VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of 2000
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 Thursday, May 4,
2000, commencing at 10:00 a.m., Washington, D.C. time, at the
Hilton Alexandria at Mark Center, 5000 Seminary Road, Alexandria,
Virginia 22311. 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 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.
Please note the location for this meeting. The Hilton Alexandria
at Mark Center is located at 5000 Seminary Road, Alexandria, Virginia
22311, just off Interstate 395.
Very truly yours,
VSE CORPORATION
D. M. Ervine
Chairman of the Board
and Chief Executive Officer
April 4, 2000
VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 4, 2000
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 Thursday, May 4, 2000, commencing at 10:00 a.m., Washington, D.C.
time, at the Hilton Alexandria at Mark Center, 5000 Seminary Road,
Alexandria, Virginia 22311, for the following purposes:
1. To elect seven directors to serve until the next annual
meeting of stockholders and until their successors are duly
elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as VSE's
independent certified public accountants for the year ending
December 31, 2000; 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 20, 2000, will be entitled to notice of, and to
vote at, the annual 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 1999 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 4, 2000
VSE CORPORATION
PROXY STATEMENT
Annual Meeting of Stockholders
to be held on May 4, 2000
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 Thursday,
May 4, 2000, commencing at 10:00 a.m., Washington, D.C. time, at the
Hilton Alexandria at Mark Center, 5000 Seminary Road, Alexandria,
Virginia 22311, 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 4, 2000.
The close of business on March 20, 2000, 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,
2000, 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, 2000, there were 2,122,289 shares of
Stock outstanding and approximately 287 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, 2000, 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 seven nominees listed
below under "Election of Directors," and (b) the ratification of the
appointment of Arthur Andersen LLP as VSE's independent certified public
accountants for the year ending December 31, 2000, as discussed below.
Votes cast by proxy or in person at the Meeting will be tabulated
by the inspectors of election appointed for the Meeting. The inspectors
of election will treat abstentions as Stock that is present and entitled
to vote for purposes of determining the presence of a quorum, but as
unvoted for purposes of determining the approval of any matter submitted
to stockholders for a vote. If a broker indicates on a proxy that such
broker does not have discretionary authority as to certain Stock to vote
on a particular matter, such shares will not be considered as present
and entitled to vote with respect to such matter.
As of the date of this proxy statement, the Board does not intend
to present, and has not been informed that any other person intends to
present, any matter for action at the Meeting other than those
specifically referred to herein. If, however, any other matters are
properly presented to the Meeting for action, the proxy holders will
vote the proxies, which confer authority on such holders to vote on such
matters, in accordance with their best judgment. The persons named as
attorneys-in-fact in the proxies are VSE officers.
A stockholder returning a proxy to VSE may revoke it at any time
before it is exercised by granting a later proxy with respect to the
same Stock or by communicating such revocation in writing to VSE's
secretary. In addition, any stockholder who has executed a proxy but
attends the Meeting may cancel a previously given proxy by voting in
person whether or not the proxy has been revoked in writing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of Stock as of March 20, 2000. The voting and
investment powers of the Stock listed below are held solely by the
reported owner unless otherwise indicated.
Shares beneficially Percent of
Name of Beneficial Owner owned class
------------------------ ------------------- ----------
Certain Beneficial Owners
-------------------------
VSE Corporation Employee
ESOP/401(k) Plan (a) 582,761 27.4%
Non-employee Directors
----------------------
Calvin S. Koonce (b) (c) 438,147 20.6%
David M. Osnos (b) 7,693 *
Jimmy D. Ross (b) 8,979 *
Bonnie K. Wachtel (b) 35,193 1.7%
Named Executive Officers and Other Directors
--------------------------------------------
William R. Albertolli (b) 14,232 *
Byron S. Bartholomew (b) (d) 46,333 2.2%
Donald M. Ervine (b) 105,893 5.0%
Robert J. Kelly (b) 9,193 *
James M. Knowlton (b) 53,930 2.5%
Craig S. Weber (b) (d) 72,190 3.4%
Group
-----
Directors, Nominees, and
Executive Officers as a group
(12 persons) (b) (e) 935,675 44.1%
* Represents less than 1% of outstanding Stock.
(a) These shares are held in trust for the benefit of Plan
participants. Two VSE officers serve as Plan trustees. The Plan
participants have voting power over 462,999 shares allocated to their
respective ESOP accounts, while the Plan trustees share voting and
investment power over the remaining 119,762 shares. The mailing address
for the Plan is 2550 Huntington Avenue, Alexandria, Virginia 22303-1499.
(b) Includes the following number of shares of stock which the non-employee
directors, named executive officers, other directors, and all
directors, nominees, and executive officers as a group (12 persons) have
the right to purchase pursuant to the exercise of stock options which
are or may become exercisable within the next 60 days: each of Calvin
S. Koonce, David M. Osnos, Jimmy D. Ross, and Bonnie K. Wachtel - 7,693;
William R. Albertolli - 13,500, Byron S. Bartholomew - 25,725, Donald M.
Ervine - 65,413, Robert J. Kelly - 9,193, James M. Knowlton - 29,635,
Craig S. Weber - 16,510, and all directors, nominees, and executive
officers as a group (12 persons) - 204,248.
(c) Mr. Koonce's mailing address is 6550 Rock Spring Drive, Suite 600,
Bethesda, Maryland 20817. Includes 2,500 shares held in a brokerage
account for which Mr. Koonce has discretionary authority.
(d) Excludes 119,762 shares beneficially owned or controlled as a
trustee of the ESOP/401(k) Plan.
(e) The group, including the trustees of the ESOP/401(k) Plan, consists
of 12 persons. The 935,675 shares beneficially owned include 119,762
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's officers and directors and persons who
own more than 10% of VSE's Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission
("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 persons subject to the reporting requirements of
Section 16(a) filed the reports on a timely basis.
Item No. 1
ELECTION OF DIRECTORS
Nominees
At the Meeting, stockholders will elect, by a plurality of the
votes cast, seven VSE directors, who will constitute the entire Board.
Each nominee listed below is currently serving as a VSE director and was
elected by the stockholders at the last annual meeting of stockholders.
Each nominee elected as a director will serve until the next annual
meeting of stockholders and until his or her successor is elected and
qualified. If any nominee should become unable to serve for any reason,
the proxies will be voted for such substitute nominee as shall be
designated by the Board.
The seven nominees for election as VSE directors and certain
information regarding them are as follows:
Name and Principal Occupation Age Director since
----------------------------- --- --------------
David M. Osnos 68 1968
Senior member of Arent Fox Kintner Plotkin
& Kahn, PLLC, attorneys-at-law (for more
than the past five years); also a director
of EastGroup Properties and Washington Real
Estate Investment Trust.
Donald M. Ervine 63 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, VSE senior program
manager, vice president, senior vice
president, and executive vice president
since 1983.
Bonnie K. Wachtel 44 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 62 1992
Chairman, Koonce Securities, Inc., a
securities broker/dealer firm (for
more than the past five years).
Jimmy D. Ross 63 1994
General, U. S. Army (Ret.), formerly
Commanding General, U.S. Army Materiel
Command. General Ross has served as
President and CEO of Cypress International,
Inc., a marketing consulting firm, since
January 2000. From 1994 to 1999, he served
as Senior Vice President, Biomedical
Services, for the American Red Cross.
Robert J. Kelly 62 1996
Admiral, U.S. Navy (Ret.), formerly
Commander in Chief, U. S. Pacific Fleet.
Admiral Kelly has served as Chairman of
the Board of Energetics Incorporated,
a VSE subsidiary ("Energetics"), since
August 1995, and was appointed President
of Energetics in March 1999. From 1994 to
1998, he served as Executive Vice President
and Director of International Operations
for The Wing Group, a developer of large-
scale energy projects.
James M. Knowlton 57 1999
VSE President and Chief Operating Officer
since February 1999, and Executive Vice
President and Deputy Chief Operating Officer
from 1997 to 1999. Mr. Knowlton has also
served as General Manager of VSE's largest
business operation, the BAV Division, since
1995. Prior to joining VSE in 1984,
Mr. Knowlton completed a 23-year career
with the U. S. Navy.
Committees of the Board
Audit Committee. The audit committee met two times during 1999
and consists solely of non-employee directors, including Ms. Wachtel,
who chairs the committee, 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 1999 and consists solely of non-employee directors,
including General Ross, Chairman, Mr. Koonce, and Ms. Wachtel. The
committee is primarily concerned with corporate compensation policies,
including incentive compensation, and with the compensation of the chief
executive officer and certain other executive officers and employees.
Nominating and Corporate Ethics Committee. The nominating and
corporate ethics committee met once during 1999 and consists of Admiral
Kelly, 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 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. Stockholders of VSE
may recommend persons to be nominated for election as directors of VSE
at the annual meeting of stockholders. To be considered, such recom-
mendation 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 three times
during 1999 and consists of Mr. Knowlton, Chairman, Mr. Koonce, and
General Ross. The committee is primarily concerned with making
recommendations to the Board with respect to business development
opportunities, including acquisitions.
Finance Committee. The finance committee did not meet during
1999. The committee consists of Mr. Osnos, Chairman, Mr. Ervine, Mr.
Koonce, and Ms. 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 1999 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.
Compensation of Directors
Each non-employee director is compensated at an annual rate of
$17,200, prorated in the event of a partial year of service. Directors
who are employees of VSE receive no additional compensation for service
as a director. In addition, no compensation is paid to a director for
personal services rendered to VSE pursuant to a consulting services
agreement between the director and VSE, or any of VSE's subsidiaries or
divisions, unless authorized as a special assignment by the Board. No
such authorization was requested for or on behalf of any director in
1999. The foregoing procedures do not restrict reimbursement for
expenses incurred by a director for attending meetings of the Board or
its authorized committees.
Pursuant to the VSE Corporation 1996 Stock Option Plan (the "1996
Plan"), each non-employee VSE director, including each of the non-employee
directors named in the foregoing table, is granted an annual non-
discretionary, five-year option to purchase 750 shares of VSE Stock
commencing January 1, 1997. Each nondiscretionary option is vested 25%
immediately on date of grant and 25% on each successive anniversary date
after the grant (100% vested after three years). Each nondiscretionary
option price per share is not less than the fair market value of VSE
Stock as of the date the option is awarded. See "Security Ownership of
Certain Beneficial Owners and Management" above for further information
on the stock options held by each VSE director.
Pursuant to the VSE Corporation 1998 Stock Option Plan (the "1998
Plan"), each non-employee VSE director may be granted an additional
annual nondiscretionary, five-year stock option to purchase VSE Stock,
commencing on January 1, 1999. Each nondiscretionary option is vested
25% immediately on date of grant and 25% on each successive anniversary
date after the grant (100% vested after three years). Each
nondiscretionary option price per share is not less than the fair market
value of VSE Stock as of the date the option is awarded. The aggregate
number of shares covered by annual nondiscretionary options granted to
each outside director pursuant to the 1996 Plan and the 1998 Plan may
not exceed 750 shares per year.
See "Security Ownership of Certain Beneficial Owners and
Management" above for further information on the stock options held by
each VSE director.
Pursuant to the VSE Corporation 1998 Non-employee Directors Stock
Plan (the "Directors Stock Plan"), each non-employee director has the
ability to elect that payment of all or a portion of their annual
compensation for service as a VSE director (currently $17,200 per year)
be paid in VSE Stock at fair market value determined in accordance with
Section 7(a) of the Directors Stock Plan. For 1999, Mr. Koonce and
General Ross elected to have sixty percent ($10,320) of their annual
compensation paid in VSE stock.
Certain Relationships and Related Transactions
Pursuant to an agreement dated as of October 21, 1998, Donald M.
Ervine serves as the Chief Executive Officer of VSE at a base salary of
$254,000 per annum. Mr. Ervine is employed for a term ending on January
1, 2001, 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 base salary then in effect. The agreement in-
cludes 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, if, 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 severance compensation payment equal to
three times his annual base salary then in effect. The October 21,
1998, agreement described above replaced and superseded on substantially
the same terms and conditions a prior employment agreement with Mr.
Ervine dated as of January 1, 1996.
Pursuant to an agreement dated as of June 3, 1999, James M.
Knowlton serves as the President and Chief Operating Officer of VSE.
The terms and conditions of Mr. Knowlton's agreement are in all material
respects identical to those of Mr. Ervine's agreement except that (a)
Mr. Knowlton is employed at a minimum base salary of $158,000 per annum,
(b) in the event of termination without cause, his lump sum severance
compensation payment shall equal his annual base salary then in effect,
(c) Mr. Knowlton will be reappointed as President and Chief Operating
Officer and 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. Knowlton may terminate the agreement and will be
entitled to a lump sum severance compensation payment equal to two times
his annual base salary then in effect.
Pursuant to an agreement dated as of January 15, 1999, Admiral
Robert J. Kelly, U.S. Navy (Ret.), serves as President and Chief
Operating Officer of Energetics Incorporated ("Energetics"), a wholly
owned subsidiary of VSE. Admiral Kelly is employed for a term ending on
January 1, 2002, subject to automatic extensions for successive one-year
periods unless notice to terminate is given by either Admiral Kelly or
Energetics at least 90 days prior to the expiration of the term or any
such one-year extension of the term. Other terms and conditions of
Admiral Kelly's agreement are substantially similar to those of Mr.
Ervine's 1999 agreement except that (a) Admiral Kelly is employed at a
minimum base salary of $166,000 per annum, and (b) Admiral Kelly will be
nominated to serve as a director of VSE and a director of Energetics
during the term of the agreement.
Pursuant to separate agreements entered into in December 1997 and
expiring on January 1, 1999, subject to automatic extensions 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, each executive officer of VSE (five persons,
including Messrs. Albertolli, Bartholomew, and Weber, but excluding Mr.
Ervine and Mr. Knowlton, whose employment agreements are described
above) entered into an agreement with VSE to continue to serve in the
executive officer's current or comparable capacity. The terms and
conditions the executive officer agreements are similar to those of Mr.
Ervine's 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 renominated 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 or her 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 or her 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, PLLC, of which
Mr. Osnos is a senior member, has represented and is expected to
continue to represent VSE on various legal matters.
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 Se-
curities, Inc., which is wholly owned by Mr. Koonce.
The Board recommends a vote FOR the proposal to elect each of the
seven persons nominated to serve as a director of VSE for the ensuing
year, and your proxy will be so voted unless you specify otherwise.
Item No. 2
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Based 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, 2000, 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 1999 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 ap-
pointment of Arthur Andersen LLP to serve as VSE's independent certified
public accountants for the year 2000, 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 committee's
supervision, VSE has established compensation policies designed (a) to
attract and retain qualified executive and corporate officers and (b) to
link total executive compensation to corporate goals and specific
individual goals appropriate for each executive and corporate officer.
The key elements of VSE executive compensation are base salary, a
performance bonus, and a long-term incentive plan.
Base Salary
The base salaries for executive officers and other corporate
officers are established primarily on comparability to the range of
compensation paid by companies of similar size and industry, as
determined by commercially available wage and salary surveys. Size is
determined primarily by reference to annual revenues and number of
employees. VSE's industry group is engineering and technical services
(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 incentive compensation pro-
vided by the performance bonus and long-term incentive 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.
Long-term Compensation
During 1998 the Board recommended and the stockholders approved
the adoption of the VSE Corporation 1998 Stock Option Plan (the "1998
Plan"). Under the 1998 Plan, an aggregate of 343,750 shares of VSE
stock may be purchased pursuant to the grant of options. Approximately
15,625 of the shares covered by the 1998 Plan are available for
nondiscretionary grants to non-employee directors of VSE, and
approximately 328,125 of the shares are available for discretionary
grants to executive officers and key employees.
During 1996 the Board recommended and the stockholders approved
the adoption of the VSE Corporation 1996 Stock Option Plan (the "1996
Plan"). Under the 1996 Plan, an aggregate of 273,697 shares of VSE
stock may be purchased pursuant to the grant of options. Approximately
20% of the shares covered by the 1996 Plan are available for
nondiscretionary grants to non-employee directors of VSE, and
approximately 80% of the shares are available for discretionary grants
to executive officers and key employees.
The purpose of the 1998 Plan and 1996 Plan (collectively, the
"Plans") is to provide non-employee directors, executive officers, and
key personnel with long-term performance incentives and an identity of
interests with the stockholders. VSE operates in a highly specialized
field in which success is substantially dependent on the expertise of
qualified and highly motivated key personnel. Management believes that
the Plans have been of material assistance in recruiting, motivating,
and retaining key personnel. Prior to adoption of the 1996 Plan, VSE
had no long-term compensation plan.
Discretionary stock options granted under the Plans are approved
by VSE's compensation committee based on recommendations submitted by
management based on the perceived long-term contribution of key
personnel. The compensation committee independently determines the
number of stock options to be awarded to the Chairman and CEO and to the
President and COO. Awards of discretionary stock option grants approved
by the compensation committee are subject to ratification by the Board.
All Other Compensation
All VSE officers are entitled to participate in company fringe
benefit programs, including the VSE Employee ESOP/401(k) Plan, which is
an IRS qualified plan available to all eligible employees. Effective
April 1, 1999, employer contributions to the ESOP portion of the plan
were discontinued and replaced by employer contributions to the 401(k)
portion of the plan based on employee 401(k) deferrals. The employer
401(k) contribution is equal to 50% of the first 5% of employee pay
deferred into the employee's 401(k) account. Amounts contributed to the
VSE ESOP/401(k) plan on behalf of the named executive officers are
included in the "Summary Compensation Table."
VSE has a non-qualified Deferred Supplemental Compensation Plan
(the "DSC Plan") for all VSE officers 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 VSE's
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 $76,000 was
authorized for 1999 for allocation to about 26 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 on behalf of the named executive officers are included in
the Summary Compensation Table.
Chief Executive Officer Compensation
During each of the three years ended December 31, 1998, Mr.
Ervine, VSE's chairman and chief executive officer ("CEO"), was
compensated in accordance with an employment agreement negotiated and
approved by VSE's compensation committee in 1995 and dated as of January
1, 1996. Pursuant to the 1996 employment agreement, Mr. Ervine served
as the Chief Executive Officer of VSE and was paid a minimum base salary
of $225,000 per annum for a term ending on January 1, 1999, subject to
extension. Effective January 1, 1999, VSE entered into a new employment
agreement with Mr. Ervine extending through January 1, 2002, and subject
to automatic extensions 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. The January 1, 1999,
employment agreement provides for a minimum base salary of $254,000,
with other terms and conditions substantially similar to the predecessor
January 1, 1996, employment agreement (see "Certain Relationships and
Related Transactions" above for a description of the employment agree-
ments).
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 stockholder 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. For 1999, the
Compensation Committee recommended a bonus of $55,000 for the CEO, based
on VSE's profitability and other efforts to increase stockholder value.
The Compensation Committee, at the request of the CEO, made no change in
the CEO's base salary for 2000 of $254,000. For 1997 the CEO did not
receive a performance bonus due to reported losses by the company on a
consolidated basis, whereas a bonus of $175,000 was recommended for 1998
based on VSE's return to profitability and the five factor analysis
described above.
Pursuant to the 1998 Plan, the committee recommended that the CEO
be awarded a discretionary stock option covering 15,000 shares of VSE
Stock, effective January 1, 2000.
The 1999 base salary, performance bonus, and discretionary stock
option grant recommended for Mr. Knowlton, VSE's President and Chief
Operating Officer, were based on similar reviews and criteria as for the
CEO. Mr. Knowlton's base salary was increased to $170,000, effective
January 1, 2000, consistent with industry practice for similarly
situated executives. See "Base Salary" discussion above.
Compensation Committee: Jimmy D. Ross (Chair), Calvin S. Koonce,
Bonnie K. Wachtel
Compensation Committee Interlocks and Insider Participation
Mr. Koonce is a major stockholder of VSE. See "Security Ownership
of Certain Beneficial Owners and Management." The trustees of VSE's
employee benefit plans effect certain of their transactions through
Koonce Securities, Inc., which is wholly owned by Mr. Koonce, and
through Wachtel & Co., Inc., of which Ms. Wachtel is a director, offi-
cer, and shareholder.
Mr. Osnos is a senior member of the law firm of Arent Fox Kintner
Plotkin & Kahn, PLLC, which has represented and is expected to continue
to represent VSE on various legal matters. See "Certain Relationships
and Related Transactions."
VSE's chairman and chief executive officer (Mr. Ervine) is an ex
officio member of all Board committees, including the compensation
committee. Mr. Ervine does not participate in meetings or discussions of
the compensation committee concerned with establishing his salary or
bonus.
Summary Compensation Table
<TABLE>
The following table reports the compensation paid for the past
three years for each of the five most highly compensated VSE executive
officers, including the chief executive officer.
<CAPTION>
Long-term All
Annual Compensation Other
Compensation Awards Compensation
------------- ------------ ------------
Fiscal Salary Bonus Options
Name and Principal Position Year ($) ($) (#) ($)(*)
--------------------------- ---- ------ ----- ------- --------
<S> <C> <C> <C> <C> <C>
Donald M. Ervine 1999 254,000 55,000 15,000 16,713
Chairman of the Board and 1998 246,100 175,000 7,000 108,912
Chief Executive Officer 1997 234,000 -0- 4,000 3,000
James M. Knowlton (2) 1999 154,000 50,000 10,000 15,795
President and 1998 139,900 45,000 6,000 41,707
Chief Operating Officer 1997 130,000 25,000 3,125 3,000
Byron S. Bartholomew 1999 150,800 15,000 4,000 6,141
Executive Vice President 1998 150,800 34,600 2,000 55,417
and Marketing Director 1997 150,800 25,000 3,125 8,608
William R. Albertolli 1999 120,600 38,000 4,000 10,895
Senior Vice President and 1998 120,600 45,000 2,000 10,305
President, VSS Division 1997 108,000 25,000 2,500 3,000
Craig S. Weber (3) 1999 135,200 10,000 1,500 5,087
Senior Vice President , 1998 135,200 32,400 2,000 45,966
Chief Financial Officer, 1997 135,200 20,000 2,500 3,000
and Secretary
(1) The column headed "All Other Compensation" includes (a)
contributions made by VSE to two "defined contribution" employee benefit
plans: the VSE Employee ESOP/401(k) Plan, which is generally available
to all VSE employees, and the DSC Plan (see plan description in the
"Compensation Committee Report"); (b) cash paid for unused accumulated
personal leave; and (c) the fair market value of VSE Stock grants paid
in 1998 as follows: Mr. Ervine 4,000 shares, Mr. Knowlton 3,125
shares, Mr. Bartholomew 3,125 shares, and Mr. Weber 2,500 shares.
(2) Mr. Knowlton has served as VSE's President and Chief Operating
Officer since February 1999. Prior to February 1999, he served as VSE's
Executive Vice President and Deputy Chief Operating Officer (since 1997)
and as General Manager of VSE's BAV Division since (since 1995).
(3) Mr. Weber has served as a VSE Senior Vice President since 1987, as
Chief Financial Officer since 1987, except for the period of February
1999 through February 2000, and as Corporate Secretary since 1984.
</TABLE>
Option Grants in Last Fiscal Year
<TABLE>
The following table reports the options granted in fiscal year
1999 for each of the five most highly compensated VSE executive
officers, including the chief executive officer.
<CAPTION>
Potential realizable value
------------Individual Grants---------- at assumed annual rates
of stock appreciation
for option term
------------------------------------------------------------------
% of Total Hypothetical Hypothetical
Options value value
Granted to realized at realized at
Options Employees Exercise 5% stock 10% stock
Granted in Fiscal Price Expiration appreciation appreciation
Name (#)* Year ($/share) Date ($) ($)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald M. Ervine 15,000 22.7% 8.03 12/31/04 33,285 75,750
James M. Knowlton 10,000 15.2% 8.03 12/31/04 22,190 50,500
Byron S. Bartholomew 4,000 6.1% 8.03 12/31/04 8,876 20,200
William R. Albertolli 4,000 6.1% 8.03 12/31/04 8,876 20,200
Craig S. Weber 1,500 2.3% 8.03 12/31/04 3,328 7,575
* Non-qualified stock options which became 25% exercisable on award
date (1/1/00) and 25% exercisable on each of the first three anniversary
dates thereafter (1/1/01, 1/1/02, and 1/1/03), except in the event of a
change in control of VSE, in which case such options become immediately
exercisable.
</TABLE>
Aggregate Options Exercised in Last Fiscal Year and Fiscal Year-end
Option Values
<TABLE>
The following table reports the options exercised, exercisable,
and unexercisable as of the end of VSE's fiscal year 1999 for each of
the five most highly compensated VSE executive officers, including the
chief executive officer.
<CAPTION>
Value of unexercised
Number of unexercised in-the-money*
options at 12/31/99(#) options at 12/31/99($)
------------------------- -------------------------
Shares acquired Value
Name on exercise(#) realized($) Exercisable Unexercisable Exercisable Unexercisable
-------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald M. Ervine -- -- 42,912 22,500 -0- -0-
James M. Knowlton -- -- 13,510 16,125 -0- -0-
Byron S. Bartholomew -- -- 18,080 8,125 -0- -0-
William R. Albertolli -- -- 6,000 7,500 -0- -0-
Craig S. Weber -- -- 11,100 5,410 -0- -0-
* Based on a closing VSE stock price of $7.75 per share on December 31,
1999 (Nasdaq NMS).
</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").
[insert graph]
* Total return assumes reinvestment of dividends and assumes $100
invested on December 31, 1994, in VSE Stock, the Nasdaq Index, and the
Industry Index.
Performance Graph Table
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
VSE Stock 100 194 233 180 217 149
Nasdaq Index 100 130 161 197 278 490
Industry Index 100 125 148 179 168 186
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at VSE's 2001
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 Friday,
December 8, 2000, 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.
