysis-Narrative to
Summary Compensation Table" for information on executive officer employment
agreements and to "Compensation Discussion and Analysis-Compensation Committee
Interlocks and Insider Participation" for additional information about
directors and nominees for director.
The Board unanimously recommends that stockholders vote "for" the
election of each of the eight persons nominated to serve as a director of VSE
for the ensuing year.
- 8 -
Proposal No. 2
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Based on the recommendation of its Audit Committee, the Board has
appointed the firm of Ernst & Young LLP to be VSE's independent registered
public accounting firm for the year ending December 31, 2008, 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 auditors 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 2007 and 2006, Ernst & Young LLP services included an examination of
VSE's consolidated financial statements, the financial statements of certain
benefit plans (2006 only), and reviews of the consolidated financial
statements included in VSE's Form 10-Qs filed with the SEC for each of the
quarters ended March 31, June 30, and September 30. In 2007, Ernst & Young
LLP services also included an audit of the effectiveness of our internal
control over financial reporting as of December 31, 2007.
Ernst & Young LLP billed VSE for professional services rendered for the
years ended December 31, 2007, and December 31, 2006, as follows:
2007 2006
---- ----
Audit fees (1) $716,896 $288,310
Audit-related fees (2) 90,000 58,500
Tax fees (3) 21,820 11,310
_______________
(1) Includes fees and expenses related to the annual audits and to
interim reviews, notwithstanding when the fees and expenses were
billed, of approximately $321,896 and $288,310 for 2007 and 2006,
respectively. For 2007, these fees also relate to the audit of
the effectiveness of our internal controls over financial
reporting as of December 31, 2007 in accordance with Section 404
of the Sarbanes-Oxley Act ($395,000).
(2) Includes fees and expenses for services rendered from January
through December of the fiscal year, notwithstanding when the fees
and expenses were billed. The 2007 amount includes fees and
expenses for work performed to assist in the Company's preparation
for the implementation of Section 404 of the Sarbanes-Oxley Act
($70,000), and fees associated with the acquisition of the
Company's wholly owned subsidiary, Integrated Concepts and
Research Corporation ($20,000). The 2006 amount includes fees and
expenses for work performed to assist in the Company's preparation
for the implementation of Section 404 of the Sarbanes-Oxley Act
($33,500), fees for the audit of the 2005 employee benefit plan
($20,000), as well as fees related to an S-8 filing ($5,000).
(3) Includes fees and expenses for tax advisory services.
- 9 -
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 Chairman 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 2007 and 2006.
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 registered public accounting firm for the year ending December 31,
2008.
AUDIT COMMITTEE REPORT
The Audit 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 Audit 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 Audit Committee believe that the Audit 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 Audit Committee has implemented the requirements of the Sarbanes-
Oxley Act of 2002 and the Marketplace Rules of The NASDAQ Stock Market, Inc.
with respect to the responsibilities of audit committees of public companies.
Among other matters, the Audit Committee reviews procedures on internal
control over financial reporting with management and with the Company's
independent registered public accounting firm, and it discussed with the
independent registered public accounting firm the adequacy of the Company's
internal controls and the overall scope and specific plans for their audit.
The Audit Committee has reviewed and discussed with management VSE's
audited consolidated financial statements as of and for the year ended
December 31, 2007, and it has discussed with VSE's independent registered
accounting firm 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 Audit Committee has received and reviewed the written disclosures
and the letter from the independent registered accounting firm 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.
- 10 -
Based on the foregoing reviews and discussions, the Audit 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, 2007, for filing with the SEC.
Audit Committee: James F. Lafond (Chairman), Clifford M. Kendall,
and Bonnie K. Wachtel
COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Program, Philosophy, and Objectives
Under the supervision of the Compensation Committee of the Board, 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 executive compensation are base salary, a performance bonus incentive
plan, and a long-term incentive plan.
The Committee oversees VSE's compensation structure. The Committee makes
all compensation decisions regarding the Chief Executive Officer, and it
reviews and approves the compensation of all other company executives and
officers. It reviews employment agreements, administers compensation plans
including stock option, restricted stock, and deferred compensation plans. The
Committee provides recommendations to the Board with respect to director
compensation, and it performs such other duties and responsibilities as are
consistent with its charter. Actions of the Committee are subject to Board
approval. If approval is not received, the Committee will reconsider the
action.
Under the supervision of the Committee, VSE seeks to establish a
compensation structure that is competitive, reasonable, and performance-based.
"Competitive" means salaries and benefits sufficient to attract and retain the
executives and employees VSE requires, while maintaining labor rates that
permit the Company to compete effectively in the markets we serve. We test for
competitive labor rates by measuring our prices for services against the
prices of competitors and by monitoring our ability to successfully recruit
and retain employees. We also measure our salaries against compensation
surveys for similarly situated executives and employees in companies having
substantially comparable revenues, margins, and market capitalization.
"Reasonable" means compensation that is consistent with the pay and benefits
provided by other companies in our industry, reimbursable under cost-type
government contracts, and perceived as "fair" relative to formal and informal
benchmarks such as internal pay scales, financial results, and public
perception. "Performance-based" means that compensation is earned, measured,
and tested against standards of financial growth and profitability.
The executive officers of VSE are the Chief Executive Officer, the Chief
Financial Officer, the Chief Administrative Officer, the President of each of
VSE's operating groups, and each Executive Vice President appointed by the
Board. Currently, VSE has nine executive officers, including the five
executive officers named below under the heading "Summary Compensation Table."
For compensation oversight, the officers of VSE include the senior officers of
VSE's wholly owned subsidiaries Energetics Incorporated ("Energetics") and
Integrated Concepts and Research Corporation ("ICRC").
Role of Executive Officers in Compensation Decisions
At the end of the fiscal year, the Committee meets in executive session
to review the performance and fix the compensation of the Chief Executive
Officer. The Committee also reviews and approves the compensation of all other
executives and officers based on recommendations submitted by the CEO. The
- 11 -
Committee can exercise its discretion in approving, disapproving, or modifying
any recommended salary increases or proposed awards to executives or other
officers.
In submitting recommendations to the Committee with respect to the
compensation of other VSE executives and officers, the CEO evaluates the
performance and recommends salary increases, bonuses, benefit plan
participation, and all other elements of compensation affecting the
executives. The CEO also considers evaluations and recommendations made by
other executives in submitting recommendations to the Committee with respect
to other officers.
Review of Executive Compensation
During 2006 the Committee engaged PricewaterhouseCoopers LLP to provide
consulting services initially with respect to designing procedures for making
performance-based awards under the 2006 VSE Corporation Restricted Stock Plan
and subsequently to perform a compensation analysis for VSE executive officers
and directors. The Committee met and conferred with PricewaterhouseCoopers
representatives numerous times during 2006 in both executive sessions and in
sessions including certain executive officers.
In making compensation decisions, the Committee measured each element of
total compensation against a peer group of publicly traded companies developed
with PricewaterhouseCoopers. The peer group, which will be periodically
reviewed and updated by the Committee, consists of companies which the
Committee believes are substantially representative based on industry group,
market capitalization, revenues, and profit margin. These companies are as
follows:
* Allied Defense Group, Inc. * Hawk Corporation
* Analex Corporation (deleted in 2007) * Pemco Aviation Group, Inc.
* Astronics Corporation * Sparton Corporation
* Dynamics Research Corporation * SYS
* ENGlobal Corporation * Todd Shipyards Corporation
* Essex Corporation (deleted in 2007)
For comparison purposes, VSE's annual revenues are above the median
revenues of the peer group. Because of variation among the companies
comprising the peer group, PricewaterhouseCoopers also developed blended
consensus data based on published survey data, proxy statement title match
data, and top five highest paid data.
During 2007, the Committee met with representatives of Equilar, Inc. who
demonstrated the capabilities and potential uses of its executive compensation
database product and analytic tools. The Committee subsequently authorized VSE
to license the product and tools. The Committee also consulted with Corbin
Company, a management consulting firm identified by the Company, to assist the
Committee in the use of the Equilar product and tools as well as other
compensation survey data available to Corbin Company. The Committee tasked
Corbin Company to review VSE's industry peer group (Analex Corporation and
Essex Corporation are no longer independent companies) and to provide analysis
and recommendations with respect to executive compensation. Based on
discussions with and the recommendations of Corbin Company, the Committee in
executive session decided to maintain base salary target levels at the 25% to
50% of peer group level; to provide for an annual base salary escalation
adjustment; to update the peer group based on VSE's recent growth; and to
address the wage compression issue (VSE often is required to pay new employees
as much or more than it pays incumbent employees in similar positions).
- 12 -
Executive Compensation Components
For 2007 and 2006 the principal components of compensation for named
executive officers were base salary, performance-based incentive compensation,
long-term incentive compensation, deferred supplemental compensation, and
retirement and other benefits generally available to all employees.
The Committee has no pre-established policy or target for the allocation
of compensation between either cash and non-cash or short-term and long-term
incentive compensation. However, based on the compensation philosophy and
objectives discussed above, the Committee intends that a significant
percentage of total compensation for executives and officers should be at risk
and subject to incentives based on achieving short and long-term performance-
based goals.
For the two-year period ended December 31, 2007, the percentages of
total compensation for each of the components of executive compensation was
approximately as follows (please refer to the Summary Compensation Table below
for detailed amounts):
Aggregate Percentages of Executive Compensation Components, 2006-2007
Aggregate
Executive Percentage for
Compensation Component 2006 and 2007
---------------------- -------------
Base salaries 35%
Performance-based incentive compensation 35%
Long-term incentive compensation 21%
Deferred supplemental compensation 8%
All other 1%
Based on this schedule, for the two-year period reported, approximately
64% of executive compensation (performance-based incentive compensation, long-
term incentive compensation, and deferred supplemental compensation) was at
risk and subject to incentives based on achieving performance-based goals.
Base Salary
VSE provides named executive officers and other employees with base
salary to compensate them for services rendered during the fiscal year. Base
salaries for the named executive officers are determined for each executive
based on his or her position and responsibility, experience and education,
internal pay scales, market survey data, and employment agreement where
applicable. Base salaries for executives are generally expected to range
between the 25th and 50th percentile of blended compensation survey data. Base
salaries for executives, including the base salary of the CEO, are reviewed by
the Committee in executive session at the end of each fiscal year and include
any recommendations made by the CEO with respect to the other executive
officers. Subject to Board approval, the Committee recommends changes to
executive base salary which are implemented at the beginning of the next
fiscal year.
Based on its review, including the PricewaterhouseCoopers benchmark
data, the Equilar database, and the other compensation data presented by the
Corbin Company referred to above, the Committee approved annual base salary
escalation adjustments at the rate of 3.5% for 2007 and 4.5% for 2008. The
Committee also approved base salary increases to adjust for peer group
comparison and merit increases as follows : for 2007-Mr. Dacus ($9,000), for
2008-Mr. Ervine ($7,000), Mr. Loftus ($6,000), Mr. Dacus ($3,000), and Mr.
Knowlton ($6,000).
- 13 -
Base Salaries of Named Executive Officers, 2006 - 2008
Named Executive Officer 2006 2007 2008
- ----------------------- ---- ---- ----
Donald M. Ervine $325,000 $337,000 $360,000
Thomas R. Loftus 175,000 182,000 197,000
Thomas G. Dacus 192,000 208,000 221,000
James M. Knowlton 200,000 208,000 223,000
Craig S. Weber 170,000 176,000 184,000
Performance-Based Incentive Compensation
During 2004 the Committee approved a performance bonus plan based on
achieving annual financial results in excess of financial thresholds
established by the Committee and submitted to the Board at the beginning of
each year. The goals consist principally of revenue and pretax income targets
for operating group executives, and return on equity for corporate staff,
corporate officers, and corporate executives, including the Chief Executive
Officer and the Chief Financial Officer (return on equity as defined is net
income for the year divided by total stockholders' equity at the beginning of
the year). To participate in the bonus program, an executive must be an
employee during the fiscal year that the bonus is earned and at the time the
bonus is distributed.
The Committee establishes a pretax profit performance goal threshold for
operating groups based on projected revenues and expected pretax margins.
Expected pretax margins are based on prior year financial performance adjusted
for contract renewals and extensions, new contract awards, contract
terminations, and other financial opportunities and changes identified by the
Committee. 50% of the pretax profit in excess of the performance goal
threshold is contributed to a performance bonus pool. After audited financial
results for the year become available, approximately 20% of the performance
bonus pool is allocated to operating group executives, not to exceed 100% of
individual executive base salaries.
Performance bonuses for corporate executives range from 2% of base
salary for achieving a return on equity of 12% to 100% of base salary for
achieving a return on equity of 25% or higher.
For 2007 and 2006 VSE achieved an annual return on equity (and net
income) of approximately 37% ($14.1 million) and 26% ($7.8 million),
respectively, and the Committee approved aggregate annual performance bonuses
under the plan of about $6.5 million and $3.7 million, respectively. The
performance bonuses were paid to about 200 employees each year, including
approximately $1.1 million paid each year to the named executive officers
under the plan. Amounts paid to the named executive officers are reported in
the Summary Compensation Table below under the heading "Non-equity Incentive
Plan Compensation."
Long-Term Incentive Compensation
In prior years VSE executives and other officers received, in addition
to cash, equity-based compensation for their services to VSE. The equity
compensation was provided in the form of options to purchase VSE Stock granted
under VSE's 2004 Stock Option Plan approved by stockholders on May 3, 2004,
and substantially similar predecessor plans for prior years. In December 2005,
VSE's Board discontinued awarding options to purchase VSE Stock. Options
outstanding as of December 30, 2005, were not affected by this Board action.
In lieu of long-term incentive compensation for 2006, the Committee
recommended that the Board authorize an increase in VSE's contribution to the
Deferred Supplemental Compensation Plan for 2006. See "Deferred Supplemental
Compensation" discussion below.
- 14 -
The Board believes that compensating executives with restricted VSE
Stock, 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 is intended to foster a long-term focus on VSE performance
and to provide our executives with a means to establish an equity stake in VSE
which will, in turn, align their interests with those of our stockholders.
VSE's 2006 Restricted Stock Plan was approved by the Board on February
9, 2006, and by our stockholders on May 2, 2006. During 2006 the Committee
engaged PricewaterhouseCoopers to provide consulting services with respect to
designing procedures for making performance-based awards under VSE's
Restricted Stock Plan, and in December 2006, the Committee adopted written
procedures for making these awards. The awards under the Restricted Stock Plan
will be subject to Committee authorization based on audited financial results,
including total compensation costs, reasonableness of total employee
compensation, and other factors determined by the Committee and Board.
In general, a dollar-denominated award equal to a percentage of a
participant's base salary can be earned under the Restricted Stock Plan based
on the return on equity achieved by VSE for the prior fiscal year. The awards
range from 2.5% of base salary for a 12% return on equity to 60% of base
salary for a return on equity of 25% or higher. The awards are subject to a
two-year vesting schedule: one-third of the award vests after completion of
VSE's annual financial audit and one-third on each of the next two
anniversaries of such initial vesting date. As each third of the dollar-
denominated award vests, the award is converted into restricted VSE Stock
based on the fair market value (closing market price) of VSE Stock at the date
of conversion. The restricted stock is subject to a two-year holding period
and to other restrictions on sale.
The Committee may, in its sole discretion, reduce or totally eliminate
an award to the extent it determines that such reduction or elimination is
appropriate under facts and circumstances the Committee deems relevant.
For 2007, the first year of full operation of the Plan, VSE's annual
return on beginning equity was approximately 37%, and the named executive
officers were awarded a restricted stock bonus under the Plan equal to 60% of
their base salary for 2007. Amounts paid to the named executive officers are
reported in the Summary Compensation Table below under the heading "Stock
Awards."
Deferred Supplemental Compensation
VSE has a non-qualified, non-contributory Deferred Supplemental
Compensation Plan for all VSE officers. The plan provides, at the Board's
discretion, for an annual contribution to the plan 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.
For 2007 an annual contribution of 8% of VSE's consolidated net income
(approximately $1,110,000) was authorized and allocated to 33 participant
accounts, including about $285,000 allocated to accounts for the named
executive officers.
For 2006 an annual contribution of 10% of VSE's consolidated net income
(approximately $768,000) was authorized and allocated to 28 participant
accounts, including about $229,000 allocated to accounts for the named
executive officers. Two percentage points of the 10% contribution rate
authorized for 2006 represented a contribution for the discontinued stock
option plan discussed above in "Long-Term Incentive Compensation."
- 15 -
Benefits under the plan are payable to participants 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 plan on behalf of the named executive officers are included
in the Summary Compensation Table under the heading "All Other Compensation."
Retirement and Other Benefits
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 VSE matching contributions to the 401(k) portion of the plan based
on employee 401(k) deferrals. Effective January 1, 2007, the Plan was amended
to incorporate the Safe Harbor method of meeting nondiscrimination
requirements of the Internal Revenue Code.
During 2007 VSE paid a 401(k) matching contribution equal to 100% of the
employee deferral on the first 3% of the employee pay deferred and 50% of the
employee deferral on the next 2% of the employee pay deferred, with all such
contributions fully vested when made.
During 2006 VSE paid a 401(k) matching contribution equal to 50% of the
first 6% of employee pay deferred into the employee's 401(k) account, subject
to a vesting schedule.
Amounts contributed to the VSE ESOP/401(k) Plan on behalf of the named
executive officers are included in the Summary Compensation Table under the
heading "All Other Compensation."
Perquisites and Other Personal Benefits
VSE does not provide any of its executives, including the named
executive officers, with perquisites or other personal benefits having a total
annual value in excess of $10,000. The Committee periodically reviews the
levels of perquisites and other personal benefits provided to the named
executive officers.
The Company has entered into employment agreements with specified
employees, including the named executive officers (see Summary Compensation
Table discussion below). The employment agreements are designed to promote
stability and continuity of senior management. Information regarding
applicable payments under these agreements for the named executive officers is
also summarized below under the caption "Potential Payments on Termination or
Change of Control."
Tax and Accounting Implications
Deductibility of Executive Compensation
As part of its role, the Committee reviews and considers the
deductibility of executive compensation under Section 162(m) of the Internal
Revenue Code which provides that companies may not deduct compensation of more
than $1,000,000 that is paid to certain individuals. VSE believes that
compensation paid under its incentive plans is generally fully deductible for
federal income tax purposes. However, in certain situations, the Committee may
approve compensation that will not meet these requirements to ensure
competitive levels of total compensation for its executive officers. For 2007
and 2006, VSE believes that all compensation paid to the named executive
officers is deductible for federal income tax purposes, except for deferred
supplemental compensation contributions which may not be deducted until
distributed in accordance with IRS regulations.
- 16 -
Nonqualified Deferred Compensation
In 2004, the American Jobs Creation Act of 2004 became law changing the
tax rules applicable to nonqualified deferred compensation arrangements. The
company believes it is operating in good faith compliance with the statutory
provisions which were effective January 1, 2005. A more detailed discussion of
the VSE's nonqualified deferred compensation plan is provided above under the
heading "Deferred Supplemental Compensation."
Accounting for Stock-Based Compensation
Beginning on January 1, 2006, the Company began accounting for stock-
based payments in accordance with the requirements of FASB Statement 123(R).
- 17 -
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each
of the named executive officers, including VSE's Principal Executive Officer
(Mr. Ervine) and Principal Financial Officer (Mr. Loftus) for the years ended
December 31, 2007 and 2006.
Summary Compensation Table
Change in
pension
value and
Non- non-
equity qualified
incentive deferred
plan compen- All other
Stock Option compen- sation compen-
Name and principal Year Salary Bonus awards awards sation earnings sation Total
position ($) ($) ($)(1) ($) ($) (2) ($) ($) (3) ($)
- ------------------ ---- ------ ----- ------- ------ ------- -------- --------- -----
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Donald M. Ervine 2007 337,000 -- 202,000 -- 337,000 -- 93,439 969,639
Chairman of the Board and 2006 325,000 -- -- -- 325,000 -- 74,377 724,377
CEO, President and COO
Thomas R. Loftus 2007 182,000 -- 109,000 -- 182,000 -- 53,932 527,132
Executive Vice President 2006 175,000 -- -- -- 175,000 -- 41,220 391,220
and Chief Financial
Officer
Thomas G. Dacus 2007 208,000 -- 124,800 -- 208,000 -- 61,081 601,881
Executive Vice President 2006 192,000 -- -- -- 192,000 -- 46,854 430,854
and President, Federal
Group
James M. Knowlton 2007 208,000 -- 124,800 -- 208,000 -- 58,967 599,767
Executive Vice President 2006 200,000 -- -- -- 200,000 -- 47,052 447,052
and President,
International Group
Craig S. Weber 2007 176,000 -- 105,600 -- 176,000 -- 49,897 507,497
Executive Vice President, 2006 170,000 -- -- -- 170,000 -- 40,155 380,155
Secretary, and Chief
Administrative Officer
Notes to Summary Compensation Table
1. The amounts reported in column (e) represent annual performance-based
awards under VSE's Restricted Stock Plan. The awards are subject to a two-year
vesting schedule: one-third of the award vests after completion of VSE's
annual financial audit and one-third on each of the next two anniversaries of
such initial vesting date. Restricted Stock awarded under the Plan is further
subject to a two-year holding period and other restrictions on sale. See
discussion above under the caption "Executive Compensation Components-Long-
Term Incentive Compensation."
2. The amounts reported in column (g) represent cash paid to the named
executive officer under VSE's Performance Bonus Plan. This plan is discussed
above under the caption "Executive Compensation Components-Performance-Based
Incentive Compensation."
3. The amounts reported in column (i) represent 401(k) plan matching
contributions allocated to each of the named executive officers' account
pursuant to VSE's Employee ESOP/401(k) Plan discussed above under the caption
"Executive Compensation Components-Retirement and Other Benefits." Also
reported in column (i) is the amount allocated to each of the named executive
officers' account in VSE's Deferred Compensation Plan. See discussion above
under the caption "Executive Compensation Components-Deferred Supplemental
Compensation."
- 18 -
Narrative to Summary Compensation Table
See "Compensation Discussion and Analysis" above for a description of
the compensation plans pursuant to which the amounts listed in the "Summary
Compensation Table" were paid or awarded and the criteria for such payments
and awards.
Employment Agreements
Pursuant to an agreement dated as of October 21, 1998 (the "Agreement"),
Donald M. Ervine serves as the Chief Executive Officer of VSE at a base salary
in 2008 of $360,000 per annum. Mr. Ervine is employed for a term ending on
January 1, 2009, as extended, 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 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.
The Agreement includes undertakings by Mr. Ervine regarding exclusive
services and business opportunities during the term of the Agreement,
covenants regarding the safeguarding and return of confidential data and the
non-solicitation of employees for a two-year period following termination, and
a covenant not to be involved, directly or indirectly, in a business
enterprise that competes with VSE during the term of his employment and for
two-year period thereafter. Mr. Ervine also agrees that VSE is entitled to
appropriate equitable remedies, including specific performance and injunctive
relief if he breaches any of the two-year post-termination covenants. Mr.
Ervine agrees not to enter into any agreement, either written or oral, which
may conflict with this Agreement, and he authorizes VSE to make known the
terms of the Agreement regarding exclusive services, confidential data,
business opportunities, non-solicitation, and termination, to any person,
including future employers.
Pursuant to separate agreements entered into in 1997 and expiring on
January 1, 2009, as extended, 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.
- 19 -
Pursuant to separate agreements entered into in 2004 and expiring on
December 31, 2009, as extended, 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 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.
Grants of Plan-Based Awards
The table below reports all grants of plan-based awards to each of the
named executive officers for the fiscal year ended December 31, 2007.
Grants of Plan-Based Awards in Fiscal Year 2007 Table
All other
option
Estimated future payouts under Estimated future payouts All other awards: Exer- Grant
non-equity incentive plan under equity incentive plan stock number of cise or date fair
awards awards awards: securities base value of
------------------------------ --------------------------- number under- price of stock
Thresh- Target Maxi- Thresh- Target Maxi- of shares lying option and
Grant old mum old mum or units options awards option
Name Date ($) ($) (S) ($) ($) (S) (#) (#) ($/Sh) awards
---- ---- ------- ------ ----- ------- ------ ----- --------- ---------- -------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l)
Donald M. 12/4/07 9,000 36,000 216,000 -- -- -- -- -- -- --
Ervine
Thomas R. 12/4/07 4,925 19,700 118,200 -- -- -- -- -- -- --
Loftus
Thomas G. 12/4/07 5,525 22,100 132,600 -- -- -- -- -- -- --
Dacus
James M. 12/4/07 5,575 22,300 133,800 -- -- -- -- -- -- --
Knowlton
Craig S. 12/4/07 4,600 18,400 110,400 -- -- -- -- -- -- --
Weber
Notes to Grants of Plan-Based Awards Table
The amounts reported above represent potential payments to the named
executive officer under VSE's Restricted Stock Plan. This plan is discussed
above under the caption "Executive Compensation Components-Performance-Long-
Term Incentive Compensation."
Narrative to Grants of Plan-Based Awards Table
VSE has a Restricted Stock Plan approved by stockholders on May 2, 2006.
Pursuant to procedures adopted by the Board, employees granted an Award will
earn an amount equal to a graduated percent of annual salary based on VSE's
return on equity for the subsequent fiscal year as follows: threshold 2.5% of
- 20 -
salary, target 10% of salary, and maximum 60% of salary. Return on equity is
determined on completion of VSE's annual financial audit, and the date of
Award occurs on the first business day of the subsequent month. The awards are
subject to a two-year vesting schedule: one-third of the award vests after
completion of VSE's annual financial audit and one-third on each of the next
two anniversaries of such initial vesting date. As each third of the dollar-
denominated award vests, the award is converted into restricted VSE Stock
based on the fair market value (closing market price) of VSE Stock at the date
of conversion. The restricted stock is subject to a two-year holding period
and to other restrictions on sale.
Awards and payment under the Restricted Stock Plan are subject to
Compensation Committee authorization based on audited financial results,
including all compensation costs, reasonableness of total employee
compensation, and other factors as determined by the Compensation Committee
and Board. The date of Award, vesting date, and pricing of the vested amount
of the Award are based on the date audited financial results become available.
Notwithstanding the determination of the amount of an employee Award pursuant
to the procedures indicated above, the Committee may, in its sole discretion,
reduce the amount of or totally eliminate an Award to the extent the Committee
determines that such reduction or elimination is appropriate under facts and
circumstances as the Committee deems relevant.
Outstanding Equity Awards at Fiscal Year End
The table below reports all outstanding equity awards for each of the
named executive officers for fiscal year ended December 31, 2007.
Outstanding Equity Awards at Fiscal Year End Table
Option awards (1) Stock awards
-------------------------------------------------------------- ---------------------------------------------------
Equity
incentive
Equity plan
incentive awards:
Equity plan market or
incentive Market awards: payout
plan awards: value of number of value of
Number of number of Number of shares unearned unearned
Number of securities securities shares or or units shares, shares,
securities underlying underlying units of of stock units or units or
underlying unexercised unexercised Option stock that that other rights other rights
unexercised options (#) unearned exercise Option have not have not that have that have
options (#) unexercis- options price expira- vested vested not vested not vested
Name exercisable able (#) ($) tion date (#) ($) (#) ($)
---- ----------- ----------- ----------- -------- --------- ---------- -------- ------------ ------------
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Donald M. 7,500 -- -- 12.585 12/31/09 -- -- -- --
Ervine
Thomas R. 12,000 -- -- 12.585 12/31/09 -- -- -- --
Loftus
Thomas G. 4,500 -- -- 12.585 12/31/09 -- -- -- --
Dacus
James M. 6,000 -- -- 12.585 12/31/09 -- -- -- --
Knowlton
Craig S. 3,000 -- -- 12.585 12/31/09 -- -- -- --
Weber
- 21 -
Notes to Outstanding Equity Awards Table
The options reported above were granted under VSE's 2004 Stock Option
Plan. The options were granted as of January 1, 2005 and expire on December 31,
2009. All of the options listed above have a five-year term and vest in four
equal annual installments commencing on the grant date.
Narrative to Outstanding Equity Awards Table
VSE has two unexpired Stock Option Plans approved by stockholders on May
7, 1998, and May 3, 2004, respectively. All of the options listed above have a
five-year term and vest in four equal annual installments commencing on the
grant date. On December 30, 2005, VSE's Board discontinued awarding options to
purchase VSE Stock. Options outstanding as of December 30, 2005, were not
affected by this Board action. See discussion above under the caption
"Executive Compensation Components-Long-Term Incentive Compensation."
Option Exercises and Stock Vested
The following table reports stock options exercised by VSE's named
executive officers during the fiscal year ended December 31, 2007.
Option Exercises and Stock Vested During Fiscal Year 2007 Table
Option awards Stock awards
---------------------------------------- ---------------------------------------
Number of shares Value realized on Number of shares Value realized on
acquired on exercise exercise acquired on vesting vesting
Name (#) ($) (#) ($)
---- -------------------- ----------------- ------------------- -----------------
(a) (b) (c) (d) (e)
Donald M. Ervine 70,500 1,617,734 -- --
Thomas R. Loftus 24,000 711,653 -- --
Thomas G. Dacus 35,500 698,708 -- --
James M. Knowlton 44,000 670,134 -- --
Craig S. Weber 35,000 614,262 -- --
Notes to Options Exercises and Stock Vested Table
The "Value Realized on Exercise" represents the difference between the
fair market value and the exercise price of VSE Stock on the date of exercise.
Pension Benefits
VSE does not provide pension arrangements or post-retirement health
coverage for executives and employees. VSE and Energetics sponsor
participation in the VSE Corporation Employee ESOP/401(k) Plan, Energetics
sponsors a Profit Sharing Plan, and ICRC sponsors a 401(k) Plan; all of the
plans are IRS-qualified, defined contribution, money-purchase plans. VSE also
has a nonqualified deferred compensation plan as discussed below.
- 22 -
Nonqualified Deferred Compensation
The following table provides information related to potential benefits
payable to each named executive officer under VSE's Deferred Supplemental
Compensation Plan as of and for the year ended December 31, 2007.
Nonqualified Deferred Compensation Table
Executive Registrant Aggregate
contributions contributions Aggregate earnings withdrawals/ Aggregate balance
Name (1) in last FY in last FY (2) in last FY distributions at last FYE (3)
($) ($) ($) ($) ($)
- -------- ------------- ------------- ------------------ ------------- -----------------
(a) (b) (c) (d) (e) (f)
Donald M. Ervine -- 86,405 79,913 -- 1,020,873
Thomas R. Loftus -- 46,664 13,904 -- 208,237
Thomas G. Dacus -- 53,330 7,820 -- 153,235
James M. Knowlton -- 53,330 22,863 -- 326,067
Craig S. Weber -- 45,128 30,659 -- 405,924
Notes to Nonqualified Deferred Compensation Table
1. Each of the named executive officers in column (a) has been a
participant in the plan or predecessor plans for more than 20 years, except
for Mr. Dacus who has been a participant for six years.
2. Amounts reported in column (c) are reported in the Summary Compensation
Table, column (i). Aggregate earnings reported in column (d) are not reported
in the Summary Compensation Table.
3. Amounts reported in column (f) include aggregate contributions by VSE
which were reported as compensation to the named executive officers in VSE's
Summary Compensation Table for previous years and aggregate earnings which
were not reported as compensation. Aggregate contributions by VSE previously
reported in the Summary Compensation Tables for the years 2000 through 2007,
the period for which plan records identifying contributions to individual
participants are available, and aggregate earnings for the same period, were:
Aggregate Registrant Contributions and Earnings, 2000-2007
Aggregate
Registrant Aggregate
Name Contributions ($) Earnings ($)
---- ----------------- ------------
Donald M. Ervine 245,013 169,271
Thomas R. Loftus 134,361 26,606
Thomas G. Dacus 139,751 13,483
James M. Knowlton 160,030 47,627
Craig S. Weber 133,911 64,293
- 23 -
Narrative to Nonqualified Deferred Compensation Table
VSE has a non-qualified, non-contributory Deferred Supplemental
Compensation Plan for all VSE officers. The plan was adopted by the Board in
1994 as the successor to a predecessor plan adopted in 1985, which succeeded a
plan originally established in the mid-1970s.
The current plan provides, at the Board's discretion, for an annual
contribution to the plan 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. For 2007 an annual contribution of 8% of VSE's
consolidated net income (approximately $1,110,000) was authorized and
allocated to 33 participant accounts.
Benefits under the plan are payable to the participant on retirement or
resignation, subject to a vesting schedule, non-competition agreement, and
other plan provisions, or in the event of a change of control of VSE. VSE
contributions to the plan are irrevocable and shall be used to pay benefits
under the plan, subject to the claims of the general creditors of VSE.
VSE contributions to the plan are deposited in a plan trust. VSE invests
the plan trust assets in an account managed by BNY Mellon Wealth Management.
The managed account contains investments in a diversified portfolio of
individual company equity securities and in several mutual funds, including
Class M shares of the Mellon Bond Fund, Mellon Small Cap Stock Fund (MPSSX),
Mellon Mid Cap Stock Fund (MPMCX), Mellon International Fund (MPITX), and
Mellon Emerging Market Fund (MEMKX), and a Money Market Demand Account.
Potential Payments on Termination or Change of Control
The following table sets forth potential payments to our executive
officers on termination of employment with VSE or a change of control of VSE.
The amounts shown assume that such termination or termination on change of
control was effective as of December 31, 2007, and are estimates of the
amounts that would be paid to the executives on their termination. The actual
amounts to be paid can only be determined at the time of such executive's
separation from VSE or any of VSE's subsidiaries.
Potential Payments on Termination or Change of Control Table
Termination Termination
Without on Change
Name Benefit Cause ($) of Control ($)
---- ------- ----------- --------------
Donald M. Ervine Salary 674,000 1,011,000
DSC Plan 1,020,873 1,020,873
Stock Options 271,912 271,912
Thomas R. Loftus Salary 182,000 182,000
DSC Plan 208,237 208,237
Stock Options 435,060 435,060
Thomas G. Dacus Salary 208,000 208,000
DSC Plan 153,235 153,235
Stock Options 163,147 163,147
James M. Knowlton Salary 208,000 416,000
DSC Plan 326,067 326,067
Stock Options 217,530 217,530
Craig S. Weber Salary 176,000 352,000
DSC Plan 405,924 405,924
Stock Options 108,765 108,765
- 24 -
Notes to Potential Payments on Termination or Change of Control Table
Table excludes information with respect to contracts, agreements, plans,
or arrangements to the extent they (a) do not discriminate in scope, terms, or
operation in favor of executive officers and that are available generally to
all salaried employees-for example, qualified benefit plan distributions and
payment for unused vacation pay, and (b) have no vested amounts payable as of
December 31, 2007-for example, benefits under the new Restricted Stock Plan
adopted in 2006.
With respect to the potential value of stock options reported in the
"Potential Payments on Termination or Change of Control Table," the Company
assumed that the value was approximately equal to the closing price of VSE
Stock on December 31, 2007 ($48.84 per share) less the exercise price for such
options as reported in the "Outstanding Equity Awards at Fiscal Year End
Table" above.
Narrative to Potential Payments on Termination or Change of Control Table
Payments Made On Termination
On termination of employment with VSE or any of VSE's subsidiaries, a
named executive officer is entitled to receive amounts earned during his term
of employment. Such amounts include:
* salary through date of termination
* unused vacation pay
* reimbursement for company business and travel expenses.
The executive also retains a vested interest in and is entitled to receive
payment in accordance with respective plan documents and other applicable
procedures, restrictions (such as termination-for-cause), and expiration dates:
* ESOP/401(k) account
* Profit Sharing Plan account (Energetics only)
* DSC Plan account
* Stock Options (must be exercised within three months of termination, and
within one year if terminated pursuant to a lay off, not to exceed the
Stock Option termination date)
* Restricted Stock.
The executive officer is also entitled to continue participation in VSE's group
health plans for a period of 18 months (COBRA continuation coverage) following
termination on payment of 102% of the monthly premium charged to VSE for such
coverage. VSE has no executive-only health benefit plans.
In the event of involuntary termination without cause, VSE executives
are eligible for up to four months of outplacement assistance services having
an estimated value of about $6,250.
Payments Made On Retirement
In the event of the retirement of a named executive officer, in addition
to the items identified above:
* Vested Stock Options may be exercised within three years of the date of
retirement, not to exceed the Stock Option termination date.
- 25 -
Payments Made On Death or Disability
Pursuant to employment agreements with each named executive officers, in
the event of the death or disability for any period of six consecutive months
of a named executive officer, in addition to the benefits listed under the
headings "Payments Made On Termination" and "Payments Made On Retirement"
above, the named executive officer (or designated beneficiary) will be paid
the executive's base salary then in effect for one full year following the
date of death or disability. In addition, vested Stock Options may be
exercised within one year of the date of death or termination due to
disability, not to exceed the Stock Option termination date.
Payments Made On Change of Control
VSE has entered into an employment agreement with each of the named
executive officers. Pursuant to these agreements, if a change of control of
VSE occurs, the executive may terminate the employment agreement on 30 days'
notice. If an executive's employment is terminated following a change of
control, in addition to the benefits listed above under the heading "Payments
Made On Termination," the executive officer will receive:
* a lump sum payment of one, two, or three times the executive's base
salary
* full vesting and payment of the executive's DSC Plan account
* full vesting of the executive's unexercised stock options.
The employment agreements and change of control provisions for each of
the named executive officers are substantially similar. Generally, pursuant to
the agreements, a change of control is deemed to have occurred on the
occurrence of any of the following events:
* 30% or more of VSE's issued and outstanding stock is acquired
beneficially by one or more persons acting together in concert or
otherwise;
* a cash tender or exchange offer is completed for an aggregate of 40% or
more of VSE's issued and outstanding stock;
* VSE's stockholders approve an agreement to merge, consolidate,
liquidate, or sell all or substantially all of VSE's assets, unless
after the merger or consolidation VSE is the surviving corporation and
more than 50% of VSE's issued and outstanding stock is beneficially
owned by existing VSE stockholders both before and after the merger or
consolidation;
* two or more directors are elected to the Board without having previously
been nominated and approved by the members of the Board immediately
prior to such election.
- 26 -
Director Compensation
The following table provides information related to the compensation of
our non-employee directors for fiscal year 2007.
Director Compensation Table
Change in
pension value
and non-
qualified
Fees earned Non-equity deferred
or paid incentive plan compensation All other
Name in cash Stock awards Option awards compensation earnings compensation Total
($) (1) (2) ($) (3) (4) ($) (4) ($) ($) ($) ($)
---- ----------- ------------ ------------- -------------- ------------- ------------ -----
(a) (b) (c) (d) (e) (f) (g) (h)
Clifford M. Kendall 50,000 13,468 -- -- -- -- 63,468
Calvin S. Koonce 43,000 13,468 -- -- -- -- 56,468
James F. Lafond 52,000 13,468 -- -- -- -- 65,468
David M. Osnos 36,000 13,468 -- -- -- -- 49,468
Jimmy D. Ross 38,000 13,468 -- -- -- -- 51,468
Bonnie K. Wachtel 46,000 13,468 -- -- -- -- 59,468
Ralph E. Eberhart * 18,120 11,073 -- -- -- -- 29,193
* Appointed August 15, 2007
Notes to Director Compensation Table
1. The amount reported in column (b) combines amounts paid for director
fees and meeting fees. See "Narrative to Director Compensation Table" below.
2. Pursuant to the 2006 Restricted Stock Plan, each non-employee director
was granted a Restricted Stock Award of 800 shares of VSE Stock on January 2,
2007, except for General Eberhart who was granted a Restricted Stock Award of
300 shares effective with the date of his appointment to the Board on August
15, 2007. The dollar amount recognized for financial statement reporting
purposes in accordance with FAS 123R is based on the closing price of VSE
Stock on January 2, 2007 ($16.73 per share) and August 15, 2007 ($36.83 per
share), respectively.
3. As of December 31, 2007, each of the non-employee directors named above
held 1,400 shares of restricted VSE Stock, except for General Eberhart who
held 300 shares, and stock options covering shares of VSE Stock as follows:
Mr. Kendall-0 shares, Mr. Koonce-0 shares, Mr. Lafond-3,500 shares, Mr. Osnos-
3,500 shares, General Ross-500 shares, Ms. Wachtel-3,500 shares, and General
Eberhart-0 shares.
Narrative to Director Compensation Table
During 2007, each non-employee director was compensated with director
fees at an annual rate of $24,000, and the Chairman of the Audit Committee was
compensated additionally at an annual rate of $5,000 (total director fee of
$29,000). In addition, 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.
Pursuant to the VSE Corporation 2004 Non-Employee Directors Stock Plan
approved by stockholders in 2004, each non-employee director can elect that
all or a portion of his or her annual cash compensation for services as a VSE
- 27 -
director be paid in VSE Stock at fair market value determined in accordance
with the plan. None of the non-employee directors elected to participate in
the Plan for 2007.
Pursuant to the VSE Corporation 2004 Stock Option Plan approved by
stockholders in 2004, each non-employee director was 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. In December 2005, VSE's Board
discontinued awarding options to purchase VSE Stock. Options outstanding as of
December 30, 2005, were not affected by this Board action. The total number
of stock options held by each non-employee director as of December 31, 2007,
is indicated in Note (3) of Notes to Director Compensation Table.
Following approval of the 2006 Restricted Stock Plan by VSE stockholders
on May 1, 2006, each non-employee director was granted a Restricted Stock
Award of 300 shares of VSE Stock on June 27, 2006, and 400 shares on January
2, 2007 (1,400 shares after giving effect to two-for-one stock split effected
on June 28, 2007). A Restricted Stock Award Agreement was issued for each
Award. Shares of VSE Stock issued pursuant to the Restricted Stock Plan and
Award Agreement are fully vested when issued, but the certificates for such
shares bear a restrictive legend prohibiting the sale, transfer, pledge and
assignment of such shares for a two-year period commencing on the issue date.
When all restrictions on the certificates bearing a restrictive legend have
lapsed, VSE will issue non-restrictive certificate to the directors (subject
to any applicable securities law restrictions). Directors appointed during the
year will be eligible for a pro rata annual award.
During 2006 the Compensation Committee engaged PricewaterhouseCoopers to
perform a compensation analysis for VSE executive officers and directors. The
Committee met and conferred with PricewaterhouseCoopers representatives at
numerous times in 2006, and on December 5, 2006, PricewaterhouseCoopers
reported that its benchmarking survey indicated that the equity portion of
total non-employee director compensation was below peer group benchmarking
averages (see "Review of Executive Compensation" above for further information
on the PricewaterhouseCoopers engagement). Based on the compensation analysis,
and on the recommendation of its Compensation Committee, the Board authorized
an increase in the annual non-employee director Restricted Stock Award to 400
shares of VSE Stock beginning on January 1, 2007, and 500 shares beginning on
January 1, 2008.
Mr. Ervine as the Chairman of the Board and Chief Executive Officer of
VSE receives no additional compensation for services as Chairman of the Board.
In addition, no compensation is paid to any non-employee 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 2007. The foregoing procedures do not restrict
reimbursement for expenses incurred by a director for attending meetings of
the Board or its authorized committees.
Compensation Committee Interlocks and Insider Participation
During 2007, the Committee was composed of General Ross, Mr. Kendall,
Mr. Koonce, and from August 15, 2007, General Eberhart. No member of the
Committee was at any time during 2007 or at any other time an officer or
employee of VSE. 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 served
on the board of directors or compensation committee of any entity which has
one or more executive officers serving as members of VSE's board of directors
or Compensation Committee.
- 28 -
Mr. Koonce is a major stockholder of VSE. See table for "Security
Ownership of Directors and Executive Officers."
VSE and the trustees of VSE's 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. During 2007 VSE
benefit plans purchased about 800 shares of VSE Stock at a cost of
approximately $13,460 through Wachtel & Co., Inc. No benefit plan transactions
in VSE Stock occurred with Koonce Securities, Inc., in 2007.
Mr. Osnos is of counsel at the law firm of Arent Fox LLP, which has
represented and is expected to continue to represent VSE on various legal
matters.
Compensation Committee Report
The Compensation Committee reviewed this Compensation Discussion and
Analysis and discussed its contents with VSE management. Based on the review
and discussions, the Committee has recommended that this Compensation
Discussion and Analysis be included in the Proxy Statement.
Jimmy D. Ross, Committee Chairman
Ralph E. Eberhart
Clifford M. Kendall
Calvin S. Koonce
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at VSE's 2009 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 December 2, 2008, to be
considered for inclusion in VSE's proxy material relating to such meeting.
In addition, under our By-Laws stockholders of VSE may recommend persons
to be nominated for election as directors of the Company at the annual meeting
of stockholders. To be considered for nomination, such recommendation must be
received in writing by the secretary of the Company no later than ninety (90)
days before the date which corresponds to the date on which the annual meeting
of stockholders was held during the immediate prior year, i.e., February 5,
2009. Such recommendation shall be accompanied by the name of the stockholder
proposing the candidate, evidence that stockholder is a beneficial owner of
the outstanding stock of the Company as of the record date established for the
determination of stockholders entitled to notice of and to vote at the annual
meeting of stockholders, the name of candidate being proposed for nomination,
and the candidate's biographical data and qualifications.
- 29 -
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
- 30 -
_______________________________________________________________________________
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
Donald M. Ervine and Craig S. Weber
as Proxies, each with the power to
appoint his substitute, and hereby
authorizes them to vote as designated
below, all the Common Stock of VSE
Corporation held of record by the
undersigned on March 24, 2008, at the
annual meeting of stockholders
scheduled to be held on May 6, 2008,
and at any adjournment thereof.
1. ELECTION OF DIRECTORS
for all nominees listed [ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
below, except as marked to
the contrary below.
(01) Ralph E. Eberhart
(02) Donald M. Ervine INSTRUCTION: To withhold authority to vote
(03) Clifford M. Kendall for any nominee(s), mark "For All Except"
(04) Calvin S. Koonce and write that nominee(s) name in the space
(05) James F. Lafond provided below.
(06) David M. Osnos
(07) Jimmy D. Ross __________________________________________
(08) Bonnie K. Wachtel
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP as the independent
registered public accountant of VSE Corporation for the year ending December 31,
2008.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. 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 and 2.
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.
__________________________________________
Signature
Dated: ________________, 2008
Please vote, sign, date, and __________________________________________
return the Proxy Card using the Signature (if held jointly)
enclosed envelope.