VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
Notice of 2001
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 Wednesday, May 2, 2001, 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 2, 2001
VSE CORPORATION
2550 Huntington Avenue, Alexandria, Virginia 22303-1499
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 2, 2001
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 Wednesday,
May 2, 2001, 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 eight directors to serve until the next annual
meeting of stockholders and until their successors are duly
elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as VSE's
independent certified public accountants for the year ending
December 31, 2001; 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 19, 2001, 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 examina-
tion 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 2000 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 2, 2001
VSE CORPORATION
PROXY STATEMENT
Annual Meeting of Stockholders
to be held on May 2, 2001
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 Wednesday,
May 2, 2001, 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 2, 2001.
The close of business on March 19, 2001, 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 19,
2001, 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 19, 2001, there were 2,125,863 shares of
Stock outstanding and approximately 305 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 19, 2001, 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 eight 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, 2001, 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 19, 2001. 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) 511,661 24.1%
Non-employee Directors
----------------------
Clifford M. Kendall 1,900 *
Calvin S. Koonce (b) (c) 456,966 21.5%
David M. Osnos (b) 2,625 *
Jimmy D. Ross (b) 5,698 *
Bonnie K. Wachtel (b) 30,125 1.4%
Named Executive Officers and Other Directors
--------------------------------------------
William R. Albertolli (b) (d) 12,014 *
Byron S. Bartholomew (b) (e) 27,733 1.3%
Donald M. Ervine (b) 68,486 3.2%
Robert J. Kelly (b) 3,750 *
James M. Knowlton (b) 39,882 1.9%
James M. Todd (b) 5,000 *
Craig S. Weber (b) (e) 63,629 3.0%
Group
-----
Directors, Nominees, and
Executive Officers as a group
(16 persons) (b) (f) 877,118 39.2%
* 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 406,802 shares allocated to their
respective ESOP accounts, while the Plan trustees share voting and
investment power over the remaining 104,859 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 (15 persons) have the right to
purchase pursuant to the exercise of stock options which are exercisable
within the next 60 days: each of Calvin S. Koonce, David M. Osnos,
Jimmy D. Ross, and Bonnie K. Wachtel 2,625; William R. Albertolli 11,000,
Byron S. Bartholomew 6,625, Donald M. Ervine 21,750, Robert J. Kelly
3,750, James M. Knowlton 15,125, James M. Todd 5,000, Craig S. Weber
6,750, and all directors, nominees, and executive officers as a group (16
persons) 111,125.
(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) As of February 21, 2001, VSE no longer employed Mr. Albertolli.
(e) Excludes 104,859 shares beneficially owned or controlled as a
trustee of the ESOP/401(k) Plan.
(f) The group, including the trustees of the ESOP/401(k) Plan, consists
of 16 persons. The 877,118 shares beneficially owned include 104,859
shares beneficially owned or controlled by the trustees of the
ESOP/401(k) Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires VSE officers and directors and persons who
own more than 10% of VSE's Stock to file reports of ownership and
changes in ownership with the 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, except that one
report on Form 3, reporting no ownership of VSE Stock, was filed late on
behalf of Mr. Kendall.
Item No. 1
ELECTION OF DIRECTORS
Nominees
At the Meeting, stockholders will elect, by a plurality of the
votes cast, eight VSE directors, who will constitute the entire Board.
Each nominee listed below is currently serving as a VSE director, except
for Mr. Todd, and, except for Messrs. Kendall and Todd , 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 eight nominees for election as VSE directors and certain
information regarding them are as follows:
Name and Principal Occupation Age Director since
----------------------------- --- --------------
David M. Osnos 69 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 64 1987
VSE Chairman of the Board and Chief
Executive Officer since 1992.
Bonnie K. Wachtel 45 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.
Name and Principal Occupation Age Director since
----------------------------- --- --------------
Calvin S. Koonce 63 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 Chief Operating Officer
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 63 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.
Clifford M. Kendall 69 2001
Private investor. Director of Affiliated
Computer Services, Inc. ("ACS") and
Washington Real Estate Investment Trust.
Mr. Kendall was one of the founders of
Computer Data Systems, Inc. ("CDSI") in
1968, and he served as its Chairman and
Chief Executive Officer from 1970 to 1991
and as Chairman until December 1997. CDSI
was acquired by ACS in 1997.
James M. Todd 54 --
VSE President and Chief Operating Officer
since November 2000. Prior to joining VSE,
Mr. Todd served as Vice President of the
Industrial Consulting and Systems Group of
American Management Systems, Inc., where he
worked as a program manager since 1993.
He has worked as a program manager in
industry since 1991 and, before that, as a
program manager for the U.S. Navy during a
distinguished career from 1969 to his
retirement as a Captain in 1991.
Committees of the Board
Audit Committee. The audit committee met four times during 2000
and consists solely of non-employee directors, including Mr. Koonce, who
chairs the committee, General Ross, and Ms. Wachtel. 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 two times
during 2000 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 2000 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 did not meet during
2000. The committee consists of Mr. Knowlton, Chairman (not standing
for reelection), Admiral Kelly, 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 met four times during
2000. 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 2000 the Board held four regular meetings, two special
meetings, and acted three times by unanimous written consent. No
director attended fewer than 75% of the aggregate of (a) the total
number of Board regular and special 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
2000. 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 nondiscretionary,
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 2000, 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, 2002, 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 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 1998 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 an agreement dated as of November 1, 2000, James M.
Todd serves as the President and Chief Operating Officer of VSE. Mr.
Todd is employed for a term ending on December 31, 2003, subject to
automatic extensions for successive one-year periods unless notice to
terminate is given by Mr. Todd at least 90 days prior to the expiration
of the term or any such one-year extension of the term. The terms and
conditions of Mr. Todd's agreement are in all other material respects
identical to those of Mr. Ervine's agreement except that (a) Mr. Todd is
employed at a minimum base salary of $170,040 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. Todd
will continue to be reappointed to serve as VSE's President and Chief
Operating Officer during the term of the agreement, and (d) in the event
of a change of control of VSE, as defined, Mr. Todd may terminate the
agreement and will be entitled to a lump sum severance compensation pay-
ment equal to two times his annual base salary then in effect.
Pursuant to separate agreements entered into in December 1997 and
expiring on January 1, 2002, 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, four executive officers of VSE (Mrs. Tuohig and
Messrs. Bartholomew, Knowlton, and Weber) have agreements 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 reappointed to serve in the executive
officer's current or comparable capacity, (c) in the event of
termination without cause, each executive officer's lump sum severance
compensation payment shall equal his 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. No such
transactions occurred in 2000.
Cypress International, Inc., a consulting services firm of which
General Ross is President and Chief Operating Officer, has provided and
is expected to continue to provide consulting services to VSE, including
services on Defense-related marketing strategy and long-range business
development plans.
The Board recommends a vote FOR the proposal to elect each of the
eight 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, 2001, 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 2000 Arthur Andersen LLP services included an examination of
VSE's consolidated financial statements and the financial statements of
certain subsidiaries and benefit plans, reviews of the consolidated
financial statements included in VSE's Forms 10-Q for fiscal year 2000,
and tax consulting.
Arthur Andersen LLP billed VSE for professional services rendered
for the year ended December 31, 2000, as follows:
Audit fees . . . . . . . . . . . . . . . . . . . $ 139,500 (1)
Financial information systems design and
implementation . . . . . . . . . . . . . . . . $ -0-
All other fees . . . . . . . . . . . . . . . . . $ 35,500 (2)
(1) Includes fees for reviews of consolidated financial statements
included in VSE's Form 10-Qs for fiscal year 2000.
(2) Includes tax consulting, employee benefit plan audits, and other
non-audit services.
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 2001, and your proxy will be so voted
unless you specify otherwise.
AUDIT COMMITTEE REPORT
The Audit Committee (the "Committee") of the Board of Directors is
comprised of three non-employee directors, each of whom is considered
"independent" pursuant to the Nasdaq Stock Market listing standards.
The Committee's responsibilities are set forth in its Charter, the
latest revision of which is attached as Appendix A to this Proxy
Statement.
The Committee has reviewed and discussed with management VSE's
audited consolidated financial statements as of and for the year ended
December 31, 2000, and has discussed with VSE's independent auditors the
matters required to be discussed by Statement on Auditing Standards No.
61, Communication with Audit Committees, as amended, issued by the
Auditing Standards Board of the American Institute of Certified Public
Accountants.
The Committee has received and reviewed the written disclosures
and the letter from the independent auditors required by Independence
Standard No. 1, Independence Discussions with Audit Committees, as
amended, issued by the Independence Standards Board, and has discussed
with the auditors the auditors' independence and considered whether the
provision of non-audit services by the auditors is compatible with
maintaining their independence.
Based on the foregoing reviews and discussions, the Committee
recommended to the Board of Directors that the consolidated financial
statements referred to above be included in VSE's Annual Report on Form
10-K for the year ended December 31, 2000.
Audit Committee: Calvin S. Koonce (Chair), Jimmy D. Ross, Bonnie
K. Wachtel
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
(formerly SIC Code 8711). National and geographic differences in
compensation are considered based on the executive's primary area of
operations and responsibility. VSE targets a 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 and 80% on achieving specified performance objectives
within the business unit, such as revenue and profit targets, proposals
submitted and won, new business development, and budget, cost, 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 to which the executive or corporate
officer is assigned.
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 after considering 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 $80,000 was
authorized for 2000 for allocation to about 20 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, 2000, Mr.
Ervine, VSE's chairman and chief executive officer ("CEO"), was
compensated in accordance with employment agreements negotiated and
approved by VSE's compensation committee in 1999 and 1996. Pursuant to
the employment agreements, Mr. Ervine served as Chief Executive Officer
of VSE and was paid a base salary of $254,000 during 2000 and 1999 and
$246,100 during 1998. The January 1, 1999, employment agreement with
Mr. Ervine extends through January 1, 2002, and is 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 agreements).
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 2000, the
Compensation Committee recommended a bonus of $25,000 for the CEO. The
Compensation Committee, at the request of the CEO, made no change in the
CEO's base salary for 2001 of $254,000. For 1999 the CEO received a
performance bonus of $55,000, and a bonus of $175,000 was paid for 1998
based on VSE's return to profitability and the five factor analysis
described above.
Pursuant to the 1998 Plan, the committee recommended that the CEO
be awarded a discretionary stock option covering 20,000 shares of VSE
Stock, effective January 1, 2001.
Compensation Committee: Jimmy D. Ross (Chair), Calvin S. Koonce,
Bonnie K. Wachtel
Compensation Committee Interlocks and Insider Participation
General Ross is President and Chief Operating Officer of Cypress
International, Inc., a consulting services firm which has provided and
is expected to continue to provide consulting services to VSE. See
"Certain Relationships and Related Transactions."
Mr. Koonce is a major stockholder of VSE. See "Security Ownership
of Certain Beneficial Owners and Management."
The trustees of VSE's employee benefit plans effect certain of
their transactions through Koonce Securities, Inc., which is wholly
owned by Mr. Koonce, and through Wachtel & Co., Inc., of which Ms.
Wachtel is a director, officer, and shareholder. No such transactions
occurred in 2000.
Mr. Osnos is a senior member of the law firm of Arent Fox Kintner
Plotkin & Kahn, PLLC, which has represented and is expected to continue
to represent VSE on various legal matters. See "Certain Relationships
and Related Transactions."
VSE's Chairman and Chief Executive Officer (Mr. Ervine) is an ex
officio member of all Board committees, including the compensation
committee. Mr. Ervine does not participate in meetings or discussions of
the compensation committee concerned with establishing his salary or
bonus.
Summary Compensation Table
The following table reports the compensation paid for the past
three years for each of the five most highly compensated VSE executive
officers, including the Chief Executive Officer.
Long-term All
Annual Compensation Other
Compensation Awards Compensation
------------- ------------ ------------
Fiscal Salary Bonus Options
Name and Principal Position Year ($) ($) (#) ($)(1)
--------------------------- ---- ------ ----- ------- --------
Donald M. Ervine 2000 254,000 25,000 20,000 12,456
Chairman of the Board and 1999 254,000 55,000 15,000 16,713
Chief Executive Officer 1998 246,100 175,000 7,000 108,912
James M. Todd (2) 2000 21,255 10,000 20,000 53,731
President and
Chief Operating Officer
James M. Knowlton (3) 2000 170,000 24,000 10,000 93,681
Executive Vice President and 1999 154,000 50,000 10,000 15,795
President, BAV Division 1998 139,900 45,000 6,000 41,707
Byron S. Bartholomew 2000 156,000 15,000 -- 8,701
Executive Vice President 1999 150,800 15,000 4,000 6,141
and Marketing Director 1998 150,800 34,600 2,000 55,417
William R. Albertolli (4) 2000 127,000 15,000 -- 7,953
Senior Vice President and 1999 120,600 38,000 4,000 10,895
President, VSS Division 1998 120,600 45,000 2,000 10,305
Craig S. Weber 2000 140,400 20,000 8,000 16,801
Executive Vice President, 1999 135,200 10,000 1,500 5,087
Chief Financial Officer, 1998 135,200 32,400 2,000 45,966
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, including in 2000 Mr. Knowlton $81,750 and Mr. Weber
$6,750; (c) a $50,000 hiring bonus paid to Mr. Todd in 2000, and (d) 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) The amount reported for Mr. Todd represents salary and bonus for
the period November 1, 2000, when he commenced employment with VSE,
through December 31, 2000. Mr. Todd was appointed VSE President and
Chief Operating Officer effective November 6, 2000. Prior to joining
VSE, Mr. Todd served as Vice President of the Industrial Consulting and
Systems Group of American Management Systems, Inc., where he worked as a
program manager since 1993. He has worked as a program manager in
industry since 1991 and, before that, as a program manager for the U.S.
Navy during a distinguished career from 1969 to his retirement as a
Captain in 1991. Mr. Todd's base annual salary is $170,040. Please
refer to "Certain Relationships and Related Transactions" above for a
description of his employment agreement with VSE.
(3) Mr. Knowlton is also President of two VSE subsidiaries, Ship
Remediation and Recycling, Inc., and VSE Services International, Inc.,
Chairman of the Managing Board of VSE's Ship Disposal and Remediation
Joint Venture, and General Manager of VSE's Telecommunications
Technologies Division. Mr. Knowlton served as VSE's President and Chief
Operating Officer from February 5, 1999, to November 5, 2000. Prior to
February 5, 1999, he served as VSE's Executive Vice President and Deputy
Chief Operating Officer (since 1997) and as General Manager of VSE's BAV
Division (since 1995).
(4) As of February 21, 2001, VSE no longer employed Mr. Albertolli.
Option Grants in Last Fiscal Year
The following table reports the options granted in fiscal year
2000 for each of the five most highly compensated VSE executive
officers, including the chief executive officer.
Potential realizable value
------------Individual Grants---------- at assumed annual rates
of stock appreciation
for option term
------------------------------------------------------------------
% of Total Hypothetical Hypothetical
Options value value
Granted to realized at realized at
Options Employees Exercise 5% stock 10% stock
Granted in Fiscal Price Expiration appreciation appreciation
Name (#)(1) Year ($/share) Date ($) ($)
-------------------------------------------------------------------------------------------
Donald M. Ervine 20,000 26.3% 5.77 12/31/05 31,883 70,453
James M. Todd (11/1/00) 10,000 13.2% 6.94 10/31/05 19,174 42,369
James M. Todd 10,000 13.2% 5.77 12/31/05 15,941 35,226
James M. Knowlton 10,000 13.2% 5.77 12/31/05 15,941 35,226
Byron S. Bartholomew -- -- -- -- -- --
William R. Albertolli (2) -- -- -- -- -- --
Craig S. Weber 8,000 10.5% 5.77 12/31/05 12,753 28,181
(1) Non-qualified stock options which became 25% exercisable on award
date (1/1/01) and 25% exercisable on each of the first three anniversary
dates thereafter (1/1/02, 1/1/03, and 1/1/04), except in the event of a
change in control of VSE, in which case such options become immediately
exercisable. Included in the above table is a discretionary five-year
option covering 10,000 shares awarded to Mr. Todd in 2000 as a hiring
bonus. The terms of this option are identical to the above options
except that the award and expiration dates are November 1, 2000, and
October 31, 2005, respectively, and the option exercise price is $6.94,
which was the fair market value of the Stock on November 1, 2000.
(2) As of February 21, 2001, VSE no longer employed Mr. Albertolli.
Aggregate Options Exercised in Last Fiscal Year and Fiscal Year-end
Option Values
The following table reports the options exercised, exercisable,
and unexercisable as of the end of VSE's fiscal year 2000 for each of
the five most highly compensated VSE executive officers, including the
chief executive officer.
Value of unexercised
Number of unexercised in-the-money(1)
options at 12/31/00(#) options at 12/31/00($)
------------------------- -------------------------
Shares acquired Value
Name on exercise(#) realized($) Exercisable Unexercisable Exercisable Unexercisable
-------------------- --------------- ----------- ----------- ------------- ----------- -------------
Donald M. Ervine -- -- 56,162 9,250 -0- -0-
James M. Todd -- -- 2,500 7,500 -0- -0-
James M. Knowlton -- -- 23,135 6,500 -0- -0-
Byron S. Bartholomew -- -- 23,705 2,500 -0- -0-
William R. Albertolli (2) -- -- 11,000 2,500 -0- -0-
Craig S. Weber -- -- 15,260 1,250 -0- -0-
(1) Based on a closing VSE stock price of $5.50 per share on December
31, 2000 (Nasdaq NMS).
(2) As of February 21, 2001, VSE no longer employed Mr. Albertolli.
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, 1995, in VSE Stock, the Nasdaq Index, and the
Industry Index.
Performance Graph Table
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
VSE Stock 100 120 93 112 77 56
Nasdaq Index 100 124 152 214 378 238
Industry Index 100 118 143 134 148 261
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at VSE's 2002 annual
meeting of stockholders must have been received by VSE's Secretary at
VSE's principal executive offices, 2550 Huntington Avenue, Alexandria,
Virginia 22303-1499, by no later than the close of business on Monday,
December 10, 2001, 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.