VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of 1996
Annual Meeting of
Stockholders and
Proxy Statement
Fellow Stockholders:
You are cordially invited to attend the annual meeting of
stockholders of VSE Corporation to be held on Saturday, May 4, 1996,
commencing at 10:00 a.m., Washington, D.C. time, at the Value Engineering
Building, 2550 Huntington Avenue, Alexandria, Virginia 22303-1499. The
matters expected to be considered at the annual meeting are described in
the accompanying notice of meeting and proxy statement.
In addition, at the meeting we will review the activities of the
company during the past year and its current activities. Stockholders
will have an opportunity to ask questions. I hope you will be able to
join us.
To ensure that your VSE common stock is voted at the meeting, please
promptly sign and date the enclosed proxy card and return it in the
enclosed envelope. Your vote is important.
Very truly yours,
VSE CORPORATION
/s/ D. M. Ervine
D. M. Ervine
Chairman of the Board
and Chief Executive Officer
April 3, 1996
VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of Annual Meeting of Stockholders
to be Held ON May 4, 1996
To the Stockholders of VSE Corporation:
Notice is hereby given that the annual meeting of stockholders of
VSE Corporation, a Delaware corporation ("VSE"), will be held on Saturday,
May 4, 1996, commencing at 10:00 a.m., Washington, D.C. time, at the Value
Engineering Building, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, for the following purposes:
1. To elect nine directors to serve until the next annual
meeting of stockholders and until their successors are duly
elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as VSE's
independent certified public accountants for the year ending
December 31, 1996;
3. To consider and act on the proposed VSE Corporation 1996
Stock Option Plan; and
4. To transact such other business as may properly come before
the meeting or at any adjournment thereof.
Only record holders of VSE common stock as of the close of business
on March 20, 1996, will be entitled to notice of, and to vote at, the
annual meeting or at any adjournments thereof. The list of stockholders
entitled to vote at the meeting or at any adjournments thereof will be
open to the examination of any stockholder during the 10 days prior to the
meeting at VSE's offices located at 2550 Huntington Avenue, Alexandria,
Virginia 22303-1499, during ordinary business hours.
The VSE Corporation 1995 Annual Report to Stockholders, which
contains consolidated financial statements and other information of
interest to stockholders, accompanies this proxy material.
Whether or not you expect to attend the meeting, please promptly
complete, sign, date and return the enclosed proxy. To return your proxy
you may use the self-addressed envelope, which requires no postage if
mailed within the United States of America. If you attend the meeting, you
may, if you wish, withdraw your proxy and vote your shares personally.
By Order of the Board of Directors,
/s/ C. S. Weber
C. S. Weber
Secretary
April 3, 1996
VSE CORPORATION
PROXY STATEMENT
Annual Meeting of Stockholders
to be held on May 4, 1996
INTRODUCTION
General
This proxy statement is being furnished to the stockholders of VSE
Corporation, a Delaware corporation ("VSE"), in connection with the
solicitation of proxies by the board of directors of VSE (the "Board") for
use at VSE's annual meeting of stockholders to be held on Saturday, May 4,
1996, commencing at 10:00 a.m., Washington, D.C. time, at the Value
Engineering Building, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, and at any adjournments thereof (the "Meeting") for the
purposes specified in the accompanying notice of meeting.
The mailing address of VSE's principal executive office is 2550
Huntington Avenue, Alexandria, Virginia 22303-1499. VSE's telephone
number is (703) 960-4600. This proxy statement and the accompanying
notice and form of proxy are first being provided to the holders of VSE
common stock, par value $.05 per share (the "stockholders"), on or about
April 3, 1996.
The close of business on March 20, 1996, is the record date for the
determination of stockholders entitled to notice of, and to vote at, the
Meeting. Holders of a majority of the outstanding VSE common stock, par
value $.05 per share (the "Stock" or "VSE Stock"), as of March 20, 1996,
must be present at the Meeting, either in person or represented by proxy,
to constitute a quorum for the transaction of business. As of the close of
business on March 20, 1996, there were 869,167 shares of Stock outstanding
and approximately 320 stockholders of record. Each stockholder is
entitled to one vote for each share of Stock held of record as of the
close of business on March 20, 1996, on all matters which may be submitted
to the stockholders at the Meeting.
Voting and Revocation of Proxies
All Stock represented by valid proxies will be voted at the Meeting
in accordance with the directions on the proxies. If no direction is
indicated on a proxy, the Stock represented thereby will be voted for (a)
the election as VSE directors of the nine nominees listed below under
"Election of Directors," (b) the ratification of the appointment of Arthur
Andersen LLP as VSE's independent certified public accountants for the
year ending December 31, 1996, and (c) the adoption of the VSE Corporation
1996 Stock Option Plan, all as discussed below.
Votes cast by proxy or in person at the Meeting will be tabulated by
the inspectors of election appointed for the Meeting. The inspectors of
election will treat abstentions as Stock that is present and entitled to
vote for purposes of determining the presence of a quorum, but as unvoted
for purposes of determining the approval of any matter submitted to
stockholders for a vote. If a broker indicates on a proxy that such broker
does not have discretionary authority as to certain Stock to vote on a
particular matter, such shares will not be considered as present and
entitled to vote with respect to such matter.
As of the date of this proxy statement, the Board does not intend
to present, and has not been informed that any other person intends to
present, any matter for action at the Meeting other than those
specifically referred to herein. If, however, any other matters are
properly presented to the Meeting for action, the proxy holders will
vote the proxies, which confer authority on such holders to vote on such
matters, in accordance with their best judgment. The persons named as
attorneys-in-fact in the proxies are VSE officers.
A stockholder returning a proxy to VSE may revoke it at any time
before it is exercised by granting a later proxy with respect to the same
Stock or by communicating such revocation in writing to VSE's secretary.
In addition, any stockholder who has executed a proxy but attends the
Meeting may cancel a previously given proxy by voting in person whether or
not the proxy has been revoked in writing.
<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of Stock, as of March 20, 1996, (a) by each person
known by VSE to beneficially own more than 5% of the then outstanding
Stock, (b) by each VSE director, (c) by each of the named VSE executive
officers, and (d) by all VSE directors and executive officers as a group.
The voting and investment powers of the Stock listed below are held solely
by the reported owner unless otherwise indicated.
<CAPTION>
Amount of Beneficial Percent of
Name of Beneficial Owner Ownership (Shares) (1) Outstanding Stock
------------------------ ---------------------- -----------------
<S> <C> <C>
VSE Corporation
ESOP/401(k) Plan 345,573 (2) 39.8%
B. S. Bartholomew 6,255 (3) *
Sarah Clements 0 0
D. M. Ervine 12,204 1.4%
R. J. Kelly 500 *
C. S. Koonce 155,552 (4) 17.9%
J. M. Knowlton 6,076 *
J. M. Marchello 2,100 *
R. B. McFarland 3,865 *
D. M. Osnos 0 0
J. D. Ross 0 0
B. K. Wachtel 11,300 1.3%
C. S. Weber 19,912 (3) 2.3%
All directors and executive officers
as a group (5) 280,915 32.3%
<FN>
* Represents less than 1% of outstanding Stock.
(1) Excludes the following shares that may be acquired within 60 days
pursuant to outstanding option grants. The grants are subject to
stockholder approval of the VSE Corporation 1996 Stock Option Plan (see
"Item No. 3" below): Mr. Bartholomew, 1,708 shares; Mrs. Clements, 469
shares; Mr. Ervine, 3,941 shares; Mr. Kelly, 469 shares; Mr. Koonce, 469
shares; Mr. Knowlton, 1,051 shares; Mr. Marchello, 469 shares; Mr.
McFarland, 2,233 shares; Mr. Osnos, 469 shares; Mr. Ross, 469 shares;
Miss Wachtel, 469 shares; Mr. Weber, 1,051 shares, and all directors and
executive officers as a group, 16,432 shares.
(2) These shares are held in trust for the benefit of the participants of
the Plan. Three VSE officers serve as trustees of the Plan. The
participants of the Plan have voting power over 286,159 shares allocated
to their respective ESOP accounts, while the Plan trustees share voting
and investment power over the remaining 59,414 shares. The mailing address
for the Plan is 2550 Huntington Avenue, Alexandria, Virginia 22303-1499.
(3) Excludes 59,414 shares beneficially owned or controlled as a trustee
of the ESOP/ 401(k) Plan.
(4) Mr. Koonce's mailing address is 6550 Rock Spring Drive, Suite 600,
Bethesda, Maryland 20817. Excludes 29,800 shares owned by members of his
family. Mr. Koonce disclaims any beneficial interest in the shares owned
by his family.
(5) The group, including the trustees of the ESOP/401(k) Plan, consists
of 16 persons. The 280,415 shares beneficially owned include 59,414 shares
beneficially owned or controlled by the trustees of the ESOP/401(k) Plan.
</FN>
</TABLE>
Item No. 1
Election of Directors
Nominees
At the Meeting, stockholders will elect, by a plurality of the votes cast,
nine VSE directors, who will constitute the entire Board. Each nominee
listed below is currently serving as a VSE director and was elected by the
stockholders at the last annual meeting of stockholders, except for Robert
J. Kelly, who was appointed as a director by the Board in December 1995,
effective as of January 1, 1996. Each nominee elected as a director will
serve until the next annual meeting of stockholders and until his or her
successor is elected and qualified. If any nominee should become unable to
serve for any reason, the proxies will be voted for such substitute
nominee as shall be designated by the Board.
Harold P. Weinberg, who served as a VSE director from 1961 through 1995,
retired from the Board as of December 31, 1995, and accordingly, is not
seeking reelection.
<TABLE>
The nine nominees for election as VSE directors and certain information
regarding them are as follows:
<CAPTION>
Director
Name and Principal Occupation Age since
-----------------------------------------------------------
<S> <C> <C>
David M. Osnos 64 1968
Senior partner of Arent Fox Kintner Plotkin & Kahn,
attorneys-at-law (for more than the past five years);
also a director of EastGroup Properties and Washington
Real Estate Investment Trust.
<PAGE>
Director
Name and Principal Occupation Age since
-----------------------------------------------------------
<S> <C> <C>
Sarah Clements 85 1987
Private consultant and formerly Deputy for Material
Acquisition Management in the Office of the Assistant
Secretary of the Army (RDA) (1975 to 1981). Before
retiring in 1981, she served for 35 years in the Federal
Aviation Administration and the Department of the Army.
Donald M. Ervine 59 1987
VSE Chairman of the Board and Chief Executive Officer
since 1992, VSE President and Chief Operating Officer
from 1988 to 1992, and prior thereto, senior program
manager, vice president, senior vice president, and
executive vice president since 1983.
Richard B. McFarland 62 1988
VSE President and Chief Operating Officer since February
1993 and a private consultant to VSE from 1988 to 1993;
formerly executive director of the Navy Ships Parts
Control Center (1982 to 1988). Before retiring in 1988,
he served for 25 years in the Department of the Navy.
Joseph M. Marchello 62 1990
Professor at Old Dominion University in Norfolk,
Virginia, chemical engineering; Chancellor of the
University of Missouri-Rolla from 1976 to 1985 and
President of Old Dominion University from 1985 to 1988.
Bonnie K. Wachtel 40 1991
Vice President and General Counsel, Wachtel & Co. Inc.,
Brokers and Underwriters (for more than the past five
years). Also a director of Integral Systems Inc. and
Information Analysis Inc.
Calvin S. Koonce 58 1992
President, Koonce Securities, Inc., a securities
broker/dealer firm (for more than the past five years).
Also a director of Exotech Inc.
Jimmy D. Ross 59 1994
General, U. S. Army (Ret.), formerly Commanding General,
U. S. Army Materiel Command. Since retiring in 1994,
General Ross has served as Senior Vice President,
Biomedical Services, for the American Red Cross.
Robert J. Kelly 58 1996
Admiral, U.S. Navy (Ret.), formerly Commander in Chief of
the U. S. Pacific Fleet. Since retiring in 1994, Admiral
Kelly has served as Director of International Operations
for The Wing Group, a developer of large-scale energy
projects, and since August 1995 as Chairman of the Board
of Energetics Incorporated, a VSE subsidiary.
</TABLE>
Committees of the Board
Audit Committee. The audit committee met three times during 1995 and
consists of all non-employee directors including Mr. Kelly, Chairman, Mrs.
Clements, and Mr. Osnos. The audit committee is primarily concerned with
the effectiveness of VSE accounting policies and practices, financial
reporting, and internal controls. The committee recommends to the Board
the firm to be appointed as VSE's independent certified public
accountants, subject to ratification by the stockholders, and reviews the
scope of the annual examination of VSE's books and records. The committee
also reviews the audit findings and recommendations of the independent
public accountants, considers the organization and work of VSE's internal
audit function, and monitors the extent to which the findings and
recommendations of these groups have been implemented.
Compensation Committee. The compensation committee met three times during
1995 and consists of all non-employee directors including Mr. Ross,
Chairman, Mr. Koonce, Mr. Marchello, and Miss Wachtel. The committee is
primarily concerned with corporate compensation policies, including
incentive compensation, the compensation of the chief executive officer,
and the compensation of certain other executive officers and employees.
Nominating Committee. The nominating committee met three times during
1995 and consists of all non-employee directors including Mr. Koonce,
Chairman, and Mr. Osnos. The committee is primarily concerned with
making recommendations to the Board with respect to nominees to be
proposed for election as directors. Stockholders of VSE may recommend
persons to be nominated for election as directors of VSE at the Meeting.
To be considered, such recommendation must be submitted in accordance
with VSE's by-laws and must be received in writing by the secretary of
VSE generally by February 15th, but in any event no later than 90 days
before the date in the current year which corresponds to the date on
which the Meeting was held during the immediate prior year.
Planning Committee. The planning committee met two times during 1995 and
consists of Mr. McFarland, Chairman, Mr. Marchello, Mr. Ross, and Miss
Wachtel. The committee is primarily concerned with making recommendations
to the Board with respect to business development and opportunities,
including acquisitions.
Finance Committee. A finance committee was established in late 1995 and
met once. The committee consists of Mr. Osnos, Chairman, Mr. Ervine, Mr.
Koonce, and Miss Wachtel. The committee is primarily concerned with
making recommendations to the Board with respect to VSE's capitalization
and long-term funding requirements.
VSE's chairman and chief executive officer (Mr. Ervine) is an ex officio
member of all standing committees of the Board. Mr. Ervine does not
participate in meetings or discussions of the compensation committee
concerned with establishing his salary or bonus.
Board Meetings
During 1995 the Board held six regular meetings. No director attended
fewer than 75% of the aggregate of (a) the total number of Board meetings
held (during the period during which he or she has been a director) and
(b) the total number of meetings held by all committees of the Board on
which he or she served.
1995 Director Compensation
Directors of VSE, excluding directors who are also VSE officers, receive
an annual retainer of $10,000 plus $600 per meeting for each regular
Board meeting or committee attended, not to exceed an aggregate of
$17,200 in retainer and meeting fees for the year. Directors who are
also VSE officers (Mr. Ervine and Mr. McFarland) are compensated at a
rate equal to one-half of the rate of non-employee directors, not to
exceed an aggregate of $8,600 for the year.
Pursuant to a consulting agreement between Mrs. Clements and VSE, Mrs.
Clements agreed to provide technical and management consulting services to
VSE. VSE agreed to pay consulting fees at the rate of $60 per hour and to
reimburse certain related out-of-pocket expenses.
Pursuant to a consulting agreement between JMM Corporation ("JMM"), which
is wholly owned by Mr. Marchello, and VSE, JMM agreed to provide technical
and management consulting services to VSE. VSE agreed to pay consulting
fees at the rate of $150 per hour for up to the first 20 hours of
consulting services rendered in any one month and at the rate of $50 per
hour for each hour in excess of 20 hours in any month, and to reimburse
certain related out-of-pocket expenses. No services were rendered to VSE
pursuant to this agreement in 1995.
Pursuant to a consulting agreement between Mr. Ross and VSE, Mr. Ross
agreed to provide technical and management consulting services to VSE.
VSE agreed to pay consulting fees at the rate of $100 per hour, not to
exceed $50,000 per year.
For services rendered to VSE during 1995, Mrs. Clements and Mr. Ross
received consulting fees and reimbursements for certain related
out-of-pocket expenses in the aggregate amounts of approximately $15,125
and $6,400, respectively. VSE believes that the fees paid under the
consulting agreements are no more than would be paid for similar services
to non-affiliated parties.
Changes in Director Compensation
Effective January 1, 1996, the Board made the following changes in
compensating VSE directors. Each non-employee director will be
compensated at an annual rate of $17,200, prorated for a partial year of
service. Directors who are employees of VSE will receive no additional
compensation for service as a director. In addition, no compensation
will be paid to a director for personal services rendered to VSE
pursuant to a consulting services agreement between the director and VSE
or any of VSE's subsidiaries or divisions, unless authorized as a
special assignment by the Board. The foregoing changes do not restrict
reimbursement for expenses incurred by a director for attending meetings
of the Board or its authorized committees.
Also effective in 1996, directors may be awarded stock option grants,
subject to stockholder approval of the VSE Corporation 1996 Stock Option
Plan (see "Item No. 3").
Certain Relationships and Related Transactions
Pursuant to an agreement dated as of January 1, 1996, Donald M. Ervine
serves as the Chief Executive Officer of VSE. Mr. Ervine is paid a base
salary of $225,000 per annum and is employed for a term ending on
January 1, 1999. This term is automatically extended for successive
one-year periods unless notice to terminate is given at least 90 days
prior to the expiration of the term or any such one-year extension of
the term. Mr. Ervine's base salary shall be subject to review in
January of each year in which the agreement is in effect, provided that
the base salary shall not be less than $225,000 per annum. Mr. Ervine
shall also be eligible to receive an annual performance bonus each year
as determined by the Board or its compensation committee. Mr. Ervine's
employment may be terminated by the Board for willful and gross
misconduct and in the case of death or disability which prevents Mr.
Ervine from substantially fulfilling his duties for a period in excess
of six months. If Mr. Ervine's employment is terminated because of
death or illness or disability, he or his beneficiary, as the case may
be, will be paid his annual base salary then in effect for one full year
from the date of death or disability. Mr. Ervine's employment may also
be terminated without cause on 60 days prior notice and on payment of a
lump sum severance compensation payment equal to two times his base
salary then in effect. The agreement includes a covenant by Mr. Ervine
not to be involved, directly or indirectly, in a business enterprise
that competes with VSE during the term of his employment and for two
years thereafter. Under the terms of the agreement, Mr. Ervine will be
nominated to serve as a director and will be elected Chairman of the
Board during the term of his employment. In the event of a change of
control of VSE, as defined, and without his consent, Mr. Ervine is
assigned duties materially inconsistent with his position and status
with VSE, Mr. Ervine may terminate the agreement and will be entitled to
a lump sum severane compensation payment equal to three times his annual
base salary then in effect.
Pursuant to an agreement dated as of January 1, 1996, Richard B. McFarland
serves as the President and Chief Operating Officer of VSE. The terms and
conditions of Mr. McFarland's agreement are in all respects identical to
those of Mr. Ervine's agreement except that (a) Mr. McFarland is employed
at a minimum base salary of $175,000 per annum, (b) in the event of
termination without cause, the lump sum severance compensation payment
shall equal his annual base salary then in effect, (c) Mr. McFarland will
be nominated to serve as a director of VSE during the term of the
agreement, and (d) in the event of a change of control of VSE, as defined,
Mr. McFarland may terminate the agreement and will be entitled to a lump
sum severance compensation payment equal to two times his annual base
salary then in effect.
There is no family relationship between any director or executive officer
of VSE and any other director or executive officer of VSE.
The law firm of Arent Fox Kintner Plotkin & Kahn, of which Mr. Osnos is a
senior partner, has represented and is expected to continue to represent
VSE on various legal matters.
See "1995 Director Compensation" above for a description of certain
individual consulting agreements between VSE and Mrs. Clements, Mr.
Marchello, and Mr. Ross which were effective in 1995 and were canceled as
of January 1, 1996.
VSE and the trustees of its employee benefit plans effect certain of their
transactions in VSE stock and employee benefit plan investments,
respectively, through Wachtel & Co., Inc., of which Ms. Wachtel is a
director, officer and shareholder, and through Koonce Securities, Inc.,
which is wholly owned by Mr. Koonce.
The Board recommends a vote FOR the proposal to elect each of the nine
persons nominated to serve as a director for the ensuing year, and your
proxy will be so voted unless you specify otherwise.
Item No. 2
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Base on the recommendation of its audit committee, the Board has appointed
the firm of Arthur Andersen LLP to be VSE's independent certified public
accountants for the year ending December 31, 1996, and recommends to
stockholders that they vote for ratification of that appointment.
Although not required to do so, the Board has determined that it would be
desirable to request approval of this appointment by stockholders. The
ratification of the appointment of VSE's independent certified public
accountants will require the affirmative vote by the holders of a majority
of the outstanding Stock present in person or represented by proxy at the
Meeting. If such approval is not received, the Board will reconsider the
appointment. In 1995 Arthur Andersen LLP services included an examination
of VSE's consolidated financial statements, the financial statements of
certain subsidiaries and benefit plans, and tax consulting.
A representative of Arthur Andersen LLP is expected to attend the Meeting,
will have an opportunity to make a statement, if he or she desires to do
so, and will be available to respond to appropriate questions.
The Board recommends a vote FOR the proposal to ratify the appointment of
Arthur Andersen LLP to serve as VSE's independent certified public
accountants for the year 1996, and your proxy will be so voted unless you
specify otherwise.
Item No. 3
VSE CORPORATION 1996 STOCK OPTION PLAN
The stockholders are asked to consider and vote on a proposal to adopt
the VSE Corporation 1996 Stock Option Plan (the "Plan"), which was
adopted by the Board on February 6, 1996. Adoption of the Plan will
require the affirmative vote by the holders of a majority of the
outstanding Stock present in person or represented by proxy at the
Meeting. If such approval is not received, the Board will reconsider
the Plan. (The following summary of the Plan is qualified in its
entirety by reference to the text of the Plan which is set forth as
Exhibit A to this Proxy Statement.)
VSE does not currently have a stock option plan. Under the proposed
five-year Plan, an aggregate of up to 109,479 shares of Stock
(representing approximately 12.5% of the currently outstanding Stock) may
be purchased pursuant to the grant of options. Approximately 20% of the
shares covered by the Plan will be available for grants to non-employee
directors of VSE, and approximately 80% of the shares will be available
for grants to executive officers and key employees. Options under the
Plan are not intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
(See "Federal Income Tax Consequences" below). The Plan will terminate on
the earliest of February 5, 2006, or the date on which all options under
the Plan have been exercised or terminated.
The purpose of the Plan is to make awards to non-employee directors,
executive officers, and key employees of VSE and its subsidiaries and
divisions, and thereby, to further VSE's growth by providing long-term
incentives and an identity of interests with VSE's stockholders.
(Initially, approximately 15 persons will be eligible to receive options
under the Plan.) VSE operates in a highly specialized field in which
success is substantially dependent on the expertise of qualified and
highly motivated key personnel. Management believes that adoption of the
Plan will be of material assistance in recruiting, motivating, and
retaining key personnel.
The Board is authorized, subject to the provisions of the Plan, to
construe and interpret the Plan, and to make all determinations
necessary or advisable for the administration of the Plan. The Board
may designate persons other than Board members to carry out its
responsibilities under the Plan, under such conditions and limitations
as it may prescribe, except that the Board may not delegate its
authority with respect to the grant of options under the Plan. The
portion of the Plan which relates to the grant of options will be
administered by the Board, provided that a majority of the Board and a
majority of the members acting on the matter are non-employee directors.
Alternatively, if the Board shall not satisfy the foregoing provisions,
or if the Board shall otherwise so specify, the portion of the Plan
which relates to the grant of options shall be administered by a
committee of at least three directors, all of whom must be non-employee
directors. In administering the Plan, the Board may (but is not
required to) consider the recommendations of its compensation committee.
Under the Plan, the option price per share shall not be less than
the fair market value of the Stock as of the date each option is granted.
The fair market value of the Stock, as defined in the Plan, means on any
given date the average closing price of the Stock as reported on the
consolidated transaction reporting system for the National Association of
Securities Dealers for such of the 30 calendar days prior to the date of
the award during which trades of the Stock occurred. The closing price of
the Stock on March 21, 1996, was $27 per share.
Options will be exercisable over the exercise period specified by
the Board, but in no event will such period exceed five years from the
date of grant. Options will terminate upon voluntary termination of
employment, except (i) if the participant dies while an employee, vested
options may be exercised within one year after the participant's death
(but not after the option termination date), (ii) upon the participant's
retirement, vested options may be exercised within three years after the
retirement date (but not after the option termination date), and (iii) if
the participant's employment is terminated for disability or due to a lay
off by VSE, vested options may be exercised within one year after
termination (but not after the option termination date). Also, if a
participant's employment is terminated for cause (as defined in the Plan),
all of his or her options will terminate on the date of such termination
for cause.
The option price shall be paid in full at the time of exercise in cash
or, with the Board's approval, Stock held by the participant for at
least six months having an aggregate fair market value equal to the
aggregate option price of the options exercised or in a combination of
cash and Stock.
Each option granted under the Plan will vest 25% immediately on the
date of the grant and 25% on each successive anniversary date after the
date of the grant (100% vested after three years). In the event of a
"change of control" of VSE (as defined in the Plan), all options granted
under the Plan which have not terminated and are held by participants will
become immediately vested and may be exercised without regard to any
vesting period.
Subject to stockholder approval of the Plan, it is anticipated that grants
covering approximately 65,690 shares of Stock will be awarded, effective
as of February 7, 1996, as follows: (a) each of the seven non-employee
directors who has been nominated to serve as a director of VSE for the
ensuing year (see "Election of Directors" above) will receive an option
grant for 1,877 shares and (b) individual option grants will be made to
each of eight key executives, as follows: Mr. Ervine (15,765 shares), Mr.
McFarland (8,934 shares), Mr. Bartholomew (6,832 shares), and Messrs.
Corridon, Karl, Knowlton, Robin and Weber (4,204 shares each). The fair
market value of the Stock on February 7, 1996, as defined, was $27.28 per
share. After giving effect to the foregoing grants, an aggregate of
43,789 shares will remain available for purchase pursuant to the grant of
options during the remaining life of the Plan. Under the Plan, each year
commencing with 1997, each then outside director, as defined, will be
granted an option to purchase 300 shares.
Federal Income Tax Consequences
The following is a brief summary of certain federal income tax
consequences relating to options granted under the Plan. This summary is
solely for general information and does not make specific representations
to any participant. Therefore, each participant is urged to consult with
his or her own tax adviser regarding the exercise of options and the sale
of Stock acquired under the Plan regarding federal, state, and local tax
consequences.
The grant of stock options will have no immediate tax consequences to
VSE or the optionee. If Stock received on the exercise of an option is
not subject to a substantial risk of forfeiture, the optionee will
recognize ordinary income equal to the excess, if any, of the fair
market value of the shares at the time of exercise over the exercise
price. It is not contemplated that VSE will, upon the exercise of an
option, issue or deliver Stock that is subject to a substantial risk of
forfeiture, except as noted in the next paragraph.
Stock received on the exercise of an option will be treated as
subject to a substantial risk of forfeiture for up to a six month period
if the sale of the shares at a profit during such six months could subject
the optionee to suit under Section 16(b) of the Securities Exchange Act of
1934, as amended ("Section 16(b)"). Under these circumstances, however,
the optionee has a right to elect, within a 30-day period from the date of
transfer of the shares, to include in his or her taxable income for the
taxable year of exercise an amount equal to the excess of the fair market
value of such shares at the time of the exercise over the exercise price.
If the optionee does not make the preceding election, the optionee will
recognize ordinary income upon the expiration of the above-referenced six
month period. The amount of such income will be equal to the excess of
the fair market value of the shares at that time over the exercise price,
and the holding period for determining whether any capital gain or loss on
the subsequent sale or exchange of the shares is long-term or short-term
capital gain or loss will commence at that time.
Where ordinary income is recognized by an optionee as described above in
connection with shares received on the exercise of an option, VSE will
be entitled to a deduction in the amount of ordinary income so
recognized by the optionee, provided appropriate tax withholding
procedures are implemented or VSE otherwise establishes that the
optionee has reported the income on his or her tax return. The Plan
requires the employee to pay or make arrangements acceptable to the
Board regarding withholding taxes due upon exercise of an option. With
the Board's approval, the optionee may make such payments in whole or in
part by surrendering Stock.
Section 16
Approval of the Plan by the stockholders will exempt the acquisition
pursuant to the Plan of a stock option by a VSE director or officer from
the provisions of Section 16(b). Section 16(b) provides, among other
things, that a director or officer who, within a six-month period,
purchases and sells (or sells and purchases) the stock of a corporation
which employs him or her is liable to the corporation for the difference
between the purchase price and the sale price. Rule 16b-3 under the
Exchange Act provides that the acquisition of a stock option by a director
or officer of a corporation pursuant to a stock option plan which meets
certain requirements (one of which is stockholder approval of the plan) is
not subject to Section 16(b).
The Board recommends a vote FOR the proposal to adopt the VSE Corporation
1996 Stock Option Plan, and your proxy will be so voted unless you specify
otherwise.
COMPENSATION COMMITTEE REPORT
The Board has established a compensation committee to (a) review corporate
compensation policies, including incentive compensation, (b) set the
compensation of the chief executive officer (the "CEO"), and (c) review
the compensation of certain other executive officers and employees. The
committee is composed entirely of non-employee directors (see "Committees
of the Board" above).
Compensation Philosophy
VSE's overall compensation philosophy is based on aligning employee
compensation with industry standards and with financial performance
objectives established by the Board. Under the supervision of the
committee, VSE has established compensation policies which are designed to
(a) attract and retain qualified executive and corporate officers and (b)
link total executive compensation to corporate goals and to specific
individual goals appropriate for each executive and corporate officer.
The key elements of VSE executive compensation are base salary and an
annual performance bonus. VSE does not have a long-term incentive plan.
During 1995 the committee retained an independent, professional
compensation firm to review VSE compensation policies and to make
recommendations with respect to a long-term incentive plan. Subject to
stockholder approval, the committee recommended and the Board adopted on
February 6, 1996, the VSE Corporation 1996 Stock Option Plan (see "Item
No. 3" above).
Base Salary
The base salaries for executive officers and other corporate officers are
based primarily on comparability to the range of compensation paid by
companies of similar size and industry, based on commercially available
wage and salary surveys. Size is determined primarily by reference to
annual revenues and number of employees. VSE's industry group is
engineering and technical services (SIC Code 8711). National and
geographic differences in compensation are considered based on the
executive's primary area of operations and responsibility. VSE targets a
salary range generally between the 25th and the 50th percentile indicated
by such surveys.
During 1993 the committee approved a compensation plan whereby salary
ranges and ceilings were set for each of six specified executive and
corporate officer pay grades. The intent of this policy was to enhance
corporate competitiveness by (a) holding base salaries within a fixed
salary range and (b) emphasizing the compensation incentive provided by
the performance bonus program.
Performance Bonus
Consistent with the emphasis placed on competitiveness by holding salary
increases in check, the committee approved a performance bonus plan in
1993 based on achieving corporate and business unit goals. This plan
provides for the payment of a performance bonus, generally not to exceed
30% of base salary, on meeting certain specified performance criteria. A
performance bonus in excess of 30% of base salary may be authorized when
required to comply with incentives established pursuant to a written
acquisition or employment agreement and as authorized by the Board.
The performance criteria or factors used to administer the incentive
bonus program are established with the executive officer or manager at
the beginning of each year. The performance factors are weighted
approximately as follows: 20% on achieving corporate revenue and profit
targets, 20% on achieving business unit revenue and profit targets, 15%
on achieving budgeted efficiency ratios or cost reduction targets within
a business unit, and 45% on achieving specified performance objectives
within the business unit, such as proposals submitted and won, new
business development, and total quality management.
Except for the 20% weighting factor assigned for corporate revenue and
profit goals, the factors and weightings used to measure the performance
of an individual executive or corporate officer depend on the conditions
and corporate objectives with respect to the business unit or
administrative function in which the executive or corporate officer works.
All Other Compensation
All VSE officers are entitled to participate in all company fringe benefit
programs, including the VSE ESOP/401(k) plan, which is an IRS qualified
plan available to all eligible employees. Amounts contributed to the VSE
ESOP/401(k) on behalf of the named executive officers are included in the
"Summary Compensation Table."
During 1994 the Board adopted a non-qualified Deferred Supplemental
Compensation Plan (the "DSC Plan") for all VSE officers to replace the
former deferred compensation plan (the"DCU Plan"). The DSC Plan
provides, at the Board's discretion, for an annual bonus pool not to
exceed 12% of consolidated net income for the year. The annual bonus
pool is allocated to the participant accounts of corporate officers in
proportion to the ratio of the officer's performance bonus for the year
(see "Performance Bonus" above) to total officer performance bonuses for
the year. Pursuant to the DSC Plan, a bonus pool of approximately
$165,000 was authorized for 1995 for allocation to 27 participant
officer accounts. Benefits under the DSC Plan and predecessor DCU Plan
are payable to the participant on retirement or resignation, subject to
a vesting schedule, non-competition agreement, and other plan
provisions, or in the event of a change of control of VSE. Amounts
contributed to the DSC Plan during 1995 and 1994 and to the DCU Plan
during 1993 on behalf of the named executive officers are included in
the Summary Compensation Table.
Chief Executive Officer Compensation
During 1995, 1994 and 1993, VSE's chairman and chief executive officer
("CEO") (Mr. Ervine) was compensated in a manner consistent with the
foregoing. The committee recommended a base salary of approximately
$200,000 per annum for the CEO based on the salaries paid to CEO's at
similarly situated companies. See "Base Salary" discussion.
The CEO's performance bonus for each of the years presented was determined
by the committee on the basis of five factors of approximately equal
weight: revenue growth, return on equity, return on sales, leadership, and
long-term shareholder goals. The first three factors are measured based
on interim consolidated financial statements or management reports which
are subject to adjustment based on annual audited financial statements.
The last two factors are subjective measures evaluated by the committee in
executive session. Based on its evaluation, and giving consideration to
the CEO's contribution and leadership in the award of a major, ten-year
contract to VSE and the timely completion of two significant corporate
acquisitions, the committee recommended a CEO performance bonus of
$200,000 for 1995.
The performance bonus for VSE's president and chief operating officer
("COO") (Mr. McFarland) was similarly based. See "Performance Bonus"
discussion.
Employment Agreements
The committee also considered the performance of the CEO and COO (Mr.
Ervine and Mr. McFarland) in managing the growth and operations of VSE
during the prior three year period of industry consolidation, Government
downsizing, and spending restraint. In the opinion of the committee,
the retention of the CEO and COO and their continued motivation to
manage VSE growth and lead the VSE management team are essential to
maintaining corporate momentum and increasing shareholder value in the
years immediately ahead. Accordingly, the committee recommended and the
Board approved employment agreements with Mr. Ervine and Mr. McFarland
effective January 1, 1996 (see "Certain Relationships and Related
Transactions" above for a description of the employment agreements).
COMPENSATION COMMITTEE:
Jimmy D. Ross (Chair)
Calvin S. Koonce
Joseph M. Marchello
Bonnie K. Wachtel
Compensation Committee Interlocks and Insider Participation
The compensation committee consists of four non-employee directors,
including two directors (Messrs. Marchello and Ross) who had consulting
services agreements with VSE in 1995. See "1995 Director Compensation"
and "Changes in Director Compensation" above.
Mr. Koonce is a major stockholder of VSE. See "Security Ownership of
Certain Beneficial Owners and Management." The trustees of VSE's employee
benefit plans effect certain of their transactions through Koonce
Securities, Inc., which is wholly owned by Mr. Koonce, and through Wachtel
& Co., Inc., of which Ms. Wachtel is a director, officer, and shareholder.
Mr. Osnos is a senior partner of the law firm of Arent Fox Kintner Plotkin
& Kahn, which firm has represented and is expected to continue to
represent VSE on various legal matters. See "Certain Relationships and
Related Transactions."
VSE's chairman and chief executive officer (Mr. Ervine) is an ex officio
member of all Board committees, including the compensation committee. Mr.
Ervine does not participate in meetings or discussions of the compensation
committee concerned with establishing his salary or bonus.
<TABLE>
Summary Compensation Table
The following table reports the compensation paid for the past three
years for each of the five most highly compensated VSE executive
officers, including the chief executive officer (1) (2).
<CAPTION>
Annual Compensation All Other (3)
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Donald M. Ervine 1995 $203,700 $200,000 $62,400
Chairman of the Board and 1994 203,700 59,100 35,600
Chief Executive Officer 1993 203,700 47,700 30,400
Richard B. McFarland 1995 $146,500 $160,000 $51,300
President and 1994 146,500 49,400 30,200
Chief Operating Officer 1993 139,500 37,000 21,900
Byron S. Bartholomew 1995 $139,400 $12,700 $31,100
Executive Vice President 1994 139,400 15,600 11,900
and Marketing Director 1993 139,400 16,500 24,200
James M. Knowlton 1995 $101,400 $45,000 $14,300
Senior Vice President 1994 97,800 13,800 7,100
and General Manager 1993 89,800 13,500 10,400
Craig S. Weber 1995 $114,000 $30,000 $21,400
Senior Vice President, 1994 108,200 13,100 11,700
Chief Financial Officer, 1993 108,200 14,400 18,500
Secretary and Treasurer
<FN>
(1) The column "Other Annual Compensation" has been omitted because
the amounts paid by VSE, if any, aggregate less than the minimum
disclosure levels.
(2) The column "Long-Term Compensation" has been omitted because VSE
has no long-term compensation plan (see "Item No. 3" above).
(3) The column headed "All Other Compensation" includes contributions
made to two "defined contribution" employee benefit plans: (a) the VSE
ESOP, which is generally available to all VSE employees, and (b) the DSC
Plan or its predecessor (see plan description in "All Other Compensation"
in the "Compensation Committee Report"). This column also includes (c)
Board and committee meeting fees paid to named executive officers (see
"1995 Director Compensation" and "Changes in Director Compensation"
above). The component amounts for 1995 for the named executive officers
in the order listed above were approximately as follows: (a) $3,000,
$3,000, $3,000, $2,935, and $3,000; (b) $50,814, $40,651, $25,530,
$11,433, and $14,189; and (c) $8,600, $7,700, $2,650, $0, and $4,300.
</FN>
</TABLE>
Performance Graph
Set forth below is a line graph comparing the cumulative total return of
VSE Stock with (a) a performance index for the broad market in which VSE
Stock is traded and (b) a published industry index. VSE Stock is traded
on the Nasdaq Stock Market, and VSE's 4-digit industry SIC Code is 8711,
Engineering Services. Accordingly, the performance graph compares the
cumulative total return for VSE Stock with (a) an index for the Nasdaq
Stock Market (U. S. companies) ("Nasdaq Index") and (b) a published
industry index for SIC Code 8711 ("Industry Index").
Total Return to Stockholders*
[insert graph]
* Total return assumes reinvestment of dividends and assumes $100
invested on January 1, 1990, in VSE Stock, the Nasdaq Index, and the
Industry Index.
Performance Graph Table
1990 1991 1992 1993 1994 1995
VSE Stock 100 78 125 163 202 392
Nasdaq Index 100 128 130 155 163 212
Industry Index 100 122 101 96 67 85
Stockholder Proposals
Proposals of stockholders intended to be presented at VSE's 1997 annual
meeting of stockholders must be received by VSE's secretary at its
principal executive offices, 2550 Huntington Avenue, Alexandria, Virginia
22303-1499, by no later than the close of business on December 5, 1996, to
be considered for inclusion in VSE's proxy material relating to such
meeting.
Other Matters
VSE will bear the costs of the solicitation of proxies for use at the
Meeting. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by directors, officers and
employees of VSE. Arrangements will also be made with brokerage houses
and other custodians, nominees, and fiduciaries, who are record holders of
Stock, for forwarding solicitation material to the beneficial owners of
the Stock. VSE will, on the request of such record holders, pay the
reasonable expenses for completing the mailing of such materials to the
beneficial owners.
Please sign and promptly return your proxy in the enclosed envelope. Your
vote is important.
By Order of the Board of Directors,
C. S. Weber, Secretary
April 3, 1996
EXHIBIT A
VSE CORPORATION 1996 STOCK OPTION PLAN
Section 1 Purpose. The purpose of the VSE Corporation 1996 Stock
Option Plan (the "Plan") is to promote the interests of VSE
Corporation, its Subsidiaries and divisions (the "Company") and its
stockholders by (a) providing incentives for executives, other key
employees, and Outside Directors of VSE Corporation and its
Subsidiaries, (b) encouraging stock ownership to such individuals by
providing them with a means to acquire a proprietary interest in the
Company, and (c) aiding in attracting and retaining individuals of the
caliber necessary for the continued growth and profitability of the
Company.
Section 2 Definitions. For purposes of the Plan, the following terms
shall have the meanings set forth below:
(a) "Award" or "Awards" means an award or grant of Non-qualified Stock
Options made to a Participant under Section 4 of the Plan.
(b) "Board" means the Board of Directors of VSE Corporation.
(c) A "Change of Control" shall be deemed to have occurred if (i) the
Company shall be merged or consolidated with another corporation and, as
a result of such merger or consolidation, less than 75% of the outstanding
voting securities of the surviving or resulting corporation shall be owned
directly or indirectly in the aggregate by the former owner or affiliate
of the Company, or any party to such merger or consolidation, as the same
shall have existed immediately prior to such merger or consolidation, (ii)
the Company shall sell all or substantially all of its assets to another
corporation which is not a wholly owned subsidiary of VSE or an affiliate
thereof, or (iii) a person, within the meaning in Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the Exchange Act,
shall acquire 50% or more of the outstanding voting securities of the
Company (whether directly, indirectly, beneficially or of record). For
purposes hereof, ownership of voting securities shall take into account
and shall include ownership as determined by applying the provision of
Rule 13d 3(d)(1)(i) (as in effect on the date hereof) pursuant to the
Exchange Act.
(d) "Code" means the Internal Revenue Code of 1986, as in effect from time
to time or any successor thereto, together with rules, regulations and
interpretations promulgated thereunder.
(e) "Common Stock" means the Common Stock of VSE Corporation, par value of
$.05 per share, or any security of the Company issued in substitution,
exchange, or in lieu thereof.
(f) "Disability" means disability as determined by the Board in
accordance with standards and procedures similar to those under the
Company's long term disability plan.
(g) "Discretionary Option" means a Non-qualified Stock Option to purchase
Common Stock that is granted to a Participant who is not an Outside
Director.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
(i) "Fair Market Value" means on any given date, the average closing price
of the Common Stock as reported on the consolidated transaction reporting
system for the National Association of Securities Dealers for such of the
30 calendar days prior to the award during which reported trades of Common
Stock occurred.
(j) "Insider" means a Participant who is subject to the reporting
requirements of Section 16 of the Exchange Act with respect to the
Company.
(k) "Nondiscretionary Option" means a Non-qualified Stock Option to
purchase Common Stock that is granted to Outside Directors pursuant to
Section 7 hereof.
(l) "Non-qualified Stock Option" means an option to purchase shares of
stock during such specified time as the Committee may determine, not to
exceed five (5) years, that is granted pursuant to Section 4 hereof, that
does not meet the requirements of Code Section 422, or if meeting those
requirements, is not intended to be an incentive stock option under Code
Section 422.
(m) "Outside Directors" means any member of the Board who, on the date of
the granting of an option hereunder, is not an officer or employee of the
Company. Outside Directors shall not be eligible to receive Discretionary
Options.
(n) "Participant" means any person who is employed by the Company or is an
Outside Director and who is granted an Award under the Plan.
(o) "Retirement" means retirement from active employment with the Company
or active as a member of the Board of Directors on or after the normal
retirement date specified in the Company's retirement plan or such earlier
retirement date as approved by the Committee for purposes of this Plan.
(p) "Subsidiary" shall mean a subsidiary corporation of the Company,
whether now or hereafter existing, and whether direct or indirect, as
defined in Section 424(f) of the Code.
(q) "Termination for Cause" means termination of the Participant s
employment by the Company by written notice to the Participant,
specifying the event relied upon for such termination, due to (i) the
Participant's willful misconduct in respect of his or her duties for the
Company, (ii) conviction for a felony or perpetration of a common law
fraud, (iii) failure to comply with applicable laws or corporate
policies with respect to the execution of the Company's business
operations, (iv) theft, fraud, embezzlement, dishonesty or other conduct
which has resulted or is likely to result in economic damage to the
Company, or (v) the failure by the Participant to substantially perform
the Participant's duties and obligations as determined by his or her
supervisor, other than any such failure resulting from the Participant's
incapacity due to physical or mental illness.
(r) "Vesting" or "vest" means the ability to exercise the stock option at
one time or in such installments over the balance of the vesting period as
may be provided in the stock option agreement.
(s) "Voluntary Termination" means the voluntary termination of a
Participant who chooses to cease employment.
Section 3 Administration. The portion of the Plan which relates to the
grant of Discretionary Options shall be administered by the Board,
provided that a majority of the members of the Board and a majority of the
members of the Board acting on the matter are Outside Directors.
Alternatively, if the Board shall not satisfy the foregoing provisions or
if the Board shall otherwise so specify, the portion of the Plan which
relates to the grant of Discretionary Options shall be administered by a
committee of at least three directors, all of whom must be Outside
directors. In any event, the portion of the Plan which relates to the
grant of Nondiscretionary Options shall be administered by the Board. To
administer the Plan, the Board may consider, but is not required to
consider, the recommendations of the Board's Compensation Committee.
(a) The Board is authorized, subject to the provisions of the Plan, to
construe and interpret the Plan, to promulgate, amend and rescind rules
and regulations relating to the implementation of the Plan, and to make
all other determinations necessary or advisable for all the
administration of the Plan. The Board may designate persons other than
members of the Board to carry out its responsibilities under such
conditions and limitations as it may prescribe, except that the Board
may not delegate its authority with regard to selection for
participation of and the granting of Discretionary Options to persons
subject to Section 16(a) and 16(b) of the Exchange Act, except as
specified herein. Any determination, decision or action of the Board in
connection with the construction, interpretation, administration, or
application of the Plan shall be final, conclusive and binding upon all
Participants in the Plan. The Company shall effect the granting of
Awards under the Plan in accordance with the determinations made by the
Board, by execution of instruments in writing in such form as approved
by the Board ( stock option agreement ).
(b) The granting of Nondiscretionary Options under the Plan and the amount,
price, vesting and timing of Nondiscretionary Option shall be automatic,
as described in Section 7 hereof. All questions of interpretation of the
Plan with respect to Nondiscretionary Options will be determined by the
Board.
Section 4 Grants. Grants under the Plan are in the form of
Non qualified Stock Options to purchase shares of Common Stock.
Non-qualified Stock Options are herein called "stock options." Stock
options may be granted from time to time under the Plan for up to one
hundred and nine thousand four hundred and seventy nine (109,479) shares
in the aggregate of Common Stock. Of these aggregate shares, 21,896
shares are reserved for Nondiscretionary Options and 87,583 shares are
reserved for Discretionary Options. Either authorized but unissued
shares or reacquired shares may be used for grants. The Company may
purchase shares required for this purpose. If any outstanding stock
option for any reason expires or is terminated without having been
exercised in full, the Common Stock allocable to the unexercised portion
of such stock option shall (unless the Plan shall have been terminated)
become available for subsequent grants of stock options. In no event
will the determination of the number of shares available be calculated
in a manner inconsistent with applicable laws and regulations as in
effect from time to time.
Section 5 Participation. Employees eligible for Discretionary Options
shall be selected by the Board from time to time from among those
executives and other key employees of the Company who are in a position to
contribute materially to the success of the Company. Participants who are
Outside Directors shall only be eligible to receive Nondiscretionary
Options under the Plan.
(a) No Participant shall have any rights as a stockholder with respect to
any shares subject to his or her stock options prior to the date as of
which he or she is actually recorded as the holder of the Common Stock
covered by such stock options upon the stock records of the Company.
(b) Nothing in the Plan or any stock option granted hereunder shall confer
upon any employee any right to continue in the employ of the Company or
interfere in any way with the right of the Company to terminate his or her
employment at any time.
(c) No stock option granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution.
Section 6 Conditions of Discretionary Options.
(a) Discretionary Options shall be evidenced by stock option agreements,
which shall be subject to the applicable provisions of the Plan and
contain such other provisions as the Board shall determine from time to
time, such as a defined vesting period with respect to the initial
exercisability of the Discretionary Option. A Discretionary Option may be
exercised at one time or in such installments over the balance of the
vesting period as may be provided in the stock option agreement.
(b) The Discretionary Option price per share shall be not less than the
Fair Market Value of the Common Stock as of the date each Discretionary
Option is granted.
(c) The Board may permit the voluntary surrender of all or a portion of
any Discretionary Option to be conditioned upon the granting of a new
stock option.
(d) If a Change of Control of the Company occurs, then notwithstanding any
provision of this section or of any provisions of any option agreements to
the contrary, all Awards which have not terminated and which are then held
by any Participant shall, as of such Change of Control, become immediately
vested and exercisable without regard to the exercise period specified in
any relevant stock option agreement.
(e) The obligation of the Company to issue, transfer or deliver Common
Stock under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such issue, transfer or delivery, if deemed necessary or
appropriate by counsel for the Company, (ii) the condition that the shares
of Common Stock reserved for issuance, if any, shall have been eligible
for trading on the Nasdaq National Market System, or as the case may be,
listed (or authorized for listing upon official notice of issuance) upon
each stock exchange on which outstanding shares of the same class may then
be listed and (iii) all other applicable laws, regulations, rules and
orders which shall then be in effect.
(f) If the Board determines that a Participant is incapacitated and unable
to exercise the Discretionary Options granted under the Plan and has not
designated a legal representative, the Board, in its discretion, may
authorize the assignment of the power to exercise such stock options to a
fiduciary, legal guardian or other individual whom the Board deems
appropriate based on the applicable facts and circumstances. Due
consideration shall be given to any such assignment provided by the
Participant prior to the incapacity.
(g) The Company will withhold applicable taxes required by law from all
amounts paid in satisfaction of an Award. A Participant may satisfy the
withholding obligation by (i) paying the amount of any taxes in cash,
(ii) with the approval of the Board at the time applicable taxes are due
or as provided in the stock option agreement, shares of Common Stock may
be deducted from the payment to satisfy the obligation in full or in
part, or (iii) with the approval of the Board at the time applicable
withholding taxes are due, deliver already owned Common Stock to satisfy
the obligation in full or in part. The amount of the withholding and
the number of shares to be deducted shall be determined by the Committee
with reference to the Fair Market Value of the Common Stock as of the
date when the withholding is required to be made. Any use of Common
Stock by an Insider for payment of applicable withholding taxes shall be
subject to the provisions of Rule 16b 3 of the Exchange Act as to the
manner and timing of the election.
(h) Caption preceding the sections hereof are inserted solely as a matter
of convenience and in no way define or limit the scope or intent of any
provisions hereof.
Section 7 Conditions of Nondiscretionary Options.
(a) Grant of Options. Except as provided below and subject to the total
number of shares reserved for Nondiscretionary Options in Section 4 of the
Plan, each Outside Director as of February 6, 1996, will be granted an
option to purchase one thousand, eight hundred and seventy seven (1,877)
shares of Common Stock. Each year thereafter, commencing January 1, 1997,
each then serving Outside Director will be granted an option to purchase
three hundred (300) shares of Common Stock. If a sufficient number of
shares is unavailable in any year to provide for the total
Nondiscretionary awards, the number of shares in such year shall be
prorated accordingly. The foregoing number of shares shall be adjusted in
accordance with the principles of Section 10 if an event described therein
occurs. Notwithstanding anything in the Plan to the contrary, the
provisions of this Section 7(a) shall not be amended more than once every
six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder.
(b) Nondiscretionary Options shall be evidenced by stock option
agreements, which shall be subject to the applicable provisions of the
Plan. Each Nondiscretionary Option shall be vested as follows: 25%
immediately upon date of grant, and 25% on each successive anniversary
date after the date of grant (100% vested after three years). The
Nondiscretionary Option shall be exercised only to purchase whole
shares, and in no case may a fraction of a share be purchased. The
right of the Participant to purchase shares of Common Stock with respect
to which this option has become exercisable as herein provided may be
exercised in whole or in part at any time, prior to the fifth
anniversary of the date of grant.
(c) The Nondiscretionary Option price per share shall be not less than the
Fair Market Value of the Common Stock as of the date each Nondiscretionary
Option is granted.
(d) The Board may permit the voluntary surrender of all or a portion of any
Nondiscretionary Option to be conditioned upon the granting of a new stock
option.
(e) If a Change of Control of the Company occurs, then notwithstanding any
provision of this section or of any provisions of any stock option
agreements to the contrary, all Awards which have not terminated and which
are then held by any Participant shall, as of such Change of Control,
become immediately vested and exercisable without regard to the exercise
period specified in any relevant stock option agreement.
(f) The obligation of the Company to issue, transfer or deliver Common
Stock under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such issue, transfer or delivery, if deemed necessary or
appropriate by counsel for the Company, (ii) the condition that the Common
Stock reserved for issuance, if any, shall have been eligible for trading
on the Nasdaq National Market System, or as the case may be, listed (or
authorized for listing upon official notice of issuance) upon each stock
exchange on which outstanding shares of the same class may then be listed
and (iii) all other applicable laws, regulations, rules and orders which
shall then be in effect.
(g) If the Board determines that a Participant is incapacitated and
unable to exercise the Nondiscretionary Options granted under the Plan
and has not designated a legal representative, the Board, in its
discretion, may authorize the assignment of the power to exercise such
stock options to a fiduciary, legal guardian or other individual whom
the Board deems appropriate based on the applicable facts and
circumstances. Due consideration shall be given to any such assignment
provided by the Participant prior to the incapacity.
(h) The Company will withhold applicable taxes required by law from all
amounts paid in satisfaction of an Award. A Participant may satisfy the
withholding obligation by (i) paying the amount of any taxes in cash, (ii)
with the approval of the Committee at the time applicable taxes are due or
as provided in the stock option agreement, Common Stock may be deducted
from the payment to satisfy the obligation in full or in part, or (iii)
with the approval of the Board at the time applicable withholding taxes
are due, deliver already owned Common Stock to satisfy the obligation in
full or in part. The amount of the withholding and the number of shares
to be deducted shall be determined by the Board with reference to the Fair
Market Value of the Common Stock on that date when the withholding is
required to be made. Any use of Common Stock by an Insider for payment of
applicable withholding taxes shall be subject to the provisions of Rule
16b 3 of the Exchange Act as to the manner and timing of the election.
(i) Caption preceding the sections hereof are inserted solely as a matter
of convenience and in no way define or limit the scope or intent of any
provisions hereof.
Section 8 Exercise of Awards.
(a) Subject to Sections 6 and 7, each stock option will be exercisable in
whole or in part from time to time, prior to its cancellation or
termination, by written notice to the Company specifying the number of
shares, with respect to which it is being exercised. If any stock
option is being exercised, such notice shall be accompanied by payment
in full of the purchase price by cash or check or in other form
acceptable to the Board including Common Stock or partly in cash or
check and partly in such shares, except that the Board may, from time to
time, impose limits and conditions on the use of such shares for
payment. The Board may alternatively permit, under such terms and
conditions as it may establish from time to time, payment methods for
option exercises which will enable a Participant (other than a
Participant who, at the time of exercise, is subject to Section 16(b) of
the Exchange Act) to pay the exercise price of a stock option, and any
applicable withholding taxes, from the proceeds of the sale of shares
received as a result of the exercise of such stock option, through the
delivery of a properly executed exercise notice together with such other
documentation as the Board and the broker, if applicable, shall require
to effect an exercise of the stock option and delivery to the Company of
the amount of sale or loan proceeds required to pay the exercise price.
Certificates for shares to be received upon the exercise of stock
options will be delivered in regular course. All fractional shares are
payable in cash.
(b) Except as provided in Section 9, a stock option may be exercised during
the lifetime of the Participant only by the Participant, and after his or
her death by the persons to whom the stock option has been transferred by
will or by laws of descent and distribution. Stock options are not
otherwise transferable.
Section 9 Termination of Stock Options. Each stock option will
terminate upon the earlier of (a) or (b) below.
(a) The date fixed by the Board when the stock option is granted as set
forth in the relevant stock option agreement, not to exceed five years
from date of grant.
(b) Voluntary termination of employment, in which the Participant shall
forfeit all rights and Awards for unexercised and nonvested options under
the Plan, except as follows:
(i) If the Participant dies while an employee, vested options may be
exercised within one year from death of Participant, not to exceed the
stock option termination date.
(ii) Upon the Participant's Retirement vested shares may be exercised
within three years after the date of such Retirement, not to exceed the
stock option termination date.
(iii) If the Participant's employment is terminated for Disability or due
to a lay off by the Company, vested options may be exercised within one
year after termination, not to exceed the stock option termination date.
(iv) If the Board determines that the stock option may be exercised
(whether or not it was fully exercisable) for a longer period of time.
(v) In the event of a Change-of-Control, all stock options shall vest
immediately and may be exercised within one year thereafter, not to exceed
the stock option terminate date.
Notwithstanding anything hereinabove to the contrary, if a Participant's
employment is terminated by reason of Termination for Cause, his or her
ability to exercise any stock option shall terminate on the date of such
termination of employment. For this purpose, the determination of the
Board as to whether a Participant's employment was terminated for reason
of Termination for Cause is final and binding on the Participant.
Section 10 Adjustments. In the event of any change in the Common Stock,
through the declaration of stock dividends, through recapitalization
resulting in stock splits, reverse stock splits, or combinations of
shares, or as the result of similar events, pro rata adjustment shall be
automatically made in the number of shares available for issuance pursuant
to the exercise of Options under the Plan, in the number of shares and
price per share of all shares subject to outstanding stock options.
Section 11 Amendment and Termination. The Board may alter, suspend or
terminate the Plan. Except as provided in Sections 6, 7, and 10, the
Board may not, however, increase the maximum number of shares of Common
Stock which may be issued under the Plan in the aggregate, materially
increase or decrease the benefits accruing to Participants under the
Plan or materially modify the requirements regarding eligibility for
participation in the Plan or, without the written consent of the holder
thereof, alter or impair any stock option previously granted under the
Plan. No stock option may be granted after the termination of the Plan,
but stock options previously granted may vest and be exercised in
accordance with their terms.
Section 12 Term. The Plan shall be adopted by the Board effective as of
February 6, 1996, subject to approval by the Company's stockholders. The
Plan shall remain in effect until all Awards under the Plan have been
exercised or terminated under the Plan or February 5, 2006, whichever
occurs first.
Section 13 Governing Law. The Plan and all determinations made and
actions taken pursuant thereto shall be governed by the laws of the State
of Delaware and construed in accordance therewith.
