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<SEC-DOCUMENT>0000102752-09-000018.txt : 20090303
<SEC-HEADER>0000102752-09-000018.hdr.sgml : 20090303
<ACCEPTANCE-DATETIME>20090303162401
ACCESSION NUMBER:		0000102752-09-000018
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20081231
FILED AS OF DATE:		20090303
DATE AS OF CHANGE:		20090303

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VSE CORP
		CENTRAL INDEX KEY:			0000102752
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-ENGINEERING SERVICES [8711]
		IRS NUMBER:				540649263
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-03676
		FILM NUMBER:		09651953

	BUSINESS ADDRESS:	
		STREET 1:		2550 HUNTINGTON AVE
		CITY:			ALEXANDRIA
		STATE:			VA
		ZIP:			22303
		BUSINESS PHONE:		7039604600

	MAIL ADDRESS:	
		STREET 1:		2550 HUNTINGTON AVENUE
		CITY:			ALEXANDRIA
		STATE:			VA
		ZIP:			22303

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	VALUE ENGINEERING CO
		DATE OF NAME CHANGE:	19790612
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>vse10k2008.txt
<DESCRIPTION>VSE CORPORATION FORM 10-K DECEMBER 31, 2008
<TEXT>



                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2008    Commission File Number:  0-3676

                               VSE CORPORATION
            (Exact Name of Registrant as Specified in its Charter)
            DELAWARE                                            54-0649263
 (State or Other Jurisdiction of                            (I.R.S. Employer
  Incorporation or Organization)                           Identification No.)

       2550 Huntington Avenue
        Alexandria, Virginia                     22303-1499   www.vsecorp.com
(Address of Principal Executive Offices)         (Zip Code)      (Webpage)

Registrant's Telephone Number, Including Area Code:  (703) 960-4600

         Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange
          Title of each class                     on which registered
          -------------------                     -------------------
Common Stock, par value $.05 per share      The NASDAQ Global Select Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes [ ]    No [x]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes [ ]    No [x]

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days.   Yes [x]    No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "accelerated filer," "large accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]  Accelerated filer [x]  Non-accelerated filer [ ]
Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).  Yes [ ]    No [x]

The aggregate market value of outstanding voting stock held by nonaffiliates of
the Registrant as of June 30, 2008, was approximately $100.7 million based on
the last reported sales price of the Registrant's common stock on the Nasdaq
National Market as of that date.

Number of shares of Common Stock outstanding as of March 3, 2009: 5,104,842.

                DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders expected to be held on May 5, 2009, are incorporated by reference
into Part III of this report.


                         TABLE OF CONTENTS


									    Page
                                                                            ----
PART I

ITEM 1.	        Business . . . . . . . . . . . . . . . . . . . . . . . . .    4
ITEM 1A.	Risk Factors . . . . . . . . . . . . . . . . . . . . . . .    8
ITEM 1B.	Unresolved Staff Comments  . . . . . . . . . . . . . . . .   11
ITEM 2.	        Properties . . . . . . . . . . . . . . . . . . . . . . . .   11
ITEM 3.	        Legal Proceedings	 . . . . . . . . . . . . . . . . .   11
ITEM 4.	        Submission of Matters to a Vote of Security Holders  . . .   11
                Executive Officers of the Registrant . . . . . . . . . . .   12

PART II

ITEM 5.	        Market for Registrant's Common Equity, Related Stockholder
		Matters and Issuer Purchases of Equity Securities. . . . .   15
ITEM 6.	        Selected Financial Data	 . . . . . . . . . . . . . . . . .   18
ITEM 7.	        Management's Discussion and Analysis of Financial
		Condition and Results of Operations  . . . . . . . . . . .   19
ITEM 7A.	Quantitative and Qualitative Disclosures About
		Market Risks . . . . . . . . . . . . . . . . . . . . . . .   35
ITEM 8.	        Financial Statements and Supplementary Data  . . . . . . .   36
ITEM 9.	        Changes in and Disagreements with Accountants on
		Accounting and Financial Disclosure  . . . . . . . . . . .   60
ITEM 9A.	Controls and Procedures  . . . . . . . . . . . . . . . . .   60
ITEM 9B.	Other Information  . . . . . . . . . . . . . . . . . . . .   63


PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance . .   63
ITEM 11.	Executive Compensation . . . . . . . . . . . . . . . . . .   63
ITEM 12.	Security Ownership of Certain Beneficial Owners and
		Management and Related Stockholder Matters . . . . . . . .   63
ITEM 13.	Certain Relationships and Related Transactions, and  . . .
                Director Independence  . . . . . . . . . . . . . . . . . .   63
ITEM 14.	Principal Accountant Fees and Services . . . . . . . . . .   63

PART IV

ITEM 15.	Exhibits, Financial Statements and Schedules . . . . . . .   63

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   65

Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66-75






                                       2

Forward Looking Statements

       	This filing contains statements which, to the extent they are not
recitations of historical fact, constitute "forward looking statements" under
federal securities laws.  All such statements are intended to be subject to
the safe harbor protection provided by applicable securities laws. For
discussions identifying some important factors that could cause actual VSE
Corporation ("VSE," the "Company," "us," "our," or "we") results to differ
materially from those anticipated in the forward looking statements contained
in this filing, see VSE's "Narrative Description of Business" (Items 1, 1A, 2
and 3), and "Management's Discussion and Analysis." Readers are cautioned not
to place undue reliance on these forward looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward looking statements to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission, including
the Quarterly Reports on Form 10-Q to be filed by the Company subsequent to
this Annual Report on Form 10-K and any Current Reports on Form 8-K filed by
the Company.









































                                       3

                                    Part I



ITEM 1. Business

(a)	   General Background

       	VSE Corporation was incorporated in Delaware in 1959 and serves as a
centralized management and consolidating entity for our business operations.
Our business operations are managed under groups that consist of one or more
unincorporated divisions or wholly owned VSE subsidiaries that perform our
work. Our Federal Group consists of our Communications and Engineering
Division ("CED"), Engineering and Logistics Division ("ELD"), Field Support
Services Division ("FSS"), Management Sciences Division ("MSD"), and Systems
Engineering Division ("SED"). Our International Group consists of our BAV
Division ("BAV"), Coast Guard Division ("VCG"), and Fleet Maintenance Division
("FMD"). Our IT, Energy and Management Consulting Group consists of our wholly
owned subsidiaries Energetics Incorporated ("Energetics") and G&B Solutions,
Inc. ("G&B"). Our Infrastructure Group consists of our wholly owned subsidiary
Integrated Concepts and Research Corporation ("ICRC"). The term "VSE" or
"Company" means VSE and its subsidiaries and divisions unless the context
indicates operations of the parent company only.

       	Our business operations consist primarily of diversified program
management, logistics, engineering, IT, construction program and consulting
services performed on a contract basis. Almost all of our contracts are with
agencies of the United States Government (the "government") and other
government prime contractors. Our customers also include non-government
organizations and commercial entities.

       	We seek to provide our customers with competitive, cost-effective
solutions to specific problems. These problems generally require a detailed
technical knowledge of materials, processes, functional characteristics,
information systems, technology and products and an in-depth understanding of
the basic requirements for effective systems and equipment.

(b)   Financial Information

       	Our operations are conducted within four reportable segments aligned
with our management groups: 1) Federal, which generated approximately 64% of
our revenues in 2008; 2) International, which generated approximately 21% of
our revenues in 2008; 3) IT, Energy and Management Consulting, which generated
approximately 5% of our revenues in 2008; and 4) Infrastructure, which
generated approximately 10% of our revenues in 2008. Additional financial
information for our reportable segments appears in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

(c)  Description of Business

Services and Products

       	Our services include a broad array of capabilities and resources that
support military, federal civil, and other government systems, equipment and
processes. We are focused on creating, sustaining and improving the systems,
equipment and processes of government through core offerings in program
management, logistics, engineering, IT, construction program, and consulting
services.

	Typical projects include sustaining engineering support for military
vehicles and combat trailers; military equipment refurbishment and
modification; military vehicle ballistic protection systems; ship maintenance,
repair, overhaul planning and follow-on technical support; logistics
management support; machinery condition analysis; specification preparation
for ship alterations and repairs; ship force crew training; life cycle support
for ships; ship communication systems; energy conservation and advanced
technology demonstration projects; technical data package preparation;
multimedia, computer local area network ("LAN"), and telecommunications

                                       4

systems; cross-platform technical data; product data; technical manual
development and support; information technology management consulting,
services, and solutions; and large-scale port engineering development and
construction management.

	See Item 7 "Management's Discussion and Analysis of Financial
Information and Results of Operation" for more information regarding VSE's
business.

Contracts

       	Depending on solicitation requirements and other factors, we offer our
professional and technical services and products through various competitive
contract arrangements and business units which are responsive to customer
requirements and which may also provide an opportunity for diversification.
Such arrangements may include prime contracts, subcontracts, cooperative
arrangements, joint ventures, General Services Administration ("GSA")
schedules, dedicated cost centers (divisions) and subsidiaries. Some of the
contracts permit the contracting agency to issue delivery orders or task
orders in an expeditious manner to satisfy relatively short-term requirements
for engineering and technical services.

       	Almost all of our revenues are derived from contract services performed
for Department of Defense ("DoD") agencies or for Federal Civil agencies. The
U.S. Army, Army Reserve and U.S. Navy are our largest customers. Other
significant customers include the Department of Treasury, the Department of
Transportation, the Department of Energy and the Department of Interior. To a
lesser degree, our customers also include various other government agencies,
non-government organizations, and commercial entities.

                             Revenues by Customer
                            (dollars in thousands)


                             2008              2007              2006
Customer                   Revenues     %    Revenues     %    Revenues     %
- --------                   --------     -    --------     -    --------     -
U.S. Army/Army Reserve   $  625,237    9.9   $344,296   52.7   $174,473   48.0
U.S. Navy                   195,792   18.8    189,534   29.0    164,788   45.3
U.S. Air Force               10,720    1.0      4,628    0.7      4,579    1.2
                         ----------  -----   --------  -----   --------  -----
Total - DoD                 831,749   79.7    538,458   82.4    343,840   94.5

Department of
  Transportation             89,873    8.6     30,977    4.7          -    0.0
Department of
  U.S. Treasury              57,021    5.5     55,020    8.4      2,392    0.7
Department of Interior       19,156    1.8      1,053    0.2          -    0.0
Department of Energy         12,812    1.2     10,537    1.6      9,420    2.5
Other government             29,748    2.9     11,427    1.8      5,683    1.6
                         ----------  -----   --------  -----   --------  -----
Total - Federal Civil
  Agencies                  208,610   20.0    109,014   16.7     17,495    4.8

Commercial                    3,376    0.3      5,692    0.9      2,399    0.7
                         ----------  -----   --------  -----   --------  -----
Total                    $1,043,735  100.0   $653,164  100.0   $363,734  100.0
                         ==========  =====   ========  =====   ========  =====


	The government's procurement practices sometimes include the bundling of
various work efforts under large comprehensive management contracts
("omnibus"). As a result, the growth opportunities available to us can occur

                                       5

in large, unpredictable increments. We have pursued these larger efforts by
assembling teams of subcontractors to offer the range of technical
competencies required by these omnibus contracts. Typically the use of
subcontractors and large material purchases on government contracts does not
allow for profit margins that are as high as on work performed by our own
personnel. As a result, the use of such teaming arrangements may lower our
overall profit margins in some years. Although the government's practice of
using omnibus multiple award contracts is expected to continue, we also have
opportunities to compete for other contracts requiring our specific areas of
expertise. We are positioned to pursue these opportunities while continuing to
use subcontractor teams to compete for the omnibus contracts.

	Our contracts with the government are typically cost plus fee, time and
materials, or fixed-price contracts. Revenues result from work performed on
these contracts by our own employees and from pass-through of costs for work
performed by our subcontractors and for materials. Revenues on cost-type
contracts are recorded as contract allowable costs are incurred and fees are
earned.

       	Revenues for time and materials contracts are recorded on the basis of
contract allowable labor hours worked multiplied by the contract defined
billing rates, plus the cost of materials used in performance on the contract.
Profits or losses on time and material contracts result from the difference
between the cost of services performed and the contract defined billing rates
for these services.

       	Revenue recognition methods on fixed-price contracts will vary depending
on the nature of the work and the contract terms. On some fixed-price
contracts revenues are recorded as costs are incurred, using the percentage-
of-completion method of accounting, typically ratably over the service period.
Revenues on fixed-price service contracts are recorded as work is performed,
typically ratably over the service period. Revenues on fixed-price contracts
that require delivery of specific items may be recorded based on a price per
unit as units are delivered. Profits on fixed-price contracts result from the
difference between the incurred costs and the revenue earned.

Backlog

       	Funded backlog for government contracts represents a measure of our
potential future revenues. Funded backlog is defined as the total value of
contracts that has been appropriated and funded by the procuring agencies,
less the amount of revenues that have already been recognized on such
contracts. Our funded backlog as of December 31, 2008, is approximately $567
million. Funded backlog as of December 31, 2007 and 2006 was approximately
$408 million and $299 million, respectively. The increases in funded backlog
during these years are due to increases in funding on our existing programs
and the funding received on new programs. Changes in funded backlog on
contracts are sometimes unpredictable due to uncertainties associated with
changing government program priorities and the ultimate availability of funds.

       	In addition to the funded backlog levels, we have contract ceiling
amounts available for use on multiple award, indefinite delivery, indefinite
quantity contracts with the U.S. Army, U.S. Air force, and U.S. Navy. While
these contracts increase the opportunities available to us to pursue future
work, the amount of future work is not determinable until delivery orders are
placed on the contracts. Additionally, these delivery orders must be funded by
the procuring agencies before we can perform work and begin earning revenues
from them.

Marketing

	Our marketing activities are led by our Corporate Vice President of
Marketing and performed by our professional staff of engineers, analysts,
program managers, contract administrators and other personnel. These
activities are centrally coordinated through our Corporate Marketing
Department. Information concerning new programs and requirements becomes
available in the course of contract performance, through formal and informal

                                       6

briefings, from participation in professional organizations, and from
literature published by the government, trade associations, professional
organizations and commercial entities.

Personnel

	Services are provided by our staff of professional and technical
personnel having high levels of education, experience, training and skills. As
of December 31, 2008, we had 1,920 employees, an increase from 1,223 over the
prior year. Principal categories include (a) engineers and technicians in
mechanical, electronic, chemical, industrial, energy and environmental
services, (b) information technology professionals in computer systems,
applications and products, configuration, change and data management
disciplines, (c) technical editors and writers, (d) multimedia and computer
design engineers, (e) graphic designers and technicians, (f) logisticians, and
(g) construction and environmental specialists. The expertise required by our
customers also frequently includes knowledge of government administrative
procedures. Many of our employees have had experience as government employees
or have served in the U.S. Armed Forces.

Competition

	The professional and technical services industry in which we are engaged
is very competitive. There are numerous other organizations, including large,
diversified firms with greater financial resources and larger technical staffs
that are capable of providing the same services offered by us. These companies
may be publicly owned or privately held or may be divisions of much larger
organizations, including large manufacturing corporations.

	Government agencies have emphasized awarding contracts on a competitive
basis as opposed to a sole source or other non-competitive basis. Most of the
significant contracts that we currently perform were either initially awarded
on a competitive basis or have been renewed at least once on a competitive
basis. Government agencies also order work through contracts awarded by GSA.
GSA provides a schedule of services at fixed prices which may be ordered
outside of the solicitation process. We have seven GSA schedule contracts for
different classes of services. There is no assurance regarding the level of
work we may obtain under these contracts. Government budgets, and in
particular the budgets of certain government agencies, can also affect
competition in our business. A reallocation of government spending priorities
or a general decline in government budgets can result in lower levels of
potential business, thereby intensifying competition.

	It is not possible to predict the extent and range of competition that
we will encounter as a result of changing economic or competitive conditions,
customer requirements or technological developments. We believe the principal
competitive factors for our business are technical and financial
qualifications, past performance and low price.

	Government acquisition policies and procedures often emphasize factors
that can present challenges to our efforts to win new business, and may make
it difficult for us to qualify as a potential bidder. For example, past
performance may be used to exclude entrance into new government markets, and
multiple-award schedules may result in unequal contract awards between
successful contractors.

Available Information

	Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports are filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended. They are available free of charge through our website
www.vsecorp.com as soon as reasonably practicable after the reports are
electronically filed with the Securities and Exchange Commission ("SEC").

                                       7

ITEM 1A.  Risk Factors

	Our future results may differ materially from past results and from
those projected in the forward-looking statements contained in this Form 10-K
due to various uncertainties and risks, including but not limited to those set
forth below, one-time events and other important factors disclosed previously
and from time to time in other filings with the SEC.


Our work on large program efforts presents a risk to revenue and profit growth
and sustainability.

       The eventual expiration of such programs, or the loss of or disruption
of revenues on a single contract, presents the potential for a sudden drop in
revenues and profits. The loss of these revenues could further erode profits
on our remaining programs that would have to absorb a larger portion of the
fixed corporate costs previously allocated to the expiring programs or
discontinued contract work.

       One recent contract action may present us with this risk. The U. S. Army
informed us in January 2009 that they would not consider our proposal for a
new contract to succeed our current R2 Program contract. We protested this
decision and in February 2009, we were informed that our protest was
dismissed based on the protest being premature. The notice of dismissal
states the U.S. Army was entitled to delay debriefing bidders until after the
award of the successor contract is granted. The U.S. Army was also encouraged
to provide us a comprehensive post-award debriefing in accordance with
applicable regulations. We are evaluating our options regarding this matter,
including the filing of a protest after the award of the successor contract.

Federal procurement directives could result in a loss of work on current
programs to set-asides and omnibus contracts.

       	Our business with the government is subject to the risk that one or more
of our potential contracts or contract extensions may be awarded by the
contracting agency to a small or disadvantaged or minority-owned business
pursuant to set-aside programs administered by the Small Business
Administration, or may be bundled into omnibus contracts for very large
businesses. These risks can potentially have an adverse effect on our revenue
growth and profit margins.

Funding uncertainties for federal programs could adversely affect our ability
to continue work on our government contracts.

       	Government contract business is subject to funding delays, terminations,
reductions, extensions, and moratoriums caused by political and administrative
disagreements within the government. To date, the effect of such negotiations
and disagreements has not been material, but no assurances can be given about
such risks with respect to future years.

	Global economic conditions and political factors could adversely affect
revenues on current programs.

	Revenues from our CED Army Equipment Support, CED Assured Mobility
Systems Program, BAV Ship Transfer and other programs for which work is
performed in foreign countries are subject to political risks posed by the
ongoing conflicts in the Middle East and potential terrorist activity. A
significant amount of our revenues in recent years has resulted from the U.S.
military involvement in Iraq and Afghanistan, and an end to such U.S. military
involvement in the future could cause a decrease in our revenues. Similarly, a
change in the political landscape in Egypt or other client countries could
cause a decrease in our revenues. International tensions can also affect our
work by FMD on U.S. Navy ships when they are deployed outside of U.S. Navy
facilities and are unavailable for maintenance work during those times. Adverse
results arising from these global economic and political risks could have a
material adverse impact on our results of operations.


                                       8

We are exposed to contractual and financial liabilities if our subcontractors
do not perform satisfactorily.

       	A large percentage of our contract work is performed by subcontractors,
which raises certain government compliance, performance and financial risks.
While subcontractor terms generally specify the terms and performance for
which the subcontractor is liable to us, if any unsatisfactory performance or
compliance failure occurs on the part of subcontractors, we must still bear
the cost to remedy these deficiencies on our prime contracts.

Investments in facilities could cause losses if certain work efforts are
disrupted or discontinued.

       We have made investments in facilities and lease commitments to support
specific business programs, work requirements, or service offerings. A slowing
or disruption of these business programs, work requirements, or service
offerings that results in operating at less than intended levels could cause
us to suffer financial losses.

Environmental and pollution risks could potentially impact our financial
results.

       We are exposed to certain environmental and pollution risks due to the
nature of some of the contract work we perform. Costs associated with
pollution clean up efforts could potentially have an adverse impact on
financial results.

As a Government contractor, we are subject to a number of procurement rules
and regulations that could expose us to potential liabilities or loss of work.

       	We must comply with and are affected by laws and regulations relating to
the award, administration and performance of Government contracts.
Additionally, we are responsible for subcontractor compliance with these laws
and regulations. Government contract laws and regulations affect how we do
business with our customers and, in some instances, impose added costs to us.
A violation of specific laws and regulations could result in the imposition of
fines and penalties or the termination of contracts or debarment from bidding
on contracts.

       	In some instances, these laws and regulations impose terms or rights
that are more favorable to the government than those typically available to
commercial parties in negotiated transactions. For example, the U.S.
Government may terminate any government contract or subcontract at their
convenience, as well as for default based on performance. Upon termination for
convenience of a fixed-price type contract, we would normally be entitled to
receive the purchase price for delivered items, reimbursement for allowable
costs for work-in-process and an allowance for profit on the contract or
adjustment for loss if completion of performance would have resulted in a
loss. Upon termination for convenience of a cost-type contract, we would
normally be entitled to reimbursement of allowable costs plus a portion of the
fee. Such allowable costs would include the cost to terminate agreements with
suppliers and subcontractors. The amount of the fee recovered, if any, is
related to the portion of the work accomplished prior to termination and is
determined by negotiation.

       	A termination for default could expose us to liability and have a
material adverse effect on our ability to compete for future contracts and
orders. In addition, the Government could terminate a prime contract under
which we are a subcontractor, irrespective of the quality of services provided
by us as a subcontractor.

Our business could be adversely affected by a negative audit by the
Government.

       Government agencies, including the Defense Contract Audit Agency and the
Department of Labor, routinely audit and investigate government contractors.
These agencies review a contractor's performance under its contracts, cost

                                       9

structure and compliance with applicable laws, regulations and standards. The
Government also may review the adequacy of, and a contractor's compliance
with, its internal control systems and policies, including the contractor's
purchasing, property, estimating, compensation and management information
systems. Any costs found to be improperly allocated to a specific contract
will not be reimbursed, while such costs already reimbursed must be refunded.
If an audit uncovers improper or illegal activities, we may be subject to
civil and criminal penalties and administrative sanctions, including
termination of contracts, forfeiture of profits, suspension of payments, fines
and suspension or prohibition from doing business with the Government. In
addition, we could suffer serious harm to our reputation if allegations of
impropriety were made.

Our earnings and margins may vary based on the mix of contracts and programs.

       Our business includes both cost-type and fixed-price contracts. Cost-
type contracts generally have lower profit margins than fixed-price contracts.
Typically the use of subcontractors and large material purchases on government
contracts does not allow for profit margins that are as high as compared to
work performed by our own personnel. The use of subcontractors and large
material purchases may lower our overall profit margins in some years.

We use estimates in accounting for our programs. Changes in estimates could
affect future financial results.

       We use estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates affecting the financial statements include
contract disallowance and self insured health claims, and estimated cost to
complete on certain fixed-price contracts.

New accounting standards could result in changes to our methods of quantifying
and recording accounting transactions, and could affect financial results and
financial position.

       Changes to Generally Accepted Accounting Principles in the United States
("GAAP") arise from new and revised standards, interpretations and other
guidance issued by the Financial Accounting Standards Board, the SEC, and
others. The effects of such changes may include prescribing an accounting
method where none had been previously specified, prescribing a single
acceptable method of accounting from among several acceptable methods that
currently exist, or revoking the acceptability of a current method and
replacing it with an entirely different method, among others. These changes
could result in unanticipated effects on results of operations, financial
position and other financial measures.

The nature of our operations and significant increases in revenues in recent
years present certain challenges related to work force management.

       Our financial performance is heavily dependent on the abilities of our
administrative and operating staffs with respect to technical skills,
operating performance, pricing, cost management, and administrative and
compliance efforts.  A wider diversity of contract types, nature of work, work
locations, and increased legal and regulatory complexities means that our
staff and skill sets are spread much thinner than in years prior to our rapid
growth.  Failure to attract or retain an adequately skilled workforce, lack of
knowledge or training in critical functions, or inadequate staffing levels can
lead to lost work, reduced profit margins, and losses from cost overruns or
performance deficiencies.


                                       10

ITEM 1B.  Unresolved Staff Comments

	None


ITEM 2.    Properties

       	Our principal executive and administrative offices are located in a
five-story building in Alexandria, Virginia, leased by us through April 30,
2013. This building contains approximately 127,000 square feet of engineering,
shop, and administrative space. We also provide services and products from
approximately 36 leased facilities located near customer sites to facilitate
communications and enhance project performance. These facilities are generally
occupied under short-term leases and currently include a total of
approximately 1.5 million square feet of office and warehouse space. Our
employees often provide services at customer facilities, limiting our
requirement for additional space. We also provide services from several
locations outside of the United States, generally at foreign shipyards or U.S.
military installations.

       	We own and operate two facilities in Ladysmith, Virginia. One of these
properties consists of approximately 45 acres of land and multiple storage and
vehicle maintenance buildings totaling approximately 57,000 square feet of
space. The other property consists of 30 acres of land and buildings totaling
approximately 13,500 square feet of space. We use these properties primarily
to provide storage, maintenance and refurbishment services for military
equipment and to supplement our Alexandria, Virginia, office and shop
facilities.


ITEM 3.    Legal Proceedings

       	We have, in the normal course of business, certain claims, including
legal proceedings, against us and against other parties. In our opinion, the
resolution of these claims will not have a material adverse effect on our
results of operations or financial position. However, the results of any legal
proceedings cannot be predicted with certainty.


ITEM 4.    Submission of Matters to a Vote of Security Holders

       	No matters were submitted to a vote of our stockholders, through the
solicitation of proxies or otherwise, during the three-month period ended
December 31, 2008.


















                                       11

                    EXECUTIVE OFFICERS OF THE REGISTRANT

       The following table sets forth information concerning VSE's executive
officers as of February 20, 2009. Each person named has served as an executive
officer of VSE, or has served in a similar executive capacity in VSE, for more
than the past five years, except for Messrs. Gauthier, Hollstein, Kiernan,
Lexo, Reed, Williams, and Ms. Williams (no family relationship). The executive
officers are appointed annually to serve until the first meeting of VSE's
Board of Directors (the "Board") following the next annual meeting of
stockholders and until their successors are elected and have qualified, or
until death, resignation or removal, whichever is sooner.

Name			         Age     Position with Registrant
- ----                             ---     ------------------------

Thomas G. Dacus 	          63 	 Executive Vice President and President,
                                         Federal Group

Donald M. Ervine 	          72 	 Executive Chairman of the Board of
                                         Directors

Maurice A. Gauthier	          61	 Director, Chief Executive Officer,
                                         President and Chief Operating Officer

Michael E. Hamerly 	          63 	 Executive Vice President and President,
                                         International Group

Randy W. Hollstein	          52	 Vice President - Marketing

Thomas M. Kiernan	          41	 Vice President, General Counsel and
                                         Assistant Secretary

James M. Knowlton 	          66 	 Executive Vice President, International
                                         Group

James W. Lexo, Jr. 	          60	 Executive Vice President, Strategic
                                         Planning and Business Initiatives and
                                         Chief Executive Officer and Vice
                                         Chairman of the Board of Directors,
                                         ICRC

Thomas R. Loftus 	          53 	 Executive Vice President and Chief
                                         Financial Officer

James E. Reed 	                  60 	 President, IT, Energy and Management
                                         Consulting Group

Craig S. Weber 	                  64 	 Executive Vice President and Secretary

Carl E. Williams 	          56 	 President, Infrastructure Group

Crystal R. Williams               45 	 Vice President - Contracts


       Mr. Gauthier joined VSE in April 2008 as Chief Executive Officer,
President and Chief Operating Officer. He was elected as a VSE director by the
Board on February 23, 2009. Mr. Gauthier completed a distinguished military
career of over 28 years of service, retiring in 1997 as a Navy Captain and
board certified Department of Defense Major Program Manager.  Mr. Gauthier
worked for VSE from October 1997 through February 1999 as Vice President and
Chief Technology Officer, and as Director of Strategic Planning and Business
Development, before joining the Nichols Research Corporation Navy Group as its
President. With the acquisition of Nichols Research Corporation by Computer
Sciences Corporation ("CSC") in 1999, Mr. Gauthier served as Vice President of
CSC's Advanced Marine Center. His most recent assignment with CSC was as Vice
President and General Manager of CSC's Navy and Marine Corps Business Unit
where he was responsible for the overall leadership and financial performance
of a 2,500-person organization providing systems engineering, technical,
information technology and telecommunications support to U.S. Navy and Marine
Corps customers. Mr. Gauthier earned a Bachelor of Science degree at the U.S.

                                       12

Naval Academy in 1969. He received a Master of Science degree in Systems
Engineering in 1976 from the U.S. Naval Postgraduate School, Monterey, CA. He
is a graduate of the Defense Acquisition University's Defense Systems
Management College (1988) and of the Advanced Executive Program (1993) and the
International Marketing Program (1994) offered by the Kellogg Graduate School
of Management at Northwestern University.

       Mr. Hollstein joined VSE in August 2008 as Corporate Vice President of
Marketing. Mr. Hollstein has over 30 years of experience as a naval officer
and defense industry professional. Mr. Hollstein served in the U.S. Navy as a
surface warfare officer before leaving to join industry. He has worked in
several leading companies at increasing levels of responsibility in program
management, government relations and business development. Before joining VSE,
Mr. Hollstein was Senior Director of Business Development for Maersk Line,
Limited where he was responsible for all business development activities
related to maritime and maritime security opportunities. In prior assignments
at other companies, he has been responsible for business development with
Navy, Marine Corps, Coast Guard and Army clients and for developing new
business with other government agencies including DHS, MDA, NOAA and DFAS. His
marketing experience encompasses both products and services. Mr. Hollstein is
a 1978 graduate of Babson College in Wellesley, Massachusetts, where he earned
a Bachelor of Science degree in Business Management.

       Mr. Kiernan joined VSE in November 2008 as Vice President, General
Counsel, and Assistant Secretary. Prior to joining VSE, Mr. Kiernan served as
Vice President, General Counsel and Secretary for Intelsat General Corporation
(2003-2008), a subsidiary of Intelsat, Ltd. serving Government and commercial
customers. At Intelsat General Corporation, Mr. Kiernan was responsible for
managing legal and regulatory compliance and directing the administration
support group, including human resources, security and contracts. Prior to
joining Intelsat General Corporation, Mr. Kiernan served as a member of the
Intelsat, Ltd., Office of General Counsel (2000-2003) where he was responsible
for legal support for satellite and launch programs, as well as for real
estate, procurement and intellectual property issues. Prior to joining
Intelsat, Mr. Kiernan served as corporate counsel for SRA Life Sciences (1994-
2000), a technology consulting services company supporting the U.S.
Departments of Defense and Energy, the EPA, and Federal health agencies. Mr.
Kiernan is a graduate of Virginia Tech University (B.A., Political Science,
1990) and George Mason University School of Law (J.D., 1994). He is a member
of the Virginia State Bar.

       Mr. Lexo joined VSE in 2007 as Executive Vice President of Strategic
Planning and Business Initiatives, as well as Chief Executive Officer and Vice
Chairman of the Board of Directors of VSE's wholly owned subsidiary ICRC. Mr.
Lexo has served as Chief Executive Officer of ICRC since 1996.

       Mr. Reed joined VSE in 2005 as Chief Operating Officer of VSE's wholly
owned subsidiary Energetics, and since April, 2005, he has served as
Energetics' President. Mr. Reed was a founder of Energetics in 1979 and served
as an officer of Energetics from 1979 to 2001. He provided senior-level
consulting services to government and private clients as a sole proprietor
during the period 2001 through 2004. Mr. Reed is a Registered Professional
Engineer in Maryland. He was appointed President of VSE's IT, Energy and
Management Consulting Group in 2008.

       Mr. Carl Williams joined VSE in 2007 as President and Chief Operating
Officer of ICRC. Mr. Williams completed 23 years of service in the U.S. Navy,
retiring as Commander. He joined ICRC as its Executive Vice President of
Operations in 2000 and has served as Chief Operating Officer of ICRC since
2003. Mr. Williams was appointed President of VSE's Infrastructure Group in
2008.

       Ms. Crystal Williams joined VSE in December 2008 as Corporate Vice
President - Contracts. Prior to joining VSE, Ms. Williams was Contracts
Director for the North American Public Sector at CSC. She began her CSC career
in 1994.  Prior to joining CSC, Ms. Williams provided contract administration
services at ICF Kaiser International and at Dynamic Concepts Inc. Ms. Williams

                                       13

is a graduate of George Mason University (B.S., Public Administration, 1986)
and has earned continuing education credits in contracts and marketing at the
American Graduate University and at George Mason University, Continuing
Education.

	Mr. Knowlton resigned as President, International Group, effective
January 5, 2009.  He continues to support VSE business development efforts and
is planning to retire in mid-2009, completing more than 25 years of service to
the Company.






































                                       14

                                   PART II


ITEM 5.   Market for Registrant's Common Equity, Related Stockholder
           Matters	and Issuer Purchases of Equity Securities

(a)	Market Information

       VSE common stock, par value $.05 per share, is traded on the Nasdaq
Global Select Market, trading symbol, "VSEC," Newspaper listing, "VSE."

       The following table sets forth the range of high and low sales price
(based on information reported by the Nasdaq Global Select Market) and cash
dividend per share information for our common stock for each quarter and
annually during the last two years.


	Quarter Ended		 High		 Low		Dividends

	2007:
	March 31 . . . . . . .  $46.81          $33.31	          $.035
        June 30  . . . . . . .   68.00  	 33.67	           .040
        September 30 . . . . .   56.77  	 33.48	           .040
        December 31  . . . . .   63.00 	         45.54	           .040
              For the Year	$68.00          $33.31  	  $.155

	2008:
	March 31 . . . . . . .  $49.69          $22.72	          $.040
        June 30  . . . . . . .   35.46  	 27.50	           .045
        September 30 . . . . .   43.00   	 24.86	           .045
        December 31  . . . . .   40.32 	         23.00	           .045
              For the Year      $49.69          $22.72  	  $.175


(b)	Holders

       As of February 6, 2009, VSE common stock, par value $.05 per share, was
held by approximately 322 stockholders of record.  The number of stockholders
of record is not representative of the number of beneficial holders because
many of the shares are held by depositories, brokers or nominees.

(c)	Dividends

       	In 2007 cash dividends were declared quarterly at the annual rate of
$.14 per share through March 31, 2007, and at the annual rate of $.16 per
share commencing June 11, 2007.

       	In 2008 cash dividends were declared quarterly at the annual rate of
$.16 per share through March 31, 2008, and at the annual rate of $.18 per
share commencing June 3, 2008.

       	Pursuant to our bank loan agreement (see Note 7 of "Notes to
Consolidated Financial Statements"), the payment of cash dividends is subject
to annual rate restrictions. We have paid cash dividends each year since 1973.












                                       15

(d)	Equity Compensation Plan Information


Compensation Plans

       We have three compensation plans approved by our stockholders under
which our equity securities are authorized for issuance to employees and
directors:  (i) The VSE Corporation 2004 Stock Option Plan, (ii) the VSE
Corporation 2004 Non-employee Directors Stock Plan and (iii) the VSE
Corporation 2006 Restricted Stock Plan.

       In December 2005, the Board directed VSE to discontinue, until and
unless the Board determined otherwise, awarding options, both discretionary
and nondiscretionary, to purchase VSE's common stock, under VSE's 2004 Stock
Option Plan (the "2004 Plan").  The options outstanding under the 2004 Plan
and predecessor 1998 Stock Option Plan were not affected by this Board action.

       The following table provides information about our equity compensation
plans as of December 31, 2008:


                                                          Number of Shares
                                                             Remaining
                                                           Available for
                         Number of         Weighted       Future Issuance
                        Shares to be       Average         Under Equity
                        Issued upon        Exercise      Compensation Plans
                        Exercise of        Price of      (excluding shares
                        Outstanding       Outstanding      reflected in
                          Options           Options      column (a))(1)(2)
Plan Category               (a)               (b)               (c)
- -------------           ------------      -----------    -------------------
Equity compensation
plans approved by
stockholders  . . . . .    41,500           $12.59            803,314

Equity compensation
plan not approved
by stockholders . . . .         -                -              5,831

Total                      41,500           $12.59            809,145

(1)  At December 31, 2008, 575,000, and 228,314 shares of VSE common stock
were available under the 2004 Stock Option Plan, the 2004 Non-employee
Directors Stock Plan and the 2006 Restricted Stock Plan, respectively.

(2)  Includes 5,831 shares of VSE common stock, with subsequent vesting and
issuance dates, awarded to Maurice A. Gauthier on April 28, 2008, as an
inducement material to Mr. Gauthier entering into an employment agreement with
VSE to become VSE's Chief Executive Officer and President. Such issuance of
common stock was approved by a majority of VSE's independent directors.
Subject to the term of Mr. Gauthier's Employment Agreement not having
terminated, the Employment Agreement provides for vesting and issuance dates
for the 5,831 shares as follows: 25% of the shares will be vested and issued
to Mr. Gauthier on April 28 of 2009 and 2010, and 50% of the shares will be
vested and issued to Mr. Gauthier on April 28, 2011.



                                       16

Performance Graph
       Set forth below is a line graph comparing the cumulative total return of
VSE common stock with (a) a performance index for the broad market (NASDAQ
Global Select Market) in which VSE common stock is traded and (b) a published
industry index. VSE common stock is traded on the NASDAQ Global Select Market,
and our industry group is engineering and technical services (formerly SIC
Code 8711). Accordingly, the performance graph compares the cumulative total
return for VSE common stock with (a) an index for the NASDAQ Global Select
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, 2003, in VSE common stock, the NASDAQ Composite, and the
Peer Group.
                               Performance Graph Table

	             2003    2004    2005    2006    2007    2008
                     ----    ----    ----    ----    ----    ----

VSE 	              100     192     323     262     759     613
NASDAQ Composite      100     110     113     127     138      80
Peer Group	      100     114     167     208     429     207
































                                       17

<TABLE>
ITEM 6.    Selected Financial Data
- ------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<CAPTION>
                                                            Years ended December 31,
                                                 2008       2007       2006      2005      2004
                                                 ----       ----       ----      ----      ----
<S>                                         <C>          <C>        <C>       <C>       <C>
Revenues . . . . . . . . . . . . . . . . .  $1,043,735   $653,164   $363,734  $280,139  $216,011
                                            ==========   ========   ========  ========  ========

Net income . . . . . . . . . . . . . . . .  $   19,040   $ 14,102   $  7,789  $  6,169  $  3,444
                                            ==========   ========   ========  ========  ========

Basic earnings per share . . . . . . . . .  $     3.75   $   2.85   $   1.64  $   1.33  $    .77
                                            ==========   ========   ========  ========  ========

Diluted earnings per share . . . . . . . .  $     3.74   $   2.82   $   1.61  $   1.29  $    .75
                                            ==========   ========   ========  ========  ========

Working capital  . . . . . . . . . . . . .  $   24,179   $ 24,756   $ 25,646  $ 22,028  $ 15,748
                                            ==========   ========   ========  ========  ========

Total assets . . . . . . . . . . . . . . .  $  275,966   $171,771   $ 98,535  $ 73,833  $ 60,352
                                            ==========   ========   ========  ========  ========

Stockholders' equity . . . . . . . . . . .  $   76,123   $ 56,376   $ 38,236  $ 30,151  $ 23,043
                                            ==========   ========   ========  ========  ========

Cash dividends per common share  . . . . .  $    0.175   $  0.155   $   0.14  $   0.12  $   0.10
                                            ==========   ========   ========  ========  ========
</TABLE>

       This consolidated summary of selected financial data should be read in
conjunction with Management's Discussion and Analysis of the Financial
Condition and Results of Operations included in Item 7 of this Form 10-K and
with the Consolidated Financial Statements and related Notes included in Item
8 in this Form 10-K. The historical results set forth in this Item 6 are not
necessarily indicative of the results of operations to be expected in the
future.
















                                       18

ITEM 7.    Management's Discussion and Analysis of Financial Condition
      	   and Results of Operations

Executive Overview

Organization

       	Our business operations consist primarily of diversified program
management, logistics, engineering, IT, construction program and consulting
services performed on a contract basis.  Substantially all of our contracts
are with government agencies and other government prime contractors.

       	Our business operations are managed under groups that consist of one or
more divisions or wholly owned VSE subsidiaries that perform our work. Our
Federal Group consists of our Communications and Engineering Division ("CED"),
Engineering and Logistics Division ("ELD"), Field Support Services Division
("FSS"), Management Sciences Division ("MSD"), and Systems Engineering
Division ("SED"). Our International Group consists of our BAV Division
("BAV"), Coast Guard Division ("VCG"), and Fleet Maintenance Division ("FMD").
Our IT, Energy and Management Consulting Group consists of our wholly owned
subsidiaries Energetics Incorporated ("Energetics") and G&B Solutions, Inc.
("G&B"). Our Infrastructure Group consists of our wholly owned subsidiary
Integrated Concepts and Research Corporation ("ICRC").

Customers and Services

	We provide program management, logistics, engineering, IT, construction
program, and consulting services to the government, other government prime
contractors, and commercial entities. Our largest customer is the U.S.
Department of Defense ("DoD"), including agencies of the U.S. Navy, Army and
Air Force. We also provide services to various Federal Civil customers.

                            Revenues by Customer
                           (dollars in thousands)


                             2008              2007              2006
Customer                   Revenues     %    Revenues     %    Revenues     %
- --------                   --------     -    --------     -    --------     -
U.S. Army/Army Reserve   $  625,237    9.9   $344,296   52.7   $174,473   48.0
U.S. Navy                   195,792   18.8    189,534   29.0    164,788   45.3
U.S. Air Force               10,720    1.0      4,628    0.7      4,579    1.2
                         ----------  -----   --------  -----   --------  -----
Total - DoD                 831,749   79.7    538,458   82.4    343,840   94.5

Department of
  Transportation             89,873    8.6     30,977    4.7          -    0.0
Department of
  U.S. Treasury              57,021    5.5     55,020    8.4      2,392    0.7
Department of Interior       19,156    1.8      1,053    0.2          -    0.0
Department of Energy         12,812    1.2     10,537    1.6      9,420    2.5
Other government             29,748    2.9     11,427    1.8      5,683    1.6
                         ----------  -----   --------  -----   --------  -----
Total - Federal Civil
  Agencies                  208,610   20.0    109,014   16.7     17,495    4.8

Commercial                    3,376    0.3      5,692    0.9      2,399    0.7
                         ----------  -----   --------  -----   --------  -----
Total                    $1,043,735  100.0   $653,164  100.0   $363,734  100.0
                         ==========  =====   ========  =====   ========  =====

                                       19

Segments

       	Our operations are conducted within four reportable segments aligned
with our management groups: 1) Federal; 2) International; 3) IT, Energy and
Management Consulting; and 4) Infrastructure.

       	Federal Group - Our Federal Group provides engineering, technical,
management and integrated logistics support services to U.S. military branches
and other government agencies. The divisions in this group include CED, ELD,
FSS, MSD and SED.

       	CED - CED is dedicated to supporting the Army's Communications and
Electronics Command ("CECOM") in the management and execution of the Rapid
Response ("R2") Program, which supports clients across DoD and the government.
CED manages execution of tasks involving research and development, technology
insertion, systems integration and engineering, hardware/software fabrication
and installation, testing and evaluation, studies and analysis, technical data
management, logistics support, training and acquisition support. A large
portion of our current work on this program is related to the U.S. military
involvement in Iraq and Afghanistan. The contract supporting the R2 Program is
scheduled to expire in January 2011.

       CED Army Equipment Support Program - Our CED division has a program on
its Rapid Response support contract to provide maintenance and logistics
services in support of U.S. Army equipment in Iraq and Afghanistan. Our
revenues on this program were approximately $320 million for the year ended
December 31, 2008 and approximately $219 million for the year ended December
31, 2007. Most of the services on this program are provided by our
subcontractor. Profit margins on subcontract work such as this are lower as
compared to other programs where work is performed by our own personnel. We
provide certain program management services and we are accountable for
contract performance and compliance as the prime contractor. Program work on
current task orders is scheduled to expire in February 2009.

       CED Assured Mobility Systems Program - Our CED division has a program on
its Rapid Response support contract to provide technical support services in
support of U.S. Army PM Assured Mobility Systems and U.S. Army Tank-automotive
and Armaments Command ("TACOM"). Our revenues on this program were
approximately $93 million for the year ended December 31, 2008 and
approximately $28 million for the year ended December 31, 2007. In January
2009, we were awarded a $389 million follow-on task order on this program for
work that will run through January 2011.

       RCV Modernization Program - We were awarded a task order on our Rapid
Response support contract for a program to provide maintenance work on U.S.
Army Route Clearance Vehicles in Kuwait (the "RCV Modernization Program") in
September 2008. We expect the initial phase of this program to run for two
years under contractual coverage of approximately $194 million.

       	ELD - ELD provides full life cycle engineering, logistics, maintenance
and refurbishment services to extend and enhance the life of existing
equipment. ELD principally supports the U.S. Army, Army Reserve and Army
National Guard with core competencies in combat and combat service support
system conversions, technical research, sustainment and re-engineering, system
integration and configuration management.

       	FSS - We formed FSS in June 2007 to provide worldwide field maintenance
and logistics support services for a wide variety of military vehicles and
equipment, including performance of organizational, intermediate and
specialized depot-level maintenance. FSS principally supports the U.S. Army
and Marine Corps by providing specialized Field Service Representatives and
Field Support Teams in areas of combat operations and austere environments.

       	MSD - MSD provides services for product and process improvement,
supporting a variety of Government and commercial clients. MSD provides
training, consulting, and implementation support in the areas of: Enterprise
Excellence, Lean Six Sigma, process and product optimization, project

                                       20

management, leadership quality engineering, Integrated Product and Process
Development, and reliability engineering. MSD's services range from individual
improvement projects to global organizational change programs.

       	SED - SED provides comprehensive systems and software engineering,
logistics, and prototyping services to DoD. Our services offered through SED
principally support U.S. Army, Air Force, and Marine Corps combat and combat
support systems. SED's core competencies include: systems technical support,
configuration management and life cycle support for wheeled and tracked
vehicles and ground support equipment; obsolescence management, service life
extension, and technology insertion programs; and technical documentation and
data packages.

       	International Group - Our International Group provides engineering,
industrial, logistics and foreign military sales services to the U.S. military
and other government agencies. The divisions in this Group include BAV, FMD
and VCG.

       	BAV - Through BAV, we provide assistance to the U.S. Navy in executing
its Foreign Military Sales ("FMS") Program for surface ships sold, leased or
granted to foreign countries by providing program management, engineering,
technical support, logistics services for ship reactivations and transfers and
follow-on support. Our expertise includes: ship reactivation/transfer,
overhaul and maintenance, follow-on technical support, FMS integrated
logistics support, engineering and industrial services, training and spare and
repair parts support. The level of revenues and associated profits resulting
from fee income generated by this program varies depending on a number of
factors, including the timing of ship transfers and associated support
services ordered by foreign governments and economic conditions of potential
customers worldwide. Changes in the level of activity associated with the
Navy's ship transfer program have caused quarterly and annual revenue
fluctuations.

       	FMD - FMD provides global field engineering, logistics, maintenance and
information technology services to the U.S. Navy and Air Force, including
fleet-wide ship and aircraft support programs. FMD's expertise includes ship
repair and modernization, ship systems installations, ordnance engineering and
logistics, facility operations, war reserve materials management, aircraft
sustainment and maintenance automation and IT systems integration. FMD also
provides management, maintenance, storage and disposal support for the U.S.
Department of Treasury's seized and forfeited general property program.

       	Contract Field Teams Program - In July 2008, our FMD division was
awarded one of several prime contracts to support the United States Air Force
Contract Field Teams ("CFT") Program. The CFT Program awards have a maximum
ceiling of approximately $10.12 billion. Under the program, we are providing
rapid deployment and long-term support services for a variety of Air Force
requirements to maintain, repair and modernize equipment and systems. While
our revenues under the contract cannot be predicted; however, the award
provides us with the opportunity to compete for and expand our work performed
for the Air Force.

       	VCG - VCG provides the U.S. Coast Guard with FMS support and life cycle
support for vessels transferred to foreign governments. VCG's core
competencies include pre-transfer joint vessel inspections, reactivations,
crew training, transit assistance, heavy-lift contracting, logistics support,
technical support and overseas husbandry.

       IT, Energy and Management Consulting Group - Our IT, Energy and
Management Consulting Group provides technical and consulting services
primarily to various civilian government agencies. This group includes
Energetics and, as of April 2008, G&B.

	Energetics - Energetics provides technical and management support in
areas of nuclear energy, technology research, development, demonstration, and
consulting services in the field of energy and environmental management.
Energetics' expertise lies in state-of-the-art and advanced technology

                                       21

assessment, technical and economic feasibility analysis, technology transfer,
R&D program planning, engineering studies, market assessment, strategic
resource management, regulatory analysis, environmental compliance and risk
management. Customers include the U.S. Department of Energy, including the
Office of Nuclear Energy, Science and Technology; the U.S. Department of
Homeland Security; and other government agencies and commercial clients.

	G&B - G&B is an established information technology provider to many
government agencies, including the Departments of Homeland Security, Interior,
Labor, Agriculture, Housing and Urban Development, the Social Security
Administration, the Pension Benefit Guaranty Corporation, and the National
Institutes of Health. G&B's core expertise lies in enterprise architecture
development, information assurance/business continuity, program and portfolio
management, network IT services and systems design and integration. We acquired
G&B in April 2008 for an initial cash purchase price of approximately $19.5
million plus potential additional payments in future years if specified
financial targets are achieved. See Note 5 of "Notes to Consolidated Financial
Statements" for further discussion of this acquisition.

	Infrastructure Group - We formed our Infrastructure Group in the second
quarter of 2007, upon acquiring ICRC. We acquired ICRC in June 2007 for an
initial cash purchase price of approximately $11.8 million plus potential
additional payments in future years if specified financial targets are
achieved. See Note 5 of "Notes to Consolidated Financial Statements" for
further discussion of this acquisition. ICRC is engaged principally in
providing engineering and transportation infrastructure services.

       Port of Anchorage Contract - A significant amount of ICRC's revenues and
income comes from services performed for the Port of Anchorage in Alaska (the
"POA Project"). This intermodal expansion program to provide infrastructure
services to the port will significantly expand the size of the port's
facilities and allow for larger ships, more dock space, improved cargo flow,
improved traffic flow next to the port, more environmentally friendly port
operations and other modernization enhancements. Some of the infrastructure
services on this project typically cannot be performed during the winter
months. The seasonal nature of this work will cause fluctuations in our
revenues on this project, with higher revenue levels in summer months and
lower revenue levels in winter months. In July 2008, ICRC was awarded a new
unrestricted contract to continue work on this program. The contract has an
estimated ceiling amount of $704 million, a three-year base period of
performance, and four one-year option periods.
























                                        22

<TABLE>
                          Concentration of Revenues
                               (in thousands)

<CAPTION>
                                 2008               2007               2006
Source of Revenue              Revenues     %     Revenues     %     Revenues     %
- -----------------              --------     -     --------     -     --------     -
<S>                          <C>          <C>     <C>        <C>     <C>        <C>
CED Army Equipment Support   $  319,933   30.7    $218,615   33.5    $106,209   29.2
CED Assured Mobility
  Systems                        92,669    8.9      27,547    4.2           -     -
CED Other                       174,442   16.7      47,482    7.3      22,449    6.2
                             ----------  -----    --------  -----    --------  -----
  Total CED                     587,044   56.3     293,644   45.0     128,658   35.4

POA Project                      89,720    8.6      30,674    4.7           -     -

BAV Egypt                        49,926    4.8      51,295    7.9      51,446   14.1
BAV Taiwan                       12,842    1.2       6,348    1.0      45,729   12.6
BAV Greece                          999    0.1      11,312    1.7           5     -
BAV India                            55    0.0      38,337    5.9         971    0.3
BAV Other                        17,909    1.7       6,432    1.0       8,673    2.4
                             ----------  -----    --------  -----    --------  -----
  Total BAV                      81,731    7.8     113,724   17.5     106,824   29.4

Treasury Seized Asset
  Program                        55,580    5.3      53,690    8.2       1,345    0.4

Other                           229,660   22.0     161,432   24.6     126,907   34.8
                             ----------  -----    --------  -----    --------  -----
  Total Revenues             $1,043,735  100.0    $653,164  100.0    $363,734  100.0
                             ==========  =====    ========  =====    ========  =====
</TABLE>

Management Outlook

       	The growth in our revenues and profits during 2008 and 2007 presents us
with both challenges and opportunities. Our work in the DoD market increased
significantly in 2008 and several efforts within that market remain strong.
Our ELD division has expanded its workforce, facilities, capacity to provide
services, contractual coverage and funding since its inception, resulting in
increases in revenues from these services in 2008 and 2007. Our investment in
facilities and personnel to support this work leaves us well positioned to
serve DoD's growing need for our equipment refurbishment and sustainment
services. We expect further increases in this division's work going forward.
Based on congressional approval of certain ship transfers, we expect our BAV
division to show increases in ship transfer revenues in 2009 and potentially
future years. Our CED Assured Mobility Systems Program is expected to continue
to contribute significant revenues through its scheduled expiration in January
2011.

       	In addition to the growth in some of our current DoD programs, we expect
recent new awards to contribute to our revenues and profits going forward. The
award of the RCV Maintenance Program gives us a major new source of work over
the next two years and a key presence in Kuwait that presents us with the
potential for additional work there after. The award of the CFT Program
contract gives us the opportunity to increase our services performed for the
Air Force.

       	We also have three other multiyear, multiple award, indefinite delivery,
indefinite quantity ("omnibus") contracts that have large nominal ceiling
amounts with no funding committed at the time of award. These are the SeaPort
Enhanced contract with the U.S. Navy, the Field and Installation Readiness
Support Team ("FIRST") Contract with the U.S. Army, and the U.S. Army PEO CS &
CSS Omnibus III contract. We are one of several awardees on each contract.
While our future revenues from these contracts cannot be predicted with
certainty, these contracts provide us with the opportunity to compete for work
that could contribute to revenues.

                                        23

       	The expansion of current work in our ELD and BAV divisions and the new
work arising from the RCV Maintenance and CFT Programs help us to replace
certain work efforts that have supported our growth in recent years and have
expired or are due to expire. In November 2008, we successfully completed a
four-year, $96 million program to provide a protection system, the Tanker
Ballistic Protection System ("TBPS"), for vehicles deployed by the U.S. Army
in Iraq. The CED Army Equipment Support Program will expire in February 2009,
as scheduled.

       	Additionally, the U.S. Army informed us in January 2009 that they would
not consider our proposal for a new contract to succeed our current R2 Program
contract. We protested this decision. In February 2009, we were informed that
our protest was dismissed by the Department of the Army, Office of Command
Counsel, based on the protest being premature. The notice of dismissal states
the U.S. Army was entitled to delay debriefing us and the other excluded
bidders until after the award of the successor contract is granted. The
Command Counsel decision also encouraged the U.S. Army to provide us a
comprehensive post-award debriefing in accordance with applicable regulations.
We are evaluating our options regarding this matter, including the filing of a
protest after the award of the successor contract.

       	Our challenge over the next two years, should we be unsuccessful in our
efforts in challenging our exclusion from this award, will be to replace the
R2 Program revenues with other new revenues or to move the work performed
through the R2 contract to one of our other contracts. Our other omnibus
contracts can be used to accommodate work performed by our employees and
subcontractors. A large majority of our revenues on our R2 contract is "pass-
through" work performed by subcontractors. Pass-through work included the work
on the CED Army Equipment Support Program and the CED Assured Mobility Systems
Program. Pass-through revenues generally have lower profit margins than work
performed by our own personnel. We expect to continue our work on existing
task orders on our current R2 contract through the scheduled contract
expiration in January 2011.

       	We are augmenting our core base of DoD work by emphasizing growth in our
non-DoD services. These efforts have included: 1) a renewed emphasis on
marketing our Energetics services that has shown favorable results in 2008, 2)
work on the Treasury Seized Property Management program, and 3) the
acquisitions of ICRC in 2007 and G&B in 2008. We expect these efforts that are
directed toward the growth of our work in the Federal Civil marketplace to
contribute to overall future revenues growth and financial performance.

       	We also know there are other risks and uncertainties related to our
business. We recognize that 2009 is a government transition year and
government spending priorities may change in ways that we cannot predict at
this time.

       	To summarize our outlook, we believe our business prospects are both
bright and challenging. The momentum in revenues growth over the last two
years and our current backlog is expected to sustain us in 2009. We are
confident that the above-mentioned expansion of work in certain service
offerings and the newly awarded work in the DoD market; our growing level of
work in the Federal Civil marketplace; our increased emphasis on bolstering
our marketing efforts in both our DoD and Federal Civil markets; and our
continued commitment to grow through acquisitions positions us well to meet
the challenge of replacing expiring work beyond 2009 and other risks and
uncertainties related to our business.









                                        24

Bookings and Funded Backlog

       	Revenues in government contracting businesses are dependent upon
contract funding ("Bookings") and funded contract backlog is an indicator of
potential future revenues. A summary of our bookings and revenues for the
years ended December 31, 2008, 2007 and 2006, and funded contract backlog as
of December 31, 2008, 2007 and 2006 is as follows.

       	                                                (in  millions)
                                              2008           2007        2006
	                                      ----           ----        ----
Bookings . . . . . . . . . . . . . . . .    $1,189           $736        $388
Revenues . . . . . . . . . . . . . . . .    $1,044           $653        $364
Funded Backlog . . . . . . . . . . . . .      $567           $408        $299


VSE Stock in Employee 401(k) Plan and ESOP Accounts

       	We have decided that employees should have an opportunity to diversify
their 401(k) accounts in the VSE Employee ESOP/401(k) Plan (the "Plan")
beginning with our 2008 Plan year. In January 2008, employees were notified
that they may elect to transfer any portion of their 401(k) accounts that is
invested in VSE common stock into another investment alternative under the
Plan. This right extends to all of VSE common stock held under the 401(k)
portion of the Plan. In addition, we have decided to terminate and liquidate
the ESOP portion of the VSE Corporation Employee ESOP/401(k) Plan,  and as
elected by the employees, either distribute  VSE common stock held in the ESOP
accounts to the employees or rollover such VSE common stock into an Individual
Retirement Account or employee plan selected by the employee. ESOP VSE common
stock was distributed to employees in the third quarter of 2008.


Recent Accounting Pronouncements

       	In December 2007, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141(R), "Business Combinations; a replacement of FASB
Statement No. 141," which became effective January 1, 2009. The new standard
will replace existing guidance and significantly change accounting and
reporting relative to business combinations in consolidated financial
statements, including requirements to recognize acquisition-related
transaction and post acquisition restructuring costs in results of operations
as incurred. SFAS No. 141(R) will be effective for businesses acquired after
the effective date.

       	In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements," which became effective January 1, 2008 for all financial assets
and liabilities. SFAS No. 157 defines fair value, establishes a market-based
framework or hierarchy for measuring fair value and expands disclosures about
fair value measurements. The new standard generally is applicable whenever
another accounting pronouncement requires or permits assets and liabilities to
be measured at fair value. On February 12, 2008, the FASB issued FASB Staff
Position No. 157-2, "Effective Date of FASB Statement No. 157," to delay the
effective date of SFAS No. 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis (that is, at least annually).
For items within its scope, the FSP defers the effective date of SFAS No. 157
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The adoption of SFAS No. 157 did not have a material
impact on our results of operations, financial position or cash flows.


Critical Accounting Policies

       	Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require us
to make estimates and assumptions. We believe the following critical accounting
polices affect the more significant accounts, particularly those that involve

                                        25

judgments, estimates and assumptions used in the preparation of our
consolidated financial statements.

Revenue Recognition

       Substantially all of our services are performed for our customers on a
contract basis. The three primary types of contracts used are time and
materials, cost-type, and fixed-price. Revenues result from work performed on
these contracts by our employees and our subcontractors and from costs for
materials and other work related costs allowed under our contracts.

       Revenues for time and materials contracts are recorded on the basis of
contract allowable labor hours worked multiplied by the contract defined
billing rates, plus the direct costs and indirect cost burdens associated with
materials and subcontract work used in performance on the contract. Generally,
profits on time and material contracts result from the difference between the
cost of services performed and the contract defined billing rates for these
services.

       Revenues on cost-type contracts are recorded as contract allowable costs
are incurred and fees earned. Our BAV contract and our POA Project contract
are cost plus award fee contracts. Both of these contracts have terms that
specify award fee payments that are determined by performance and level of
contract activity. Award fees are made during the year a contract modification
authorizing the award fee payment is issued subsequent to the period in which
the work is performed. We do not recognize award fee income until the fees are
certain, generally upon contract notification confirming the award fee. Due to
such timing, and to fluctuations in the level of revenues, profits as a
percentage of revenues on these contracts will fluctuate from period to
period.

       Our contract with the Department of Treasury to support the Treasury
Seized Property Management Program, is a cost plus incentive fee contract that
contains certain conditions under which the incentive fee is earned. The
amount of incentive fee earned depends on our costs incurred on the contract
compared to certain target cost levels specified in the contract. Per the
contract, an assessment of actual costs compared to target costs is made once
annually. The target cost levels in this contract may be subject to
negotiation and change if the customer's scope of work required varies from
the scope of work originally contained in the contract. We recognize incentive
fee when the amount is fixed or determinable and the collectability is
reasonably assured. Due to the conditions under which the incentive fee for
this contract is awarded, and to the potential for changes in the cost targets
as work requirements vary, the full amount of incentive fee for the work we
perform in any one period may not be fixed or determinable and the
collectability may not be reasonably assured until a subsequent period. We are
currently in discussions with our customer regarding potential target cost
adjustments for the years 2007 and 2008. A favorable resolution from these
discussions could potentially result in additional incentive fee income for us
in a future period for work performed in 2007 and 2008.

       Revenue recognition methods on fixed-price contracts will vary depending
on the nature of the work and the contract terms. On certain fixed-price
contracts revenues are recorded as costs are incurred, using the percentage-
of-completion method of accounting, typically ratably over the service period,
since these contracts require design, engineering, and development performed
to the customer's specifications. Revenues on fixed-price service contracts
are recorded as work is performed, typically ratably over the service period.
Revenues on fixed-price contracts that require delivery of specific items may
be recorded based on a price per unit as units are delivered. Profits on
fixed-price contracts result from the difference between the incurred costs
and the revenues earned.



                                        26

       Revenues by contract type for the three years ended December 31, 2008
were as follows (in thousands):

                         2008               2007               2006
Contract Type          Revenues     %     Revenues     %     Revenues     %
- -------------          --------     -     --------     -     --------     -

Time and materials. $   759,693   72.8   $ 388,564   59.5   $ 172,766   47.5
Cost-type . . . . .     247,857   23.7     220,782   33.8     147,733   40.6
Fixed-price . . . .      36,185    3.5      43,818    6.7      43,235   11.9
                    -----------  -----   ---------  -----   ---------  -----
                    $ 1,043,735  100.0   $ 653,164  100.0   $ 363,734  100.0
                    ===========  =====   =========  =====   =========  =====


       The increases in time and materials revenues in 2008 and 2007 shown in
the table above is primarily attributable to revenues from the CED Army
Equipment Support Program and the CED Assured Mobility Systems Program as well
as other CED task orders. Substantially all of the revenues on these programs
result from the pass through of subcontractor support services that have a low
profit margin for us.

       We will occasionally perform work at risk, which is work performed prior
to the government formalizing funding for such work. Revenues related to work
performed at risk is not recognized until it can be reliably estimated and its
realization is probable. We recognize this "risk funding" as revenues when the
associated costs are incurred or the work is performed. We are at risk of loss
for any risk funding not received. We provide for anticipated losses on
contracts by a charge to income during the period in which losses are first
identified. Revenues recognized in 2008 include approximately $1.03 million
for which we had not received formalized funding as of December 31, 2008. We
received funding modifications for approximately $380 thousand of this amount
as of March 2009, leaving approximately $650 thousand of 2008 revenues
classified as risk funding. We believe that we are entitled to reimbursement
and will receive funding for the remaining risk funding revenue.

Long-Lived Assets

       	In assessing the recoverability of long-lived assets, we must make
assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded.

Goodwill and Intangible Assets

       	Goodwill and intangible assets with indefinite lives are subject to a
review for impairment at least annually. We perform our annual impairment test
as of September 30. The annual impairment assessment requires us to estimate
the fair value of our reporting units.  This estimation process involves the
use of subjective assumptions.  As of December 31, 2008, we had approximately
$1.1 million of goodwill associated with our acquisition of Energetics in 1995,
approximately $5.7 million of goodwill and intangible assets with indefinite
lives associated with our acquisition of ICRC in 2007, and approximately $11.5
million of goodwill and intangible assets with indefinite lives associated with
our acquisition of G&B in 2008. We have not recognized any reduction to the
goodwill or intangibles in accordance with generally accepted accounting
principles.

Recoverability of Deferred Tax Assets

       	The carrying value of our net deferred tax assets is based on
assumptions regarding our ability to generate sufficient future taxable income
to utilize these deferred tax assets. If the estimates and related assumptions
regarding our future taxable income change in the future, we may be required
to record valuation allowances against our deferred tax assets, resulting in
additional income tax expense.



                                        27

Results of Operations

                              Revenues from Operations
                               (dollars in thousands)
                              Years ended December 31,
                               2008              2007              2006
Company or Business Unit     Revenues     %    Revenues     %    Revenues    %
- ------------------------     --------     -    --------     -    --------    -

Federal Group
  CED                      $  587,044   56.2   $293,644   45.0   $128,658   35.4
  SED                          26,520    2.5     36,854    5.6     42,016   11.5
  ELD                          43,954    4.2     26,158    4.0     16,771    4.6
  FSS                           7,999    0.8      1,335    0.2          -     -
  MSD                           1,890    0.2      2,700    0.4      3,511    1.0
                           ----------  -----   --------  -----   --------  -----
    Group Total               667,407   63.9    360,691   55.2    190,956   52.5

International Group
  BAV                          81,731    7.8    113,724   17.4    106,824   29.4
  FMD                         137,655   13.2    112,805   17.3     50,480   13.9
  VCG                             635    0.1      1,472    0.2      1,148    0.3
                           ----------  -----   --------  -----   --------  -----
    Group Total               220,021   21.1    228,001   34.9    158,452   43.6

IT, Energy and
Management Consulting
Group
  Energetics                   19,161    1.8     14,522    2.2     14,269    3.9
  G&B                          30,664    3.0          -     -           -     -
  Other                           102     -           -     -           -     -
                           ----------  -----   --------  -----   --------  -----
    Group Total                49,927    4.8     14,522    2.2     14,269    3.9

Infrastructure Group
  ICRC                        106,380   10.2     49,918    7.7          -     -

Other                               -    0.0         32    0.0         57    0.0
                           ----------  -----   --------  -----   --------  -----
                           $1,043,735  100.0   $653,164  100.0   $363,734  100.0
       	                   ==========  =====   ========  =====   ========  =====

       	Our revenues increased by approximately 60% and 80% for the years ended
December 31, 2008 and 2007, as compared to the respective prior years. The
primary reason for the increases in revenues for 2008 and 2007 was additional
work associated with our CED R2 Program, including increased work on the CED
Army Equipment Support Program and the CED Assured Mobility Systems Program.
Additional significant reasons for the increase in our revenues in 2008 are:
1) ICRC is included in our financial results for the full year in 2008
compared to a shorter period in 2007 as a result of the June 2007 acquisition;
2) the inclusion of revenues of G&B from the April 14, 2008 date of
acquisition through year end; and 3) increases in FMD, ELD, FSS and Energetics
services.

       	Additional significant reasons for the increase in our revenues in 2007
are: 1) revenues from the start of FMD's Treasury Seized Property Management
Program and increases in other FMD services; 2) revenues from newly acquired
ICRC; 3) revenues associated with BAV's ship transfer to India; and 4) an
increase in ELD equipment refurbishment services.


                                        28

                                  Consolidated Statements of Income
                                        (dollars in thousands)
                                       Years ended December 31,
                                       ------------------------
Description                     2008      %      2007      %      2006      %
- -----------                    ----      -       ----      -      ----      -
Revenues                   $1,043,735  100.0  $653,164  100.0  $363,734  100.0
Contract costs              1,011,408   96.9   629,951   96.5   350,978   96.5
Gross profit                   32,327    3.1    23,213    3.5    12,756    3.5
Selling, general and
 administrative expenses       1,193    0.1        905    0.1       694    0.2
Interest income, net             (115)   0.0      (699)  (0.1)     (427)  (0.1)
                           ----------  -----  --------  -----  --------  -----
Income before income taxes     31,249    3.0    23,007    3.5    12,489    3.4
Provision for income taxes     12,209    1.2     8,905    1.4     4,700    1.3
                           ----------  -----  --------  -----  --------  -----
Net income                 $   19,040    1.8  $ 14,102    2.1  $  7,789    2.1
	                   ==========  =====  ========  =====  ========  =====

       	Our gross profits as a percentage of revenues have remained relatively
stable during the three year period from 2006 through 2008.

       	Our gross profit dollars increased in 2008 as compared to 2007. The
increases are primarily due to: 1) profits from the growth of revenues on the
CED Army Equipment Support program and other CED task orders; 2) the inclusion
of ICRC and FSS in our operating results for the full year in 2008 as compared
to only a partial year in 2007 and G&B beginning in April 2008; and 3)
revenues increases from Energetics services.

       	Our gross profit dollars increased in 2007 as compared to 2006. The
increase was primarily due to: 1) the inclusion of ICRC in our operating
results; 2) the increase in revenues on the CED Army Equipment Support program
and on other CED R2 Program task orders; 3) revenues and margin increases on
ELD's equipment refurbishment services; 4) increased profitability of SED
services performed; 5) increased BAV fee income; and 6) profits associated
with an increase in FMD revenues.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on our operating unit
contracts. As a percentage of revenues, these expenses varied little in 2008
and 2007 as compared to the respective prior years. The increase in these
expenses in 2008 and 2007 is due in part to the inclusion of ICRC's and G&B's
selling, general and administrative expenses in our results.

       	We did not have significant borrowing requirements or interest expense
in 2008, 2007 or 2006.  Our net interest income decreased in 2008 as compared
to 2007 due to cash requirements associated with our acquisition of G&B and
the growth of other parts of our business. Our net interest income increased
in 2007 as compared to 2006 as profits from operations and resulting cash
surpluses were invested.

Provision for Income Taxes

       	Our effective tax rates were 39.1% for 2008, 38.7% for 2007, and 37.6%
for 2006. The taxable income for 2007 reached a level that resulted in income
taxed at a 35% federal tax rate as compared to the prior years tax rate of
34%, resulting in an increased effective rate for 2008 and 2007 as compared to
2006.




                                         29


       	Federal Group Results

       	The following table shows consolidated operating results for our Federal
Group (in thousands).


                                2008      %      2007      %      2006      %
                                ----      -      ----      -      ----      -
Revenues                     $667,407  100.0  $360,691  100.0  $190,956  100.0
Contract costs                649,149   97.3   348,795   96.7   185,077   96.9
Gross profit                   18,258    2.7    11,896    3.3    $5,879    3.1
Selling, general and
 administrative expenses           43    0.0        73    0.0        24    0.0
Interest (income) expense        (379)  (0.1)     (252)   0.0       423    0.2
                             --------  -----  --------  -----  --------  -----
Income before income taxes   $ 18,594    2.8  $ 12,075    3.3  $  5,432    2.9
	                     ========  =====  ========  =====  ========  =====

       	Revenues for our Federal Group increased by approximately 85% and 89%
for the years ended December 31, 2008 and 2007, as compared to the respective
prior years. A substantial portion of the increases in revenues for 2008 and
2007 was attributable to revenues associated with work on R2 Program task
orders, including work on the CED Army Equipment Support Program and the CED
U.S. Army PM Assured Mobility Systems Program and work performed by FSS in
2008. Increased revenues from ELD's equipment refurbishment services also
contributed to the revenues increases in this segment in 2008 and 2007.

       	Gross profits for our Federal Group increased by approximately 53% and
102% for the years ended December 31, 2008 and 2007, as compared to the
respective prior years. Profits on the increased revenues from the work on the
CED Army Equipment Support Program, the CED U.S. Army PM Assured Mobility
Systems Program, and other R2 Program task orders were the primary reason for
the increased gross profit dollars in this segment. Substantially all of the
work on these task orders is performed by subcontractors. Accordingly, gross
profit as a percentage of revenues on this work is lower than on other work
performed. Increased profitability of SED services performed on the TBPS
Program contributed to the increase in gross profits of this segment in 2008
and 2007 and profits from the inclusion of FSS services in our operating
results contributed to the increase in gross profits of this segment in 2008.
These increases in profits were partially offset by a decline in ELD profits
resulting from losses on work performed during the establishment of a new
location in 2008. These losses are expected to be eliminated as the work
performed at this new location becomes more fully developed.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on our Federal Group's
contracts. As a percentage of revenues, these expenses varied little in 2008
and 2007 as compared to the respective prior years and have not been
significant in relation to revenues levels.

       	The Federal Group realized interest income from cash invested in 2008
and 2007. During these years, we benefited from efficient cash flow cycles on
certain CED task order work. This group incurred net interest expense in 2006
to finance the investment in SED's TBPS Program and the start up of ELD.












                                         30

       	International Group Results

       	The following table shows consolidated operating results for our
International Group (in thousands).


                                2008      %      2007      %      2006      %
                                ----      -      ----      -      ----      -
Revenues                     $220,021  100.0  $228,001  100.0  $158,452  100.0
Contract costs                214,146   97.3   220,623   96.8   153,130   96.6
Gross profit                    5,875    2.7     7,378    3.2     5,322    3.4
Selling, general and
 administrative expenses           46    0.0        67    0.0        93    0.1
Interest expense (income)         110    0.1      (124)  (0.1)     (258)  (0.2)
                             --------  -----  --------  -----  --------  -----
Income before income taxes   $  5,719    2.6  $  7,435    3.3  $  5,487    3.5
       	                     ========  =====  ========  =====  ========  =====

       	Revenues for our International Group decreased by approximately 3% for
the year ended December 31, 2008 and increased by approximately 44% for the
year ended December 31, 2007, as compared to the respective prior years. Our
BAV division had approximately $36.8 million of 2007 revenues from a ship
transfer to India that was completed in 2007, and there was no similar ship
transfer in 2008. This resulted in lower BAV revenues and was the primary
reason for the decrease in revenues for our International Group in 2008. The
increase in 2007 revenues was primarily due to revenues provided by the start
of FMD's Treasury Seized Property Management Program and to revenues
associated with BAV's ship transfer to India.

       	Gross Profits for our International Group decreased by approximately 20%
for the year ended December 31, 2008 and increased by approximately 39% for
the year ended December 31, 2007, as compared to the respective prior years.
The decrease in 2008 resulted primarily from the reduction in fees earned by
BAV due to the lower BAV revenues. The increase in 2007 was primarily due to
increased BAV fee income and profits from higher revenues in FMD.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on the International
Group's contracts. As a percentage of revenues, these expenses varied little
in 2008 and 2007 as compared to the respective prior years and have not been
significant in relation to revenues.

       	Our International Group had net interest expense in 2008 and net
interest income decreased for this segment in 2007 as compared to the prior
year due to an investment in the start up of FMD's Treasury Seized Asset
Program and a slower collections cycle on this job.


       	IT, Energy and Management Consulting Group Results

       	The following table shows consolidated operating results for our IT,
Energy and Management Consulting Group (in thousands).


                                2008      %      2007      %      2006      %
                                ----      -      ----      -      ----      -
Revenues                      $49,927  100.0   $14,522  100.0   $14,269  100.0
Contract costs                 44,999   90.1    13,139   90.5    12,665   88.8
Gross profit                    4,928    9.9     1,383    9.5     1,604   11.2
Selling, general and
 administrative expenses          375    0.8        41    0.3        27    0.2
Interest income, net             (198)  (0.4)     (272)  (1.9)     (218)  (1.5)
                              -------  -----   -------  -----   -------  -----
Income before income taxes    $ 4,751    9.5   $ 1,614   11.1   $ 1,795   12.5
       	                      =======  =====   =======  =====   =======  =====

                                         31

       	Upon our acquisition of G&B in April 2008, G&B became part of this
segment. The inclusion of G&B revenues and profits in this segment has
resulted in significant increases to the segment's revenues and profits in
2008. Comparisons of 2008 results to prior years are not meaningful.

       	Revenues for our IT, Energy and Management Consulting Group increased by
approximately 244% and 2% for the years ended December 31, 2008 and 2007, as
compared to the respective prior years. The increases in revenues for both
years was a result of our increased emphasis on marketing efforts and to new
work performed for the U.S. Department of Homeland Security and U.S.
Department of Energy and the inclusion of G&B revenues in 2008.

       	Gross profits for our IT, Energy and Management Consulting Group
increased by approximately 256% for the year ended December 31, 2008 and
decreased by approximately 14% for the year ended December 31, 2007, as
compared to the respective prior years. The increase in 2008 was primarily due
to the increased revenues. The decrease in 2007 was primarily due to job costs
incurred on certain contract task orders in excess of authorized ceilings.

       	Selling, general and administrative expenses consist primarily of costs
and expenses that are not chargeable or reimbursable on our contracts. The
increase in these costs for this segment in 2008 is due to the inclusion of
G&B's results in this segment. Except for the inclusion of G&B's selling,
general and administrative expenses, these expenses varied little as a
percentage of revenues in 2008 and 2007 as compared to the respective prior
years and have not been significant in relation to revenue levels.

       	Interest income for our IT, Energy and Management Consulting Group
decreased slightly in 2008 and increased slightly in 2007 as compared to the
respective prior years due to typical fluctuations in earnings and the billing
and collections cycle.


       	Infrastructure Group

       	The following table shows consolidated operating results for the
Infrastructure and Information Technology Group (in thousands).

                                2008      %       2007      %
                                ----      -       ----      -
Revenues                     $106,380  100.0    $49,918  100.0
Contract costs                102,131   96.0     46,844   93.8
Gross profit                    4,249    4.0      3,074    6.2
Selling, general and
 administrative expenses          154    0.1        310    0.6
Interest income, net              (72)   0.0        (44)   0.0
Income before income taxes   $  4,167    3.9    $ 2,808    5.6


       	This segment was formed upon our acquisition of ICRC in June 2007. The
table shows our results for the period of June through December of 2007 and
for a full year of 2008. Comparisons of 2008 results to 2007 results are not
meaningful, beyond the additional six months of operations included in 2008.


Financial Condition

       	Our financial condition did not change materially during 2008. Our
acquisition of G&B resulted in changes to some of our assets and liabilities,
including increases in tangible assets and liabilities, bank borrowings,
goodwill, and intangible assets. Other changes to asset and liability accounts
were due primarily to our earnings, the increase in our level of business
activity, contract delivery schedules, subcontractor and vendor payments

                                         32

required to perform our work, and the timing of associated billings to and
collections from our customers.


Liquidity and Capital Resources

Cash Flows

       Cash and cash equivalents increased by approximately $529 thousand
during 2008.

       Cash provided by our operating activities in 2008 increased by
approximately $14.7 million in 2008 as compared to 2007. Approximately $4.9
million of this increase was due to the increase in net income and
approximately $4.4 million was due to an increase in deferred taxes,
depreciation and amortization and other non-cash operating activities. The
remaining amount of the increase in cash provided by operating activities was
due to changes in the levels of working capital components such as
receivables, contract inventories, accounts payable, and accrued expenses that
are associated with our contract requirements and billing and collections
cycle.

       Cash used in our investing activities in 2008 increased by approximately
$8.3 million as compared to 2007. This was due to the higher cost of acquiring
G&B in 2008 compared to the cost acquiring of ICRC in 2007, additional
payments associated with the cost of acquiring ICRC made in 2008, and to an
increased level of investment in property and equipment.

       Cash provided by our financing activities in 2008 increased by a net
amount of approximately $2.8 million as compared to 2007. This resulted from
an increase of approximately $6.6 million in net bank borrowings and a
decrease of approximately $3.6 in cash provided by activity associated with
our stock incentive plans.

       Our cash and cash equivalents decreased by approximately $8.6 million
during 2007.

       Cash provided by our operating activities in 2007 increased by
approximately $6.6 million in 2007 as compared to 2006. Approximately $6.3
million of this increase was due to the increase in net income and
approximately $1.6 million was due to an increase in depreciation and
amortization and other non-cash operating activities. The difference between
these increases and the net increase in cash provided by operating activities
was due to changes in the levels of working capital components such as
receivables, contract inventories, accounts payable, and accrued expenses that
are associated with our contract requirements and billing and collections
cycle.

       Cash used in our investing activities in 2007 increased by approximately
$14.9 million as compared to 2006. This was due to costs associated with the
acquisition of ICRC and to an increased level of investment in property and
equipment.

       Cash provided by our financing activities in 2007 increased by
approximately $3.6 million as compared to 2006. This was primarily due to cash
provided by activity associated with our stock incentive plans.

       We paid quarterly cash dividends totaling $.17 per share during 2008.
Pursuant to our bank loan agreement, our payment of cash dividends is subject
to annual rate restrictions. We have paid cash dividends each year since 1973.

Liquidity

       	Our internal sources of liquidity come mostly from operating activities,
specifically from changes in the level of revenues and associated receivables
and accounts payable, and from profitability. Significant increases or
decreases in revenue and receivables and accounts payable can cause

                                         33

significant increases or decreases in internal liquidity. Our receivables and
accounts payable levels can be affected by changes in the level of the work we
perform and by the timing of large material purchases and subcontractor
efforts related to our contracts.

       	From time to time, we may also invest in the acquisition of another
company. Our acquisitions of ICRC in 2007 and G&B in 2008 required a
significant use of our cash. While there are no firm plans for any specific
additional acquisitions at this time, we continue to seek opportunities for
growth through acquisition.

       	We may also invest in expansion, improvement, and maintenance of our
operational and administrative facilities. We recently invested in the
construction of an additional 40,000 square feet of warehouse and shop space
at our Ladysmith, Virginia facility. Construction of this additional space was
completed in the second quarter of 2008 at a final cost of approximately $6.2
million. We may make additional investments in operational or administrative
facilities in future years.

       Our external liquidity consists of a loan agreement with a bank that
provides us with revolving loans and letters of credit. The amount of credit
available to us as of December 31, 2008 was $35 million (an increase from $25
million pursuant to an amendment dated May 21, 2008) and the maturity date of
the loan agreement is May 10, 2010, unless extended. From time to time we may
request changes in the amount, maturity date, or other terms and the bank may
amend the loan to accommodate our request. The amount of credit available to
us under the loan agreement is subject to certain conditions, including a
borrowing formula based on our billed receivables. Under the terms of the loan
agreement, we may borrow against the revolving loan at any time and can repay
the borrowings at any time without premium or penalty. There are collateral
requirements that secure our assets, restrictive covenants, a limit on annual
dividends, and other affirmative and negative covenants. We pay a commitment
fee, interest on any revolving loan borrowings at a prime-based rate or an
optional LIBOR-based rate, and fees on any letters of credit that are issued.
For additional information, see Note 7 of "Notes to Consolidated Financial
Statements."

       	Our bank continues to maintain good financial strength ratings from the
ratings services and we believe that we are well positioned to obtain
financing from other banks if the need should arise. Accordingly, we do not
believe that the current turbulence in the financial markets will have a
material adverse negative impact on our ability to finance our business,
financial condition, or results of operations. We currently do not use public
debt security financing.

Contractual Obligations

       The following table shows our consolidated contractual obligations as of
December 31, 2008 (in thousands):


                                         Payments Due by Period
                               --------------------------------------------
                                      Less than     1-3      4-5    After 5
Contractual Obligations        Total    1 year     years    years    years
- -----------------------        -----    ------     -----    -----    -----
Operating leases, net of
non-cancelable sublease
income                       $39,417    $8,898   $14,912  $10,063   $5,544
Purchase obligations           1,065     1,065         -        -        -
                             -------    ------   -------  -------   ------
Total                        $40,482    $9,963   $14,912  $10,063   $5,544
                             =======    ======   =======  =======   ======

       Operating lease commitments are primarily for our principal executive
and administrative offices and leased facilities for office, shop, and
warehouse space located near customer sites or to serve customer needs. We

                                         34

also have some equipment and software leases that are included in these
amounts.

       	Purchase obligations consist primarily of contractual commitments
associated with construction, improvements and maintenance on our facilities.
The table excludes contractual commitments for materials or subcontractor work
purchased to perform U.S. Government contracts. Such commitments for materials
and subcontractors are reimbursable when used on the contracts, and generally
are also reimbursable if a contract is "terminated for convenience" by the
Government pursuant to federal contracting regulations.


Inflation and Pricing

       	Most of our contracts provide for estimates of future labor costs to be
escalated for any option periods, while the non-labor costs in our contracts
are normally considered reimbursable at cost. Our property and equipment
consists principally of computer systems equipment, furniture and fixtures,
shop equipment, and land and improvements. We do not expect the overall impact
of inflation on replacement costs of our property and equipment to be material
to our future results of operations or financial condition.


ITEM 7A.   Quantitative and Qualitative Disclosures About Market Risks


Interest Rates

       	Our bank loan provides available borrowing to us at variable interest
rates. We used a significant amount of cash to pay for our acquisitions of
ICRC in 2007 and G&B in 2008, causing us to have to borrow on our bank loan
beginning in April 2008. The amount borrowed is not significant with respect
to our cash flows and we believe that we will be able to pay down these bank
loan borrowings in a relatively short time frame. Because of this, we do not
believe that any adverse movement in interest rates would have a material
impact on future earnings or cash flows. If we were to significantly increase
our borrowings, future interest rate changes could potentially have a material
impact on our financial position and results of operations.



























                                          35


	ITEM 8.    Financial Statements and Supplementary Data



                            Index To Financial Statements


  							                Page
                                                                        ----
      Report of Independent Registered Public Accounting Firm  . . . .   37
      Consolidated Balance Sheets as of December 31, 2008 and 2007 . .   38
      Consolidated Statements of Income for the years ended
            December 31, 2008, 2007, and 2006  . . . . . . . . . . . .   39
      Consolidated Statements of Stockholders' Equity
            for the years ended December 31, 2008, 2007, and 2006  . .   40
      Consolidated Statements of Cash Flows for the years ended
            December 31, 2008, 2007, and 2006  . . . . . . . . . . . .   41
      Notes to Consolidated Financial Statements . . . . . . . . . . .   42




































                                         36

           Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of VSE Corporation

We have audited the accompanying consolidated balance sheets of VSE
Corporation and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2008.  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of VSE Corporation
and subsidiaries at December 31, 2008 and 2007, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), VSE Corporation's internal control
over financial reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
March 2, 2009 expressed an unqualified opinion thereon.

							/s/ Ernst & Young LLP

McLean, VA
March 2, 2009

                                         37

<TABLE>
VSE Corporation and Subsidiaries
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
(in thousands, except share and per share amounts)
<CAPTION>
                                                           As of December 31,
                                                             2008      2007
                                                             ----      ----
<S>                                                       <C>        <C>
Assets
Current assets:
  Cash and cash equivalents  . . . . . . . . . . . . . .  $    638   $   109
  Receivables, principally
    U.S. Government, net . . . . . . . . . . . . . . . .   206,717   132,389
  Deferred tax assets  . . . . . . . . . . . . . . . . .     2,297     1,246
  Other current assets . . . . . . . . . . . . . . . . .    10,945     2,755
                                                          --------  --------
      Total current assets . . . . . . . . . . . . . . .   220,597   136,499

Property and equipment, net  . . . . . . . . . . . . . .    21,484    14,920
Deferred tax assets  . . . . . . . . . . . . . . . . . .         -     1,888
Intangible assets  . . . . . . . . . . . . . . . . . . .    11,176     8,034
Goodwill . . . . . . . . . . . . . . . . . . . . . . . .    17,439     5,228
Other assets . . . . . . . . . . . . . . . . . . . . . .     5,270     5,202
                                                          --------  --------
      Total assets . . . . . . . . . . . . . . . . . . .  $275,966  $171,771
	                                                  ========  ========
Liabilities and Stockholders' Equity
Current liabilities:
  Bank notes payable . . . . . . . . . . . . . . . . . .  $  6,676  $     81
  Accounts payable . . . . . . . . . . . . . . . . . . .   158,015    88,565
  Accrued expenses . . . . . . . . . . . . . . . . . . .    31,498    22,895
  Dividends payable  . . . . . . . . . . . . . . . . . .       229       202
                                                          --------  --------
      Total current liabilities  . . . . . . . . . . . .   196,418   111,743

Deferred compensation  . . . . . . . . . . . . . . . . .     2,059     3,257
Deferred income taxes  . . . . . . . . . . . . . . . . .       404         -
Other liabilities  . . . . . . . . . . . . . . . . . . .       962       395
                                                          --------  --------
      Total liabilities  . . . . . . . . . . . . . . . .   199,843   115,395
                                                          --------  --------
Commitments and contingencies

Stockholders' equity:
  Common stock, par value $0.05 per share, authorized
    15,000,000 shares; issued and outstanding 5,098,542
    and 5,052,512, respectively  . . . . . . . . . . . .       255       253
  Additional paid-in capital . . . . . . . . . . . . . .    13,557    11,963
  Retained earnings  . . . . . . . . . . . . . . . . . .    62,311    44,160
                                                          --------  --------
      Total stockholders' equity . . . . . . . . . . . .    76,123    56,376
                                                          --------  --------
      Total liabilities and stockholders' equity . . . .  $275,966  $171,771
                                                          ========  ========
</TABLE>















	The accompanying notes are an integral part of these balance sheets

                                         38

<TABLE>
VSE Corporation and Subsidiaries
Consolidated Statements of Income
- -----------------------------------------------------------------------------
(in thousands, except share and per share amounts)
<CAPTION>

                                             For the years ended December 31,
                                                 2008       2007       2006
                                                 ----       ----       ----
<S>                                         <S>         <S>        <S>
Revenues . . . . . . . . . . . . . . . . .  $1,043,735  $ 653,164  $ 363,734

Contract costs  . . . . . . . . .  . . . .   1,011,408    629,951    350,978
	                                    ----------  ---------  ---------
Gross profit . . . . . . . . . . . . . . .      32,327     23,213     12,756

Selling, general and administrative expenses     1,193        905        694

Interest income, net . . . . . . . . . . .        (115)      (699)      (427)
	                                    ----------  ---------  ---------
Income before income taxes . . . . . . . .      31,249     23,007     12,489

Provision for income taxes . . . . . . . .      12,209      8,905      4,700
	                                    ----------  ---------  ---------

Net income . . . . . . . . . . . . . . . .  $   19,040  $  14,102  $   7,789
	                                    ==========  =========  =========

Basic earnings per share:                   $     3.75  $    2.85  $    1.64
	                                    ==========  =========  =========
Basic weighted average shares outstanding    5,072,131  4,953,289  4,737,450
	                                    ==========  =========  =========

Diluted earnings per share:                 $     3.74  $    2.82  $    1.61
	                                    ==========  =========  =========
Diluted weighted average shares
 outstanding . . . . . . . . . . . . . . .   5,096,186  5,003,675  4,848,884
	                                    ==========  =========  =========
</TABLE>





























	The accompanying notes are an integral part of these financial statements.

                                         39

<TABLE>
VSE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
- -----------------------------------------------------------------------------------------------
(in thousands except per share data)
<CAPTION>

                                            Additional    Deferred                  Total
                             Common Stock     Paid-In   Stock-based    Retained   Stockholders'
                            Shares   Amount   Capital   Compensation   Earnings     Equity
                            ------   ------   -------   ------------   --------     ------
<S>                          <C>     <C>     <C>          <C>          <C>          <C>
Balance at
  December 31, 2005          4,720   $ 236   $ 6,230      $  (1)       $ 23,686     $30,151

Net income for the year . .      -       -         -          -           7,789       7,789
Stock-based compensation  .      4       -       308          -               -         308
Exercised stock options . .     62       4       253          -               -         257
Excess tax benefits from
  share-based payment
  arrangements. . . . . . .      -       -       312          -               -         312
Deferred stock-based
  compensation  . . . . . .      -       -         -          1               -           1
Issuance of stock . . . . .      2       -        60          -               -          60
Dividends declared ($0.14).      -       -         -          -            (642)       (642)
                             -----   -----   -------      -----        --------     -------
Balance at
  December 31, 2006          4,788     240     7,163          -          30,833      38,236

Net income for the year . .      -       -         -          -          14,102      14,102
Stock-based compensation  .      5       -       551          -               -         551
Exercised stock options . .    260      13     2,004          -               -       2,017
Excess tax benefits from
  share-based payment
  arrangements. . . . . . .      -       -     2,245          -               -       2,245
Dividends declared ($0.155)      -       -         -          -            (775)       (775)
                             -----   -----   -------      -----        --------     -------
Balance at
  December 31, 2007          5,053     253    11,963          -          44,160      56,376

Net income for the year . .      -       -         -          -          19,040      19,040
Stock-based compensation (1)    14       1       955          -               -         956
Exercised stock options . .     32       1       324          -               -         325
Excess tax benefits from
  share-based payment
  arrangements. . . . . . .      -       -       315          -               -         315
Dividends declared ($0.175)      -       -         -          -            (889)       (889)
                             -----   -----   -------      -----        --------     -------
Balance at
  December 31, 2008          5,099   $ 255   $13,557      $   -        $ 62,311     $76,123
                             =====   =====   =======      =====        ========     =======

(1) The stock-based compensation amount of $956 thousand for 2008 is based on the
         compensation expense included in Contract costs of $1,062 thousand, reduced by
         the tax withholding associated with the 2007 awards issued in March, 2008.

</TABLE>






















	The accompanying notes are an integral part of these financial statements.

                                         40

<TABLE>
VSE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
                                                                For the years ended December 31,
                                                                     2008     2007     2006
                                                                     ----     ----     ----
<S>                                                                <C>      <C>      <C>
Cash flows from operating activities:
  Net income  . . . . . . . . . . . . . . . . . . . . . . . . . .  $19,040  $14,102  $ 7,789
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization   . . . . . . . . . . . . . .    5,437    3,463    1,882
      Loss on sale of property and equipment  . . . . . . . . . .       10        -        9
      Deferred taxes  . . . . . . . . . . . . . . . . . . . . . .    1,241     (805)    (614)
      Stock-based compensation  . . . . . . . . . . . . . . . . .      956      551      308
Changes in operating assets and liabilities,
      net of impact of acquisitions:
      Receivables, net  . . . . . . . . . . . . . . . . . . . . .  (66,928) (59,141) (22,804)
      Contract inventories  . . . . . . . . . . . . . . . . . . .        -    4,459     (186)
      Other current assets and noncurrent assets  . . . . . . . .   (8,361)  (1,254)  (1,310)
      Accounts payable and deferred compensation. . . . . . . . .   65,513   41,812   15,144
      Accrued expenses  . . . . . . . . . . . . . . . . . . . . .    5,596    4,826    1,308
      Other liabilities . . . . . . . . . . . . . . . . . . . . .      421      235      105
                                                                   -------  -------  -------
          Net cash provided by operating activities                 22,925    8,248    1,631
                                                                   -------  -------  -------
Cash flows from investing activities:
  Purchases of property and equipment . . . . . . . . . . . . . .  (10,016)  (8,731)  (5,618)
  Acquisitions, net of cash acquired   . . . . . .  . . . . . . .  (18,753) (11,755)       -
                                                                   -------  -------  -------
          Net cash used in investing activities                    (28,769) (20,486)  (5,618)
                                                                   -------  -------  -------
Cash flows from financing activities:
   Borrowings on loan arrangement . . . . . . . . . . . . . . . .  245,864    9,589        -
   Repayments on loan arrangement . . . . . . . . . . . . . . . . (239,269)  (9,508)       -
   Dividends paid   . . . . . . . . . . . . . . . . . . . . . . .     (862)    (741)    (615)
   Excess tax benefits from share-based payment arrangements  . .      315    2,245      312
   Proceeds from the exercise of options of common stock  . . . .      325    2,017      258
   Proceeds from issuance of common stock   . . . . . . . . . . .        -        -       60
                                                                   -------  -------  -------
          Net cash provided by financing activities                  6,373    3,602       15
                                                                   -------  -------  -------

Net increase (decrease) in cash and cash equivalents  . . . . . .      529   (8,636)  (3,972)
  Cash and cash equivalents at beginning of year  . . . . . . . .      109    8,745   12,717
                                                                   -------  -------  -------
  Cash and cash equivalents at end of year  . . . . . . . . . . .  $   638  $   109  $ 8,745
                                                                   =======  =======  =======
Supplemental cash flow disclosures (in thousands):

                                                                     2008     2007     2006
                                                                     ----     ----     ----
Cash paid during the year for:
  Interest  . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   214  $     6  $     -
  Income taxes  . . . . . . . . . . . . . . . . . . . . . . . . .  $10,919  $ 7,139  $ 4,472

</TABLE>
















	The accompanying notes are an integral part of these financial statements.

                                         41

                      VSE Corporation and Subsidiaries
                 Notes to Consolidated Financial Statements
                              December 31, 2008


(1)  Nature of Business and Significant Accounting Policies

Nature of Business

       The term "VSE," the "Company," "us," "we," or "our" means VSE and its
subsidiaries and divisions unless the context indicates operations on the
parent company only.

       Our business operations consist primarily of diversified engineering,
logistics, management, and technical services performed on a contract basis.
Substantially all of our contracts are with agencies of the United States
Government (the "Government") and other federal government prime contractors.
Our customers also include non-government organizations and commercial
entities.


Significant Accounting Policies

Principles of Consolidation

       	The consolidated financial statements consist of the operations of our
parent company, our unincorporated divisions and wholly owned subsidiaries. Our
unincorporated divisions include BAV Division ("BAV"), Communications and
Engineering Division ("CED"), Coast Guard Division ("VCG") Engineering and
Logistics Division ("ELD"), Field Support Services Division ("FSS"), Fleet
Maintenance Division ("FMD"), Management Sciences Division ("MSD"), and Systems
Engineering Division ("SED").  Energetics Incorporated ("Energetics"),
Integrated Concepts and Research Corporation ("ICRC"), acquired in June 2007,
and G&B Solutions, Inc. ("G&B"), acquired in April 2008, are our active
subsidiaries. All intercompany transactions have been eliminated in
consolidation.

Use of Estimates in the Preparation of Financial Statements

       The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates affecting the financial statements include accruals for
contract disallowance reserves, self insured health claims, and estimated
cost-to-complete on certain fixed-price contracts.

Reclassifications

       Certain amounts from the prior year have been reclassified to conform to
the current year presentation.  Such reclassifications were not material.

Stock-based Compensation

     Effective January 1, 2006, we adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment,"  ("SFAS No. 123R")
using the modified prospective method. Under this method, compensation costs
for all awards granted after the date of adoption and the unvested portion of
previously granted awards outstanding at the date of adoption are measured at
estimated fair value. The compensation expense is amortized on a straight-line
basis over the requisite service period of the grant and included in operating
expenses over the vesting period during which an employee provides service in
exchange for the award. See Note 9 for further discussion of our stock-based
benefit plans and related activity.

                                         42


Earnings Per Share

       Basic earnings per share have been computed by dividing net income by
the weighted average number of shares of common stock outstanding during each
period. Shares issued during the period and shares reacquired during the
period are weighted for the portion of the period that they were outstanding.
Diluted earnings per share have been computed in a manner consistent with that
of basic earnings per share while giving effect to all potentially dilutive
common shares that were outstanding during each period.  Potentially dilutive
common shares include incremental common shares issuable upon exercise of
stock options.

                                           Years Ended December 31,
                                         2008        2007        2006
                                         ----        ----        ----
   Basic weighted average
     common shares outstanding . .   5,072,131   4,953,289   4,737,450

   Effect of dilutive options  . .      24,055      50,386     111,434
                                     ---------   ---------   ---------
   Diluted weighted average
     common shares outstanding  . .  5,096,186   5,003,675   4,848,884
                                     =========   =========   =========

Cash and Cash Equivalents

       We consider all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Due to the short maturity of
these instruments, the carrying values on our consolidated balance sheets
approximate fair value.

Property and Equipment

       Property and equipment is stated at cost. Depreciation of computer
systems equipment is provided principally by the double-declining method over
periods of three to five years. Depreciation of furniture and fixtures is
provided principally by the straight-line method over approximately nine
years. Depreciation of other equipment is provided principally by the double-
declining method over periods of three to ten years. Depreciation of buildings
and land improvements is provided principally by the straight-line method over
periods of approximately twenty to thirty years. Amortization of leasehold
improvements is provided by the straight-line method over the lesser of their
useful life or the remaining term of the lease.

Concentration of Credit Risk/Fair Value of Financial Instruments

       Financial instruments that potentially subject us to concentration of
credit risk consist primarily of cash, cash equivalents and trade receivables.
Contracts with the Government either as a prime or subcontractor, accounted
for approximately 99% of revenues for each of the years ending December 31,
2008, 2007, and 2006. We believe that concentrations of credit risk with
respect to trade receivables are limited as they are primarily government
receivables. We believe that the fair market value of all financial
instruments, including assets of the deferred compensation plan and debt,
approximate book value.

Revenues

       Substantially all of our revenues result from contract services
performed for the Government or for contractors engaged in work for the
Government under a variety of contracts. Revenues are considered earned when
persuasive evidence of an arrangement exists, services have been rendered, the
price is fixed or determinable and collectibility is reasonably assured.

       Revenues on cost-type contracts are recorded as contract allowable costs
are incurred and fees earned. Award fee payments on certain cost plus award
fee contracts are determined by performance and level of contract activity. We

                                         43

do not recognize award fee income until the fees are fixed or determinable,
generally upon contract notification confirming the award fee.

       Revenues for time and materials contracts are recorded on the basis of
contract allowable labor hours worked multiplied by the contract defined
billing rates, plus the direct costs and indirect cost burdens associated with
materials and subcontract work used in performance on the contract. Profits on
time and material contracts result from the difference between the cost of
services performed and the contract defined billing rates for these services.

       Revenue recognition methods on fixed-price contracts vary depending on
the nature of the work and the contract terms. On certain fixed-price
contracts revenues are recorded as costs are incurred, using the percentage-
of-completion method of accounting, since these contracts require design,
engineering, and development performed to the customer's specifications.
Revenues on fixed-price service contracts are recorded as work is performed.
Revenues on fixed-price contracts that require delivery of specific items may
be recorded based on a price per unit as units are delivered. Profits on
fixed-price contracts result from the difference between the incurred costs
and the revenue earned.

       For design and development contracts, we provide for anticipated losses
on contracts, based on total revenue compared to total contract costs, by a
charge to income during the period in which losses are first identified.
Contract costs include direct and indirect costs, including general and
administrative costs, which are considered costs and expenses of contracts.

       Revenue related to work performed on contracts at risk, which is work
performed at the customer's request prior to the government formalizing
funding, is not recognized as income until it can be reliably estimated and
its realization is probable.

       A substantial portion of contract and administrative costs is subject to
audit by the Defense Contract Audit Agency.  Our indirect cost rates have been
audited and approved for 2005 and prior years and partially audited for 2006
with no material adjustments to our results of operations or financial
position.  While we maintain reserves to cover the risk of potential future
audit adjustments based primarily on the results of prior audits, there can be
no assurances that the audits of the indirect cost rates for 2008, 2007 and
2006 will not result in material adjustments to our results of operations or
financial position.

Receivables and Allowance for Doubtful Accounts

       Receivables are recorded at face value less an allowance for doubtful
accounts.  We review our receivables regularly to determine if there are any
potential uncollectible accounts.  The majority of our receivables are from
agencies of the Government, where there is minimal credit risk.  We record
allowances for bad debt as a reduction to receivables and an increase to bad
debt expense. We assess the adequacy of these reserves by considering general
factors, such as the length of the time individual receivables are past due
and historical collection experience.  There are no reserves for doubtful
accounts as of December 31, 2008.

Deferred Compensation Plans

       We have a deferred compensation plan, the VSE Corporation Deferred
Supplemental Compensation Plan, to provide incentive and reward for our
management team based on overall corporate performance.  Deferred compensation
plan expense for the years ended December 31, 2008, 2007, and 2006 was
approximately $1.4 million, $1.1 million, and $769 thousand, respectively.

       Included in other assets are assets of the deferred compensation plans
which include debt and equity securities recorded at fair value. The fair
value of the deferred compensation plan assets was approximately $3.3 million
and $3.2 million as of December 31, 2008, and 2007, respectively. Because plan

                                         44

participants are at risk for market value changes in these assets, the
liability to plan participants fluctuates with the asset values.

Impairment of Long-Lived Assets

       Long-lived assets include property and equipment to be held and used.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount should be addressed pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."  The criteria for
determining impairment for such long-lived assets to be held and used are
determined by comparing the carrying value of these long-lived assets to our
best estimate of future undiscounted cash flows expected to result from the
use of the assets. No impairment charges were recorded in the years ended
December 31, 2008, 2007, and 2006.

Income Taxes

       Income taxes are accounted for under the asset and liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes." Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. This method also
requires the recognition of future tax benefits such as net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

       The carrying value of net deferred tax assets is based on assumptions
regarding our ability to generate sufficient future taxable income to utilize
these deferred tax assets.  As of December 31, 2008 and 2007, we had valuation
allowances of approximately $75 thousand and $0, respectively, against certain
deferred tax assets, which consisted solely of realized capital losses on
investments in our deferred supplemental compensation plan. The valuation
allowance is based on limited unrealized capital gains within the portfolio
and the uncertainty of future gains due to the current stock market.

       We adopted the provisions of FIN 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109," ("FIN 48"), on
January 1, 2007. FIN 48 clarifies and sets forth consistent rules for
accounting for uncertain income tax positions in accordance with FAS 109. As a
result of applying the provisions of FIN 48, there was no cumulative effect on
retained earnings upon adoption.  In addition, there were no adjustments
recorded during 2008 and 2007 after the initial adoption of FIN 48.

Goodwill and Intangibles

       We apply SFAS No. 141, "Business Combinations" ("SFAS No. 141") when
accounting for acquisitions and No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") when evaluating non-amortizable intangible assets for
impairment.  Under these rules, goodwill and other non-amortizable intangible
assets is not amortized but is subject to annual impairment tests in
accordance with SFAS No. 142.  Annually, we perform a fair value analysis of
goodwill and other non-amortizable intangible assets using valuation
techniques prescribed in SFAS No. 142.  Based on the analysis performed as of
September 30, 2008, we determined that there had been no impairment of
goodwill and other non-amortizable intangibles.

     Intangible assets consist of the value of contract related intangible
assets and trade names acquired in the ICRC and G&B acquisitions (see Notes 5
and 7). The contract related intangible assets are amortized on a straight
line basis over their estimated useful lives of approximately 5 to 8 years

                                         45

with a weighted average life of approximately 6.2 years as of December 31,
2008.

Recently Issued Accounting Pronouncements

       In December 2007, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141(R), "Business Combinations; a replacement of FASB
Statement No. 141," which became effective January 1, 2009.  The new standard
will replace existing guidance and significantly change accounting and
reporting relative to business combinations in consolidated financial
statements, including requirements to recognize acquisition-related
transaction and post acquisition restructuring costs in results of operations
as incurred.  SFAS No. 141(R) will be effective for businesses acquired after
the effective date.

       In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of
FASB Statement No. 115," which also became effective January 1, 2008.  We
elected not to adopt the fair value option included in SFAS No. 159.

       On January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements,"
which defines fair value, establishes a market-based hierarchy for measuring
fair value and expands disclosures about fair value measurements.  SFAS 157 is
applicable whenever another accounting pronouncement requires or permits
assets and liabilities to be measured at fair value, but does not require any
new fair value measurements.  The SFAS No. 157 requirements for certain non-
financial assets and liabilities have been deferred until the first quarter of
2009 in accordance with Financial Accounting Standards Board Staff Position
("FSP") 157-2.  The adoption of SFAS No. 157 did not have a material impact on
our results of operations, financial position or cash flows.  See Note 15 for
disclosures regarding SFAS No. 157.


(2)  Receivables

       The components of receivables as of December 31, 2008 and 2007, were as
follows (in thousands):
                                                           2008        2007
                                                           ----        ----
  Billed  . . . . . . . . . . . . . . . . . . . .       $ 70,044    $ 45,045
  Unbilled:
    Government retainage  . . . . . . . . . . . .             76         179
    Subcontract retainage . . . . . . . . . . . .          3,372       4,000
    Other (principally December work billed in
      January)  . . . . . . . . . . . . . . . . .        133,225      83,176
  Less-allowance for doubtful accounts  . . . . .              -         (11)
                                                        --------    --------
    Total receivables, net                              $206,717    $132,389
                                                        ========    ========

       Unbilled subcontract retainage includes amounts withheld from payments
to subcontractors.

       The "Unbilled: Other" includes certain costs for work performed at risk
but which we believe will be funded by the government.  Amounts not currently
funded included in "Unbilled: Other" were approximately $1.0 million and $357
thousand as of December 31, 2008, and 2007, respectively.

       Allowance for doubtful accounts is determined based on our best estimate
of potentially uncollectible receivables.  We write off receivables when such
amounts are determined to be uncollectible.






                                          46

<TABLE>
       The following table summarizes activity in the allowance for doubtful
accounts (in thousands):
<CAPTION>
                                                                  Additions
                                      Balance at                  Charged to  Balance at
                                      Beginning                   Costs and     End of
Allowance for Doubtful Accounts	      of Period    Deductions(1)   Expenses     Period
- -------------------------------       ----------   -------------  ----------  ----------
<S>                                     <C>            <C>          <C>          <C>
Year ended December 31, 2008 . . . .    $11            $11          $-           $-

Year ended December 31, 2007 . . . .    $14    	       $ 3          $ -          $11

Year ended December 31, 2006 . . . .    $56    	       $42          $ -          $14


(1) Write-offs and settlements
</TABLE>


(3)  Other Current Assets and Other Assets

	Other current assets primarily consisted of vendor advances, prepaid
rents and deposits, equipment and software licenses and maintenance
agreements.   The increase of approximately $8 million at December 31, 2008 as
compared to December 31, 2007 is primarily attributable to a vendor advance
required of approximately $5.1 million for the startup efforts on our newly
awarded RCV Modernization Program in Kuwait.

	Other assets consisted of the following as of December 31, 2008 and 2007
(in thousands):
                                                           2008        2007
                                                           ----        ----
    Cash surrender value of life insurance policies  . . $ 1,594     $ 1,566
    Deferred compensation plan assets  . . . . . . . . .   3,311       3,212
    Other  . . . . . . . . . . . . . . . . . . . . . . .     365         424
                                                         -------     -------
       Total other assets                                $ 5,270     $ 5,202
                                                         =======     =======

(4)  Property and Equipment

       Property and equipment consisted of the following as of December 31,
2008 and 2007(in thousands):
                                                           2008        2007
                                                           ----        ----
    Computer systems equipment . . . . . . . . . . . . . $ 9,553     $ 8,077
    Furniture, fixtures, equipment and other . . . . . .  10,459       5,845
    Leasehold improvements . . . . . . . . . . . . . . .   4,699       3,541
    Buildings and building improvements. . . . . . . . .   6,564       7,170
    Land and land improvements . . . . . . . . . . . . .   3,085       1,805
                                                         -------     -------
                                                          34,360      26,438
    Less accumulated depreciation and amortization . . . (12,876)    (11,518)
                                                         -------     -------
       Total property and equipment, net                 $21,484     $14,920
                                                         =======     =======

       Depreciation and amortization expense for property and equipment was
approximately $3.6 million for 2008, $2.6 million for 2007 and $1.8 million
for 2006.


(5)  Acquisitions

G&B Solutions, Inc.

       On April 14, 2008, we acquired all of the capital stock of G&B based in
Reston, Virginia.  G&B is a diversified information technology and management
consulting provider to Government agencies, including the Departments of
Homeland Security, Interior, Labor, Agriculture, Housing and Urban
Development, the Pension Benefit Guaranty Corporation, and the National
Institutes of Health.  G&B's core expertise lies in enterprise architecture
development, information assurance/business continuity, program and portfolio

                                          47

management, network IT services and systems design and integration. G&B
provides us an opportunity to expand our professional services across a wider
range of Government customers.

       Cash paid at closing was approximately $19.5 million, which includes
approximately $650 thousand of prepaid retention bonuses that are being
expensed in the post-acquisition period as the affected employees provide
services, less approximately $600 thousand for certain closing adjustments. We
also incurred approximately $200 thousand of direct acquisition costs
consisting of legal, accounting and other fees. Under the terms of the
acquisition, we will be required to make additional payments of up to $4.2
million over a three-year post closing period if G&B achieves certain
financial performance targets.  The first earn-out payment period is from
April 14, 2008 to March 31, 2009.  The subsequent earn-out payment periods
will be from April 1, 2009 to March 31, 2010 and April 1, 2011 to March 31,
2011.  If earned and paid, such additional purchase price consideration will
be recorded as additional goodwill. The results of G&B's operations are
included in the accompanying consolidated financial statements beginning as of
April 14, 2008.

       Of the initial purchase price, approximately $3.8 million was recorded
as customer related intangible assets to be amortized over approximately five
years.  In addition, $930 thousand was allocated to G&B's trade name, which
has an indefinite life, and approximately $9.8 million was allocated to
goodwill.

       In July 2008, we filed an election under the Internal Revenue Code
Section 338(h)(10) to treat the G&B acquisition as a sale of assets for tax
purposes.  We made a payment to the seller for the seller's incremental tax
liability as a result of the election.  Tax advantages to us that arise from
filing the Section 338(h)(10)election are expected to exceed the additional
payment made to the seller of approximately $368 thousand.  We also paid
approximately $196 thousand of state income tax liabilities to various states
related to the Section 338(h)(10) election due to G&B's former Subchapter S
status. The additional payments were made during the third quarter of 2008 and
were recorded as additional goodwill.

       We followed the guidance of SFAS No. 141 "Business Combinations" and
recognized the fair value of assets acquired and liabilities assumed as
follows (in thousands):

       Description                           Fair Value
       -----------                           ----------
       Current assets                         $ 8,835
       Property and equipment                     173
       Intangibles - customer related           3,820
       Intangibles - trade name                   930
       Goodwill                                10,587
                                              -------
       Total assets acquired                   24,345
       Liabilities assumed                     (5,182)
                                              -------
       Total purchase price                   $19,163
                                              =======

	The total purchase price includes additional purchase price
consideration related to the forfeited retention bonus of approximately $146
thousand that became payable to the seller and the Section 338(h)(10) election
and related state tax liabilities of approximately $564 thousand, as described
above.

Integrated Concepts and Research Corporation

       On June 4, 2007, we acquired all of the capital stock of ICRC of
Alexandria, Virginia.  ICRC's core expertise lies in information technology,
advance vehicle technology, aerospace, engineering and transportation
infrastructure.

       We believe that the addition of ICRC will provide us with an opportunity
to expand and diversify its business across a number of project areas, including
smart vehicles, alternative fuels, large-scale port engineering development and
security, and information technology services.

                                          48

       The purchase price for the acquisition of ICRC included an initial cash
payment of approximately $11.8 million and potential additional cash payments
of up to approximately $5.8 million, contingent on meeting certain financial
targets during the first six years after the June 2007 acquisition.
Additionally, we have filed an election under the Internal Revenue Code
Section 338(h)(10) to treat the ICRC acquisition as a sale of assets for tax
purposes. An additional $1.6 million payment was made by us to the seller for
the seller's incremental tax liability as a result of the election.  Tax
advantages to us that arise from filing the Section 338(h)(10) election are
expected to exceed the additional $1.6 million payment made to the seller.
The additional payment was made in April 2008 and recorded as goodwill.

       Of the initial $11.8 million purchase price, approximately $7.1 million
was recorded as contract related intangible assets to be amortized on a
straight line basis over six to eight years; approximately $1.5 million was
recorded as an intangible asset related to ICRC's trade name, which has an
indefinite life; and approximately $2 million was recorded as initial
goodwill. Additional goodwill and accrued expenses of approximately $557
thousand were recorded as of December 31, 2007 for the earn-out payment that
was made to the seller as a result of the achievement of the specified
earnings target in 2007.  Additional goodwill and accrued expenses of
approximately $1.6 million were recorded as of December 31, 2008 for the earn-
out payment that will be made to the seller as a result of achievement of the
specified earnings target in 2008.

       We followed the guidance of SFAS No. 141 to record the acquisition of
ICRC.  We recognized the fair value of assets acquired and liabilities assumed
as follows (in thousands):

       Description                           Fair Value
       -----------                           ----------
       Current assets                         $ 6,544
       Property and equipment                     429
       Other assets                                27
       Intangibles - contract                   7,134
       Intangibles - trade name                 1,500
       Goodwill                                 5,798
                                              -------
       Total assets acquired                   21,432
       Liabilities assumed                     (5,880)
                                              -------
       Total purchase price                   $15,552
                                              =======

       The total purchase price includes additional purchase price consideration
related to the 2007 earn-out of approximately $557 thousand, the 2008 earn-out
of approximately $1.6 million and the Section 338(h)(10) election of
approximately $1.6 million, as described above.


(6)  Goodwill and Intangible Assets

       Changes in goodwill for the years ended December 31, 2008 and 2007 are
as follows (in thousands):
                                      IT, Energy and
                                        Management
                                        Consulting   Infrastructure   Total
                                        ----------   --------------   -----
   Balance as of December 31, 2006       $ 1,054          $    -     $ 1,054
   Goodwill acquired during the year           -           4,174       4,174
                                         -------          ------     -------
   Balance as of December 31, 2007         1,054           4,174       5,228
   Goodwill acquired during the year      10,587               -      10,587
   Contingent consideration earned             -           1,624       1,624
                                         -------          ------     -------
   Balance as of December 31, 2008       $11,641          $5,798     $17,439
                                         =======          ======     =======

     Intangible assets consist of the value of contract-related intangible
assets and trade names acquired in the ICRC and G&B acquisitions (see Note 5).
Intangible assets not subject to amortization consist of trade names of
approximately $2.4 million and approximately $1.5 million as of December 31,

                                          49

2008 and 2007, respectively.  We amortized approximately $1.6 million and $600
thousand of intangible assets in 2008 and 2007, respectively.

       Amortizable intangible assets were comprised of the following (in
thousands):

                                     Gross                           Net
                                    Carrying      Accumulated      Carrying
                                     Value       Amortization       Value
                                     -----       ------------       -----
Contract-related intangible
  assets as of December 31, 2008   $10,954         $2,208          $8,746
                                   =======         ======          ======
Contract-related intangible
  assets as of December 31, 2007   $ 7,134         $  600          $6,534
                                   =======         ======          ======

       Future expected amortization expense of the contract related intangible
asset is as follows (in thousands):

                                  Amortization
                                    Expense
                                    -------
    2009                            $1,840
    2010                             1,840
    2011                             1,840
    2012                             1,840
    2013                               708
    Thereafter                         678
                                    ------
      Total                         $8,746
                                    ======

(7)  Bank Notes Payable

       	We have a loan agreement with a bank under which credit is made
available to us in the form of revolving loans or letters of credit. The
amount of credit available to us under the loan is subject to certain
conditions, including a borrowing formula based on our billed receivables.
From time to time we may request changes in the amount, maturity date, or
other terms and the bank may amend the loan to accommodate our request. The
amount of credit available to us as of December 31, 2008 was $35 million and
the maturity date of the loan agreement is May 10, 2010. The loan agreement
has collateral requirements that secure our assets, restrictive covenants, a
limit on annual dividends, and other affirmative and negative covenants. As of
December 31, 2008 we have not been notified by the bank, nor are we aware, of
any defaults under the loan agreement.

       Under the terms of the loan agreement, we may borrow against the
revolving loan at any time and can repay the borrowings at any time without
premium or penalty. We pay a commitment fee, interest on any revolving loan
borrowings at a prime-based rate or an optional LIBOR-based rate, and fees on
any letters of credit that are issued. As of December 31, 2008 and December
31, 2007, revolving loan amounts outstanding were approximately $6.7 million
and $81 thousand, respectively. Interest expense incurred on revolving loan
borrowings was approximately $216 thousand for 2008 and approximately $6
thousand for 2007. There was one letter of credit for approximately $1.35
million as of December 31, 2008. We had no letters of credit outstanding as of
December 31, 2007.


(8)  Accrued Expenses

       Accrued expenses consisted primarily of accrued compensation and
benefits of approximately $21 million and $15 million as of December 31, 2008
and 2007, respectively.  The accrued compensation and benefits amounts include
bonus, salaries and related payroll taxes, vacation and deferred compensation.

                                          50

(9) Stock-Based Compensation Plans

(a)  Restricted Stock Plan

       	On January 2, 2006, our stockholders approved the VSE Corporation
2006 Restricted Stock Plan (the "2006 Plan") for its directors, officers and
other employees.  Under the provisions of the 2006 Plan, we are authorized to
issue 250,000 shares of our common stock.  The Compensation Committee is
responsible for the administration of the 2006 Plan.  The Compensation
Committee shall determine each recipient of an award under the 2006 Plan, the
number of restricted shares of common stock subject to such award and the
period of continued employment required for the vesting of such award.  These
terms will be included in award agreements between us and the recipients of
the award.  As of December 31, 2008, 228,314 restricted shares were available
for grant under this plan.

       On April 22, 2008, we awarded 5,831 shares of restricted VSE common
stock to an executive.  The fair value of this award was $34.30 per share at
the time of the award.  Vesting in the stock will occur as follows:  25% of
the shares on April 28, 2009, 25% of the shares on April 29, 2010 and 50% of
the shares on April 29, 2011.  Compensation expense related to this award was
approximately $44 thousand for the year ended December 31, 2008.

       On April 22, 2008, we awarded 4,374 shares of restricted VSE common
stock to our Executive Chairman under the 2006 Restricted Stock Plan on the
occasion of his resignation as our CEO, President and Chief Operating Officer.
The fair value of this award was $34.30 per share.  The shares issued vested
immediately and cannot be sold, transferred, pledged or assigned before the
second anniversary of the grant date. Compensation expense related to this
award was approximately $150 thousand for the year ended December 31, 2008.

       On January 2, 2008, we awarded 3,500 shares of restricted VSE common
stock to our non-employee Directors under the 2006 Restricted Stock Plan.  The
weighted-average grant-date fair value of these restricted stock grants was
$47.92 per share. The shares issued vested immediately and cannot be sold,
transferred, pledged or assigned before the second anniversary of the grant
date. Compensation expense related to these grants was approximately $168
thousand for the year ended December 31, 2008.

       On January 2, 2007 and August 15, 2007 we awarded 4,800 shares and 300
shares, respectively, of restricted VSE common stock to our non-employee
Directors under the 2006 Restricted Stock Plan.  The weighted-average grant-
date fair value of these restricted stock grants was $16.84 per share and
$36.91 per share, respectively. The shares issued vested immediately and
cannot be sold, transferred, pledged or assigned before the second anniversary
of the grant date. Compensation expense related to these grants was
approximately $92 thousand for the year ended December 31, 2007.

       On January 3, 2008 (the "2008 Awards") and January 2, 2007 (the "2007
Awards"), we notified certain employees that they are eligible to receive
awards under the 2006 Restricted Stock Plan based on financial performance for
the calendar years 2008 and 2007, respectively. Vesting of each award will
occur one-third on the date of award and one-third on each of the next two
anniversaries of such date of award. The date of award determination is
expected to be in March 2009 for the 2008 Awards and the date of award
determination for the 2007 Awards was March 3, 2008.   On each vesting date,
100% of the vested award will be paid in VSE common stock.  The number of
shares issued will be based on the fair market value of our common stock on
the vesting date.  The earned amount will be expensed ratably over the vesting
period of approximately three years.

       We have recognized approximately $700 thousand and approximately $278
thousand in expense related to the awards described above for the years ended
December 31, 2008 and 2007, respectively.  At December 31, 2008, there was
approximately $1.2 million of unrecognized compensation costs related to these
restricted stock awards which we expect to recognize over the next 26 months.

                                          51

(b)  Stock Option Plans

       On December 30, 2005, our Board of Directors (the "Board") directed us
to discontinue, until and unless the Board determined otherwise, awarding
options, both discretionary and nondiscretionary under our 1998 Stock Option
Plan (the "1998 Plan") and our 2004 Stock Option Plan approved by our
stockholders on May 3, 2005 (the "2004 Plan").  All options outstanding as of
December 30, 2005 were not affected by this Board action.

       As of December 31, 2008, options issued under the 2004 Plan for up to
41,500 shares of VSE common stock remain outstanding. Each option granted
under the 2004 Plan was issued at the fair market value of the VSE common
stock on the date of grant.  Each option vests 25% upon issuance and 25% on
each anniversary date thereafter, becoming 100% vested as of the third
anniversary date of the award.  The 2004 Plan will terminate on the earliest
of May 1, 2014, or the date on which all options issued under the 2004 Plan
have been exercised, expire, or have been terminated.

       As of December 31, 2008, no options issued remain outstanding under the
1998 Plan. The 1998 Plan terminated on May 6, 2008.

       Information with respect to the number of shares under stock options is
as follows:
                                                        Weighted
                                                        Average
                                                        Exercise
                                            Shares       Price
                                            ------       -----
       Outstanding at January 1, 2008       73,500      $11.53
        Granted  . . . . . . . .                 -           -
        Exercised  . . . . . . .           (32,000)      10.17
        Forfeited  . . . . . . .                 -           -
        Terminations . . . . . .                 -           -
                                            ------      ------
        Outstanding at December 31, 2008    41,500      $12.59
                                            ======      ======
       Exercisable at end
         of year                            41,500      $12.59
                                            ======      ======

       The total intrinsic value of options exercised during 2008, 2007 and
2006 was approximately $819 thousand, $5.8 million and $827 thousand,
respectively.  The aggregate intrinsic value of options outstanding and
exercisable as of December 31, 2008 was approximately $1.1 million. The total
fair value of shares vested during the years ended December 31, 2008, 2007 and
2006 was approximately $0, $1.7 million and $1.1 million, respectively.  At
December 31, 2008, there was no unrecognized compensation cost related to
nonvested stock options.

       The exercise price for the 41,500 options outstanding at December 31,
2008 is $12.59 with a contractual life of one year.

(c) Stock-Based Compensation Expense

     Stock-based compensation, which includes compensation recognized on stock
option grants and restricted stock awards was included in the following line
items on the accompanying statements of income for the years ended December
31, 2008, 2007 and 2006 (in thousands):

                                                   2008      2007     2006
                                                   ----      ----     ----
Contract costs . . . . . . . . . . . . . . . . .  $1,062     $370     $ 56
Selling, general and administrative expenses . .       -      181      252
                                                  ------     ----     ----
  Total pre-tax stock-based compensation
     included in income before income taxes        1,062      551      308
Income tax benefit recognized for
   stock-based compensation  . . . . . . . . . .    (408)    (212)    (116)
                                                  ------     ----     ----
   Total stock-based compensation expense,
      net of tax				  $  654     $339     $192
                                                  ======     ====     ====


                                          52

(10)  Income Taxes

       We are subject to U.S. federal income tax as well as income tax in
multiple state and local jurisdictions.  We have substantially concluded all
U.S. federal income tax matters as well as material state and local tax
matters for years through 2004.

       In the accompanying Consolidated Statements of Income, we classify
interest expense related to unrecognized tax benefits as "Interest income,
net" and any penalties in "Selling, general and administrative expenses."  No
interest or penalty expense related to unrecognized tax benefits was
recognized for the year ended December 31, 2008.  As of December 31, 2008 or
2007, no interest or penalties related to unrecognized tax benefits were
accrued.

       We file consolidated federal income tax returns with all of our
subsidiaries.  The components of the provision for income taxes for the years
ended December 31, 2008, 2007, and 2006 are as follows (in thousands):

                                                   2008     2007     2006
                                                   ----     ----     ----
  Current
     Federal . . . . . . . . . . . . . . . . . . $ 9,061   $8,326   $4,521
     State . . . . . . . . . . . . . . . . . . .   1,907    1,384      793
                                                 -------   ------   ------
                                                  10,968    9,710    5,314
  Deferred
     Federal . . . . . . . . . . . . . . . . . .   1,284     (702)    (546)
     State   . . . . . . . . . . . . . . . . . .     (43)    (103)     (68)
                                                 -------   ------   ------
                                                   1,241     (805)    (614)
                                                 -------   ------   ------
  Provision for income taxes                     $12,209   $8,905   $4,700
                                                 =======   ======   ======

       The differences between the amount of tax computed at the federal
statutory rate of 35% for 2008 and 2007 and 34% for 2006, and the provision
for income taxes for 2008, 2007, and 2006 are as follows (in thousands):

                                                   2008     2007     2006
                                                   ----     ----     ----
Tax at statutory federal income
     tax rate  . . . . . . . . . . . . . . . . . $10,937   $8,053   $4,246
Increases (decreases) in tax resulting from:
     State taxes, net of federal tax benefit . .   1,211      833      479
     Permanent differences, net  . . . . . . . .      61       19       15
     Other, net  . . . . . . . . . . . . . . . .       -        -      (40)
                                                 -------   ------   ------
Provision for income taxes                       $12,209   $8,905   $4,700
                                                 =======   ======   ======

       Our deferred tax assets (liabilities) as of December 31, 2008 and 2007,
which represent the tax effects of temporary differences between tax and
financial accounting bases of assets and liabilities and are measured using
presently enacted tax rates, are as follows (in thousands):

                                                        2008           2007
                                                        ----           ----
Current deferred tax assets    . . . . . . . . . . .   $2,891         $1,494
Current deferred tax liabilities   . . . . . . . . .     (519)          (248)
Valuation allowance  . . . . . . . . . . . . . . . .      (75)             -
                                                       ------         ------
  Net current deferred tax assets                       2,297          1,246
                                                       ------         ------

Noncurrent deferred tax assets   . . . . . . . . . .    2,123          2,704
Noncurrent deferred tax liabilities  . . . . . . . .   (2,527)          (816)
                                                       ------         ------
  Net noncurrent deferred tax (liabilities) assets .     (404)         1,888
                                                       ------         ------

  Net deferred tax assets                              $1,893         $3,134
                                                       ======         ======

       As of December 31, 2008 and 2007, we had valuation allowances of
approximately $75 thousand and $0, respectively, against certain deferred tax
assets, which consisted solely of realized capital losses on investments in
our deferred supplemental compensation plan. The valuation allowance is based
on limited unrealized capital gains within the portfolio and the uncertainty
of the future gains due to the current stock market.

                                          53

       We will continue to evaluate our valuation allowance position on a
regular basis.  To the extent that we determine that all or a portion of our
valuation allowance is no longer necessary, we will recognize an income tax
benefit in the period such determination is made for the reversal of the
valuation allowance.  It is expected that any such reduction of our valuation
allowance would have an immaterial impact on our results from operations.

       The tax effect of temporary differences representing deferred tax assets
and liabilities as of December 31, 2008 and 2007, are as follows (in
thousands):

                                                       2008            2007
                                                       ----            ----
Gross deferred tax assets
  Deferred compensation and accrued paid leave . . .  $3,242          $2,658
  Depreciation . . . . . . . . . . . . . . . . . . .     551             870
  Accrued expenses . . . . . . . . . . . . . . . . .     569             360
  Restricted stock expense . . . . . . . . . . . . .     393               -
  Reserve for contract and other disallowances . . .     204             199
  Stock option expense . . . . . . . . . . . . . . .      52              73
  Retainage  . . . . . . . . . . . . . . . . . . . .       3              34
  Allowance for doubtful accounts  . . . . . . . . .       -               4
                                                      ------          ------
    Total gross deferred tax assets                    5,014           4,198
    Less valuation allowance                             (75)              -
                                                      ------          ------
    Net gross deferred tax assets                      4,939           4,198
                                                      ------          ------
Gross deferred tax liabilities
  Depreciation . . . . . . . . . . . . . . . . . . .  (2,272)           (610)
  Deferred revenues  . . . . . . . . . . . . . . . .    (417)           (210)
  Intangible assets  . . . . . . . . . . . . . . . .    (243)           (206)
  Restricted stock expense . . . . . . . . . . . . .    (113)              -
  Retainage  . . . . . . . . . . . . . . . . . . . .       -             (27)
  Accrued expenses . . . . . . . . . . . . . . . . .      (1)            (11)
                                                      ------          ------
    Total gross deferred tax liabilities              (3,046)         (1,064)
                                                      ------          ------

    Net deferred tax assets                           $1,893          $3,134
                                                      ======          ======

       We adopted the provisions of FIN 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109," ("FIN 48"), on
January 1, 2007. FIN 48 clarifies and sets forth consistent rules for
accounting for uncertain income tax positions in accordance with FAS 109. As a
result of applying the provisions of FIN 48, there was no cumulative effect on
retained earnings upon adoption.  In addition, there were no adjustments
recorded during 2008 and 2007 after the initial adoption of FIN 48.


(11)  Commitments and Contingencies

(a)  Leases and Other Commitments

       We have various non-cancelable operating leases for facilities,
equipment, and software with terms between two and ten years. The terms of the
facilities leases typically provide for certain minimum payments as well as
increases in lease payments based upon the operating cost of the facility and
the consumer price index.  Rent expense is recognized on a straight-line basis
for rent agreements having escalating rent terms.  Payments on leases for
2008, 2007, and 2006 were as follows (in thousands):

                                    Payments           Sublease          Net
                                    on Leases           Income         Expense
                                    ---------           ------         -------
       2008 . . . . . . . . . . .   $10,378             $  709          $9,669
       2007 . . . . . . . . . . .     7,180                981          $6,199
       2006 . . . . . . . . . . .     4,128                930           3,198


                                          54

       Future minimum annual non-cancelable commitments as of December 31, 2008
are as follows (in thousands):
                                      Lease             Sublease       Net
                                    Commitments          Income    Commitments
                                    -----------          ------    -----------
       2009 . . . . . . . . . . .     $ 9,347            $  449       $ 8,898
       2010 . . . . . . . . . . .       8,359               459         7,900
       2011 . . . . . . . . . . .       7,489               477         7,012
       2012 . . . . . . . . . . .       6,342               497         5,845
       2013 . . . . . . . . . . .       4,387               169         4,218
       Thereafter . . . . . . . .       5,544                 -         5,544
                                      -------            ------       -------
          Total                       $41,468            $2,051       $39,417
                                      =======            ======       =======
(b)  Contingencies

       	We have, in the normal course of business, certain claims against us and
against other parties.  In our opinion, the resolution of these claims will
not have a material adverse effect on our results of operations or financial
position. However, the results of any legal proceedings cannot be predicted
with certainty.


(12)  Business Segments and Customer Information

	Segment Information

       Management of our business operations is conducted under four reportable
operating segments: the Federal Group, the International Group, the IT, Energy
and Management Consulting Group (formerly the Energy and Environmental Group,
renamed in April 2008), and the Infrastructure Group (formerly the
Infrastructure and Information Technology Group, renamed in April, 2008).
These segments operate under separate management teams and discrete financial
information is produced for each segment.  The various divisions within the
Federal Group and the International Group and the two subsidiaries within the
IT, Energy and Management Consulting Group are operating segments as defined
by SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," ("SFAS No. 131"), and meet the aggregation of operating segments
criteria of SFAS No. 131.  We evaluate segment performance based on
consolidated revenues and profits or losses from operations before income
taxes.

       	Federal Group - The Federal Group provides engineering, technical,
management, integrated logistics support and information technology services to
all U.S. military branches and other Government agencies. The Federal Group
includes five divisions: CED, ELD, FSS, MSD and SED.

       	International Group - Our International Group provides engineering,
industrial, logistics and foreign military sales services to the U.S. military
and other Government agencies. It consists of three divisions: BAV, VCG and
FMD.

       IT, Energy and Management Consulting Group - The IT, Energy and
Management Consulting Group provides technical and consulting services primarily
to various civilian Government agencies. This group includes Energetics and,
upon acquisition in April 2008, also includes G&B. See footnote 5 for
information regarding the acquisition of G&B.

       Infrastructure Group - Our Infrastructure Group was created in
connection with the June 4, 2007 acquisition of our wholly owned subsidiary,
ICRC. ICRC is engaged principally in providing diversified technical and
management services to the Government, including transportation infrastructure
services, advanced vehicle technology, aerospace services and engineering and
information technology.  See footnote 5 for information regarding the
acquisition of ICRC.


                                          55

       Our segment information is as follows (in thousands):

                                                  2008      2007      2006
                                                  ----      ----      ----
Revenues:
  Federal Group                               $  667,407  $360,690  $190,956
  International Group                            220,021   228,002   158,452
  IT, Energy and Management Consulting
    Group                                         49,927    14,522    14,269
  Infrastructure Group                           106,380    49,918         -
  Corporate                                            -        32        57
                                              ----------  --------  --------
    Total revenues                            $1,043,735  $653,164  $363,734
                                              ==========  ========  ========
Income before income taxes:
  Federal Group                               $   18,594  $ 12,075  $  5,432
  International Group                              5,719     7,435     5,487
  IT, Energy and Management Consulting
    Group                                          4,649     1,614     1,795
  Infrastructure Group                             4,167     2,808         -
  Corporate/unallocated expenses                  (1,880)     (925)     (225)
                                              ----------  --------  --------
    Income before income taxes                $   31,249  $ 23,007  $ 12,489
                                              ==========  ========  ========
Interest (income) expense:
  Federal Group                               $     (379) $   (252) $    423
  International Group                                110      (124)     (258)
  IT, Energy and Management Consulting
    Group                                           (198)     (272)     (218)
  Infrastructure Group                               (72)      (44)        -
  Corporate                                          424        (7)     (374)
                                              ----------  --------  --------
    Total interest (income) expense             $   (115) $   (699) $   (427)
                                              ==========  ========  ========
Depreciation and amortization expense:
  Federal Group                                 $  2,242  $  1,514  $  1,044
  International Group                                967       890       655
  IT, Energy and Management Consulting
    Group                                            877       184       183
  Infrastructure Group                             1,351       875         -
                                              ----------  --------  --------
    Total depreciation and amortization         $  5,437  $  3,463  $  1,882
                                              ==========  ========  ========
Capital expenditures:
  Federal Group                                 $  5,941  $  6,401  $  2,258
  International Group                              1,248       332       519
  IT, Energy and Management Consulting
    Group                                            419        75        99
  Infrastructure Group                               247        34         -
  Corporate                                        2,161     1,889     2,742
                                              ----------  --------  --------
    Total capital expenditures                  $ 10,016  $  8,731  $  5,618
                                              ==========  ========  ========
Total assets:
  Federal Group                                 $145,786  $ 74,204  $ 40,670
  International Group                             47,331    49,438    33,541
  IT, Energy and Management Consulting
    Group                                         17,258     3,860     4,174
  Infrastructure Group                            17,933    14,885         -
  Corporate                                       47,658    29,384    20,150
                                              ----------  --------  --------
    Total assets                                $275,966  $171,771  $ 98,535
                                              ==========  ========  ========

       Revenues are net of inter-segment eliminations.  Corporate/unallocated
expenses are primarily selling, general and administrative expenses not
allocated to segments.  Corporate assets are primarily cash and fixed assets.


                                          56

Customer Information

	We are engaged principally in providing engineering, design, logistics,
management and technical services to the Government, other Government prime
contractors, and commercial entities. The largest customer for our services is
the U.S. Department of Defense ("DoD"), including agencies of the U.S. Navy,
Army, and Air Force. Our revenue by customer is as follows (in thousands):

                             2008              2007              2006
Customer                   Revenues     %    Revenues     %    Revenues     %
- --------                   --------     -    --------     -    --------     -
U.S. Army/Army Reserve   $  625,237    9.9   $344,296   52.7   $174,473   48.0
U.S. Navy                   195,792   18.8    189,534   29.0    164,788   45.3
U.S. Air Force               10,720    1.0      4,628    0.7      4,579    1.2
                         ----------  -----   --------  -----   --------  -----
Total - DoD                 831,749   79.7    538,458   82.4    343,840   94.5

Department of
  Transportation             89,873    8.6     30,977    4.7          -    0.0
Department of
  U.S. Treasury              57,021    5.5     55,020    8.4      2,392    0.7
Department of Interior       19,156    1.8      1,053    0.2          -    0.0
Department of Energy         12,812    1.2     10,537    1.6      9,420    2.5
Other government             29,748    2.9     11,427    1.8      5,683    1.6
                         ----------  -----   --------  -----   --------  -----
Total - Federal Civil
  Agencies                  208,610   20.0    109,014   16.7     17,495    4.8

Commercial                    3,376    0.3      5,692    0.9      2,399    0.7
                         ----------  -----   --------  -----   --------  -----
Total                    $1,043,735  100.0   $653,164  100.0   $363,734  100.0
                         ==========  =====   ========  =====   ========  =====


       We do not measure revenue or profit by product or service lines, either
for internal management or external financial reporting purposes, because it
would be impractical to do so. Products offered and services performed are
determined by contract requirements and the types of products and services
provided for one contract bear no relation to similar products and services
provided on another contract. Products and services provided vary when new
contracts begin or current contracts expire. In many cases, more than one
product or service is provided under a contract or contract task order.
Accordingly, cost and revenue tracking is designed to best serve contract
requirements and segregating costs and revenues by product or service lines in
situations for which it is not required would be difficult and costly to both
us and our customers.


(13)  Capital Stock

Common Stock

       Our common stock has a par value of $.05 per share.  Proceeds from the
issue of the common stock that is greater than $.05 per share is credited to
additional paid in capital.  Holders of common stock are entitled to one vote
per common share held on all matters voted on by our stockholders.
Stockholders of record are entitled to the amount of dividend declared per
common share held.


                                          57

(14)  ESOP/401(k) Plan and Profit Sharing Plan

       We have an ESOP/401(k), the VSE Corporation ESOP/401(k) Plan (the
"Plan"), that allows employees meeting certain age and service requirements to
contribute a portion of their salary to certain investment trusts. Under the
terms of the plan, employer 401(k) contributions are made on behalf of the
eligible employee participants based on the employees' 401(k) payroll
deferrals. Effective January 1, 2007, the plan was amended to incorporate the
Safe Harbor method of meeting nondiscrimination requirements of the Internal
Revenue Code.  Beginning with the 2007 plan year, the employer contribution is
equal to 100% of the employee deferral on the first 3% of the employee pay
deferred and 50% of the employee deferral on the next 2% of the employee pay
deferred. Our expense associated with this plan for 2008, 2007, and 2006 was
approximately $1.9 million, $1.4 million, and $584 thousand, respectively.
The increase in our expense in 2008 and 2007 as compared to 2006 was due to:
(1) an increase in the number of employees receiving an employer contribution
as a result of new employees hired and the eligibility of Energetics'
employees to receive employer contributions; and (2) the change in the rate of
employer contributions associated with the use of the Safe Harbor method of
meeting nondiscrimination requirements in 2008 and 2007.

       Prior to April 1, 1999, we made contributions under this plan into an
ESOP trust which purchased VSE common stock on behalf of employees who met
certain age and service requirements and were employed at the end of the plan
year. Subsequent to April 1, 1999, the ESOP contributions were discontinued
and replaced by employer 401(k) contributions. The ESOP/401(k) plan held
95,499 shares and 446,978 shares of VSE common stock as of December 31, 2008
and 2007, respectively.  Such shares receive dividend payments and are
included in the weighted average shares for earnings per share calculations.

       In 2008, we decided that employees should have an opportunity to
diversify their VSE common stock in their 401(k) accounts held in the VSE
Corporation Employee ESOP/401(k) Plan beginning with our 2008 Plan year. In
January 2008, employees were notified that they may elect to transfer any
portion of their 401(k) accounts that is invested in VSE common stock from
that investment into another investment alternative under the Plan. This right
extends to all of VSE common stock held under the 401(k) portion of the Plan.
In addition, we have decided to terminate and liquidate the ESOP portion of
the VSE Corporation Employee ESOP/401(k) Plan and, as elected by the
employees, either distribute  VSE common stock held in the ESOP accounts to
the employees or rollover such VSE common stock into an Individual Retirement
Account or employee plan selected by the employee. ESOP shares were
distributed to employees in the third quarter of 2008.

       Energetics maintains a profit sharing plan for its employees.  All
employees who have completed two years of service are members of the profit
sharing plan. At its discretion, Energetics may make contributions to the
plan. The plan expense for 2008, 2007, and 2006 was $240 thousand, $227
thousand, and $412 thousand, respectively.

       ICRC sponsors a 401(k) profit sharing plan covering all ICRC regular
status employees.  To be eligible to participate in the plan, an employee must
have completed one month of service with ICRC.  The discretionary employer
contributions are immediately vested.  The amount charged to operations for
employer contributions for 2008 and the post acquisition period of 2007 was
approximately $286 thousand and $378 thousand, respectively.

       G&B maintains a defined contribution retirement plan (the "Plan"),
established under the provisions of Internal Revenue Code Section 401(k),
covering substantially all employees.  Participants may make voluntary
contributions up to the maximum amount allowable by law.  G&B matches a
percentage of the amount contributed by each participant to comply with safe
harbor methods.  At its discretion, G&B may make an additional profit sharing
contribution for participants who have completed one year of service.  The
amount charged to operations for employer contributions during the post
acquisition period of April, 2008 through December 31, 2008 was approximately
$334 thousand.

                                          58

(15)  Fair Value Measurements

       On January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements,"
which defines fair value, establishes a market-based hierarchy for measuring
fair value and expands disclosures about fair value measurements.  SFAS 157 is
applicable whenever another accounting pronouncement requires or permits
assets and liabilities to be measured at fair value, but does not require any
new fair value measurements.

       The fair-value hierarchy established in SFAS 157 prioritizes the inputs
used in valuation techniques into three levels as follows:

Level 1 - Observable inputs - quoted prices in active markets for identical
assets and liabilities;

Level 2 - Observable inputs other than the quoted prices in active markets for
identical assets and liabilities - includes quoted prices for similar
instruments, quoted prices for identical or similar instruments in inactive
markets, and amounts derived from valuation models where all significant
inputs are observable in active markets; and

Level 3 - Unobservable inputs - includes amounts derived from valuation models
where one or more significant inputs are unobservable and require us to
develop relevant assumptions.

       Included in other long-term assets as of December 31, 2008 is
approximately $3.3 million of investments we hold in a trust related to a non-
qualified benefit plan.  We determined the fair value of these assets and
corresponding liability using the Level 1 methodology.  We have an offsetting
deferred compensation liability for this plan.  As such, we do not have income
statement volatility as a result of fluctuations in the value of the plan's
investments.


(16)  Selected Quarterly Data (Unaudited)

       The following table shows selected quarterly data for 2008 and 2007, in
thousands, except earnings per share:

                                                    2008 Quarters
                                                    -------------
                                          1st       2nd       3rd       4th
                                          ---       ---       ---       ---
Revenues . . . . . . . . . . . . . . . $188,723  $251,688  $306,811  $296,513
                                       ========  ========  ========  ========
Gross profit . . . . . . . . . . . . . $  5,907  $  8,049  $  9,021  $  9,350
                                       ========  ========  ========  ========
Net income . . . . . . . . . . . . . . $  3,598  $  4,769  $  5,309  $  5,364
                                       ========  ========  ========  ========

Basic earnings per share . . . . . . . $    .71  $    .94  $   1.05  $   1.05
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    5,059     5,066     5,076     5,088
                                       ========  ========  ========  ========
Diluted earnings per share . . . . . . $    .71  $    .94  $   1.04  $   1.05
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    5,087     5,095     5,100     5,104
                                       ========  ========  ========  ========


                                          59

                                                    2007 Quarters
                                                    -------------
                                          1st       2nd       3rd       4th
                                          ---       ---       ---       ---

Revenues . . . . . . . . . . . . . . . $120,689  $159,644  $174,692  $198,139
                                       ========  ========  ========  ========
Gross profit . . . . . . . . . . . . . $  4,441  $  5,679  $  5,663  $  7,430
                                       ========  ========  ========  ========
Net income . . . . . . . . . . . . . . $  2,729  $  3,547  $  3,359  $  4,467
                                       ========  ========  ========  ========

Basic earnings per share . . . . . . . $    .57  $    .72  $    .67  $    .89
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    4,807     4,932     5,024     5,046
                                       ========  ========  ========  ========
Diluted earnings per share . . . . . . $    .56  $    .71  $    .66  $    .88
                                       ========  ========  ========  ========
Weighted average shares outstanding  .    4,890     4,977     5,063     5,082
                                       ========  ========  ========  ========

       The fourth quarter 2007 operating results in the table presented above
are misstated as a result of an error related to the accounting for a cost-
plus incentive fee contract that understated quarterly revenues by $1.2
million, quarterly net income by $703 thousand and quarterly earnings per
share by $0.14 per share. The effects of this error on all other periods are
immaterial. For the year ended December 31, 2007, this error resulted in an
understatement of revenues by $635 thousand, net income by $386 thousand and
earnings per share by $0.08 per share.


ITEM 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure

     None.


ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     Our management has evaluated, with the participation of our Chief
Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act).
Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of such date, our disclosure controls and
procedures were effective to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and that such information
is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

     Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an assessment of the effectiveness of
our internal control over financial reporting as of December 31, 2008 based on
the framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our
assessment under the framework in Internal Control - Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2008. Ernst & Young LLP, our independent
registered public accounting firm, has issued an opinion on our internal
control over financial reporting. This opinion appears in the Report of
Independent Registered Public Accounting Firm under Item 9(a) of this Annual
Report on Form 10-K.

                                          60


Change in Internal Controls

     During the fourth quarter of fiscal year 2008, there were no changes in
our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have
materially affected these controls, or are reasonably likely to materially
affect these controls subsequent to the evaluation of these controls.




























































                                          61

           Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders of VSE Corporation

We have audited VSE Corporation's internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). VSE Corporation's management is
responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management's Report on
Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the company's internal control over financial reporting based on
our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, VSE Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
VSE Corporation and subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2008 and
our report dated March 2, 2009 expressed an unqualified opinion thereon.

                                                      /s/ Ernst & Young LLP

McLean, VA
March 2, 2009


                                          62

ITEM 9B.  Other Information

	None.


                                  PART III

	Except as otherwise indicated below, the information required by Items
10, 11, 12, 13 and 14 of Part III of Form 10-K has been omitted in reliance of
General Instruction G(3) to Form 10-K and is incorporated herein by reference
to our definitive proxy statement to be filed with the SEC not later than 120
days after December 31, 2008 in respect to the Annual Meeting of VSE's
stockholders (the "Proxy Statement") scheduled to be held on May 5, 2009.


ITEM 10.   Directors, Executive Officers and Corporate Governance

       	See Item 4 under the caption "Executive Officers of the Registrant," and
the remaining information required by this Item is incorporated by reference
to the Proxy Statement.


ITEM 11.   Executive Compensation

       The information required by this Item is incorporated by reference to
the Proxy Statement.


ITEM 12.   Security Ownership of Certain Beneficial Owners and
	     Management and Related Stockholder Matters

       Except for the "Equity Compensation Plan Information" disclosed in Item
5(d) above, the information required by this Item is incorporated by reference
to the Proxy Statement.


ITEM 13.   Certain Relationships and Related Transactions, and Director
           Independence

       	The information required by this Item is incorporated by reference to
the Proxy Statement.


ITEM 14.   Principal Accountant Fees and Services

       	The information required by this Item is incorporated by reference to
the Proxy Statement.


                                   PART IV

ITEM 15.   Exhibits, Financial Statement Schedules

      1.	Financial Statements

		The consolidated financial statements are listed under Item 8 of
this report.

      2.	Supplemental Financial Statement Schedules

       Schedules not included herein have been omitted because of the absence
of conditions under which they are required or because the required
information, where material, is shown in the consolidated financial
statements, notes to the consolidated financial statements, or supplementary
financial information.


                                          63

3.	Exhibits

		See "Exhibit Index" hereinafter contained and incorporated by
reference.



































                                          64

                                 SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                     VSE CORPORATION

Date:  February 27, 2009             By: /s/ M. A. Gauthier
                                         ----------------------------------
                                         M. A. Gauthier
                                         Director, Chief Executive Officer,
                                         President and Chief Operating
                                         Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

           Name                       Title                      Date
- -----------------------------------------------------------------------------
/s/ M. A. Gauthier
- ----------------------------      Director, Chief Executive    February 27, 2009
M. A. Gauthier	                  Officer, President and
                                  Chief Operating Officer

/s/ T. R. Loftus                  Executive Vice President     February 27, 2009
- ----------------------------      and Chief Financial Officer
Thomas R. Loftus		  (Principal Financial and
                                  Accounting Officer)

/s/ D. M. Ervine                  Executive Chairman           February 27, 2009
- ----------------------------
D. M. Ervine

/s/ C. M. Kendall                 Director		       February 27, 2009
- ----------------------------
Clifford M. Kendall

/s/ C. S. Koonce                  Director		       February 27, 2009
- ----------------------------
Calvin S. Koonce

/s/ J. F. Lafond                  Director		       February 27, 2009
- ----------------------------
James F. Lafond

/s/ D. M. Osnos                   Director		       February 27, 2009
- ----------------------------
David M. Osnos

/s/ J. D. Ross                    Director		       February 27, 2009
- ----------------------------
Jimmy D. Ross

/s/ B. K. Wachtel                 Director		       February 27, 2009
- ----------------------------
Bonnie K. Wachtel

/s/ R. E. Eberhart                Director		       February 27, 2009
- ----------------------------
Ralph E. Eberhart

                                          65

                                EXHIBIT INDEX

Reference No.                                                      Exhibit No.
per Item 601 of                                                      in this
Regulation S-K             Description of Exhibit                   Form 10-K
- --------------             ----------------------                   ---------

     2.1     Plan of acquisition, reorganization, arrangement,
             liquidation or succession
             Share Purchase Agreement, dated as of June 4, 2007,
               by and among VSE Corporation, Koniag, Inc.,
               Koniag Development Corporation, Nancy Ellen Lexo
               Living Trust, James W. Lexo, Jr., and Integrated
               Concepts and Research Corporation (Exhibit 2.1 to
               Form 8-K dated June 4, 2007)				 *
     2.2     Share Purchase Agreement, dated as of April 14, 2008,
               by and among VSE Corporation, Linda Kay Berdine
               Revocable Trust, Linda K. Berdine and
               G&B Solutions, Inc. (Exhibit 2.1 to Form 8-K dated
               April 14, 2008)                                           *
     3.1     Certificate of incorporation and by-laws
               Restated Certificate of Incorporation of VSE
                Corporation dated as of February 6, 1996 (Exhibit
                3.2 to Form 10-K405 dated March 25, 1996)                *
     3.2     By-Laws of VSE Corporation as amended through
                 December 17, 2008 (Exhibit 3.1 to Form 8-K dated
                 December 17, 2008)                                      *
     4.1     Instruments defining the rights of security holders,
             including indentures
               Specimen Stock Certificate as of May 19, 1983
                (Exhibit 4 to Registration Statement No. 2-83255
                dated April 22, 1983 on Form S-2)                        *   +
    10.1     Material contracts
		 Employment Agreement entered into as of December 10,
		   1997, by and between VSE Corporation and
		   Craig S. Weber (Exhibit VIII to Form 10-K dated
		   March 7, 2001)                                        *   +
    10.3      Employment Agreement entered into as of June 3,
                1999, by and between VSE Corporation and
                James M. Knowlton (Exhibit V to Form 10-K dated
                March 15, 2000)                                          *   +
    10.4      Employment Agreement dated as of March 10, 2004,
                by and between VSE Corporation and Thomas G. Dacus
               (Exhibit 10.1 to Form 10-Q dated April 28, 2004)	         *   +
    10.5      Employment Agreement dated as of July 1, 2004,
                by and between VSE Corporation and Thomas R. Loftus
               (Exhibit 10.1 to Form 10-Q dated July 30, 2004)           *   +
    10.6      Business Loan and security Agreement dated August 14,
                2007 among VSE Corporation, Energetics Incorporated,
                VSE Services International, Inc., Integrated
                Concepts and Research Corporation and Citizens Bank
                of Pennsylvania                                     Exhibit 10.1
    10.7      First Amendment to Business Loan and Security Agreement
                dated as of May 21, 2008 among VSE Corporation,
                Energetic Incorporation, VSE Services International,
                Inc., Integrated Concepts and Research Corporation,
                G&B Solutions, Inc. and Citizens Bank of
                Pennsylvania                                        Exhibit 10.2
    10.8      Employment Agreement dated as of April 22,
                2008, by and between VSE Corporation and
                Maurice G. Gauthier (Exhibit 10.1 to Form 8-K
                dated April 22, 2008)                                    *   +
    10.9      Transition Agreement dated as of April 22,
                2008, by and between VSE Corporation and
                Donald M. Ervine (Exhibit 10.2 to Form 8-K dated
                April 22, 2008)                                          *   +

                                          66

                                EXHIBIT INDEX

Reference No.                                                      Exhibit No.
per Item 601 of                                                      in this
Regulation S-K             Description of Exhibit                   Form 10-K
- --------------             ----------------------                   ---------

    10.10     Severance and Mutual Protection Agreement
                dated as of November 7, 2008 by and between
                VSE Corporation and Thomas M. Kiernan               Exhibit 10.3
    10.11     Statement of Amendment Number One to the
                Transition agreement, dated December 30,2008
                between VSE Corporation and Donald M. Ervine
                (Exhibit 10.1 to Form 8-K dated January 6, 2009)         *   +
    10.12     Statement of Amendment Number Two to the Transition
                Agreement, dated December 31, 2008, between
                VSE Corporation and Donald M. Ervine (Exhibit
                10.2 to Form 8-K dated January 6, 2009)                  *   +
    10.13     VSE Corporation Deferred Supplemental Compensation
                Plan effective January 1, 1994 as amended by the
                Board through March 9, 2004 (Exhibit 10.2 to
                Form 10-Q dated April 28, 2004) 			 *   +
    10.14     VSE Corporation 2004 Stock Option Plan (Appendix B to
                Registrant's definitive proxy statement for the Annual
                Meeting of Stockholders held on May 3, 2004)		 *   +
    10.15     VSE Corporation 2004 Non-employee Directors Stock Plan
                (Appendix C to Registrant's definitive proxy statement
                for the Annual Meeting of Stockholders held on
                May 3, 2004)                               		 *   +
    13.1      Annual report to security holders, Form 10-Q
                or selected quarterly data		     	    Exhibit 13
    21.1      Subsidiaries of the Registrant 		     	    Exhibit 21
    23.1      Consent of Ernst & Young LLP, independent
                registered public accounting firm                   Exhibit 23.1
    31.1      Section 302 CEO Certification                         Exhibit 31.1
    31.2      Section 302 CFO and PAO Certification                 Exhibit 31.2
    32.1      Section 906 CEO Certification                         Exhibit 32.1
    32.2      Section 906 CFO and PAO Certification                 Exhibit 32.2
    99.1      Audit Committee Charter (as adopted by the Board
                Of Directors of VSE Corporation on March 9, 2004
                (Appendix A to Registrant's definitive proxy
                statement for the Annual Meeting of Stockholders
                held on May 3, 2004                                      *


*Document has been filed as indicated and is incorporated by reference herein.
+Indicates management contract or compensatory plan or arrangement.



















                                          67





















































</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>exh10-1.txt
<DESCRIPTION>BUSINESS LOAN AND SECURITY AGREEMENT
<TEXT>
                                                                   Exhibit 10.1

                    BUSINESS LOAN AND SECURITY AGREEMENT
                    ------------------------------------
       THIS BUSINESS LOAN AND SECURITY AGREEMENT (this "Agreement") is made
this 14th day of August, 2007, by and among VSE CORPORATION, a corporation
organized under the laws of the State of Delaware ("VSE"), ENERGETICS
INCORPORATED, a corporation organized under the laws of the State of Maryland
("Energetics"), VSE SERVICES INTERNATIONAL, INC., a corporation organized
under the laws of the State of Delaware ("VSI"), and INTEGRATED CONCEPTS AND
RESEARCH CORPORATION, a corporation organized under the laws of the District
of Columbia ("ICRC"), jointly and severally (each of VSE, Energetics, VSI, and
ICRC, a "Borrower"; and collectively, the "Borrowers"), CITIZENS BANK OF
PENNSYLVANIA, a bank chartered in the State of Pennsylvania, its successors
and assigns (the "Lender").

                                  RECITALS
                                  --------
              A.	The Borrowers have applied to the Lender for credit
facilities consisting of (i) a revolving credit facility in the maximum
principal amount of Twenty Five Million Dollars ($25,000,000), and (ii) a
letter of credit facility in the maximum principal amount of Five Million
Dollars ($5,000,000), as part of that revolving credit facility.

              B.	The Lenders is willing to make those credit facilities
available jointly and severally to the Borrowers upon the terms and subject to
the conditions set forth in this Agreement.

                                 AGREEMENTS
                                 ----------
       NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:

                                  ARTICLE I
                                  ---------
                                 DEFINITIONS
                                 -----------

       Section 1.1	Certain Defined Terms.

       As used in this Agreement, the terms defined in the Preamble and
Recitals hereto shall have the respective meanings specified therein, and the
following terms shall have the following meanings:

       "Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
health care insurance receivables, contract rights, notes, drafts,
instruments, acceptances, chattel paper, leases and writings evidencing a
monetary obligation or a security interest in, or a lease of, goods, all
rights to receive the payment of a monetary obligation or other consideration
under present or future contracts (including, without limitation, all rights
(whether or not earned by performance) to receive payments under presently
existing or hereafter acquired or created letters of credit), or by virtue of
property that has been sold, leased, licensed, assigned or otherwise disposed
of, services rendered or to be rendered, loans and advances made or other
considerations given, by or set forth in or arising out of any present or
future chattel paper, note, draft, lease, acceptance, writing, bond, insurance
policy, instrument, document or general intangible, and all extensions and
renewals of any thereof, all rights under or arising out of present or future
contracts, agreements or general interest in goods which gave rise to any or
all of the foregoing, including all commercial tort claims, other claims or
causes of action now existing or hereafter arising in connection with or under
any agreement or document or by operation of law or otherwise, all collateral
security of any kind (including, without limitation, real property mortgages
and deeds of trust), Supporting Obligations, letter of credit rights and
letters of credit given by any Person with respect to any of the foregoing,
all books and records in whatever media (paper, electronic or otherwise)
recorded or stored, with respect to any or all of the foregoing and all
equipment and general intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and records, and all
Proceeds (cash and non-cash) of the foregoing.

       "Account Debtor" means any Person who is obligated on a Receivable and
"Account Debtors" mean all Persons who are obligated on the Receivables.

       "ACH Settlement Risk Reserve" means any and all reserves which the
Lender from time to time establishes, in its sole discretion, with respect to
ACH Transactions.

       "ACH Transactions" means any cash management or related services by the
Lender for the account of any of the Borrowers pursuant to agreement or
overdrafts.

       "Additional Borrower" means each Person that has executed and delivered
an Additional Borrower Joinder Supplement that has been accepted and approved
by the Lender.

       "Additional Borrower Joinder Supplement" means an Additional Borrower
Joinder Supplement in substantially the form attached hereto as EXHIBIT A,
with the blanks appropriately completed and executed and delivered by the
Additional Borrower and accepted by VSE on behalf of the Borrowers.

       "Affiliate" means, with respect to any designated Person, any other
Person, (a) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (c) five percent
(5%) or more of whose stock or other equity interest is directly or indirectly
owned or held by such designated Person.  For purposes of this definition, the
term "control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities or other equity interests or by contract or otherwise.

       "Agreement" means this Business Loan and Security Agreement, as amended,
restated, supplemented or otherwise modified in writing in accordance with the
provisions of Section 8.2 (Amendments; Waivers).

       "Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of the Borrowers and their respective Subsidiaries.

       "Bankruptcy Code" means Title 11 of the United States Code, as amended
from time to time, and any successor Laws.

       "Borrower" means each Person defined as a "Borrower" in the preamble of
this Agreement and each Additional Borrower; "Borrowers" means the collective
reference to all Persons defined as "Borrowers" in the preamble to this
Agreement and all Additional Borrowers.

       "Borrowing Base" has the meaning described in Section 2.1.3 (Borrowing
Base).

       "Borrowing Base Deficiency" has the meaning described in Section 2.1.3
(Borrowing Base).

       "Borrowing Base Report" has the meaning described in Section 2.1.4
(Borrowing Base Report).

       "Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the State are authorized or required to close.

       "Capital Adequacy Regulation" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.

       "Capital Expenditure" means an expenditure (whether payable in cash or
other property or accrued as a liability) for Fixed or Capital Assets,
including, without limitation, the entering into of a Capital Lease.

       "Capital Lease" means with respect to any Person any lease of real or
personal property, for which the related Lease Obligations have been or should
be, in accordance with GAAP consistently applied, capitalized on the balance
sheet of that Person.

       "Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit
with maturities of one (1) year or less from the date of acquisition of, or
money market accounts maintained with, the Lender, any Affiliate of the
Lender, or any other domestic commercial bank having capital and surplus in
excess of One Hundred Million Dollars ($100,000,000.00) or such other domestic
financial institutions or domestic brokerage houses to the extent disclosed
to, and approved by, the Lender and (c) commercial paper of a domestic issuer
rated at least either A-1 by Standard & Poor's Corporation (or its successor)
or P-1 by Moody's Investors Service, Inc. (or its successor) with maturities
of six (6) months or less from the date of acquisition.

       "Chattel Paper" means a record or records (including, without
limitation, electronic chattel paper) that evidence both a monetary obligation
and a security interest in specific goods, a security interest in specific
goods and software used in the goods, or a lease of specific goods; all
Supporting Obligations with respect thereto; any returned, rejected or
repossessed goods and software covered by any such record or records and all
proceeds (in any form including, without limitation, accounts, contract
rights, documents, chattel paper, instruments and general intangibles) of such
returned, rejected or repossessed goods; and all Proceeds of the foregoing.

       "Closing Date" means the Business Day, on which the Lender shall be
satisfied that the conditions precedent set forth in Section 5.1 (Conditions
to Initial Advance) have been fulfilled or otherwise waived by the Lender.

       "Collateral" means all property of each and every Borrower subject from
time to time to the Liens of this Agreement, any of the Security Documents
and/or any of the other Financing Documents, together with any and all
Proceeds and products thereof.

       "Collateral Account" has the meaning described in Section 2.1.8 (The
Collateral Account).

       "Collateral Disclosure List" has the meaning described in Section 3.3
(Collateral Disclosure List).

       "Collection" means each check, draft, cash, money, instrument, item, and
other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and
"Collections" means the collective reference to all of the foregoing.

       "Committed Amount" means with respect to the Lender, its Revolving Loan
Committed Amount and "Committed Amounts" means collectively the Revolving Loan
Committed Amount of the Lender.

       "Compliance Certificate" means a periodic Compliance Certificate
described in Section 6.1.1 (Financial Statements).

       "Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with any Borrower within the
meaning of Section 414(b) or (c) of the Internal Revenue Code.

       "Copyrights" means and includes, in each case whether now existing or
hereafter arising, all of each Borrower's rights, title and interest in and to
(a) all copyrights, rights and interests in copyrights, works protectable by
copyright, copyright registrations, copyright applications, and all renewals
of any of the foregoing, (b) all income, royalties, damages and payments now
or hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past, current or future infringements of
any of the foregoing, (c) the right to sue for past, present and future
infringements of any of the foregoing, and (d) all rights corresponding to any
of the foregoing throughout the world.

       "Credit Facility" means the Revolving Credit Facility or the Letter of
Credit Facility, as the case may be and "Credit Facilities" means collectively
the Revolving Credit Facility and the Letter of Credit Facility and any and
all other credit facilities now or hereafter extended under or secured by this
Agreement.

       "Current Letter of Credit Obligations" has the meaning set forth in
Section 2.2.5 of this Agreement.

       "Default" means an event which, with the giving of notice or lapse of
time, or both, could or would constitute an Event of Default under the
provisions of this Agreement.

       "Documents" means all documents of title or receipts, whether now
existing or hereafter acquired or created, and all Proceeds of the foregoing.

       "Eligible Receivable" and "Eligible Receivables" mean, at any time of
determination thereof, the unpaid portion of each account (net of any returns,
discounts, claims, credits, charges, accrued rebates or other allowances,
offsets, deductions, counterclaims, disputes or other defenses and reduced by
the aggregate amount of all reserves, limits and deductions provided for in
this definition and elsewhere in this Agreement) receivable in United States
Dollars by a Borrower, provided each account conforms and continues to conform
to the following criteria to the satisfaction of the Lender:

                      (a)	the account arose in the ordinary course
of a Borrower's business from a bona fide outright sale of
Inventory by such Borrower or from services performed by such
Borrower;

                      (b)	the account is a valid, legally
enforceable obligation of the Account Debtor and requires no
further act on the part of any Person under any circumstances to
make the account payable by the Account Debtor;

                      (c)	the account is based upon an enforceable
order or contract, written or oral, for Inventory shipped or for
services performed, and the same were shipped or performed in
accordance with such order or contract;

                      (d)	if the account arises from the sale of
Inventory, the Inventory the sale of which gave rise to the
account has been shipped or delivered to the Account Debtor on an
absolute sale basis and not on a bill and hold sale basis, a
consignment sale basis, a guaranteed sale basis, a sale or return
basis, or on the basis of any other similar understanding;

                      (e)	if the account arises from the performance
of services, such services have been fully rendered and do not
relate to any warranty claim or obligation;

                      (f)	the account is evidenced by an invoice or
other documentation in form acceptable to the Lender, dated no
later than the date allowed under any contract governing such
account and containing only terms normally offered by the
respective Borrower;

                      (g)	the amount shown on the books of a
Borrower and on any invoice, certificate, schedule or statement
delivered to the Lender is owing to such Borrower and no partial
payment has been received unless reflected with that delivery;

                      (h)	the account is not outstanding more than
ninety (90) days from the date of the invoice therefore;

                      (i)	the account is not owing by any Account
Debtor for which the Lender has deemed fifty percent (50%) or more
of such Account Debtor's other accounts (or any portion thereof)
due to a Borrower, individually, or all of the Borrowers
collectively, to be non-Eligible Receivables;

                      (j)	the Account Debtor has not returned,
rejected or refused to retain, or otherwise notified a Borrower of
any dispute concerning, or claimed nonconformity of, any of the
Inventory or services from the sale or furnishing of which the
account arose;

                      (k)	the account is not subject to any present
or contingent (and no facts exist which are the basis for any
future) offset, claim, deduction or counterclaim, dispute or
defense in law or equity on the part of such Account Debtor, or
any claim for credits, allowances, or adjustments by the Account
Debtor because of returned, inferior, or damaged Inventory or
unsatisfactory services, or for any other reason including,
without limitation, those arising on account of a breach of any
express or implied representation or warranty;

                      (l)	the Account Debtor is not a Subsidiary or
Affiliate of any Borrower or an employee, officer, director or
shareholder of any Borrower or any Subsidiary or Affiliate of any
Borrower, other than any joint venture of the Borrower or any
Subsidiary;

                      (m)	the Account Debtor is not incorporated or
primarily conducting business or otherwise located in any
jurisdiction outside of the United States of America, unless the
Account Debtor's obligations with respect to such account are
secured by a letter of credit, guaranty or banker's acceptance
having terms and from such issuers and confirmation banks as are
acceptable to the Lender in its sole and absolute discretion
(which letter of credit, guaranty or banker's acceptance is
subject to the perfected Lien of the Lender);

                      (n)	as to which none of the following events
has occurred with respect to the Account Debtor on such Account:
death or judicial declaration of incompetency of an Account Debtor
who is an individual; the filing by or against the Account Debtor
of a request or petition for liquidation, reorganization,
arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof,
or any foreign jurisdiction, now or hereafter in effect; the
making of any general assignment by the Account Debtor for the
benefit of creditors; the appointment of a receiver or trustee for
the Account Debtor or for any of the assets of the Account Debtor,
including, without limitation, the appointment of or taking
possession by a "custodian," as defined in the Federal Bankruptcy
Code; the institution by or against the Account Debtor of any
other type of insolvency proceeding (under the bankruptcy laws of
the United States or otherwise) or of any formal or informal
proceeding for the dissolution or liquidation of, settlement of
claims against, or winding up of affairs of, the Account Debtor;
the sale, assignment, or transfer of all or any material part of
the assets of the Account Debtor; the nonpayment generally by the
Account Debtor of its debts as they become due; or the cessation
of the business of the Account Debtor as a going concern;

                      (o)	no Borrower is indebted in any manner to
the Account Debtor (as creditor, lessor, supplier or otherwise,
other than trade debt incurred in the ordinary course of
business), with the exception of customary credits, adjustments
and/or discounts given to an Account Debtor by a Borrower in the
ordinary course of its business;

                      (p)	the account does not arise from services
under or related to any warranty obligation of a Borrower or out
of service charges, finance charges or other fees for the time
value of money;

                      (q)	the account is not evidenced by chattel
paper or an instrument of any kind and is not secured by any
letter of credit;

                      (r)	the title of the respective Borrower to
the account is absolute and is not subject to any prior
assignment, claim, Lien, or security interest, except Permitted
Liens;

                      (s)	no bond or other undertaking by a
guarantor or surety has been or is required to be obtained,
supporting the account and any of the Account Debtor's obligations
in respect of the account;

                      (t)	each Borrower has the full and unqualified
right and power to assign and grant a security interest in, and
Lien on, the account to the Lender as security and collateral for
the payment of the Obligations;

                      (u)	the account does not arise out of a
contract with, or order from, an Account Debtor that, by its
terms, forbids or makes void or unenforceable the assignment or
grant of a security interest by the Borrowers to the Lender, of
the account arising from such contract or order;

                      (v)	the account is subject to a Lien in favor
of the Lender, which Lien is perfected as to the account by the
filing of financing statements and which Lien upon such filing
constitutes a first priority security interest and Lien;

                      (w)	the Inventory giving rise to the account
was not, at the time of the sale thereof, subject to any Lien,
except those in favor of the Lender;

                      (x)	no part of the account represents a
retainage;

                      (y)	the Lender in the good faith exercise of
its sole and absolute discretion has not deemed the account
ineligible because of uncertainty as to the creditworthiness of
the Account Debtor or because the Lender otherwise considers the
collateral value of such account to the Lender to be impaired or
its or their ability to realize such value to be insecure; and

                      (z)	if the Account Debtor is located in a
state requiring the filing of a Notice of Business Activities
Report or similar report in order to permit any Borrower to seek
judicial enforcement in such state of payment of such Account,
that Borrower has qualified to do business in such state or has
filed a Notice of Business Activities Report or equivalent report
for the then current year.

       In the event of any dispute, under the foregoing criteria, as to whether
an account is, or has ceased to be, an Eligible Receivable, the decision of
the Lender in the good faith exercise of its sole and absolute discretion
shall control.

       "Enforcement Costs" means all expenses, charges, costs and fees
whatsoever (including, without limitation, reasonable outside and allocated
in-house counsel attorney's fees and expenses) of any nature whatsoever paid
or incurred by or on behalf of the Lender in connection with (a) any or all of
the Obligations, this Agreement and/or any of the other Financing Documents,
(b) the creation, perfection, collection, maintenance, preservation, defense,
protection, realization upon, disposition, sale or enforcement of all or any
part of the Collateral, this Agreement or any of the other Financing
Documents, including, without limitation, those costs and expenses more
specifically enumerated in Section 3.6 (Costs) and/or Section 8.7 (Enforcement
Costs), and further including, without limitation, amounts paid to lessors,
processors, bailees, warehousemen, sureties, judgment creditors and others in
possession of or with a Lien against or claimed against the Collateral, and
(c) the monitoring, administration, processing and/or servicing of any or all
of the Obligations, the Financing Documents, and/or the Collateral.

       "Equipment" means all equipment, machinery, computers, chattels, tools,
parts, machine tools, furniture, furnishings, fixtures and supplies of every
nature, presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real
property, and all of such types of property leased by any Borrower and all of
the Borrowers' rights and interests with respect thereto under such leases
(including, without limitation, options to purchase), together with all
accessions, additions, fittings, accessories, special tools, and improvements
thereto and substitutions therefor and all parts and equipment which may be
attached to or which are necessary or beneficial for the operation, use and/or
disposition of such personal property, all licenses, warranties, franchises
and General Intangibles related thereto or necessary or beneficial for the
operation, use and/or disposition of the same, together with all Accounts,
Chattel Paper, Instruments and other consideration received by any Borrower on
account of the sale, lease or other disposition of all or any part of the
foregoing, and together with all rights under or arising out of present or
future Documents and contracts relating to the foregoing and all Proceeds of
the foregoing.

       "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

       "Euro-Dollar Business Day" means any day on which commercial banks are
open for domestic and international business (including dealing in U.S. Dollar
Deposits) in London, England and the Commonwealth of Pennsylvania.

       "Event of Default" has the meaning described in ARTICLE VII (Default and
Rights and Remedies).

       "Facilities" means the collective reference to the loan, letter of
credit, interest rate protection, foreign exchange risk, cash management, and
other credit facilities now or hereafter provided to any one or more of the
Borrowers by the Lender under this Agreement or otherwise by the Lender.

       "Federal Funds Rate" means for any day of determination, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published for
such day (or, if such day is not a Business Day) by the Federal Reserve Bank
for the next preceding Business Day) by the Federal Reserve Bank of Richmond
or, if such rate is not so published for any day that is a Business Day, the
average of quotations for such day on such transactions received by the Lender
from three (3) federal funds brokers of recognized standing selected by the
Lender.

       "Fees" means the collective reference to each fee payable to the Lender,
under the terms of this Agreement or under the terms of any of the other
Financing Documents, including, without limitation, the Revolving Credit Fees,
Letter of Credit Fees and the Field Examination Fees.

       "Field Examination Fee" and "Field Examination Fees" have the meanings
described in Section 2.4.7 (Field Examination Fees).

       "Financing Documents" means at any time collectively this Agreement, the
Notes, the Security Documents, the Letter of Credit Documents, and any other
instrument, agreement or document previously, simultaneously or hereafter
executed and delivered by any Borrower, and/or any other Person, singly or
jointly with another Person or Persons, evidencing, securing, guarantying or
in connection with this Agreement, any Note, any of the Security Documents,
any of the Facilities, and/or any of the Obligations.

       "Fixed or Capital Assets" of a Person at any date means all assets which
would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.

       "GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.

       "General Intangibles" means all general intangibles of every nature,
whether presently existing or hereafter acquired or created, and without
implying any limitation of the foregoing, further means all books and records,
commercial tort claims, other claims (including without limitation all claims
for income tax and other refunds), payment intangibles, Supporting
Obligations, choses in action, claims, causes of action in tort or equity,
contract rights, judgments, customer lists, software, Patents, Trademarks,
licensing agreements, rights in intellectual property, goodwill (including
goodwill of Borrower's business symbolized by and associated with any and all
Trademarks, trademark licenses, Copyrights and/or service marks), royalty
payments, licenses, letter-of-credit rights, letters of credit, contractual
rights, the right to receive refunds of unearned insurance premiums, rights as
lessee under any lease of real or personal property, literary rights,
Copyrights, service names, service marks, logos, trade secrets, amounts
received as an award in or settlement of a suit in damages, deposit accounts,
interests in joint ventures, general or limited partnerships, or limited
liability companies or partnerships, rights in applications for any of the
foregoing, books and records in whatever media (paper, electronic or
otherwise) recorded or stored, with respect to any or all of the foregoing,
all Supporting Obligations with respect to any of the foregoing, and all
Equipment and General Intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and records, and all
Proceeds of the foregoing.

       "Government Contracts" means any contract with the United States or with
any state or political subdivision thereof or any department, agency or
instrumentality of the United States, or any state or political subdivision
thereof.

       "Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any department, agency or instrumentality thereof.

       "Hazardous Materials" means (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time, and regulations
promulgated thereunder; (c) any substance the presence of which on any
property now or hereafter owned, acquired or operated by any of the Borrowers
is prohibited by any Law similar to those set forth in this definition; and
(d) any other substance which by Law requires special handling in its
collection, storage, treatment or disposal.

       "Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by any of the
Borrowers or for which any of the Borrowers has responsibility, including,
without limitation, improvements, facilities, soil, ground water, air or other
elements on, or of, any property now or hereafter owned, acquired or operated
by any of the Borrowers, and any other contamination by Hazardous Materials
for which any of the Borrowers is, or is claimed to be, responsible.

       "Indebtedness" of a Person means at any date the total liabilities of
such Person at such time determined in accordance with GAAP consistently
applied.

       "Indebtedness for Borrowed Money" of a Person means at any time the sum
at such time of (a) Indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or
similar obligations issued or created for the account of such Person, (c)
Lease Obligations of such Person with respect to Capital Leases, (d) all
liabilities secured by any Lien on any property owned by such Person, to the
extent attached to such Person's interest in such property, even though such
Person has not assumed or become personally liable for the payment thereof,
(e) obligations of third parties which are being guarantied or indemnified
against by such Person or which are secured by the property of such Person;
(f) any obligation of such Person under an employee stock ownership plan or
other similar employee benefit plan; (g) any obligation of such Person or a
Commonly Controlled Entity to a Multi-employer Plan; and (h) any obligations,
liabilities or indebtedness, contingent or otherwise, under or in connection
with, any Swap Transaction; but excluding trade and other accounts payable in
the ordinary course of business in accordance with customary trade terms and
which are not overdue (as determined in accordance with customary trade
practices) or which are being disputed in good faith by such Person and for
which adequate reserves are being provided on the books of such Person in
accordance with GAAP.

       "Indemnified Parties" has the meaning set forth in Section 8.16
(Indemnification).

       "Instrument" means a negotiable instrument or any other writing which
evidences a right to payment of a monetary obligation and is not itself a
security agreement or lease and is of a type that in the ordinary course of
business is transferred by delivery with any necessary endorsement or
assignment, and all Supporting Obligations with respect to any of the
foregoing and all Proceeds with respect to any of the foregoing.

       "Interest Payment Date" means (i) with respect to Revolving Loans which
accrue interest based on the Prime Rate the last day of each calendar quarter
commencing on September 30, 2007 and continuing thereafter until the
Obligations have been irrevocably paid in full (ii) with respect to Revolving
Loans which accrue interest based on the LIBOR rate the earlier of the last
day of each Interest Period or the last day of each calendar quarter
commencing on September 30, 2007 and continuing thereafter until the
Obligations have been irrevocably paid in full.

       "Interest Period" means the period during which interest at a LIBOR-
based Rate, determined as provided in this Agreement, shall be applicable to
the Rate Request Amount in question, provided, however, that each such period
shall be either one (1), two (2), three (3) or six (6) months which shall be
measured from the date specified by the Borrowers in each Rate Request for the
commencement of the computation of interest at a LIBOR-based Rate to the
numerically corresponding day in the calendar month in which such period
terminates (or, if there is numerical Euro-Dollar Business Day of a calendar
month, then the last Euro-Dollar Business Day of the calendar month in which
such period terminates, or if the numerically corresponding day is not a Euro-
Dollar Business Day, then the next succeeding Euro-Dollar Business Day enters
a new calendar month, in which case such period shall end on the next
preceding Euro-Dollar Business Day) and in no event shall any such period
extend beyond the Revolving Credit Termination Date.

       "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed
to be issued thereunder.

       "Inventory" means all goods of Borrower and all right, title and
interest of Borrower in and to all of its now owned and hereafter acquired
goods and other personal property furnished under any contract of service or
intended for sale or lease, including, without limitation, all raw materials,
work-in-process, finished goods and materials and supplies of any kind, nature
or description which are used or consumed in Borrower's business or are or
might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods and other personal property
and all licenses, warranties, franchises, General Intangibles, personal
property and all documents of title or documents relating to the same,
together with all Accounts, Chattel Paper, Instruments and other consideration
received by Borrower on account of the sale, lease or other disposition of all
or any part of the foregoing, and together with all rights under or arising
out of present or future Documents and contracts relating to the foregoing and
all Proceeds of the foregoing.

       "Investment Property" means a security, whether certificated or
uncertificated, security entitlement, securities account, commodity contract
or commodity account and all Proceeds of, and Supporting Obligations with
respect to, the foregoing.

       "Item of Payment" means each check, draft, cash, money, instrument,
item, and other remittance in payment or on account of payment of the
Receivables or otherwise with respect to any Collateral, including, without
limitation, cash proceeds of any returned, rejected or repossessed goods, the
sale or lease of which gave rise to a Receivable, and other proceeds of
Collateral; and "Items of Payment" means the collective reference to all of
the foregoing.

       "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority.

       "Lease Obligations" of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or
personal property (net of rent from subleases thereof, but including taxes,
insurance, maintenance and similar expenses which such Person, as the lessee,
is obligated to pay under the terms of said leases, except to the extent that
such taxes, insurance, maintenance and similar expenses are payable by
sublessees), including rental commitments under Capital Leases.

       "Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.2.1 (Letters of Credit).

       "Letter of Credit Agreement" means the collective reference to each
letter of credit application and agreement substantially in the form of the
Lender's then standard form of application for letter of credit or such other
form as may be approved by the Lender, executed and delivered by any one or
more of the Borrowers in connection with the issuance of a Letter of Credit,
as the same may from time to time be amended, restated, supplemented or
modified; and "Letter of Credit Agreements" means all of the foregoing in
effect at any time and from time to time.

       "Letter of Credit Documents" means any and all drafts under or
purporting to be under a Letter of Credit, any Letter of Credit Agreement, and
any other instrument, document or agreement executed and/or delivered by any
one or more of the Borrowers or any other Person under, pursuant to or in
connection with a Letter of Credit or any Letter of Credit Agreement.

       "Letter of Credit Facility" means the facility established pursuant to
Section 2.2 (Letter of Credit Facility).

       "Letter of Credit Fee" and "Letter of Credit Fees" have the meanings
described in Section 2.2.2 (Letter of Credit Fees).

       "Letter of Credit Obligations" means the collective reference to all
Obligations of any one or more of the Borrowers with respect to the Letters of
Credit and the Letter of Credit Agreements.

       "Letter-of-credit right" means a right to payment or performance under a
letter of credit, whether or not the beneficiary has demanded or is at the
time entitled to demand payment or performance.

       "Leverage Ratio" means the ratio of Total Liabilities on a specified
date to Tangible Net Worth on such date.

       "Liabilities" means at any date all liabilities that in accordance with
GAAP consistently applied should be classified as liabilities on a
consolidated balance sheet of the Borrowers and their respective Subsidiaries.

       "LIBOR Amount" means each portion of the Principal Amount bearing
interest at a LIBOR-based Rate pursuant to a Rate Request.

       "LIBOR-based Rate" means an interest rate fixed for one, two, three or
six month periods at a rate equal to the corresponding LIBOR rate (i.e. the
one, two, three or six month LIBOR rate) plus the LIBOR Rate Margin in effect
on the date of the corresponding Rate Request.

       "LIBOR rate" means the London interbank offered rate of major banks for
deposits in United States Dollars for a designated period (e.g. on, two, three
or six months) as set forth at Telerate Page 3750 at approximately 11:00 a.m.
London time on the third Euro-Dollar Business Day preceding the date when the
LIBOR-based Rate will be become effective; provided, however, that if such
information is not available on Telerate, the "LIBOR rate" shall be determined
from information supplied to the Lender by a nationally recognized reporting
service for similar information acceptable to the Lender.

       "LIBOR Rate Margin" means the amount determined to be in effect from
time to time using the chart set forth below.  The initial LIBOR Rate Margin
will be determined at the Closing Date using the Leverage Ratio calculated by
reference to the consolidated balance sheet of VSE most recently received by
the Lender.  Commencing on the date following the Closing Date when the Lender
receives the consolidated balance sheet of VSE in accordance with this
Agreement and on each such date thereafter, the LIBOR Rate Margin will be
reset based on the Leverage Ratio calculated by reference to such consolidated
balance sheet.

        LIBOR Rate Margin                   Leverage Ratio
        -----------------                   --------------
              2.00%                Equal to or greater than 3.0 to 1.0
              1.75%                Equal to or greater than 1.5 to 1.0 but
                                   less than 3.0 to 1.0
              1.25%                Less than 1.5 to 1.0

       In the event VSE fails to provide such balance sheet when due, the LIBOR
Rate Margin shall be 2.00% until such time as such balance sheets are
submitted as required by this Agreement.

       "Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien, financing
statement, hypothecation, provision in any instrument or other document for
confession of judgment, cognovit or other similar right or other remedy,
claim, charge, control over or interest of any kind in real or personal
property securing any indebtedness, duties, obligations, and liabilities owed
to, or a claimed to be owed to, a Person, all whether perfected or
unperfected, avoidable or unavoidable, based on the common law, statute or
contract or otherwise, including, without limitation, any conditional sale or
other title retention agreement, any lease in the nature thereof, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction, excluding the precautionary filing of any
financing statement by any lessor in a true lease transaction, by any bailor
in a true bailment transaction or by any consignor in a true consignment
transaction under the Uniform Commercial Code of any jurisdiction or the
agreement to give any financing statement by any lessee in a true lease
transaction, by any bailee in a true bailment transaction or by any consignee
in a true consignment transaction.

       "Loan" means each of the Revolving Loan and "Loans" means the collective
reference to the Revolving Loans.

       "Loan Notice" has the meaning described in Section 2.1.2 (Procedure for
Making Advances).

       "Lockbox" has the meaning described in Section 2.1.8 (The Collateral
Account).

       "Maximum Rate" has the meaning described in Section 2.4.5 (Maximum
Interest Rate).

       "Multi-employer Plan" means a Plan that is a Multi-employer plan as
defined in Section 4001(a)(3) of ERISA.

       "Note" means the Revolving Credit Note and "Notes" means collectively
the Revolving Credit Note and any other promissory note which may from time to
time evidence all or any portion of the Obligations.

       "Obligations" means all present and future, whether now existing or
contemplated or hereafter arising, of any one or more of the Borrowers to the
Lender under, arising pursuant to, in connection with and/or on account of the
provisions of this Agreement, each Note, each Security Document, and/or any of
the other Financing Documents, the Loans, and/or any of the Facilities
including, without limitation, the principal of, and interest on, each Note,
late charges, the Fees, Enforcement Costs, and prepayment fees (if any),
letter of credit reimbursement obligations, letter of credit fees or fees
charged with respect to any guaranty of any letter of credit; also means all
other present and future indebtedness, duties, obligations, and liabilities,
whether now existing or contemplated or hereafter arising, of any one or more
of the Borrowers to the Lender or its Affiliates of any nature whatsoever,
including, without limitation, any indebtedness, duties, obligations, and
liabilities, under or in connection with, any Swap Transaction, regardless of
whether such indebtedness, duties, obligations, and liabilities be direct,
indirect, primary, secondary, joint, several, joint and several, fixed or
contingent; and also means any and all renewals, extensions, substitutions,
amendments, restatements and rearrangements of any such indebtedness, duties,
obligations, and liabilities.

       "Outstanding Letter of Credit Obligations" has the meaning described in
Section 2.2.3 (Terms of Letters of Credit).

       "Patents" means and includes, in each case whether now existing or
hereafter arising, all of each Borrower's rights, title and interest in and to
(a) any and all patents and patent applications, (b) any and all inventions
and improvements described and claimed in such patents and patent
applications, (c) reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any patents and patent applications, (d) income,
royalties, damages, claims and payments now or hereafter due and/or payable
under and with respect to any patents or patent applications, including,
without limitation, damages and payments for past and future infringements,
(e) rights to sue for past, present and future infringements of patents, and
(f) all rights corresponding to any of the foregoing throughout the world.

       "PBGC" means the Pension Benefit Guaranty Corporation.

       "Permitted Acquisitions" means a shall mean a transaction or series of
transactions whereby the Borrowers acquire all or substantially all of the
assets of a business, or purchase an equity interest in a business (the
"Target"), provided, that (i) such interest shall not be less than eighty-five
percent (85%) of the total equity of such business, (ii) the acquisition or
purchase price consideration paid by the Borrowers during any twelve (12)
month consecutive period shall not be greater than Ten Million Dollars
($10,000,000) in the aggregate; (iii) the acquired entity shall be in a
similar line of business as that of the Borrowers; (iv) the acquired entity
shall be a going concern, not involved in any material litigation that is not
fully covered by reserves and/or insurance and shall have positive net
earnings for the previous twelve (12) months; (v) both before and after giving
effect to such transaction, no Event of Default shall be continuing or shall
occur as a result of such transaction; (vi) the Borrowers will be in
compliance with all financial covenants after giving pro forma effect to such
transaction; (vii) after giving effect to such transaction there must be at
least Five Million Dollars ($5,000,000) of availability under the Revolving
Loan; (viii) the Lender shall have received satisfactory evidence that
satisfactory arrangements shall have been made for the termination of all
Liens encumbering any asset of any of the acquired entities; (ix) no
Indebtedness shall be assumed by Borrowers in connection with such
transaction; (x) the Lender shall have received and approved complete copies
of the Purchase Agreement Documents; and (xi) within 15 days of closing any
transaction contemplated hereby, the acquired entity shall be joined to this
Agreement as an Additional Borrower by executing and delivering to the Lender
an Additional Borrower Joinder Supplement

       "Permitted Liens" means:  (a) Liens for Taxes which are not delinquent
or which the Lender has determined in the exercise of its sole and absolute
discretion (i) are being diligently contested in good faith and by appropriate
proceedings, and such contest operates to suspend collection of the contested
Taxes and enforcement of a Lien, (ii) the respective Borrower has the
financial ability to pay, with all penalties and interest, at all times
without materially and adversely affecting such Borrower, and (iii) are not,
and will not be with appropriate filing, the giving of notice and/or the
passage of time, entitled to priority over any Lien of the Lender; (b)
deposits or pledges to secure obligations under workers' compensation, social
security or similar laws, or under unemployment insurance in the ordinary
course of business; (c) Liens securing the Obligations; (d) judgment Liens to
the extent the entry of such judgment does not constitute a Default or an
Event of Default under the terms of this Agreement or result in the sale or
levy of, or execution on, any of the Collateral; (e) Liens to secure the
purchase price of Equipment or Inventory in an aggregate amount not to exceed
Two Hundred Fifty Thousand Dollars ($250,000); and (f) such other Liens, if
any, as are set forth on Schedule 4.1.18 attached hereto and made a part
hereof.

       "Permitted Uses" means short term working capital of any Borrower's
business and to support the issuance of Letters of Credit, and any Permitted
Acquisition.

       "Person" means and includes an individual, a corporation, a partnership,
a joint venture, a limited liability company or partnership, a trust, an
unincorporated association, a Governmental Authority, or any other
organization or entity.

       "Plan" means any pension plan that is covered by Title IV of ERISA and
in respect of which any Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3 of ERISA.

       "Post-closing Balance Sheet" has the meaning described in Section 4.1.28
(Post-closing Financial Statements).

       "Post-closing Financial Projections" has the meaning described in
Section 4.1.28 (Post-closing Financial Statements).

       "Post-Default Rate" means the Prime Rate in effect from time to time,
plus two percent (2.0%) per annum.

       "Prepayment" means a Revolving Loan Mandatory Prepayment or a Revolving
Loan Optional Prepayment, as the case may be, and "Prepayments" mean
collectively all Revolving Loan Mandatory Prepayments and all Revolving Loan
Optional Prepayments.

       "Principal Amount" means the aggregate outstanding principal balance of
the Notes.

       "Prime-based Rate" means a floating rate of interest equal to the Prime
Rate plus the Prime Rate Margin.

       "Prime Rate" means the rate of interest established from time to time by
the Lender and announced by the Lender as its prime rate.  The Prime Rate is
not necessarily the lowest or most favorable rate of interest charged by the
Lender on extensions of credit to debtors.

       "Prime Rate Margin" means the amount determined to be effect form time
to time using the charge set forth below.  The initial Prime Rate Margin will
be determined at the Closing Date using the Leverage Ratio calculated by
reference to the consolidated balance sheet of VSE most recently received by
the Lender.  Commencing on the date following the Closing Date when the Lender
receives the consolidated balance sheet of VSE in accordance with this
Agreement and on each such date thereafter, the Prime Rate Margin will be
reset based on the Leverage Ratio calculated by reference to such consolidated
balance sheet.

              Prime Rate Margin                 Leverage Ratio
              -----------------                 --------------
                    .25%              Equal to or greater than 3.0 to 1.0
                     0%               Less than 3.0 to 1.0

       In the event VSE fails to provide such balance sheets when due, the
Prime Rate Margin shall be .25% until such time as such balance sheets are
submitted as required by this Agreement.

       "Proceeds" has the meaning described in the Uniform Commercial Code as
in effect from time to time.

       "Purchase Agreement Documents" means collectively any agreement
hereafter executed in connection with any Permitted Acquisition and any and
all other agreements, documents or instruments (together with any and all
amendments, modifications, and supplements thereto, restatements thereof, and
substitutes therefor) previously, now or hereafter executed and delivered by
Borrower or any other Person in connection with any Permitted Acquisition.

       "Rate Request" means VSE's written notice, as agent for the Borrowers to
be received by the Lender by 11:00 a.m. Eastern time on the third Euro-Dollar
Business Day preceding the date specified in the Rate Request for the
commencement of the Interest Period, of (a) its intention to have (i) all or
any portion of the Principal Amount which is not then the subject of an
Interest Period (other than an Interest Period which is terminating on such
Euro-Dollar Business Day), and/or (ii) all or any portion of any Loan which is
to be made on such date bear interest at a specified LIBOR-based Rate and (b)
the Interest Period desired by the Borrowers in respect to the amount
specified.

       "Rate Request Amount" means the amount, to be specified by the
Borrowers, through their agent VSE, in each Rate Request, which the Borrowers
desire bear interest at the specified LIBOR-based Rate.

       "Receivable" means one of each Borrower's now owned and hereafter owned,
acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments; and "Receivables" means all of each Borrower's now or hereafter
owned, acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments, and all cash and non-cash proceeds and products thereof.

       "Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA or the regulations thereunder.

       "Responsible Officer" means for each Borrower, its chief executive
officer or president or, with respect to financial matters, its chief
financial officer, or treasurer.

       "Revolving Credit Commitment" means the agreement of the Lender relating
to the making the Revolving Loan and advances thereunder subject to and in
accordance with the provisions of this Agreement; and "Revolving Credit
Commitments" means the collective reference to all the Revolving Credit
Commitments of the Lender.

       "Revolving Credit Commitment Period" means the period of time from the
Closing Date to the Business Day preceding the Revolving Credit Termination
Date.

       "Revolving Credit Committed Amount" has the meaning described in Section
2.1.1 (Revolving Credit Facility).

       "Revolving Credit Expiration Date" means August __, 2009.

       "Revolving Credit Facility" means the facility established by the Lender
pursuant to Section 2.1 (Revolving Credit Facility).

       "Revolving Credit Note" has the meaning described in Section 2.1.5
(Revolving Credit Notes).

       "Revolving Credit Termination Date" means the earlier of (a) the
Revolving Credit Expiration Date, or (b) the date on which the Revolving
Credit Commitments are terminated pursuant to Section 7.2 (Remedies) or
otherwise.

       "Revolving Credit Fee" and "Revolving Credit Fees" have the meanings
described in Section 2.1.10 (Revolving Credit Fee).

       "Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line
Fees" have the meanings described in Section 2.1.10 (Revolving Credit Unused
Line Fee).

       "Revolving Loan" has the meaning described in Section 2.1.1 (Revolving
Credit Facility).

       "Revolving Loan Account" has the meaning described in Section 2.1.9
(Revolving Loan Account).

       "Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory
Prepayments" have the meanings described in Section 2.1.6 (Mandatory
Prepayments of Revolving Loan).

       "Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.7 (Optional Prepayment
of Revolving Loan).

       "Security Documents" means collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit
of, the Lender on any real or personal property of any Person to secure all or
any portion of the Obligations, all as the same may from time to time be
amended, restated, supplemented or otherwise modified, including, without
limitation, this Agreement.

       "Solvent" means when used with respect to any Person that at the time of
determination:
                      (a)	the assets of such Person, at a fair
valuation, are in excess of the total amount of its debts
(including, without limitation, contingent liabilities); and

                      (b)	the present fair saleable value of its
assets is greater than its probable liability on its existing
debts as such debts become absolute and matured; and

                      (c)	it is then able and expects to be able to
pay its debts (including, without limitation, contingent debts and
other commitments) as they mature; and

                      (d)	it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.

       For purposes of determining whether a Person is Solvent, the amount of
any contingent liability shall be computed as the amount that, in light of all
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.

       "State" means the Commonwealth of Virginia.

       "Subsidiary" means any corporation the majority of the voting shares of
which at the time are owned directly by any Borrower and/or by one or more
Subsidiaries of any Borrower.

       "Supporting Obligation" means a letter-of-credit right, secondary
obligation or obligation of a secondary obligor or that supports the payment
or performance of an account, chattel paper, a document, a general intangible,
an instrument or investment property.

       "Swap Reserve" means any and all reserves which the Lender from time to
time establishes, in its sole discretion, with respect to Swap Transactions.

       "Swap Transactions" means any interest rate swap transaction, forward
rate transaction, treasury lock transaction, interest rate cap, floor or
collar transaction, any similar transaction, any option to enter into any of
the foregoing, or any combination of any of the foregoing.

       "Tangible Net Worth" means, at any date, all amounts which, in
accordance with GAAP, would be included under stockholders' equity on the
consolidated balance sheet of VSE and Subsidiaries on such date; provided
that, in any event, such amounts are to be net of amounts carried on the books
of the Borrowers for (a) any write-up in the book value of any assets
resulting from a revaluation thereof subsequent to the Closing Date; (b)
treasury stock; (c) unamortized debt discount expense; (d) any cost of
investments in excess of net assets acquired at any time of acquisition; (e)
except as permitted by Section 6.2.6 (Investments, Loans and Other
Transactions), loans or advances to any Affiliate of the Borrowers or any
Subsidiary; (f) patents, patent applications, copyrights, trademarks, trade
names, good will, research and development costs, organizational expenses,
capitalized software developments costs and other like intangibles; and (g)
any investments in securities which are not actively traded on a national
securities exchange.

       "Target" has the meaning described in the definition of Permitted
Acquisitions.

       "Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental Authority on any or
all of the Borrowers or any of its or their properties or assets or any part
thereof or in respect of any of its or their franchises, businesses, income or
profits.

       "Trademarks" means and includes in each case whether now existing or
hereafter arising, all of each Borrower's rights, title and interest in and to
(a) any and all trademarks (including service marks), trade names and trade
styles, and applications for registration thereof and the goodwill of the
business symbolized by any of the foregoing, (b) any and all licenses of
trademarks, service marks, trade names and/or trade styles, whether as
licensor or licensee, (c) any renewals of any and all trademarks, service
marks, trade names, trade styles and/or licenses of any of the foregoing, (d)
income, royalties, damages and payments now or hereafter due and/or payable
with respect thereto, including, without limitation, damages, claims, and
payments for past, present and future infringements thereof, (e) rights to sue
for past, present and future infringements of any of the foregoing, including
the right to settle suits involving claims and demands for royalties owing,
and (f) all rights corresponding to any of the foregoing throughout the world.

       "Unearned Contract Value" means the difference between (a) the then
fully funded dollar value of the contract or subcontract, whether or not
earned, and (b) the total amounts previously billed and properly billable for
accepted end items or services.

       "Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time
to time in the State or in any other jurisdiction, as applicable.

       "Wholly Owned Subsidiary" means any domestic United States corporation
all the shares of stock of all classes of which (other than directors'
qualifying shares) at the time are owned directly or indirectly by a Borrower
and/or by one or more Wholly Owned Subsidiaries of a Borrower.

       Section 1.2	Accounting Terms and Other Definitional Provisions.
       Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only
partly defined herein, to the extent not defined, shall have the respective
meanings given to them under GAAP, as consistently applied to the applicable
Person.  All terms used herein which are defined by the Uniform Commercial
Code shall have the same meanings as assigned to them by the Uniform
Commercial Code unless and to the extent varied by this Agreement.  The words
"hereof", "herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, subsection,
schedule and exhibit references are references to articles, sections or
subsections of, or schedules or exhibits to, as the case may be, this
Agreement unless otherwise specified.  As used herein, the singular number
shall include the plural, the plural the singular and the use of the
masculine, feminine or neuter gender shall include all genders, as the context
may require.  Reference to any one or more of the Financing Documents shall
mean the same as the foregoing may from time to time be amended, restated,
substituted, extended, renewed, supplemented or otherwise modified.  Reference
in this Agreement and the other Financing Documents to the "Borrower", the
"Borrowers", "each Borrower" or otherwise with respect to any one or more of
the Borrowers shall mean each and every Borrower and any one or more of the
Borrowers, jointly and severally, unless a specific Borrower is expressly
identified.

                                 ARTICLE II
                           THE CREDIT FACILITIES
       Section 2.1    The Revolving Credit Facility.
                      ------------------------------
                      2.1.1	Revolving Credit Facility.
                                --------------------------
                      Subject to and upon the provisions of this Agreement, the
Lender establishes a revolving credit facility in favor of the Borrowers.  The
aggregate of all advances under the Revolving Credit Facility is sometimes
referred to in this Agreement collectively as the "Revolving Loan".  The
Lender's "Revolving Credit Committed Amount" is $25,000,000.  During the
Revolving Credit Commitment Period, any or all of the Borrowers may request
advances under the Revolving Credit Facility in accordance with the provisions
of this Agreement; provided that after giving effect to any Borrower's request
the aggregate outstanding principal balance of the Revolving Loan and all
Letter of Credit Obligations would not exceed the lesser of (i) the Revolving
Credit Committed Amount or (ii) the Borrowing Base.

                      Unless sooner paid, the unpaid Revolving Loan, together
with interest accrued and unpaid thereon and all other Obligations shall be due
and payable in full on the Revolving Credit Expiration Date.  Interest on the
Revolving Loan shall be payable on each Interest Payment Date.

                      2.1.2	Procedure for Making Advances Under the
                                ---------------------------------------
Revolving Loan; Lender Protection Loans.
- ----------------------------------------
                      The Borrowers may borrow under the Revolving Credit
Facility on any Business Day.  Advances under the Revolving Loan shall be
deposited to a demand deposit account of a Borrower with the Lender or shall be
otherwise applied as directed by the Borrowers, which direction the Lender may
require to be in writing.  Not later than 1:00 p.m. (Eastern Time) on the date
of the requested borrowing, the Borrowers shall give the Lender oral or written
notice (a "Loan Notice") of the amount and (if requested by the Lender) the
purpose of the requested borrowing and if requested by the Lender, be
accompanied by a Borrowing Base Report.  Any oral Loan Notice shall be
confirmed in writing by the Borrowers within three (3) Business Days after the
making of the requested advance under the Revolving Loan.  Each Loan Notice
shall be irrevocable.

                      In addition, each of the Borrowers hereby irrevocably
authorizes the Lender at any time and from time to time, without further
request from or notice to the Borrowers, to make advances under the Revolving
Loan, and irrevocably authorizes the Lender to establish, without duplication,
reserves against the Borrowing Base, which the Lender, in its sole and
absolute discretion, deems necessary or appropriate to protect the interests
of the Lender under this Agreement, including, without limitation, advances
and reserves under the Revolving Loan made to cover debit balances in the
Revolving Loan Account, principal of, and/or interest on, any Loan, the
Obligations (including, without limitation, any Letter of Credit Obligations),
and/or Enforcement Costs, prior to, on, or after the termination of other
advances under this Agreement, regardless of whether the outstanding principal
amount of the Revolving Loan that the Lender may advance or the Lender may
reserve hereunder exceeds the Total Revolving Credit Committed Amount or the
Borrowing Base.

                      2.1.3	Borrowing Base.
                                ---------------
                      As used in this Agreement, the term "Borrowing Base" means
at any time, an amount equal to the sum of (i) eighty percent (80%) of the
amount of Eligible Receivables and (ii) ninety percent (90%) of Eligible
Receivables derived from Government Contracts.  Any Eligible Receivables
acquired by any of the Borrowers in connection with any Permitted Acquisition
shall not be included in the Borrowing Base without the prior consent of the
Lender.

                      The Borrowing Base shall be computed based on the
Borrowing Base Report most recently delivered to and accepted by the Lender in
its sole and absolute discretion.  In the event the Borrowers fail to furnish a
Borrowing Base Report required by Section 2.1.4 (Borrowing Base Report), or in
the event the Lender believes that a Borrowing Base Report is no longer
accurate, the Lender may, in its sole and absolute discretion exercised from
time to time and without limiting other rights and remedies under this
Agreement, suspend the making of or limit advances under the Revolving Loan.
The Borrowing Base shall be subject to reduction by amounts credited to the
Collateral Account since the date of the most recent Borrowing Base Report and
by the amount of any Receivable which was included in the Borrowing Base but
which the Lender determines fails to meet the respective criteria applicable
from time to time for Eligible Receivables.

                      If at any time the total of the aggregate principal amount
of the Revolving Loan and Outstanding Letter of Credit Obligations exceeds the
Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency")
shall exist.  Each time a Borrowing Base Deficiency exists, the Borrowers at
the sole and absolute discretion of the Lender exercised from time to time
shall pay the Borrowing Base Deficiency ON DEMAND to the Lender.

                      Without implying any limitation on the Lender's discretion
with respect to the Borrowing Base, the criteria for Eligible Receivables
contained in the definition of Eligible Receivables are in part based upon the
business operations of the Borrowers existing on or about the Closing Date and
upon information and records furnished to the Lender by the Borrowers.  If at
any time or from time to time hereafter, the business operations of the
Borrowers change or such information and records furnished to the Lender is
incorrect or misleading, the Lender in its discretion, may at any time and
from time to time during the duration of this Agreement change such criteria
or add new criteria.  The Lender may communicate such changed or additional
criteria to the Borrowers from time to time either orally or in writing.

                      2.1.4	Borrowing Base Report.
                                ----------------------
                      The Borrowers will furnish to the Lender no less
frequently than monthly before the 20th day of each month and at such other
times as may be requested by the Lender a report of the Borrowing Base (each a
"Borrowing Base Report"; collectively, the "Borrowing Base Reports") in the form
required from time to time by the Lender, appropriately completed and duly
signed.  The Borrowing Base Report shall contain the net amount due on the
Receivables, and the calculations of the Borrowing Base, all in such detail, and
accompanied by such supporting and other information, as the Lender may from
time to time request.  Upon the Lender's request and upon the creation of any
Receivables, or at such intervals as the Lender may require, the Borrowers will
provide the Lender with (a) confirmatory assignment schedules; (b) copies of
Account Debtor invoices; (c) evidence of shipment or delivery; and (d) such
further schedules, documents and/or information regarding the Receivables as the
Lender may reasonably require. The items to be provided under this subsection
shall be in form satisfactory to the Lender, and certified as true and correct
by a Responsible Officer, and delivered to the Lender from time to time solely
for the Lender's convenience in maintaining records of the Collateral.  Any
Borrower's failure to deliver any of such items to the Lender shall not
affect, terminate, modify, or otherwise limit the Liens of the Lender in the
Collateral.

                      2.1.5	Revolving Credit Note.
                                ----------------------
                      The joint and several obligation of the Borrowers to pay
the Revolving Loan, with interest, shall be evidenced by a promissory note (as
from time to time extended, amended, restated, supplemented or otherwise
modified, the "Revolving Credit Note") substantially in the form of EXHIBIT
"B" attached hereto and made a part hereof, with appropriate insertions.  The
Revolving Credit Note shall be dated as of the Closing Date, shall be payable
to the order of the Lender at the times provided in the Revolving Credit Note,
and shall be in the principal amount of the Revolving Credit Committed Amount.
The Revolving Credit Note shall be dated as of the Closing Date, shall be
payable to the order of the Lender and shall be in the principal amount of the
Revolving Credit Committed Amount.

                      Each of the Borrowers acknowledges and agrees that, if the
outstanding principal balance of the Revolving Loan outstanding from time to
time exceeds the Revolving Credit Committed Amount, the excess shall bear
interest at the rates provided from time to time for advances under the
Revolving Loan evidenced by the Revolving Credit Note and shall be payable,
with accrued interest, ON DEMAND.

                      2.1.6	Mandatory Prepayments of Revolving Loan.
                                ----------------------------------------
                      The Borrowers shall make the mandatory prepayments (each a
"Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan
Mandatory Prepayments") of the Revolving Loan at any time and from time to
time in such amounts requested by the Lender pursuant to Section 2.1.3
(Borrowing Base) in order to cover any Borrowing Base Deficiency.

                      2.1.7	Optional Prepayments of Revolving Loan.
                                ---------------------------------------
                      The Borrowers shall have the option at any time and from
time to time to prepay (each a "Revolving Loan Optional Prepayment" and
collectively the "Revolving Loan Optional Prepayments") the Revolving Loan, in
whole or in part without premium or penalty.

                      2.1.8	The Collateral Account.
                                -----------------------
                      Upon request of the Lender after the occurrence of a
Default, the Borrowers will deposit, or cause to be deposited, all Items of
Payment to a bank account designated by the Lender and from which the Lender
alone has power of access and withdrawal (the "Collateral Account").  Each
deposit shall be made not later than the next Business Day after the date of
receipt of the Items of Payment.  The Items of Payment shall be deposited in
precisely the form received, except for the endorsements of the Borrowers
where necessary to permit the collection of any such Items of Payment, which
endorsement the Borrowers hereby agree to make.  In the event the Borrowers
fail to do so, the Borrowers hereby authorize the Lender to make the
endorsement in the name of any or all of the Borrowers.  Prior to such a
deposit, the Borrowers will not commingle any Items of Payment with any of the
Borrowers' other funds or property, but will hold them separate and apart in
trust and for the account of the Lender.

                      In addition, if so directed by the Lender, the Borrowers
shall direct the mailing of all Items of Payment from their Account Debtors to
one or more post-office boxes designated by the Lender, or to such other
additional or replacement post-office boxes pursuant to the request of the
Lender from time to time (collectively, the "Lockbox").  The Lender shall have
unrestricted and exclusive access to the Lockbox.

                      The Borrowers hereby authorize the Lender after the
occurrence of a Default to inspect all Items of Payment, endorse all Items of
Payment in the name of any or all of the Borrowers, and deposit such Items of
Payment in the Collateral Account.  The Lender reserves the right, exercised
in its sole and absolute discretion from time to time, to provide to the
Collateral Account credit prior to final collection of an Item of Payment and
to disallow credit for any Item of Payment which is unsatisfactory to the
Lender.  In the event Items of Payment are returned to the Lender for any
reason whatsoever, the Lender may, in the exercise of its discretion from time
to time, forward such Items of Payment a second time.  Any returned Items of
Payment shall be charged back to the Collateral Account, the Revolving Loan
Account, or other account, as appropriate.

                      The Lender will after the occurrence of a Default apply
the whole or any part of the collected funds credited to the Collateral Account
against the Revolving Loan (or with respect to Items of Payment which are not
proceeds of Accounts or Inventory or after an Event of Default, against any of
the Obligations) or credit such collected funds to a depository account of any
or all of the Borrowers with the Lender, the order and method of such
application to be in the sole discretion of the Lender.

                      2.1.9	Revolving Loan Account.
                                -----------------------
                      The Lender will establish and maintain a loan account on
its books (the "Revolving Loan Account") to which the Lender will (a) debit (i)
the principal amount of each advance under the Revolving Loan made by the
Lender hereunder as of the date made, (ii) the amount of any interest accrued
on the Revolving Loan as and when due, and (iii) any other amounts due and
payable by the Borrowers to the Lender from time to time under the provisions
of this Agreement in connection with the Revolving Loan, including, without
limitation, Enforcement Costs, Fees, late charges, and service, collection and
audit fees, as and when due and payable, and (b) credit all payments made by
the Borrowers to the Lender on account of the Revolving Loan as of the date
made.  The Lender may debit the Revolving Loan Account for the amount of any
Item of Payment that is returned to the Lender unpaid.  All credit entries to
the Revolving Loan Account are conditional and shall be readjusted as of the
date made if final and indefeasible payment is not received by the Lender in
cash or solvent credits.  The Borrowers hereby promise to pay to the order of
the Lender, ON DEMAND, an amount equal to the excess, if any, of all debit
entries over all credit entries recorded in the Revolving Loan Account under
the provisions of this Agreement.  Any and all periodic or other statements or
reconciliations, and the information contained in those statements or
reconciliations, of the Revolving Loan Account shall be presumed conclusively
to be correct, and shall constitute an account stated between the Lender and
the Borrowers unless the Lender receives specific written objection thereto
from any Borrower within thirty (30) Business Days after such statement or
reconciliation shall have been sent by the Lender.  Any and all periodic or
other statements or reconciliations, and the information contained in those
statements or reconciliations, of the Revolving Loan Account shall be final,
binding and conclusive upon the Borrowers in all respects, absent manifest
error, unless the Lender receives specific written objection thereto from the
Borrowers within thirty (30) Business Days after such statement or
reconciliation shall have been sent by the Lender.

                      2.1.10	Revolving Credit Unused Line Fee.
                                ---------------------------------
                      Borrowers shall pay to Lender a revolving credit facility
fee (collectively, the "Revolving Credit Unused Line Fees" and individually, a
"Revolving Credit Unused Line Fee") in an amount equal to ten (10) basis
points annum of the average daily unused and undisbursed portion of the
Revolving Credit Committed Amount in effect from time to time accruing during
each calendar quarter.  The accrued and unpaid portion of the Revolving Credit
Unused Line Fee shall be paid by Borrowers to Lender on the last day of each
quarter, commencing on the first such date following the date hereof, and on
the Revolving Credit Termination Date.

                      2.1.11	Optional Reduction of Total Revolving Credit
                                --------------------------------------------
Committed Amount.
- -----------------
                      The Borrowers shall have the right to reduce permanently
(each a "Revolving Credit Optional Reduction" and collectively the "Revolving
Credit Optional Reductions") the Total Revolving Credit Committed Amount in
effect from time to time in the amount of any integral multiple of One Million
Dollars ($1,000,000), upon at least fifteen (15) Business Days prior written
notice to the Lender specifying the date and amount of such Revolving Credit
Optional Reduction; provided, that no Revolving Credit Optional Reduction
shall be permitted if, (i) after giving effect thereto and to any Revolving
Loan Optional Prepayment made on the effective date thereof, the then
outstanding principal amount of the Revolving Loan and Outstanding Letter of
Credit Obligations exceeds the Total Revolving Credit Committed Amount as so
reduced or (ii) after giving effect to such Revolving Credit Optional
Reduction there is not at least Five Million Dollars ($5,000,000) of
availability under the Revolving Loan.  Such notice shall be irrevocable as to
the amount and date of such Revolving Credit Optional Reduction.

       Section 2.2    The Letter of Credit Facility.
                      ------------------------------
                      2.2.1	Letters of Credit.
                                ------------------
                      Subject to and upon the provisions of this Agreement, and
as a part of the Revolving Credit Commitments, each of the Borrowers, upon the
prior approval of the Lender, may obtain standby letters of credit (as the
same may from time to time be amended, supplemented or otherwise modified,
each a "Letter of Credit" and collectively the "Letters of Credit") from the
Lender from time to time from the Closing Date until the Business Day
preceding the Revolving Credit Termination Date.  The Borrowers will not be
entitled to obtain a Letter of Credit unless (a) the Borrowers are then able
to obtain a Revolving Loan from the Lender in an amount not less than the
proposed face amount of the Letter of Credit requested by the Borrowers, and
(b) the sum of the then Outstanding Letter of Credit Obligations (including
the amount of the requested Letter of Credit), unless otherwise agreed to by
the Lender, does not exceed Five Million Dollars ($5,000,000).

                      2.2.2	Letter of Credit Fees.
                                ----------------------
                      With respect to each Letter of Credit, the Borrowers shall
pay to the Lender, for its own account, an issuance fee of one hundred twenty-
five (125) basis points per annum of the stated amount of each Letter of
Credit all without regard for provisions contained in the Letters of Credit
which may give rise to a reduction in the stated amount thereof unless such
reduction has actually occurred (each a "Letter of Credit Fronting Fee" and
collectively, the "Letter of Credit Fees").  The Letter of Credit Fees shall
be paid upon the opening of each Letter of Credit and upon each anniversary
thereof, if any.  In addition, the Borrowers shall pay to the Lender all other
reasonable and customary amendment, negotiation, processing, transfer or other
fees to the extent and as and when required by the provisions of any Letter of
Credit Agreement.  All Letter of Credit Fees and all such other additional
fees are included in and are a part of the "Fees" payable by the Borrowers
under the provisions of this Agreement and are for the sole and exclusive
benefit of the Lender.

                      2.2.3	Terms of Letters of Credit; Post-Expiration Date
                                ------------------------------------------------
Letters of Credit.
- ------------------
                      Each Letter of Credit shall (a) be opened pursuant to a
Letter of Credit Agreement and (b) expire on a date not later than the
Business Day preceding the Revolving Credit Expiration Date; provided,
however, if any Letter of Credit does have an expiration date later than the
Business Day preceding the Revolving Credit Termination Date (each a "Post-
Expiration Date Letter of Credit" and collectively, the "Post-Expiration Date
Letters of Credit"), effective as of the Business Day preceding the Revolving
Credit Termination Date and without prior notice to or the consent of the
Borrowers, the Lender may make advances under the Revolving Loan for the
account of the Borrowers in the aggregate face amount of all such Letters of
Credit.  The Lender may in its sole and absolute discretion issue or refuse to
issue any Letter of Credit which is automatically renewable or "evergreen".
The Lender shall deposit the proceeds of such advances into one or more non-
interest bearing accounts with and in the name of the Lender and over which
the Lender alone shall have exclusive power of access and withdrawal
(collectively, the "Letter of Credit Cash Collateral Account").  The Letter of
Credit Cash Collateral Account is to be held by the Lender, as additional
collateral and security for any Letter of Credit Obligations relating to the
Post-Expiration Date Letters of Credit.  The Borrowers hereby assign, pledge,
grant and set over to the Lender, a first priority security interest in, and
Lien on, all of the funds on deposit in the Letter of Credit Cash Collateral
Account, together with any and all Proceeds and products thereof as additional
collateral and security for the Letter of Credit Obligations relating to the
Post-Expiration Date Letters of Credit.  The Borrowers acknowledge and agree
that the Lender shall be entitled to fund any draw or draft on any Post-
Expiration Date Letter of Credit from the monies on deposit in the Letter of
Credit Cash Collateral Account without notice to or consent of the Borrowers.
The Borrowers further acknowledge and agree that the Lender's election to fund
any draw or draft on any Post-Expiration Date Letter of Credit from the Letter
of Credit Cash Collateral shall in no way limit, impair, lessen, reduce,
release or otherwise adversely affect the Borrowers' obligation to pay any
Letter of Credit Obligations under or relating to the Post-Expiration Date
Letters of Credit.  At such time as all Post-Expiration Date Letters of Credit
have expired and all Letter of Credit Obligations relating to the Post-
Expiration Date Letters of Credit have been paid in full, the Lender agrees to
apply the amount of any remaining funds on deposit in the Letter of Credit
Cash Collateral Account to the then unpaid balance of the Obligations under
the Revolving Credit Facility in such order and manner as the Lender shall
determine in its sole and absolute discretion in accordance with the
provisions of this Agreement.

                      Each Letter of Credit shall be issued for purposes
acceptable to Lender.  The aggregate face amount of all Letters of Credit at
any one time outstanding and issued by the Lender pursuant to the provisions
of this Agreement, including, without limitation, any and all Post-Expiration
Date Letters of Credit, plus the amount of any unpaid Letter of Credit Fees
and unpaid Letter of Credit Fees accrued or scheduled to accrue thereon, and
less the aggregate amount of all drafts issued under or purporting to have
been issued under such Letters of Credit that have been paid by the Lender and
for which the Lender has been reimbursed by the Borrowers in full in
accordance with Section 2.2.5 (Payments of Letters of Credit) and the Letter
of Credit Agreements, and for which the Lender has no further obligation or
commitment to restore all or any portion of the amounts drawn and reimbursed,
is herein called the "Outstanding Letter of Credit Obligations".

                      2.2.4	Procedures for Letters of Credit.
                                ---------------------------------
                      The Borrowers shall give the Lender written notice at
least five (5) Business Days prior to the date on which the Borrower desires the
Lender to issue a Letter of Credit.  Such notice shall be accompanied by a
duly executed Letter of Credit Agreement specifying, among other things:  (a)
the name and address of the intended beneficiary of the Letter of Credit, (b)
the requested face amount of the Letter of Credit, (c) whether the Letter of
Credit is to be revocable or irrevocable, (d) the Business Day on which the
Letter of Credit is to be opened and the date on which the Letter of Credit is
to expire, (e) the terms of payment of any draft or drafts which may be drawn
under the Letter of Credit, and (f) any other terms or provisions the
Borrowers desire to be contained in the Letter of Credit.  Such notice shall
also be accompanied by such other information, certificates, confirmations,
and other items as the Lender may require to assure that the Letter of Credit
is to be issued in accordance with the provisions of this Agreement and a
Letter of Credit Agreement.  In the event of any conflict between the
provisions of this Agreement and the provisions of a Letter of Credit
Agreement, the provisions of this Agreement shall prevail and control unless
otherwise expressly provided in the Letter of Credit Agreement.  Upon (x)
receipt of such notice, (y) payment of all Letter of Credit Fees and all other
Fees payable in connection with the issuance of such Letter of Credit, and (z)
receipt of a duly executed Letter of Credit Agreement, the Lender shall
process such notice and Letter of Credit Agreement in accordance with its
customary procedures and open such Letter of Credit on the Business Day
specified in such notice.  The Lender shall not be obligated to issue any
Letter of Credit where the expiration date automatically renews or is
"evergreen".
                      2.2.5	Payments of Letters of Credit.
                                ------------------------------
                      The Borrowers hereby promise to pay to the Lender, ON
DEMAND and in United States Dollars, the following which are herein collectively
referred to as the "Current Letter of Credit Obligations":

                      (a)	the amount which the Lender has paid or
will be required to pay under each draft or draw on a Letter of
Credit, whether such demand be in advance of the Lender's payment
or for reimbursement for such payment;

                      (b)	any and all reasonable charges and
expenses which the Lender may pay or incur relative to the Letter
of Credit and/or such draws or drafts; and

                      (c)	interest on the amounts described in (a)
and (b) not paid by the Borrowers as and when due and payable
under the provisions of (a) and (b) above from the day the same
are due and payable until paid in full at a rate per

                      In addition, the Borrowers hereby promise to pay any and
all other Letter of Credit Obligations as and when due and payable in accordance
with the provisions of this Agreement and the Letter of Credit Agreements.
The obligation of the Borrowers to pay Current Letter of Credit Obligations
and all other Letter of Credit Obligations shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim
or defense to payment which the Borrowers or any other account party may have
or have had against the beneficiary of such Letter of Credit, the Lender, or
any other Person, including, without limitation, any defense based on the
failure of any draft or draw to conform to the terms of such Letter of Credit,
any draft or other document proving to be forged, fraudulent or invalid, or
the legality, validity, regularity or enforceability of such Letter of Credit,
any draft or other documents presented with any draft, any Letter of Credit
Agreement, this Agreement, or any of the other Financing Documents, all
whether or not the Lender had actual or constructive knowledge of the same,
and irrespective of any Collateral, security or guarantee therefor or right of
offset with respect thereto and irrespective of any other circumstances
whatsoever which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrowers for any Letter of Credit
Obligations, in bankruptcy or otherwise; provided, however, that the Borrowers
shall not be obligated to reimburse the Lender for any wrongful payment under
such Letter of Credit made as a result of the Lender's willful misconduct.
The obligation of the Borrowers to pay the Letter of Credit Obligations shall
not be conditioned or contingent upon the pursuit by the Lender or any other
Person at any time of any right or remedy against any Person which may be or
become liable in respect of all or any part of such obligation or against any
Collateral, security or guarantee therefor or right of offset with respect
thereto.

                      The Letter of Credit Obligations shall continue to be
effective, or be reinstated, as the case may be, if at any time payment of all
or any portion of the Letter of Credit Obligations is rescinded or must
otherwise be restored or returned by the Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of any Person, or upon
or as a result of the appointment of a receiver, intervenor, or conservator
of, or trustee or similar officer for, any Person, or any substantial part of
such Person's property, all as though such payments had not been made.

                      2.2.6	Change in Law; Increased Cost.
                                ------------------------------
                      If any change in any law or regulation or in the
interpretation thereof by any court or other Governmental Authority charged
with the administration thereof shall either (a) impose, modify or deem
applicable any reserve, special deposit or similar requirement against Letters
of Credit issued by the Lender, or (b) impose on the Lender any other
condition regarding this Agreement or any Letter of Credit, and the result of
any event referred to in clauses (a) or (b) above shall be to increase the
cost to the Lender of issuing, maintaining or extending the Letter of Credit
or the cost to the Lender of funding any obligation under or in connection
with the Letter of Credit (which increase in cost shall be the result of the
Lender's reasonable allocation of the aggregate of such cost increases
resulting from such events), then, upon demand by the Lender, the Borrowers
shall immediately pay to the Lender from time to time as specified by the
Lender, additional amounts which shall be sufficient to compensate the Lender
for such increased cost, together with interest on each such amount from the
date demanded until payment in full thereof at a rate per annum equal to the
then highest current rate of interest on the Revolving Loan.  A certificate as
to such increased cost incurred by the Lender, submitted by the Lender to the
Borrowers, shall be conclusive, absent manifest error.

                      2.2.7	General Letter of Credit Provisions.
                                ------------------------------------
                      The Borrowers hereby instruct the Lender to pay any draft
complying with the terms of any Letter of Credit irrespective of any
instructions of the Borrowers to the contrary.  The Borrowers assume all risks
of the acts and omissions of the beneficiary and other users of any Letter of
Credit.  The Lender and its branches, Affiliates and/or correspondents shall
not be responsible for and the Borrowers hereby indemnify and hold the Lender
and its branches, Affiliates and/or correspondents harmless from and against
all liability, loss and expense (including reasonable attorney's fees and
costs) incurred by the Lender and/or its branches, Affiliates and/or
correspondents relative to and/or as a consequence of (a) any failure by the
Borrowers to perform the agreements hereunder and under any Letter of Credit
Agreement, (b) any Letter of Credit Agreement, this Agreement, any Letter of
Credit and any draft, draw and/or acceptance under or purported to be under
any Letter of Credit, (c) any action taken or omitted by the Lender and/or any
of its branches, Affiliates and/or correspondents at the request of the
Borrowers, (d) any failure or inability to perform in accordance with the
terms of any Letter of Credit by reason of any control or restriction
rightfully or wrongfully exercised by any de facto or de jure Governmental
Authority, group or individual asserting or exercising governmental or
paramount powers, and/or (e) any consequences arising from causes beyond the
control of the Lender and/or any of its branches, Affiliates and/or
correspondents.

                      Except for willful misconduct, the Lender and its
branches, Affiliates and/or correspondents, shall not be liable or responsible
in any respect for any (a) error, omission, interruption or delay in
transmission, dispatch or delivery of any one or more messages or advices in
connection with any Letter of Credit, whether transmitted by cable, telegraph,
mail or otherwise and despite any cipher or code which may be employed, and/or
(b) action, inaction or omission which may be taken or suffered by it or them in
good faith or through inadvertence in identifying or failing to identify any
beneficiary or otherwise in connection with any Letter of Credit.

                      Any Letter of Credit may be amended, modified or revoked
only upon the receipt by the Lender from the Borrowers and the beneficiary
(including any transferee and/or assignee of the original beneficiary), of a
written consent and request therefor.

                      If any Laws, order of court and/or ruling or regulation of
any Governmental Authority of the United States (or any state thereof) and/or
any country other than the United States permits a beneficiary under a Letter
of Credit to require the Lender and/or any of their respective branches,
Affiliates and/or correspondents to pay drafts under or purporting to be under
a Letter of Credit after the expiration date of the Letter of Credit, the
Borrowers shall reimburse the Lender, as appropriate, for any such payment
pursuant to provisions of Section 2.2.6 (Change in Law; Increased Cost).

                      Except as may otherwise be specifically provided in a
Letter of Credit or Letter of Credit Agreement, the laws of the State and the
Uniform Customs and Practice for Documentary Credits, 1993 Revision,
International Chamber of Commerce Publication No. 500 shall govern the Letters
of Credit.  The Laws, rules, provisions and regulations of the Uniform Customs
and Practice for Documentary Credits are hereby incorporated by reference.  In
the event of a conflict between the Uniform Customs and Practice for Documentary
Credits and the laws of the State, the Uniform Customs and Practice for
Documentary Credits shall prevail.

       Section 2.3    Interest.
                      ---------
                      2.3.1	General Provisions.
                                -------------------
       All payments hereunder (including any payment or prepayment of
principal, interest, fees and other charges) or with respect to the Notes or
the Loans shall be made in lawful money of the United States of America, in
immediately available funds without set-off, deduction or counterclaim of any
kind, to the Lender, at its office at 8521 Leesburg Pike, Suite 405 Vienna,
Virginia 22182, or at such other place as the Lender may in writing designate,
and shall be applied, first to accrued Obligations other than principal and
interest, next to accrued interest, then to principal due on Loans bearing
interest at the Prime-based Rate, and last to interest due on Loans bearing
interest at a LIBOR-based Rate the last day of the Interest Period applicable
thereto, unless the Interest Period is six months, in which case interest
shall be due quarterly on the last day of each calendar quarter.  Borrowers
authorize the Lender to debit demand deposit account number _____________ or
any other account with Lender (routing number ____________) designated in
writing by VSE, beginning September 30, 2007 for any payments due to the
Lender.  VSE further certifies that VSE holds legitimate ownership of this
account and preauthorizes this periodic debit as part of its right under said
ownership.  At the option of the Lender, the Loans shall bear interest at the
Default Rate, payable on demand, during any period of Default hereunder.

                      2.3.2	Inability to Determine Rate.
                                ----------------------------
                      In the event that the Lender shall have determined (which
determination shall be conclusive and binding upon the Borrowers) that by
reason of circumstances affecting the interbank Eurodollar market adequate and
reasonable means do not exist for ascertaining the LIBOR Rate for any given
Interest Period, the Lender shall forthwith give notice (which may be
telephonic and promptly confirmed in writing or by facsimile transmission) of
such determination to Borrowers at least two Euro-dollar Business Days prior
to, as the case may be, the conversion date of any portion of the Principal
Amount bearing interest at the Prime-based Rate to a LIBOR-based Rate.  If
such notice is given: (a) any portion of the Principal Amount bearing interest
at the Prime-based Rate that was to have been converted to a LIBOR-based Rate,
subject to the provisions hereof, shall be continued at the Prime-based Rate
and (b) any portion of the Principal Amount bearing interest at a LIBOR-based
Rate shall be converted, on the last day of the then current Interest Period
with respect thereto, to the Prime-based Rate.  Until such notice has been
withdrawn by the Lender, the Borrowers shall not have the right to have a
LIBOR-based Rate apply to any portion of the Principal Amount.

                      2.3.3	Indemnity.
                                ----------
                      The Borrowers agree to indemnify and reimburse the Lender
and to hold the Lender harmless from any loss, cost (including administrative
costs) or expense which any one or more of the Lender may sustain or incur as
a consequence of (a) a default by the Borrowers in payment when due of the
principal amount of or interest on any LIBOR Amount, (b) the failure of the
Borrowers to make, or convert the Applicable Interest Rate of, a Loan after
the Borrowers have given a Rate Request, (c) the failure of the Borrowers to
make any prepayment of a Loan after the Borrowers have given notice of such
intention to make such a prepayment, and/or (d) the making by the Borrowers of
a prepayment of a Loan on a day which is not the last day of the Interest
Period for such LIBOR Amount, calculated as provided in the following
paragraph.  This agreement and covenant of the Borrowers shall survive
termination or expiration of this Agreement and payment of the other
Obligations.

                      Contemporaneously with any prepayment of principal of a
LIBOR Amount, a prepayment fee shall be due and payable to the Lender in an
amount equal to the product of

  (A) the amount so prepaid

   multiplied by
   -------------
  (B) the difference (but not less than zero) of
      --------------
      (i) the constant maturity 360-day interest yield (as of the
      first day of the then effective Interest Period and
      expressed as a decimal) for a United States Treasury bill,
      note, or bond (a "Treasury obligation") selected by the
      Lender, in an aggregate amount comparable to the amount
      prepaid, and having, as of the first day of the then
      effective Interest Period, a remaining term approximately
      equal to the original Interest Period,

   minus
   -----

      (ii) the 360-day interest yield (as of the Business Day
      immediately preceding the prepayment date and expressed as a
      decimal) on such Treasury obligation and having, as of the
      Business Day immediately preceding the prepayment date, a
      remaining term until maturity approximately equal to the
      unexpired portion of the Interest Period,

   multiplied by
   -------------

  (C) the quotient of
      ------------
      (y) the number of calendar days in the unexpired portion of
      the Interest Period,

  divided by
  ----------
      (x) 360.

                      The applicable yields on the Treasury obligations
described above shall be determined based upon the Federal Reserve statistical
release H.15 published for the applicable determination dates set forth above.
Any Treasury obligation selected when the related Interest Period is one year or
less shall be United States Treasury Bills.  The Lender shall not be obligated
or required to have actually reinvested the prepaid amount of the LIBOR Amount
in any such Treasury obligation as a condition precedent to the Borrowers'
being obligated to pay a prepayment fee as outlined above.  The Lender shall
not be obligated to accept any prepayment of principal unless it is
accompanied by the prepayment fee, if any, due in connection therewith as
calculated pursuant to the provisions of this paragraph.  No prepayment fee
payable in connection herewith shall in any event or under any circumstances
be deemed or construed as a penalty.

                      2.3.4	Payment of Interest.
                                --------------------
                      Unpaid and accrued interest on each LIBOR Loan shall be
paid (a) on the earlier of (i) the last Business Day of each Interest Period for
such LIBOR Amount and (ii) three (3) months from the date of the LIBOR Amount
and (b) at maturity (whether by acceleration, declaration, extension or
otherwise); provided, however that any and all unpaid and accrued interest on
any LIBOR Amount prepaid prior to expiration of the then current Interest
Period for such LIBOR Amount shall be paid immediately upon prepayment.

       Section 2.4    General Financing Provisions.
                      -----------------------------
                      2.4.1	Borrowers' Representatives.
                                ---------------------------
                      The Borrowers hereby represent and warrant to the Lender
that each of them will derive benefits, directly and indirectly, from each
Letter of Credit and from each Loan, both in their separate capacity and as a
member of the integrated group to which each of the Borrowers belong and
because the successful operation of the integrated group is dependent upon the
continued successful performance of the functions of the integrated group as a
whole, because (a) this financing is enabling any Permitted Acquisition, (b)
the terms of the consolidated financing provided under this Agreement are more
favorable than would otherwise would be obtainable by the Borrowers
individually, and (c) the Borrowers' additional administrative and other costs
and reduced flexibility associated with individual financing arrangements
which would otherwise be required if obtainable would substantially reduce the
value to the Borrowers of the financing.  The Borrowers in the discretion of
their respective managements are to agree among themselves as to the
allocation of the benefits of Letters of Credit and the proceeds of Loans;
provided, however, that the Borrowers shall be deemed to have represented and
warranted to the Lender at the time of allocation that each benefit and use of
proceeds is a Permitted Use.

                      For administrative convenience, each Borrower hereby
irrevocably appoints VSE as the Borrower's attorney-in-fact, with power of
substitution (with the prior written consent of the Lender in the exercise of
its sole and absolute discretion), in the name of VSE or in the name of the
Borrower or otherwise to take any and all actions with respect to the this
Agreement, the other Financing Documents, the Obligations and/or the
Collateral (including, without limitation, the Proceeds thereof) as VSE may so
elect from time to time, including, without limitation, actions to (i) request
advances under the Loans, apply for and direct the benefits of Letters of
Credits, and direct the Lender to disburse or credit the proceeds of any Loan
directly to an account of VSE, any one or more of the Borrowers or otherwise,
which direction shall evidence the making of such Loan and shall constitute
the acknowledgment by each of the Borrowers of the receipt of the proceeds of
such Loan or the benefit of such Letter of Credit, (ii) enter into, execute,
deliver, amend, modify, restate, substitute, extend and/or renew this
Agreement, any Additional Borrower Joinder Supplement, any other Financing
Documents, security agreements, mortgages, deposit account agreements,
instruments, certificates, waivers, letter of credit applications, releases,
documents and agreements from time to time, and (iii) endorse any check or
other item of payment in the name of the Borrower or in the name of VSE.  The
foregoing appointment is coupled with an interest, cannot be revoked without
the prior written consent of the Lender, and may be exercised from time to
time through VSE's duly authorized officer, officers or other Person or
Persons designated by VSE to act from time to time on behalf of VSE.

                      Each of the Borrowers hereby irrevocably authorizes each
of the Lender to make Loans to any one or more of the Borrowers, and to issue or
cause to be issued Letters of Credit for the account of any or all of the
Borrowers, pursuant to the provisions of this Agreement upon the written, oral
or telephone request of any one or more of the Persons who is from time to
time a Responsible Officer of a Borrower under the provisions of the most
recent certificate of corporate resolutions and/or incumbency of the Borrowers
on file with the Lender and also upon the written, oral or telephone request
of any one of the Persons who is from time to time a Responsible Officer of
VSE under the provisions of the most recent certificate of corporate
resolutions and/or incumbency for VSE on file with the Lender.

                      The Lender assumes no responsibility or liability for any
errors, mistakes, and/or discrepancies in the oral, telephonic, written or
other transmissions of any instructions, orders, requests and confirmations
between the Lender and the Borrowers in connection with the Credit Facilities,
any Loan, any Letter of Credit or any other transaction in connection with the
provisions of this Agreement. Without implying any limitation on the joint and
several nature of the Obligations, the Lender agrees that, notwithstanding any
other provision of this Agreement, the Borrowers may create reasonable inter-
company indebtedness between or among the Borrowers with respect to the
allocation of the benefits and proceeds of the advances and Credit Facilities
under this Agreement.  The Borrowers agree among themselves, and the Lender
consents to that agreement, that each Borrower shall have rights of
contribution from all of the other Borrowers to the extent such Borrower
incurs Obligations in excess of the proceeds of the Loans received by, or
allocated to purposes for the direct benefit of, such Borrower.  All such
indebtedness and rights shall be, and are hereby agreed by the Borrowers to
be, subordinate in priority and payment to the indefeasible repayment in full
in cash of the Obligations, and, unless the Lender agrees in writing
otherwise, shall not be exercised or repaid in whole or in part until all of
the Obligations have been indefeasibly paid in full in cash.  The Borrowers
agree that all of such inter-company indebtedness and rights of contribution
are part of the Collateral and secure the Obligations.  Each Borrower hereby
waives all rights of counterclaim, recoupment and offset between or among
themselves arising on account of that indebtedness and otherwise.  Each
Borrower shall not evidence the inter-company indebtedness or rights of
contribution by note or other instrument, and shall not secure such
indebtedness or rights of contribution with any Lien or security.
Notwithstanding anything contained in this Agreement to the contrary, the
amount covered by each Borrower under the Obligations (including, without
limitation, Section 2.4.9 (Guaranty)) shall be limited to an aggregate amount
(after giving effect to any collections from, rights to receive contribution
from or payments made by or on behalf of any other Borrower in respect of the
Obligations) which, together with other amounts owing by such Borrowers to the
Lender under the Obligations, is equal to the largest amount that would not be
subject to avoidance under the Bankruptcy Code or any applicable provisions of
any applicable, comparable state or other Laws.

                      2.4.2	Use of Proceeds of the Loans.
                                -----------------------------
                      The proceeds of each advance under the Loans shall be used
by the Borrowers for Permitted Uses, and for no other purposes except as may
otherwise be agreed by the Lender in writing.  The Borrowers shall use the
proceeds of the Loans promptly.

                      2.4.3	Field Examination Fees.
                                -----------------------
                      The Borrower shall pay to the Lender a field examination
fee (collectively, the "Field Examination Fees" and individually a "Field
Examination Fee"), which Field Examination Fees shall be payable at the time
of each field examination of the Borrowers' books and records in an amount
prior to an Event of Default, not to exceed the Lender's actual costs of
obtaining such field audit.

                      2.4.4	Computation of Interest and Fees.
                                ---------------------------------
                      All applicable Fees and interest shall be calculated on
the basis of a year of 360 days for the actual number of days elapsed.  Any
change in the interest rate on any of the Obligations resulting from a change in
the Prime Rate shall become effective as of the opening of business on the day
on which such change in the Prime Rate is announced.

                      2.4.5	Maximum Interest Rate.
                                ----------------------
                      In no event shall any interest rate provided for hereunder
exceed the maximum rate permissible for corporate borrowers under applicable
law for loans of the type provided for hereunder (the "Maximum Rate").  If, in
any month, any interest rate, absent such limitation, would have exceeded the
Maximum Rate, then the interest rate for that month shall be the Maximum Rate,
and, if in future months, that interest rate would otherwise be less than the
Maximum Rate, then that interest rate shall remain at the Maximum Rate until
such time as the amount of interest paid hereunder equals the amount of
interest which would have been paid if the same had not been limited by the
Maximum Rate.  In the event that, upon payment in full of the Obligations, the
total amount of interest paid or accrued under the terms of this Agreement is
less than the total amount of interest which would, but for this Section, have
been paid or accrued if the interest rates otherwise set forth in this
Agreement had at all times been in effect, then the Borrowers shall, to the
extent permitted by applicable law, pay the Lender, an amount equal to the
excess of (a) the lesser of (i) the amount of interest which would have been
charged if the Maximum Rate had, at all times, been in effect or (ii) the
amount of interest which would have accrued had the interest rates otherwise
set forth in this Agreement, at all times, been in effect over (b) the amount
of interest actually paid or accrued under this Agreement.  In the event that
a court determines that the Lender has received interest and other charges
hereunder in excess of the Maximum Rate, such excess shall be deemed received
on account of, and shall automatically be applied to reduce, the Obligations
other than interest, in the inverse order of maturity, and if there are no
Obligations outstanding, the Lender shall refund to the Borrowers such excess.

                      2.4.6	Payments.
                                ---------
                      All payments of the Obligations, including, without
limitation, principal, interest, Prepayments, and Fees, shall be paid by the
Borrowers without setoff or counterclaim to the Lender (except as otherwise
provided herein) at the Lender's office specified in Section 8.1 (Notices) in
immediately available funds not later than noon (Eastern Time) on the due date
of such payment.  All payments received by the Lender after such time shall be
deemed to have been received by the Lender for purposes of computing interest
and Fees and otherwise as of the next Business Day.  Payments shall not be
considered received by the Lender until such payments are paid to the Lender
in immediately available funds.

                      2.4.7	Liens; Setoff.
                                --------------
                      The Borrowers hereby grant to the Lender a continuing Lien
for all of the Obligations upon any and all monies, Investment Property, and
other property of the Borrowers and the Proceeds thereof, now or hereafter
held or received by or in transit to, the Lender, and/or any Affiliate of the
Lender, from or for the Borrowers, and also upon any and all deposit accounts
(general or special) and credits of the Borrowers, if any, with the Lender or
any Affiliate of the Lender, at any time existing, excluding any deposit
accounts held by the Borrowers in their capacity as trustee for Persons who
are not Borrowers or Affiliates of the Borrowers.  Without implying any
limitation on any other rights the Lender may have under the Financing
Documents or applicable Laws, during the continuance of an Event of Default,
the Lender, is hereby authorized by the Borrowers at any time and from time to
time, without notice to the Borrowers, to set off, appropriate and apply any
or all items hereinabove referred to against all Obligations (including,
without limitation, the Obligations) then outstanding (whether or not then
due), all in such order and manner as shall be determined by the Lender in its
sole and absolute discretion.

                      2.4.8	Requirements of Law.
                                --------------------
                      In the event that the Lender shall have determined in good
faith that (a) the adoption of any Capital Adequacy Regulation, or (b) any
change in any Capital Adequacy Regulation or in the interpretation or
application thereof or (c) compliance by the Lender or any corporation
controlling the Lender with any request or directive regarding any capital
adequacy (whether or not having the force of law) from any central bank or
Governmental Authority, does or shall have the effect of reducing the rate of
return on the capital of the Lender or any corporation controlling the Lender,
as a consequence of the obligations of the Lender hereunder to a level below
that which the Lender or any corporation controlling the Lender would have
achieved but for such adoption, change or compliance (taking into
consideration the policies of the Lender and the corporation controlling the
Lender, with respect to capital adequacy) by an amount deemed by the Lender to
be material, then from time to time, after submission by the Lender to the
Borrowers of a written request therefor and a statement of the basis for such
determination, the Borrowers shall pay to the Lender such additional amount or
amounts in order to compensate for such reduction.

                      2.4.9  Guaranty.
                             ---------
                             (a)	Each Borrower hereby unconditionally and
irrevocably, guarantees to the Lender:

	                         (i)	the due and punctual payment in full
(and not merely the collectibility) by the other Borrowers
of the Obligations, including unpaid and accrued interest
thereon, in each case when due and payable, all according to
the terms of this Agreement, the Notes and the other
Financing Documents;

                                 (ii)	the due and punctual payment in full
(and not merely the collectibility) by the other Borrowers
of all other sums and charges which may at any time be due
and payable in accordance with this Agreement, the Notes or
any of the other Financing Documents;

                                 (iii)	the due and punctual performance by
the other Borrowers of all of the other terms, covenants and
conditions contained in the Financing Documents; and

                                 (iv)	all the other Obligations of the
other Borrowers.
                             (b)	The obligations and liabilities of each
Borrower as a guarantor under this Section 2.4.9 shall be absolute and
unconditional and joint and several, irrespective of the genuineness, validity,
priority, regularity or enforceability of this Agreement, any of the Notes or
any of the Financing Documents or any other circumstance which might otherwise
constitute a legal or equitable discharge of a surety or guarantor.  Each
Borrower in its capacity as a guarantor expressly agrees that the Lender may,
in their sole and absolute discretion, without notice to or further assent of
such Borrower and without in any way releasing, affecting or in any way
impairing the joint and several obligations and liabilities of such Borrower
as a guarantor hereunder:

                                 (i)	waive compliance with, or any
defaults under, or grant any other indulgences under or with respect to any
of the Financing Documents;

                                 (ii)	modify, amend, change or terminate
any provisions of any of the Financing Documents;

                                 (iii)	grant extensions or renewals of or
with respect to the Credit Facilities, the Notes or any of the other Financing
Documents;

                                 (iv)	effect any release, subordination,
compromise or settlement in connection with this Agreement, any of the Notes or
any of the other Financing Documents;

                                 (v)	agree to the substitution, exchange,
release or other disposition of the Collateral or any part thereof, or any other
collateral for the Loan or to the subordination of any lien or security interest
therein;

                                 (vi)	make advances for the purpose of
performing any term, provision or covenant contained in this Agreement, any of
the Notes or any of the other Financing Documents with respect to which the
Borrowers shall then be in default;

                                 (vii)	make future advances pursuant to this
 Agreement or any of the other Financing Documents;

                                 (viii)	assign, pledge, hypothecate or otherwise
transfer the Revolving Credit Commitments, the Obligations, the Notes, any of
the other Financing Documents or any interest therein, all as and to the extent
permitted by the provisions of this Agreement;
                                 (ix)	deal in all respects with the other
Borrowers as if this Section 2.4.9 were not in effect;

                                 (x)	effect any release, compromise or
settlement with any of the other Borrowers, whether in their capacity as a
Borrower or as a guarantor under this Section 2.4.9, or any other guarantor; and

                                 (xi)	provide debtor-in-possession financing
or allow use of cash collateral in proceedings under the Bankruptcy Code, it
being expressly agreed by all Borrowers that any such financing and/or use would
be part of the Obligations.

                             (c)	The obligations and liabilities of each
Borrower, as guarantor under this Section 2.4.9, shall be primary, direct and
immediate, shall not be subject to any counterclaim, recoupment, set off,
reduction or defense based upon any claim that a Borrower may have against any
one or more of the other Borrowers, the Lender and/or any other guarantor and
shall not be conditional or contingent upon pursuit or enforcement by the
Lender of any remedies it may have against the Borrowers with respect to this
Agreement, the Notes or any of the other Financing Documents, whether pursuant
to the terms thereof or by operation of law.  Without limiting the generality
of the foregoing, the Lender shall not be required to make any demand upon any
of the Borrowers, or to sell the Collateral or otherwise pursue, enforce or
exhaust its or their remedies against the Borrowers or the Collateral either
before, concurrently with or after pursuing or enforcing its rights and
remedies hereunder.  Any one or more successive or concurrent actions or
proceedings may be brought against each Borrower under this Section 2.4.9,
either in the same action, if any, brought against any one or more of the
Borrowers or in separate actions or proceedings, as often as the Lender may
deem expedient or advisable.  Without limiting the foregoing, it is
specifically understood that any modification, limitation or discharge of any
of the liabilities or obligations of any one or more of the Borrowers, any
other guarantor or any obligor under any of the Financing Documents, arising
out of, or by virtue of, any bankruptcy, arrangement, reorganization or
similar proceeding for relief of debtors under federal or state law initiated
by or against any one or more of the Borrowers, in their respective capacities
as borrowers and guarantors under this Section 2.4.9, or under any of the
Financing Documents shall not modify, limit, lessen, reduce, impair,
discharge, or otherwise affect the liability of each Borrower under this
Section 2.4.9 in any manner whatsoever, and this Section 2.4.9 shall remain
and continue in full force and effect.  It is the intent and purpose of this
Section 2.4.9 that each Borrower shall and does hereby waive all rights and
benefits which might accrue to any other guarantor by reason of any such
proceeding, and the Borrowers agree that they shall be liable for the full
amount of the obligations and liabilities under this Section 2.4.9, regardless
of, and irrespective to, any modification, limitation or discharge of the
liability of any one or more of the Borrowers, any other guarantor or any
obligor under any of the Financing Documents, that may result from any such
proceedings.

                             (d)	Each Borrower, as guarantor under this
Section 2.4.9, hereby unconditionally, jointly and severally, irrevocably and
expressly waives:

                                 (i)	presentment and demand for payment
of the Obligations and protest of non-payment;

                                 (ii)	notice of acceptance of this Section
2.4.9 and of presentment, demand and protest thereof;

                                 (iii)	notice of any default hereunder or
under the Notes or any of the other Financing Documents and
notice of all indulgences;

                                 (iv)	notice of any increase in the amount
of any portion of or all of the indebtedness guaranteed by
this Section 2.4.9;

                                 (v)	demand for observance, performance
or enforcement of any of the terms or provisions of this
Section 2.4.9, the Notes or any of the other Financing
Documents;

                                (vi)	all errors and omissions in
connection with the Lender's administration of all
indebtedness guaranteed by this Section 2.4.9, except errors
and omissions resulting from acts of bad faith;

                               (vii)	any right or claim of right to cause
a marshalling of the assets of any one or more of the other
Borrowers;

                               (viii)	any act or omission of the Lender
which changes the scope of the risk as guarantor hereunder;
and
                              (ix)	all other notices and demands
otherwise required by law which the Borrower may lawfully
waive.
                      Within ten (10) days following any request of the Lender
so to do, each Borrower will furnish the Lender and such other persons as the
Lender may direct with a written certificate, duly acknowledged stating in
detail whether or not any credits, offsets or defenses exist with respect to
this Section 2.4.9.

                      2.4.10	ACH Transactions and Swap Transactions.
                                ---------------------------------------
                      The Borrowers may request and the Lender or its Affiliates
may, in their sole and absolute discretion, provide ACH Transactions and Swap
Transactions although the Borrowers are not required to do so.  In the event
the Borrowers request the Lender or its Affiliates to procure ACH Transactions
or Swap Transactions, then the Borrowers agree to indemnify and hold the
Lender or its affiliates harmless from any and all obligations now or
hereafter owing to the or its affiliates.  The Borrowers agree to pay the
Lender or its Affiliates all amounts owing to the Lender or its Affiliates
pursuant to ACH Transactions and Swap Transactions.  In the event the
Borrowers shall not have paid to the Lender or its Affiliates such amounts,
the Lender may cover such amounts by an advance under the Revolving Loan,
which advance shall be deemed to have been requested by the Borrowers.  The
Borrowers acknowledge and agree that the obtaining of ACH Transactions and
Swap Transactions from the Lender or its Affiliates (a) is in the sole and
absolute discretion of the Lender or its Affiliates and (b) is subject to all
rules and regulations of the Lender or its Affiliates.

                                 ARTICLE III
                                THE COLLATERAL
                                --------------
       Section 3.1	Debt and Obligations Secured.
                        -----------------------------
       All property and Liens assigned, pledged or otherwise granted under or
in connection with this Agreement (including, without limitation, those under
Section 3.2 (Grant of Liens)) or any of the Financing Documents shall secure
(a) the payment of all of the Obligations, including, without limitation, any
and all Outstanding Letter of Credit Obligations, and (b) the performance,
compliance with and observance by the Borrowers of the provisions of this
Agreement and all of the other Financing Documents or otherwise under the
Obligations.

       Section 3.2	Grant of Liens.
                        ---------------
       Each of the Borrowers hereby assigns, pledges and grants to the Lender
and agrees that the Lender shall have a perfected and continuing security
interest in, and Lien on, all of the Borrowers' Accounts, Inventory,
Government Contracts, Chattel Paper, Documents, Instruments, Equipment,
Investment Property, and General Intangibles and all of the Borrower's deposit
accounts with any financial institution with which the Borrower maintains
deposits, whether now owned or existing or hereafter acquired or arising, all
returned, rejected or repossessed goods, the sale or lease of which shall have
given or shall give rise to an Account or Chattel Paper, all insurance
policies relating to the foregoing, all books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to the
foregoing and all Equipment and General Intangibles necessary or beneficial to
retain, access and/or process the information contained in those books and
records, and Proceeds of the foregoing.  Each of the Borrowers further agrees
that the Lender shall have in respect thereof all of the rights and remedies
of a secured party under the Uniform Commercial Code as well as those provided
in this Agreement, under each of the other Financing Documents and under
applicable Laws.

       Section 3.3	Collateral Disclosure List.
                        ---------------------------
       On or prior to the Closing Date, the Borrowers shall deliver to the
Lender a list (the "Collateral Disclosure List") which shall contain such
information with respect to each Borrower's business and real and personal
property as the Lender may require and shall be certified by a Responsible
Officer of each of the Borrowers, all in the form provided to the Borrowers by
the Lender.  Promptly after demand by the Lender, the Borrowers, as
appropriate, shall furnish to the Lender an update of the information
contained in the Collateral Disclosure List at any time and from time to time
as may be requested by the Lender.

       Section 3.4	Personal Property.
                        ------------------
       The Borrowers acknowledge and agree that it is the intention of the
parties to this Agreement that the Lender shall have a first priority,
perfected Lien, in form and substance satisfactory to the Lender and its
counsel, on all of the Borrowers' assets of any kind and nature whatsoever,
whether now owned or hereafter acquired, subject only to the Permitted Liens,
if any. In furtherance of the foregoing:

                      3.4.1	Investment Property, Chattel Paper, Promissory
                                ----------------------------------------------
Notes, etc.
- -----------
                      On the Closing Date and without implying any limitation on
the scope of Section 3.2 (Grant of Liens), each of the Borrowers shall deliver
to the Lender, all originals of all of the Borrower's letters of credit,
Investment Property, Chattel Paper, Documents and Instruments and, if the
Lender so requires, shall execute and deliver a separate pledge, assignment
and security agreements in form and content acceptable to the Lender, which
pledge, assignment and security agreements shall assign, pledge and grant a
Lien to the Lender on all of each Borrower's letters of credit, Investment
Property, Chattel Paper, Documents and Instruments.

                      In the event that any of the Borrowers shall acquire after
the Closing Date any letters of credit, Investment Property, Chattel Paper,
Documents or Instruments, each such Borrower shall promptly so notify the
Lender and deliver the originals of all of the foregoing to the Lender
promptly and in any event within ten (10) days of each acquisition.

                      All letters of credit, Investment Property, Chattel Paper,
Documents and Instruments shall be delivered to the Lender endorsed and/or
assigned as required by the pledge, assignment and security agreement and/or
as the Lender may require and, if applicable, shall be accompanied by blank
irrevocable and unconditional stock or bond powers.

                      3.4.2	Patents, Copyrights and Other Property Requiring
                                ------------------------------------------------
Additional Steps to Perfect.
- ----------------------------
                      On the Closing Date and without implying any limitation on
the scope of Section 3.2 (Grant of Liens), the Borrowers shall execute and
deliver all Financing Documents and take all actions requested by the Lender
in order to perfect a first priority assignment of Patents, Copyrights,
Trademarks, customer lists or any other type or kind of intellectual property
acquired by any of the Borrowers after the Closing Date.

                      3.4.3	Government Contracts Requiring Additional Steps
                                -----------------------------------------------
to Perfect.
- -----------
                      Each Borrower covenants and agrees that it shall provide
Lender with all necessary information and will execute and deliver such
documents as are required to comply with the Federal Assignment of Claims Act
of 1940 (31 U.S.C. Section 3727 and 41 U.S.C. Section 15), to perfect Lender's
security interest in Government Contracts on such Government Contracts as Lender
may determine in its sole discretion.

       Section 3.5	Record Searches.
                        ----------------
       As of the Closing Date and thereafter at the time any Financing Document
is executed and delivered by the Borrowers pursuant to this Section, the
Lender shall have received, in form and substance satisfactory to the Lender,
such Lien or record searches with respect to all of the Borrowers and/or any
other Person, as appropriate, and the property covered by such Financing
Document showing that the Lien of such Financing Document will be a perfected
first priority Lien on the property covered by such Financing Document subject
only to Permitted Liens or to such other matters as the Lender may approve.

       Section 3.6	Costs.
                        ------
       The Borrowers agree to pay, as part of the Enforcement Costs and to the
fullest extent permitted by applicable Laws, on demand all costs, fees and
expenses incurred by Lender in connection with the taking, perfection,
preservation, protection and/or release of a Lien on the Collateral,
including, without limitation:

                      (a)	customary fees and expenses incurred by
Lender in preparing, reviewing, negotiating and finalizing the
Financing Documents from time to time (including, without
limitation, reasonable attorneys' fees incurred in connection with
preparing, reviewing, negotiating, and finalizing any of the
Financing Documents, including, any amendments and supplements
thereto);

                      (b)	all filing and/or recording taxes or fees;

                      (c)	all costs of Lien and record searches;

                      (d)	reasonable attorneys' fees in connection
with all legal opinions required; and

                      (e)	all related costs, fees and expenses.

       Section 3.7	Release.
                        --------
       Upon the indefeasible repayment in full in cash of the Obligations and
performance of all Obligations of the Borrowers and all obligations and
liabilities of each other Person, other than the Lender, under this Agreement
and all other Financing Documents, the termination and/or expiration of all of
the Revolving Credit Commitments, all Letters of Credit and all Outstanding
Letter of Credit Obligations, upon the Borrowers' request and at the
Borrowers' sole cost and expense, the Lender shall release and/or terminate
any Financing Document but only if and provided that there is no commitment or
obligation (whether or not conditional) of the Lender to re-advance amounts
which would be secured thereby and/or no commitment or obligation of the
Lender to issue any Letter of Credit or return or restore any payment of any
Current Letter of Credit Obligations.

       Section 3.8	Inconsistent Provisions.
                        ------------------------
       In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this
Agreement govern.

                                 ARTICLE IV
                       REPRESENTATIONS AND WARRANTIES
                       ------------------------------
       Section 4.1	Representations and Warranties.
                        -------------------------------
       The Borrowers, for themselves and for each other, represent and warrant
to the Lender, as follows:

                      4.1.1	Subsidiaries.
                                -------------
                      The Borrowers have the Subsidiaries listed on the
Collateral Disclosure List attached hereto and made a part hereof and no others.
Each of the Subsidiaries is a Wholly Owned Subsidiary except as shown on the
Collateral Disclosure List, which correctly indicates the nature and amount of
each Borrower's ownership interests therein.

                      4.1.2	Good Standing.
                                --------------
                      Each Borrower and its Subsidiaries (a) is a corporation
duly organized, existing and in good standing under the laws of the jurisdiction
of its incorporation, (b) has the corporate power to own its property and to
carry on its business as now being conducted, and (c) is duly qualified to do
business and is in good standing in each jurisdiction in which the character
of the properties owned by it therein or in which the transaction of its
business makes such qualification necessary.

                      4.1.3	Power and Authority.
                                --------------------
                      Each Borrower has full corporate power and authority to
execute and deliver this Agreement, and the other Financing Documents to which
it is a party, to make the borrowings and request Letters of Credit under this
Agreement, and to incur and perform the Obligations whether under this
Agreement, the other Financing Documents or otherwise, all of which have been
duly authorized by all proper and necessary corporate action.  No consent or
approval of shareholders or any creditors of any Borrower, and no consent,
approval, filing or registration with or notice to any Governmental Authority
on the part of any Borrower, is required as a condition to the execution,
delivery, validity or enforceability of this Agreement, or any of the other
Financing Documents or the performance by any Borrower of the Obligations.

                      4.1.4	Binding Agreements.
                                -------------------
                      This Agreement and the other Financing Documents executed
and delivered by the Borrowers have been properly executed and delivered and
constitute the valid and legally binding obligations of the Borrowers and are
fully enforceable against each of the Borrowers in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties, and general principles of equity
regardless of whether applied in a proceeding in equity or at law.

                      4.1.5	No Defaults, Violations.
                                ------------------------
                                (a)	No Default or Event of Default has
occurred and is continuing.
                                (b)	None of the Borrowers nor any of their
respective Subsidiaries is in default under or with respect to any obligation
under any existing mortgage, indenture, contract or agreement binding on it or
affecting its property in any respect which could be materially adverse to the
business, operations, property or financial condition of any Borrower, or
which could materially adversely affect the ability of any Borrower to perform
its obligations under this Agreement or the other Financing Documents, to
which any Borrower is a party.

                      4.1.6	Compliance with Laws.
                                ---------------------
                      None of the Borrowers nor any of their respective
Subsidiaries is in violation of any applicable Laws (including, without
limitation, any Laws relating to employment practices, to environmental,
occupational and health standards and controls) or order, writ, injunction,
decree or demand of any court, arbitrator, or any Governmental Authority
affecting any Borrower or any of its properties, the violation of which,
considered in the aggregate, could materially adversely affect the business,
operations or properties of any Borrower and/or its Subsidiaries.

                      4.1.7	Investment Company Act.
                                -----------------------
                      None of the Borrowers nor any of their respective
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, as amended, nor is it, directly or indirectly, controlled
by or acting on behalf of any Person which is an investment company within the
meaning of said Act.
                      4.1.8	Litigation.
                                -----------
                      Except as otherwise disclosed on Schedule 4.1.8 attached
hereto and made a part hereof, there are no proceedings, actions or
investigations pending or, so far as any Borrower knows, threatened before or
by any court, arbitrator or any Governmental Authority which, in any one case
or in the aggregate, if determined adversely to the interests of any Borrower
or any Subsidiary, would have a material adverse effect on the business,
properties, condition (financial or otherwise) or operations, present or
prospective, of any Borrower.

                      4.1.9	Financial Condition.
                                --------------------
                      The consolidated financial statements of the Borrowers
dated March 31, 2007, are complete and correct and fairly present the financial
position of each of the Borrowers and its Subsidiaries and the results of
their operations and transactions in their surplus accounts as of the date and
for the period referred to and have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved.  There are no
liabilities, direct or indirect, fixed or contingent, of any Borrower or any
Subsidiary as of the date of such financial statements that are not reflected
therein or in the notes thereto.  There has been no adverse change in the
financial condition or operations of any Borrower or any Subsidiary since the
date of such financial statements and to the Borrowers' knowledge no such
adverse change is pending or threatened.  None of the Borrowers nor any
Subsidiary has guaranteed the obligations of, or made any investment in or
advances to, any Person, except as disclosed in such financial statements.

                      4.1.10	Full Disclosure.
                                ----------------
                      The financial statements referred to in Section 4.1.9
(Financial Condition) of this Agreement, the Financing Documents (including,
without limitation, this Agreement), and the statements, reports or
certificates furnished by any Borrower in connection with the Financing
Documents (a) do not contain any untrue statement of a material fact and (b)
when taken in their entirety, do not omit any material fact necessary to make
the statements contained therein not misleading.  There is no fact known to
any Borrower which such Borrower has not disclosed to the Lender in writing
prior to the date of this Agreement with respect to the transactions
contemplated by the Financing Documents which materially and adversely affects
or in the future could, in the reasonable opinion of that Borrower materially
adversely affect the condition, financial or otherwise, results of operations,
business, or assets of any Borrower or of any Subsidiary.

                      4.1.11	Indebtedness for Borrowed Money.
                                --------------------------------
                      Except for the Obligations and except as set forth in
Schedule 4.1.11 attached hereto and made a part hereof, the Borrowers have no
Indebtedness for Borrowed Money.  The Lender has received photocopies of all
promissory notes evidencing any Indebtedness for Borrowed Money set forth in
Schedule 4.1.11, together with any and all subordination agreements, other
agreements, documents, or instruments securing, evidencing,  guarantying or
otherwise executed and delivered in connection therewith.

                      4.1.12	Taxes.
                                ------
                      Each of the Borrowers and its Subsidiaries has filed all
returns, reports and forms for Taxes which, to the knowledge of the Borrowers,
are required to be filed, and has paid all Taxes as shown on such returns or
on any assessment received by it, to the extent that such Taxes have become
due, unless and to the extent only that such Taxes, assessments and
governmental charges are currently contested in good faith and by appropriate
proceedings by a Borrower, such Taxes are not the subject of any Liens other
than Permitted Liens, and adequate reserves therefor have been established as
required under GAAP.  All tax liabilities of the Borrowers were as of the date
of audited financial statements referred to in Section 4.1.9 (Financial
Condition), and are now, adequately provided for on the books of the Borrowers
and its Subsidiaries, as appropriate.  No tax liability has been asserted by
the Internal Revenue Service or any state or local authority against any
Borrower for Taxes in excess of those already paid.

                      4.1.13	ERISA.
                                ------
                      With respect to any Plan that is maintained or contributed
to by any Borrower and/or by any Commonly Controlled Entity or as to which any
of the Borrowers retains material liability: (a) no "accumulated funding
deficiency" as defined in Code Section 412 or ERISA Section 302 has occurred,
whether or not that accumulated funding deficiency has been waived; (b) no
Reportable Event has occurred other than events for which reporting has been
waived or that are unlikely to result in material liability for any of the
Borrowers; (c) no termination of any plan subject to Title IV of ERISA has
occurred; (d) neither any Borrower nor any Commonly Controlled Entity has
incurred a "complete withdrawal" within the meaning of ERISA Section 4203 from
any Multi-employer Plan that is likely to result in material liability for one
or more of the Borrowers; (e) neither any Borrower nor any Commonly Controlled
Entity has incurred a "partial withdrawal" within the meaning of ERISA Section
4205 with respect to any Multi-employer Plan that is likely to result in
material liability for one or more of the Borrowers; (f) no Multi-employer Plan
to which any Borrower or any Commonly Controlled Entity has an obligation to
contribute is to the knowledge of the Borrowers, in "reorganization" within the
 meaning of ERISA Section 4241 nor has notice been received by any Borrower or
any Commonly Controlled Entity that such a Multi-employer Plan will be placed in
"reorganization."

                      4.1.14	Title to Properties.
                                --------------------
                      The Borrowers have good and marketable title to all of
their respective properties, including, without limitation, the Collateral and
the properties and assets reflected in the balance sheets described in Section
4.1.9 (Financial Condition).  The Borrowers have legal, enforceable and
uncontested rights to use freely such property and assets.  All of such
properties, including, without limitation, the Collateral which were
purchased, were purchased for fair consideration and reasonably equivalent
value in the ordinary course of business of both the seller and the Borrowers
and not, by way of example only, as part of a bulk sale.

                      4.1.15	Patents, Trademarks, Etc.
                                -------------------------
                      Each of the Borrowers and its Subsidiaries owns,
possesses, or has the right to use all necessary Patents, licenses, Trademarks,
Copyrights, permits and franchises to own its properties and to conduct its
business as now conducted, without known conflict with the rights of any other
Person.  Any and all obligations to pay royalties or other charges with
respect to such properties and assets are properly reflected on the financial
statements described in Section 4.1.9 (Financial Condition).

                      4.1.16	Employee Relations.
                                -------------------
                      Except as disclosed on Schedule 4.1.16 attached hereto and
made a part hereof, (a) no Borrower nor any Subsidiary thereof nor any of the
Borrower's or Subsidiary's employees is subject to any collective bargaining
agreement, (b) no petition for certification or union election is pending with
respect to the employees of any Borrower or any Subsidiary and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of a Borrower, (c) there are no strikes, slowdowns,
work stoppages or controversies pending or, to the best knowledge of the
Borrowers after due inquiry, threatened between any Borrower and its
employees, and (d) no Borrower nor any Subsidiaries is subject to an
employment contract, commission contract or bonus agreement.  Hours worked and
payments made to the employees of any one or more of the Borrowers have not
been in violation of the Fair Labor Standards Act or any other applicable law
dealing with such matters.  All payments due from any one or more of the
Borrowers or for which any claim may be made against a Borrower, on account of
wages and employee and retiree health and welfare insurance and other benefits
have been paid or accrued as a liability on its books.  The consummation of
the transactions contemplated by the Financing Agreement will not give rise to
a right of termination or right of renegotiation on the part of any union
under any collective bargaining agreement to which any Borrower is a party or
by which it is bound.
                      4.1.17	Presence of Hazardous Materials or Hazardous
                                --------------------------------------------
Materials Contamination.
- ------------------------
                      To the best of each Borrower's knowledge, (a) no Hazardous
Materials are located on any real property owned, controlled or operated by of
any Borrower or for which any Borrower is, or is claimed to be, responsible,
except for reasonable quantities of necessary supplies for use by a Borrower
in the ordinary course of its current line of business and stored, used and
disposed in accordance with applicable Laws and as otherwise permitted under
Section 6.1.12 of this Agreement; and (b) no property owned, controlled or
operated by any Borrower or for which any Borrower has, or is claimed to have,
responsibility has ever been used as a manufacturing, storage, or dump site
for Hazardous Materials nor is affected by Hazardous Materials Contamination
at any other property.

                      4.1.18	Perfection and Priority of Collateral.
                                --------------------------------------
                      The Lender have, or upon execution and recording of this
Agreement and the Security Documents will have, and will continue to have as
security for the Obligations, a valid and perfected Lien on and security
interest in all Collateral, free of all other Liens, claims and rights of
third parties whatsoever except Permitted Liens, including, without
limitation, those described on Schedule 4.1.18 attached hereto and made a part
hereof.

                      4.1.19	Places of Business and Location of Collateral.
                                ----------------------------------------------
                      The information contained in the Collateral Disclosure
List is complete and correct.  The Collateral Disclosure List completely and
accurately identifies the address of (a) the chief executive office of each
Borrower, (b) any and each other place of business of each Borrower, (c) the
location of all books and records pertaining to the Collateral, and (d) each
location, other than the foregoing, where any of the Collateral is located.
The proper and only places to file financing statements with respect to the
Collateral within the meaning of the Uniform Commercial Code are the filing
offices for those jurisdictions in which any one or more of the Borrowers
maintain a place of business as identified on the Collateral Disclosure List.

                      4.1.20	Business Names and Addresses.
                                -----------------------------
                      In the five (5) years preceding the date hereof, no
Borrower has changed its name, identity or corporate structure, has conducted
business under any name other than its current name, and has conducted its
business in any jurisdiction other than those disclosed on the Collateral
Disclosure List.

                      4.1.21	Equipment.
                                ----------
                      All Equipment is personalty and is not and will not be
affixed to real estate in such manner as to become a fixture or part of such
real estate.  No equipment is held by any Borrower on a sale on approval
basis.

                      4.1.22	Inventory.
                                ----------
                      The Inventory of the Borrowers is (a) of good and
merchantable quality, free from defects, (b) not stored with a bailee,
warehouseman, carrier, or similar party, (c) not on consignment, sale on
approval, or sale or return, and (d) located at the places of business set
forth on the Collateral Disclosure List.  No goods offered for sale by any
Borrower are consigned to or held on sale or return terms by that Borrower.

                      4.1.23	Accounts.
                                ---------
                      With respect to all Accounts and to the best of the
Borrowers' knowledge (a) they are genuine, and in all respects what they
purport to be, and are not evidenced by a judgment, an Instrument, or Chattel
Paper (unless such judgment has been assigned and such Instrument or Chattel
Paper has been endorsed and delivered to the Lender); (b) they represent bona
fide transactions completed in accordance with the terms and provisions
contained in the invoices, purchase orders and other contracts relating
thereto, and the underlying transaction therefor is in accordance with all
applicable Laws; (c) the amounts shown on the respective Borrower's books and
records, with respect thereto are actually and absolutely owing to that
Borrower and are not contingent or subject to reduction for any reason other
than regular discounts, credits or adjustments allowed by that Borrower in the
ordinary course of its business; (d) no payments have been or shall be made
thereon except payments turned over to the Lender by the Borrowers to reduce
the Obligations; (e) all Account Debtors thereon have the capacity to
contract; and (f) the goods sold, leased or transferred or the services
furnished giving rise thereto are not subject to any Liens except the security
interest granted to the Lender by this Agreement and Permitted Liens.

                      4.1.24	Compliance with Eligibility Standards.
                                --------------------------------------
                      Each Account included in the calculation of the Borrowing
Base does and will at all times meet and comply with all of the standards for
Eligible Receivables.  With respect to those Accounts which the Lender has
deemed Eligible Receivables (a) there are no facts, events or occurrences
which in any way impair the validity, collectibility or enforceability thereof
or tend to reduce the amount payable thereunder; and (b) there are no
proceedings or actions known to any Borrower which are threatened or pending
against any Account Debtor which might result in any material adverse change
in the Borrowing Base.

                      4.1.25	Solvency
                                --------
                      Each of the Borrowers is Solvent prior to and after giving
effect to the making of the Loans.

                      4.1.26	Claims and Investigations.
                                --------------------------
                      There exist no pending or threatened claims,
investigations (whether formal or informal), litigation, disputes, protests or
other controversies involving the Borrowers or any Affiliate pertaining to or
arising out of any contract with any Governmental Authority which, if
adversely determined, would have a material adverse effect on the business,
assets, operations or condition, financial or otherwise, of the Borrowers or
any Affiliate.  Neither the Borrowers nor any Affiliate has filed nor has any
basis for filing any claims or demands for payment against the United States
or any other party arising out of or in connection with any such contract,
other than progress billings, public vouchers, and invoices submitted in the
ordinary course of business.

                      4.1.27	Government Contract Obligations.
                                --------------------------------
                      With respect to all Government Contracts no Borrower or
any Affiliate has defaulted under any Government Contract which default would be
a basis of terminating such Government Contract.

                      4.1.28	Post-closing Financial Statements.
                                ----------------------------------
                      Borrower will furnish to the Lender a post-closing pro-
forma consolidated balance sheet of Borrowers and its Subsidiaries as of
immediately after consummation of any Permitted Acquisition and the transactions
incident thereto (each a "Post-closing Balance Sheet") together with post-
closing financial projections for the fiscal year period subsequent to the
Permitted Acquisition (each a "Post-closing Financial Projections").   The Post-
closing Financial Projections will represent Borrowers best estimate of the
future operations of each Borrower and are based on reasonable and conservative
assumptions.

       Section 4.2	Survival; Updates of Representations and Warranties.
                        ----------------------------------------------------
       All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loans and extension of
credit made hereunder, and the incurring of any other Obligations and shall be
deemed to have been made at the time of each request for, and again at the
time of the making of, each advance under the Loans or the issuance of each
Letter of Credit, except that the representations and warranties which relate
to the financial statements which are referred to in Section 4.1.9 (Financial
Condition), shall also be deemed to cover financial statements furnished from
time to time to the Lender pursuant to Section 6.1.1 (Financial Statements).

                                  ARTICLE V
                            CONDITIONS PRECEDENT
                            --------------------
       Section 5.1	Conditions to the Initial Advance and Initial Letter of
                        -------------------------------------------------------
Credit.
- -------
       The making of the initial advance under the Loans and the issuance of
the initial Letter of Credit is subject to the fulfillment on or before the
Closing Date of the following conditions precedent in a manner satisfactory in
form and substance to the Lender and its counsel:

                      5.1.1	Organizational Documents - Borrowers
                                ------------------------------------
                      The Lender shall have received for each Borrower:

                      (a)	a certificate of good standing certified
by the Secretary of State, or other appropriate Governmental
Authority, of the state of incorporation of such Borrower;

                      (b)	a certified copy from the appropriate
Governmental Authority under which such Borrower is organized, of
such Borrower's recorded limited partnership certificate and all
recorded amendments thereto;

                      (c)	a certificate of qualification to do
business for such Borrower certified by the Secretary of State or
other Governmental Authority of each state in which such Borrower
conducts business;

                      (d)	a certificate dated as of the Closing Date
by the Secretary or an Assistant Secretary of such Borrower covering:

                          (i)	true and complete copies of that
Borrower's corporate charter, bylaws, and all amendments
thereto;

                          (ii)	the incumbency, authority and
signatures of the officers of such Borrower authorized to
sign this Agreement and the other Financing Documents to
which such Borrower is a party; and

                          (iii)	the identity of such Borrower's
current directors, common stock holders and other equity
holders, as well as their respective percentage ownership
interests.

                      5.1.2	Consents, Licenses, Approvals, Etc.
                                -----------------------------------
                      The Lender shall have received copies of all consents,
licenses and approvals, required in connection with the execution, delivery,
performance, validity and enforceability of the Financing Documents and such
consents, licenses and approvals shall be in full force and effect.

                      5.1.3	Note.
                                -----
                      The Lender shall have received the Revolving Credit Note,
conforming to the requirements hereof and executed by a Responsible Officer of
each Borrower and attested by a duly authorized representative of each
Borrower.
                      5.1.4	Financing Documents and Collateral.
                                -----------------------------------
                      Each Borrower shall have executed and delivered the
Financing Documents to be executed by it, and shall have delivered original
Chattel Paper, Instruments, Investment Property, and related Collateral and
all opinions, and other documents contemplated by ARTICLE III (The
Collateral).
                      5.1.5	Other Documents, Etc.
                                ---------------------
                      The Lender shall have received such other certificates,
opinions, documents and instruments confirmatory of or otherwise relating to
the transactions contemplated hereby as may have been reasonably requested by
the Lender.

                      5.1.6	Payment of Fees.
                                ----------------
                      The Lender shall have received payment of any Fees due on
or before the Closing Date.

                      5.1.7	Collateral Disclosure List.
                                ---------------------------
                      Each Borrower shall have delivered the Collateral
Disclosure List required under the provisions of Section 3.3 (Collateral
Disclosure List) duly executed by a Responsible Officer of each Borrower.

                      5.1.8	Recordings and Filings.
                                -----------------------
                      Each Borrower shall have: (a) executed and delivered all
Financing Documents required to be filed, registered or recorded in order to
create, in favor of the Lender, a perfected Lien in the Collateral (subject
only to the Permitted Liens) in form and in sufficient number for filing,
registration, and recording in each office in each jurisdiction in which such
filings, registrations and recordations are required, and (b) delivered such
evidence as the Lender may deem satisfactory that all necessary filing fees
and all recording and other similar fees, and all Taxes and other expenses
related to such filings, registrations and recordings will be or have been
paid in full.

                      5.1.9	Insurance Certificate.
                                ----------------------
                      The Lender shall have received an insurance certificate in
accordance with the provisions of Section 6.1.8 (Insurance) and Section 6.1.20
(Insurance With Respect to Equipment and Inventory).

                      5.1.10	Landlord's Waivers.
                                -------------------
                      The Lender shall have received a landlord's waiver from
each landlord of each and every business premise requested by the Lender, leased
by each Borrower and on which any of the Collateral is or may hereafter be
located, which landlords' waivers must be reasonably acceptable to the Lender
and its counsel in their sole and absolute discretion.

       Section 5.2	Conditions to all Extensions of Credit.
                        ---------------------------------------
       The making of all advances under the Loans and the issuance of all
Letters of Credit is subject to the fulfillment of the following conditions
precedent in a manner satisfactory in form and substance to the Lender and its
counsel:

                      5.2.1	Compliance.
                                -----------
                      Each Borrower shall have complied and shall then be in
compliance with all terms, covenants, conditions and provisions of this
Agreement and the other Financing Documents that are binding upon it.

                      5.2.2	Borrowing Base.
                                ---------------
                      The Borrowers shall have furnished all Borrowing Base
Reports required by Section 2.1.4 (Borrowing Base Report), there shall exist
no Borrowing Base Deficiency, and as evidence thereof, the Borrowers shall
have furnished to the Lender such reports, schedules, certificates, records
and other papers as may be requested by the Lender, and the Borrowers shall be
in compliance with the provisions of this Agreement both immediately before
and immediately after the making of the advance requested.

                      5.2.3	Default.
                                --------
                      There shall exist no Event of Default or Default
hereunder.

                      5.2.4	Representations and Warranties.
                                -------------------------------
                      The representations and warranties of each of the
Borrowers contained among the provisions of this Agreement shall be true and
with the same effect as though such representations and warranties had been made
at the time of the making of, and of the request for, each advance under the
Loans or the issuance of each Letter of Credit, except that the representations
and warranties which relate to financial statements which are referred to in
Section 4.1.9 (Financial Condition), shall also be deemed to cover financial
statements furnished from time to time to the Lender pursuant to Section 6.1.1
(Financial Statements).

                      5.2.5	Adverse Change.
                                ---------------
                      No adverse change shall have occurred in the condition
(financial or otherwise), operations or business of any Borrower that would,
in the good faith judgment of the Lender, materially impair the ability of
that Borrower to pay or perform any of the Obligations.

                      5.2.6	Legal Matters.

                      All legal documents incident to each advance under the
Loans and each of the Letters of Credit shall be reasonably satisfactory to
counsel for the Lender.

                                 ARTICLE VI
                         COVENANTS OF THE BORROWERS
                         --------------------------
       Section 6.1	Affirmative Covenants.
                        ----------------------
       So long as any of the Obligations (or any the Revolving Credit
Commitments therefor) shall be outstanding hereunder, the Borrowers agree
jointly and severally with the Lender as follows:

                      6.1.1	Financial Statements.
                                ---------------------
                      The Borrowers shall furnish to the Lender:

                             (a)		Annual Statements and
Certificates.  The Borrowers shall furnish to the Lender as soon as available,
but in no event more than ninety (90) days after the close of the Borrowers'
fiscal years, (i) a copy of the annual financial statement in reasonable detail
satisfactory to the Lender relating to the Borrowers and their Subsidiaries,
prepared in accordance with GAAP and examined and certified by independent
certified public accountants satisfactory to the Lender, which financial
statement shall include a consolidated and consolidating balance sheet of the
Borrowers and their Subsidiaries as of the end of such fiscal year and
consolidated and consolidating statements of income, cash flows and changes in
shareholders equity of the Borrowers and their Subsidiaries for such fiscal
year, and (ii) a Compliance Certificate, in substantially the form attached to
this Agreement as EXHIBIT C, containing a detailed computation of each financial
covenant in this Agreement which is applicable for the period reported, a
certification that no change has occurred to the information contained in the
Collateral Disclosure List (except as set forth in any schedule attached to the
certification), each prepared by a Responsible Officer of the Borrowers in a
format acceptable to the Lender and (iii) if issued, a management letter in
the form prepared by the Borrowers' independent certified public accountants.

                             (b)		Quarterly Statements and
Certificates.  The Borrowers shall furnish to the Lender as soon as available,
but in no event more than forty-five (45) days after the close of the Borrowers'
fiscal quarters, consolidated and consolidating balance sheets of the Borrowers
and its Subsidiaries as of the close of such period, consolidated and
consolidating income, cash flows and changes in shareholders equity statements
for such period, and a Compliance Certificate, in substantially the form
attached to this Agreement as EXHIBIT C, containing a detailed computation of
each financial covenant in this Agreement which is applicable for the period
reported, a certification that no change has occurred to the information
contained in the Collateral Disclosure List (except as set forth on any
schedule attached to the certification), each prepared by a Responsible
Officer of or on behalf of each Borrower in a format acceptable to the Lender,
all as prepared and certified by a Responsible Officer of the Borrowers and
accompanied by a certificate of that officer stating whether any event has
occurred which constitutes a Default or an Event of Default hereunder, and, if
so, stating the facts with respect thereto.
                             (c)		Monthly Reports.  The Borrowers
shall furnish to the Lender within twenty (20) days after the end of each fiscal
month, a Borrowing Base Report, and a report containing the following
information:
                                  (i)	a detailed aging schedule of all
Receivables by Account Debtor, in such detail, and accompanied by such
supporting information, as the Lender may from time to time reasonably request;

                                  (ii)	a detailed aging of all accounts
payable by supplier, in such detail, and accompanied by such supporting
information, as the Lender may from time to time reasonably request; and

                                  (iii)	such other information as the Lender
may reasonably request.
                             (d)	Contract Backlog Report.  With the
annual financial statements to be delivered hereunder or at such other times as
the Lender may request, reports relating to the Receivable included in any
Borrowing Base Report submitted during such quarter setting forth a
description of contracts giving rise to such Receivable, the percentage of
completion of the work to be performed with respect to such contracts, the
amounts billed under such contracts and the amounts remaining to be billed, in
form and detail satisfactory to the Lender.

                             (e)	Government Contract Audits.  Promptly
after any Borrower's receipt thereof, notice of any final decision of a
contracting officer disallowing costs aggregating more than One Hundred Thousand
Dollars ($100,000), which disallowed costs arising out of any audit of such
Borrower's contract with a Governmental Authority.

                             (f)	Additional Reports and Information.
The Borrowers shall furnish to the Lender promptly, such additional information,
reports or statements as the Lender may from time to time reasonably request.

                      6.1.2	Reports to SEC and to Stockholders.
                                -----------------------------------
                      The Borrowers will furnish to the Lender, promptly upon
the filing or making thereof, at least one (l) copy of all financial statements,
reports, notices and proxy statements sent by any Borrower to its
stockholders, and of all regular and other reports filed by any Borrower with
any securities exchange or with the Securities and Exchange Commission.

                      6.1.3	Recordkeeping, Rights of Inspection, Field
                                ------------------------------------------
Examination, Etc.
- -----------------
                             (a)	Each of the Borrowers shall, and shall
cause each of its Subsidiaries to, maintain (i) a standard system of accounting
in accordance with GAAP, and (ii) proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its properties, business and activities.

                             (b)	Each of the Borrowers shall, and shall
cause each of its Subsidiaries to, permit authorized representatives of the
Lender to visit and inspect the properties of the Borrowers and its
Subsidiaries, to review, audit, check and inspect the Collateral at any time
with or without notice, to review, audit, check and inspect the Borrowers' other
books of record at any time with or without notice and to make abstracts and
photocopies thereof, and to discuss the affairs, finances and accounts of the
Borrowers and their Subsidiaries, with the officers, directors, employees and
other representatives of the Borrowers and their Subsidiaries and their
respective accountants, all at such times during normal business hours and
other reasonable times and as often as the Lender may reasonably request.

                             (c)	Each of the Borrowers hereby irrevocably
authorizes and directs all accountants and auditors employed by any of the
Borrowers and/or any of their Subsidiaries at any time prior to the repayment
in full of the Obligations to exhibit and deliver to the Lender copies of any
and all of the financial statements, trial balances, management letters, or
other accounting records of any nature of any or all of the Borrowers and/or
any or all of their respective Subsidiaries in the accountant's or auditor's
possession, and to disclose to the Lender any information they may have
concerning the financial status and business operations of any or all of the
Borrowers and/or any or all of their respective Subsidiaries.  Further, each
of the Borrowers hereby authorizes all Governmental Authorities to furnish to
the Lender copies of reports or examinations relating to any and all of the
Borrowers and/or any or all Subsidiaries, whether made by the Borrowers or
otherwise.

                             (d)	Any and all reasonable costs and
expenses incurred by, or on behalf of, the Lender in connection with the conduct
of any of the foregoing, including, without limitation, travel, lodging, meals,
and other shall be part of the Enforcement Costs and shall be payable to the
Lender upon demand.  The Borrowers acknowledge and agree that such expenses
may include, but shall not be limited to, any and all out-of-pocket costs and
expenses of the Lender's employees and agents in, and when, traveling to any
of the Borrowers' facilities.

                      6.1.4	Corporate Existence.
                                --------------------
                      Each of the Borrowers shall maintain, and cause each of
its Subsidiaries to maintain, its corporate existence in good standing in the
jurisdiction in which it is incorporated and in each other jurisdiction where
it is required to register or qualify to do business if the failure to do so
in such other jurisdiction might have a material adverse effect on the ability
of the Borrower to perform the Obligations, on the conduct of the Borrower's
operations, on the Borrower's financial condition, or on the value of, or the
ability of the Lender to realize upon, the Collateral.

                      6.1.5	Compliance with Laws.
                                ---------------------
                      Each of the Borrowers shall comply, and cause each of its
Subsidiaries to comply, with all applicable Laws and observe the valid
requirements of Governmental Authorities, the noncompliance with or the non-
observance of which might have a material adverse effect on the ability of the
Borrowers to perform the Obligations, on the conduct of the Borrowers'
operations, on the Borrowers' consolidated financial condition, or on the
value of, or the ability of the Lender to realize upon, the Collateral.

                      6.1.6	Preservation of Properties.
                                ---------------------------
                      Each of the Borrowers will, and will cause each of its
Subsidiaries to, at all times (a) maintain, preserve, protect and keep its
properties, whether owned or leased, in good operating condition, working
order and repair (ordinary wear and tear excepted), and from time to time will
make all proper repairs, maintenance, replacements, additions and improvements
thereto needed to maintain such properties in good operating condition,
working order and repair, and (b) do or cause to be done all things necessary
to preserve and to keep in full force and effect its material franchises,
leases of real and personal property, trade names, Patents, Trademarks,
Copyrights and permits which are necessary for the orderly continuance of its
business.
                      6.1.7	Line of Business.
                                -----------------
                      Each of the Borrowers will continue to engage
substantially in the business of providing diversified engineering, technical
and management services.

                      6.1.8	Insurance.
                                ----------
                      Each of the Borrowers will, and will cause each of its
Subsidiaries to, at all times maintain with "A" or better rated insurance
companies such insurance as is required by applicable Laws and such other
insurance, in such amounts, of such types and against such risks, hazards,
liabilities, casualties and contingencies as are usually insured against in
the same geographic areas by business entities engaged in the same or similar
business.  Without limiting the generality of the foregoing, each of the
Borrowers will, and will cause each of its Subsidiaries to, keep adequately
insured all of its property against loss or damage resulting from fire or
other risks insured against by extended coverage and maintain public liability
insurance against claims for personal injury, death or property damage
occurring upon, in or about any properties occupied or controlled by it, or
arising in any manner out of the businesses carried on by it, all in such
amounts not less than the Lender shall reasonably determine from time to time.
Each of the Borrowers shall deliver to the Lender on the Closing Date (and
thereafter on each date there is a material change in the insurance coverage)
a certificate from the Borrowers' insurance carrier of the Borrowers
containing a detailed list of the insurance then in effect and stating the
names of the insurance companies, the types, the amounts and rates of the
insurance, dates of the expiration thereof and the properties and risks
covered thereby.  Within thirty (30) days after notice in writing from the
Lender, the Borrowers will obtain such additional insurance as the Lender may
reasonably request.
                      6.1.9	Taxes.
                                ------
                      Except to the extent that the validity or amount thereof
is being contested in good faith and by appropriate proceedings, each of the
Borrowers will, and will cause each of its Subsidiaries, to pay and discharge
all Taxes prior to the date when any interest or penalty would accrue for the
nonpayment thereof.  Each of the Borrowers shall furnish to the Lender at such
times as the Lender may require proof satisfactory to the Lender of the making
of payments or deposits required by applicable Laws including, without
limitation, payments or deposits with respect to amounts withheld by any of
the Borrowers from wages and salaries of employees and amounts contributed by
any of the Borrowers on account of federal and other income or wage taxes and
amounts due under the Federal Insurance Contributions Act, as amended.

                      6.1.10	ERISA.
                                ------
                      Each Borrower will, and will cause each of its Commonly
Controlled Entities to, comply with the funding requirements of ERISA with
respect to Plans for its respective employees.  No Borrower will permit with
respect to any Plan (a) any prohibited transaction or transactions under ERISA
or the Internal Revenue Code, which results, or may result, in any material
liability of the Borrower, or (b) any Reportable Event if, upon termination of
the Plan or Plans with respect to which one or more such Reportable Events
shall have occurred, there is or would be any material liability of the
Borrower to the PBGC.  Upon the Lender's request, each Borrower will deliver
to the Lender a copy of the most recent actuarial report, financial statements
and annual report completed with respect to any Plan.

                      6.1.11	Notification of Events of Default and Adverse
                                ---------------------------------------------
Developments.
- -------------
                      Each of the Borrowers shall promptly notify the Lender
upon obtaining knowledge of the occurrence of:
                      (a)	any Event of Default;
                      (b)	any Default;
                      (c)	any litigation instituted or their
knowledge threatened against any of the Borrowers or any of their
Subsidiaries and of the entry of any judgment or Lien (other than
any Permitted Liens) against any of the assets or properties of
any of the Borrowers or any Subsidiary where the claims against
any Borrower or any Subsidiary exceed Two Hundred Fifty Thousand
Dollars ($250,000) and are not covered by insurance;

                      (d)	any event, development or circumstance
whereby the financial statements furnished hereunder fail in any
material respect to present fairly, in accordance with GAAP, the
financial condition and operational results of any of the
Borrowers or any of their respective Subsidiaries;

                      (e)	any default under any contract with any
Governmental Authority or any event which if not corrected could
give rise to a default under any such contract or a termination
for convenience;

                      (f)	any judicial, administrative or arbitral
proceeding pending against any of the Borrowers or any of their
respective Subsidiaries and any judicial or administrative
proceeding known by any of the Borrowers to be threatened against
any Borrower or any Subsidiary which, if adversely decided, could
materially adversely affect the financial condition or operations
(present or prospective) of any Borrower or any Subsidiary;

                      (g)	the receipt by any of the Borrowers or any
Subsidiary of any notice, claim or demand from any Governmental
Authority which alleges that any of the Borrowers or any
Subsidiary is in violation of any of the terms of, or has failed
to comply with any applicable material Laws regulating its
operation and business, including, but not limited to, the
Occupational Safety and Health Act and the Environmental
Protection Act; and

                      (h)	any other development in the business or
affairs of any of the Borrowers or any of their respective
Subsidiaries which may be materially adverse;
in each case describing in detail satisfactory to the Lender the nature
thereof and the action the Borrowers propose to take with respect thereto.

                      6.1.12	Hazardous Materials; Contamination.
                                -----------------------------------
                      Each of the Borrowers agrees to:

                      (a)	give notice to the Lender immediately upon
acquiring knowledge of the presence of any Hazardous Materials or
any Hazardous Materials Contamination on any property owned,
operated or controlled by any Borrower or for which any Borrower
is, or is claimed to be, responsible (provided that such notice
shall not be required for Hazardous Materials placed or stored on
such property in accordance with applicable Laws in the ordinary
course (including, without limitation, quantity) of a Borrower's
line of business expressly described in this Agreement), with a
full description thereof;

                      (b)	promptly comply with any Laws requiring
the removal, treatment or disposal of Hazardous Materials or
Hazardous Materials Contamination and provide the Lender with
satisfactory evidence of such compliance;

                      (c)	provide the Lender, within thirty (30)
days after a demand by the Lender, with a bond, letter of credit
or similar financial assurance evidencing to the Lender's
satisfaction that the necessary funds are available to pay the
cost of removing, treating, and disposing of such Hazardous
Materials or Hazardous Materials Contamination and discharging any
Lien which may be established as a result thereof on any property
owned, operated or controlled by any Borrower or for which any
Borrower is, or is claimed to be, responsible; and

                      (d)	as part of the Obligations, defend,
indemnify and hold harmless the Lender and its agents, employees,
trustees, successors and assigns from any and all claims which may
now or in the future (whether before or after the termination of
this Agreement) be asserted as a result of the presence of any
Hazardous Materials or any Hazardous Materials Contamination on
any property owned, operated or controlled by any Borrower for
which any Borrower is, or is claimed to be, responsible.  Each
Borrower acknowledges and agrees that this indemnification shall
survive the termination of this Agreement and the Revolving Credit
Commitments and the payment and performance of all of the other
Obligations.

                      6.1.13	Disclosure of Significant Transactions.
                      Each of the Borrowers shall deliver to the Lender a
written notice describing in detail each transaction by it involving the
purchase, sale, lease, or other acquisition or loss or casualty to or
disposition of an interest in Fixed or Capital Assets (other than Capital
Expenditures permitted by Section 6.2.20 of this Agreement) which exceeds Two
Hundred Fifty Thousand Dollars ($250,000.00), said notices to be delivered to
the Lender within thirty (30) days of the occurrence of each such transaction.

                      6.1.14	Financial Covenants.
                                --------------------
                             (a)	Tangible Net Worth.  The Borrowers, on
a consolidated basis, shall at all times maintain a Tangible Net Worth of not
less than sum of Twenty-Five Million Dollars ($25,000,000), plus fifty percent
(50%) of the Borrowers' consolidated annual net income (after the payment or
provision for payment of income taxes), on a cumulative basis, for each fiscal
year of the Borrowers commencing with the fiscal year ending December 31,
2007.

                             (b)	Net Income.  The Borrowers will
maintain, on a consolidated basis and tested as of the last day of each of
Borrowers' fiscal quarters for the four (4) quarter period ending on that date,
consolidated net income (after the payment or provision for payment of income
taxes), less the amount of dividends declared in such period of not less than
$1.00.

                      6.1.15	Collection of Receivables.
                                --------------------------
                      Until such time that the Lender shall notify the Borrowers
of the revocation of such privilege, the Borrowers and their Subsidiaries
shall at their own expense have the privilege for the account of, and in trust
for, the Lender of collecting their Receivables and receiving in respect
thereto all Items of Payment and shall otherwise completely service all of the
Receivables including (a) the billing, posting and maintaining of complete
records applicable thereto, (b) the taking of such action with respect to the
Receivables as the Lender may request or in the absence of such request, as
each of the Borrowers and each of the Subsidiaries may deem advisable; and (c)
the granting, in the ordinary course of business, to any Account Debtor, any
rebate, refund or adjustment to which the Account Debtor may be lawfully
entitled, and may accept, in connection therewith, the return of goods, the
sale or lease of which shall have given rise to a Receivable and may take such
other actions relating to the settling of any Account Debtor's claim as may be
commercially reasonable.  The Lender may, at its option, at any time or from
time to time after and during the continuance of an Event of Default
hereunder, revoke the collection privilege given in this Agreement to any one
or more of the Borrowers and each of the Subsidiaries by either giving notice
of its assignment of, and Lien on the Collateral to the Account Debtors or
giving notice of such revocation to the Borrowers.  The Lender shall not have
any duty to, and the Borrowers hereby release the Lender from all claims of
loss or damage caused by the delay or failure to collect or enforce any of the
Receivables or to preserve any rights against any other party with an interest
in the Collateral.  The Lender shall be entitled at any time and from time to
time to confirm and verify Receivables.

                      6.1.16	Assignments of Receivables.
                                ---------------------------
                      Each Borrower will promptly, upon request, execute and
deliver to the Lender written assignments, in form and content acceptable to
the Lender, of specific Receivables or groups of Receivables; provided,
however, the Lien and/or security interest granted to the Lender, under this
Agreement shall not be limited in any way to or by the inclusion or exclusion
of Receivables within such assignments.  Receivables so assigned shall secure
payment of the Obligations and are not sold to the Lender whether or not any
assignment thereof, which is separate from this Agreement, is in form
absolute.  The Borrowers agree that neither any assignment to the Lender nor
any other provision contained in this Agreement or any of the other Financing
Documents shall impose on the Lender any obligation or liability of any of the
Borrowers with respect to that which is assigned and the Borrowers hereby
agree jointly and severally to indemnify the Lender and hold the Lender
harmless from any and all claims, actions, suits, losses, damages, costs,
expenses, fees, obligations and liabilities which may be incurred by or
imposed upon the Lender by virtue of the assignment of and Lien on any
Borrower's rights, title and interest in, to, and under the Collateral.

                      6.1.17	Government Accounts.
                                --------------------
                      The Borrowers will upon request of the Lender immediately
notify the Lender if any of the Receivables arise out of contracts with the
United States or with any other Governmental Authority, and, if requested by
the Lender, execute any Instruments and take any steps required by the Lender
in order that all moneys due and to become due under such contracts shall be
assigned to the Lender, for the ratable benefit of the Lender and for the
benefit of the Lender with respect to the Lender's Obligations, and notice
thereof given to the Governmental Authority under the Federal Assignment of
Claims Act or any other applicable Laws.

                      6.1.18	Notice of Returned Goods, etc.
                                ------------------------------
                      The Borrowers will promptly notify, and will cause the
Subsidiaries to promptly notify, the Lender of the return, rejection or
repossession of any goods of the Borrowers or any Subsidiaries sold or
delivered in respect of any Receivables, and of any claims made in regard
thereto to the extent that the aggregate purchase price of any such goods in
any given calendar month exceeds in the aggregate One Hundred Fifty Thousand
Dollars ($150,000.00) for such month.

                      6.1.19	Inventory.
                                ----------
                      With respect to the Inventory, the Borrowers and their
Subsidiaries will, after an Event of Default:  (a) maintain a perpetual
inventory reporting system at all times, (b) keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory,
the Borrowers' and Subsidiaries' cost therefor and the selling price thereof,
all of which records shall be available to the officers, employees or agents
of the Lender upon demand for inspection and copying thereof; (c) not store
any Inventory with a bailee, warehouseman or similar Person without the
Lender's prior written consent, which consent may be conditioned on, among
other things, delivery by the bailee, warehouseman or similar Person to the
Lender of warehouse receipts, in form acceptable to the Lender, in the name of
the Lender evidencing the storage of Inventory and the interests of the Lender
therein; (d) permit the Lender and its agents or representatives to inspect
and examine the Inventory and to check and test the same as to quality,
quantity, value and condition at any time or times hereafter during the
Borrowers' and Subsidiaries' usual business hours or at other reasonable times
and (e) at the Lender's request, designate the Lender as the consignee on all
bills of lading and other negotiable and non-negotiable documents.  The
Borrowers shall be permitted to sell their Inventory in the ordinary course of
business until the occurrence of an Event of Default.

                      6.1.20	Insurance With Respect to Equipment and
                                ---------------------------------------
Inventory.
- ----------
                      The Borrowers will (a) maintain and cause each of their
Subsidiaries to maintain hazard insurance with fire and extended coverage and
naming the Lender as an additional insured with loss payable to the Lender as
its respective interest may appear on the Equipment and Inventory in an amount
at least equal to the lesser amount of the outstanding principal amount of the
Obligations or the fair market value of the Equipment and Inventory (but in
any event sufficient to avoid any co-insurance obligations) and with a
specific endorsement to each such insurance policy pursuant to which the
insurer agrees to give the Lender at least thirty (30) days written notice
before any alteration or cancellation of such insurance policy and that no act
or default of any of the Borrowers shall affect the right of the Lender to
recover under such policy in the event of loss or damage; (b) file, and cause
each of their Subsidiaries to file, with the Lender, upon its request, a
detailed list of the insurance then in effect and stating the names of the
insurance companies, the amounts and rates of the insurance, dates of the
expiration thereof and the properties and risks covered thereby; and (c)
within thirty (30) days after notice in writing from the Lender, obtain, and
cause each of their Subsidiaries to obtain, such additional insurance as the
Lender may reasonably request.

                      6.1.21	Maintenance of the Collateral.
                                ------------------------------
                      The Borrowers will maintain the Collateral in good working
order, saving and excepting ordinary wear and tear, and will not permit
anything to be done to the Collateral that may materially impair the value
thereof.  The Lender, or an agent designated by the Lender, shall be permitted
to enter the premises of each of the Borrowers and their Subsidiaries and
examine, audit and inspect the Collateral at any reasonable time and from time
to time without notice.  The Lender shall not have any duty to, and the
Borrowers hereby release the Lender from all claims of loss or damage caused
by the delay or failure to collect or enforce any of the Receivables or to,
preserve any rights against any other party with an interest in the
Collateral.

                      6.1.22	Equipment.
                                ----------
                      The Borrowers shall (a) maintain all Equipment as
personalty, (b) not affix any Equipment to any real estate in such manner as
to become a fixture or part of such real estate, and (c) shall hold no
Equipment on a sale on approval basis.  The Borrowers hereby declare their
intent that, notwithstanding the means of attachment, no goods of the
Borrowers hereafter attached to any realty shall be deemed a fixture, which
declaration shall be irrevocable, without the Lender's consent, until all of
the Obligations have been paid in full and all of the Revolving Credit
Commitments and Letters of Credit have been terminated or have expired.

                      6.1.23	Defense of Title and Further Assurances.
                                ----------------------------------------
                      At their expense, the Borrowers will defend the title to
the Collateral (and any part thereof), and will immediately execute, acknowledge
and deliver any financing statement, renewal, affidavit, deed, assignment,
continuation statement, security agreement, certificate or other document
which the Lender may require in order to perfect, preserve, maintain,
continue, protect and/or extend the Lien or security interest granted to the
Lender under this Agreement, under any of the other Financing Documents and
the first priority of that Lien, subject only to the Permitted Liens.  The
Borrowers will from time to time do whatever the Lender may require by way of
obtaining, executing, delivering, and/or filing financing statements,
landlords' or mortgagees' waivers, notices of assignment and other notices and
amendments and renewals thereof and the Borrowers will take any and all steps
and observe such formalities as the Lender may require, in order to create and
maintain a valid Lien upon, pledge of, or paramount security interest in, the
Collateral, subject to the Permitted Liens.  The Borrowers shall pay to the
Lender on demand all taxes, costs and expenses incurred by the Lender in
connection with the preparation, execution, recording and filing of any such
document or instrument.  To the extent that the Proceeds of any of the
Accounts or Receivables of the Borrowers are expected to become subject to the
control of, or in the possession of, a party other than the Borrowers or the
Lender, the Borrowers shall cause all such parties to execute and deliver on
the Closing Date security documents, financing statements or other documents
as requested by the Lender and as may be necessary to evidence and/or perfect
the security interest of the Lender, in those Proceeds.  The Borrowers agree
that a copy of a fully executed security agreement and/or financing statement
shall be sufficient to satisfy for all purposes the requirements of a
financing statement as set forth in Article 9 of the applicable Uniform
Commercial Code.  Each Borrower hereby irrevocably appoints the Lender as the
Borrower's attorney-in-fact, with power of substitution, in the name of the
Lender or in the name of the Borrower or otherwise, for the use and benefit of
the Lender, but at the cost and expense of the Borrowers and without notice to
the Borrowers, to execute and deliver any and all of the instruments and other
documents and take any action which the Lender may require pursuant the
foregoing provisions of this Section 6.1.23.

                      6.1.24	Business Names; Locations.
                                --------------------------
                      Each Borrower will notify and cause each of the
Subsidiaries to notify the Lender not less than thirty (30) days prior to (a)
any change in the name under which the Borrower or the applicable Subsidiary
conducts its business, (b) any change of the location of the chief executive
office of the applicable Borrower or Subsidiary, and (c) the opening of any new
place of business or the closing of any existing place of business, and any
change in the location of the places where the Collateral, or any part thereof,
or the books and records, or any part thereof, are kept.

                      6.1.25	Subsequent Opinion of Counsel as to Recording
                                ---------------------------------------------
Requirements.
- -------------
                      In the event that any Borrower or any Subsidiary shall
transfer its principal place of business or the office where it keeps its
records pertaining to the Collateral, upon the Lender's request the Borrowers
will provide to the Lender a subsequent opinion of counsel as to the filing,
recording and other requirements with which the Borrowers and their
Subsidiaries have complied to maintain the Lien and security interest in favor
of the Lender in the Collateral.

                      6.1.26	Use of Premises and Equipment.
                                ------------------------------
                      The Borrowers agree that until the Obligations are fully
paid and all of the Revolving Credit Commitments and the Letters of Credit
have been terminated or have expired, the Lender (a) after and during the
continuance of an Event of Default, may use any of the Borrowers' owned or
leased lifts, hoists, trucks and other facilities or equipment for handling or
removing the Collateral; and (b) shall have, and is hereby granted, a right of
ingress and egress to the places where the Collateral is located, and may
proceed over and through any of the Borrowers' owned or leased property.

                      6.1.27	Protection of Collateral.
                                -------------------------
                      The Borrowers agree that the Lender may at any time
following an Event of Default take such steps as the Lender deems reasonably
necessary to protect the interest of the Lender in, and to preserve the
Collateral, including, the hiring of such security guards or the placing of
other security protection measures as the Lender deems appropriate, may employ
and maintain at any of the Borrowers' premises a custodian who shall have full
authority to do all acts necessary to protect the interests of the Lender in
the Collateral and may lease warehouse facilities to which the Lender may move
all or any part of the Collateral to the extent commercially reasonable.  The
Borrowers agree to cooperate fully with the Lender's efforts to preserve the
Collateral and will take such actions to preserve the Collateral as the Lender
may reasonably direct.  All of the Lender's expenses of preserving the
Collateral, including any reasonable expenses relating to the compensation and
bonding of a custodian, shall be part of the Enforcement Costs.

       Section 6.2	Negative Covenants.
                        -------------------
       So long as any of the Obligations or the Revolving Credit Commitments or
Letters of Credit therefor shall be outstanding hereunder, the Borrowers agree
with the Lender that without the prior written consent of the Lender:

                      6.2.1	Capital Structure, Merger, Acquisition or Sale
                                ----------------------------------------------
of Assets.
- ----------
                      None of the Borrowers will alter or amend their capital
structure, authorize any additional class of equity, issue any stock or equity
of any class, enter into any merger or consolidation or amalgamation, windup
or dissolve themselves (or suffer any liquidation or dissolution) or acquire
all or substantially all the assets of any Person (other than in connection
with a Permitted Acquisition), or sell, lease or otherwise dispose of any of
its assets (except Inventory disposed of in the ordinary course of business
prior to an Event of Default).  Any consent of the Lender to the disposition
of any assets may be conditioned on a specified use of the proceeds of
disposition.

                      6.2.2	Subsidiaries.
                                -------------
                      None of the Borrowers will create or acquire any
Subsidiaries other than the Subsidiaries identified on the Collateral
Disclosure List.

                      6.2.3	Issuance of Stock.
                                ------------------
                      None of the Borrowers will issue, or grant any option or
right to purchase, any of its capital stock, except for stock issued under the
terms of existing stock option plans, provided that no Event of Default has
occurred or would exist after giving effect to the issuance, grant or
purchases.
                      6.2.4	Purchase or Redemption of Securities, Dividend
                                ----------------------------------------------
Restrictions.
- -------------
                      Declare or pay any dividends; purchase, redeem, retire, or
otherwise acquire for value any of its capital stock now or hereafter
outstanding; make any distribution of assets to its stockholders whether in
cash, assets or obligations of a Borrower; allocate or otherwise set apart any
sum for the payment of any dividend or distribution on, or for the purchase,
redemption, or retirement of, any shares of its capital stock; make any other
distribution by reduction of capital or otherwise in respect of any shares of
its capital stock; or permit any Subsidiary to purchase or otherwise acquire
for value any stock of a Borrower or another Subsidiary, except that if there
is no Default at such time and no covenant violation would occur (a) VSE may
pay dividends in an aggregate annual amount equal to $.60 per share of common
stock outstanding, (b) a Borrower may declare and deliver dividends and make
distributions payable solely in its common stock; (c) a Borrower may purchase
or otherwise acquire shares of its capital stock by exchange for or out of the
proceeds received from a substantially concurrent issue of new shares of its
capital stock and (d) VSE, during each fiscal year, may repurchase shares of
its capital stock in amounts not to exceed Two Million Five Hundred Thousand
and 00/100 Dollars ($2,500,000.00) provided that no Borrower shall declare or
pay any dividends permitted under this Section 6.2.4 other than VSE's normal
quarterly cash dividend, until the Lender has received written notice from
such Borrower at least five (5) Business Days in advance of declaring or
paying any such dividend and has also received such other information as the
Lender may have requested in order to verify the amount of the proposed
dividends and to determine that the conditions precedent to the making of the
requested dividends have been satisfied.

                      6.2.5	Indebtedness.
                                -------------
                      None of the Borrowers will create, incur, assume or suffer
to exist any Indebtedness for Borrowed Money or permit any Subsidiary to do
so, except:
                      (a)	the Obligations;
                      (b)	current accounts payable arising in the
ordinary course;
                      (c)	Indebtedness secured by Permitted Liens;
                      (d)	Indebtedness of the Borrowers existing on
the date hereof and reflected on the financial statements
furnished pursuant to Section 4.1.9 (Financial Condition);
                      (e)	Indebtedness of the Borrowers not
otherwise permitted by this Agreement which, in the aggregate,
does not exceed Fifty Thousand Dollars ($50,000).

                      6.2.6	Investments, Loans and Other Transactions.
                                ------------------------------------------
                      Except as otherwise provided in this Agreement, none of
the Borrowers will, and will permit any of its Subsidiaries to, (a) make,
assume, acquire or continue to hold any investment in any real property (unless
used in connection with its business and treated as a Fixed or Capital Asset of
any Borrower or any Subsidiary) or any Person, whether by stock purchase,
capital contribution, acquisition of indebtedness of such Person or otherwise
(including, without limitation, investments in any joint venture or
partnership), (b) guaranty or otherwise become contingently liable for the
Indebtedness or obligations of any Person, or (c) make any loans or advances,
or otherwise extend credit to any Person, except:

                      (i)	any advance to an officer or employee of any
Borrower or any Subsidiary, provided that the aggregate amount of all such
advances by all of the Borrowers and their Subsidiaries (taken as a whole)
outstanding at any time shall not exceed at any time outstanding the aggregate
principal sum of (i) Seven Hundred Fifty Thousand Dollars ($750,000) for all
such loans by the Borrower, plus (ii) reasonable advances for anticipated
business expenses of employees that would be reimbursed to such employees
under such Borrower's expense reimbursement policy, and (b) loans from VSE
to Affiliates, not exceeding an aggregate outstanding principal amount at any
time of Two Million Dollars ($2,000,000);

                      (ii)	the endorsement of negotiable
instruments for deposit or collection or similar
transactions in the ordinary course of business;

                      (iii)	any investment in Cash Equivalents,
which are pledged to the Lender, as collateral and security
for the Obligations;

                      (iv)	trade credit extended to customers
in the ordinary course of business; and

                      (v)	investments in any Targets pursuant
to any Permitted Acquisition.

                      6.2.7	Stock of Subsidiaries.
                                ----------------------
                      None of the Borrowers will sell or otherwise dispose of
any shares of capital stock of any Subsidiary (except in connection with a
merger or consolidation of a Wholly Owned Subsidiary into any of the Borrowers
or another Wholly Owned Subsidiary of any of the Borrowers or with the
dissolution of any Subsidiary) or permit any Subsidiary to issue any
additional shares of its capital stock except pro rata to its stockholders.

                      6.2.8	Liens.
                                ------
                      Each Borrower agrees that it (a) will not create, incur,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired, or permit any Subsidiary so to do,
except for Liens securing the Obligations and Permitted Liens, (b) will not
agree to, assume or suffer to exist any provision in any instrument or other
document for confession of judgment, cognovit or other similar right or
remedy, (c) will not allow or suffer to exist any Permitted Liens to be
superior to Liens securing the Obligations, (d) will not enter into any
contracts for the consignment of goods, will not execute or suffer the filing
of any financing statements or the posting of any signs giving notice of
consignments, and will not, as a material part of its business, engage in the
sale of goods belonging to others, other than sales of goods belonging to
others which have been disclosed to the Lender, and (e) will not allow or
suffer to exist the failure of any Lien described in the Security Documents to
attach to, and/or remain at all times perfected on, any of the property
described in the Security Documents.

                      6.2.9	Transactions with Affiliates.
                                -----------------------------
                      None of the Borrowers nor any of their Subsidiaries will
enter into or participate in any transaction except in the ordinary course of
business, with any Affiliate or, except in the ordinary course of business,
with the officers, directors, employees and other representatives of any
Borrower and/or any Subsidiary.

                      6.2.10	Other Businesses.
                                -----------------
                      None of the Borrowers nor any of their Subsidiaries will
engage directly or indirectly in any business other than its current line of
business described elsewhere in this Agreement.

                      6.2.11	ERISA Compliance.
                                -----------------
                      None of the Borrowers nor any Commonly Controlled Entity
shall:  (a) engage in or permit any "prohibited transaction" (as defined in
ERISA); (b) cause any "accumulated funding deficiency" as defined in ERISA
and/or the Internal Revenue Code; (c) terminate any pension plan in a manner
which could result in the imposition of a lien on the property of any Borrower
pursuant to ERISA; (d) terminate or consent to the termination of any Multi-
employer Plan; or (e) incur a complete or partial withdrawal with respect to
any Multi-employer Plan.

                      6.2.12	Prohibition on Hazardous Materials.
                                -----------------------------------
                      None of the Borrowers shall place, manufacture or store or
permit to be placed, manufactured or stored any Hazardous Materials on any
property owned, operated or controlled by any Borrower or for which any
Borrower is responsible other than Hazardous Materials placed or stored on
such property in accordance with applicable Laws in the ordinary course of a
Borrower's business expressly described in this Agreement.

                      6.2.13	Method of Accounting; Fiscal Year.
                                ----------------------------------
                      None of the Borrowers will:

                      (a)	change the method of accounting employed
in the preparation of any financial statements furnished to the
Lender under the provisions of Section 6.1.1 (Financial
Statements), unless required to conform to GAAP and on the
condition that the Borrowers' accountants shall furnish such
information as the Lender may request to reconcile the changes
with the Borrowers' prior financial statements

                      (b)	change its fiscal year from a year ending
on December 31st.

                      6.2.14	Compensation.
                                -------------
                      None of the Borrowers nor any Subsidiary will pay any
bonuses, fees, compensation, commissions, salaries, drawing accounts, or other
payments (cash and non-cash), whether direct or indirect, to any stockholders
of any Borrower or any Subsidiary, or any Affiliate of any Borrower or any
Subsidiary, other than reasonable compensation for actual services rendered by
stockholders in their capacity as officers or employees.

                      6.2.15	Transfer of Collateral.
                                -----------------------
                      None of the Borrowers nor any of their Subsidiaries will
transfer, or permit the transfer, to another location of any of the Collateral
or the books and records related to any of the Collateral.

                      6.2.16	Sale and Leaseback.
                                -------------------
                      None of the Borrowers nor any of the Subsidiaries will
directly or indirectly enter into any arrangement to sell or transfer all or
any substantial part of its fixed assets and thereupon or within one year
thereafter rent or lease the assets so sold or transferred.

                      6.2.17	Disposition of Collateral.
                                --------------------------
                      None of the Borrowers will sell, discount, allow credits
or allowances, transfer, assign, extend the time for payment on, convey, lease,
assign, transfer or otherwise dispose of the Collateral, except, prior to an
Event of Default, dispositions expressly permitted elsewhere in this
Agreement, the sale of Inventory in the ordinary course of business, and the
sale of unnecessary or obsolete Equipment, but only if the proceeds of the
sale of such Equipment are (a) used to purchase similar Equipment to replace
the unnecessary or obsolete Equipment or (b) immediately turned over to the
Lender for application to the Obligations in accordance with the provisions of
this Agreement.

                      6.2.18	Capital Expenditures
                                --------------------
                      None of the Borrowers will, or will permit any Subsidiary
to, directly or indirectly (by way of the acquisition of the securities of a
Person or otherwise), make any Capital Expenditures in the aggregate for all
of the Borrowers and their Subsidiaries (taken as a whole) in any fiscal year
exceeding two percent (2.0%) of Borrowers' net revenue for such period.

                                 ARTICLE VII
                       DEFAULT AND RIGHTS AND REMEDIES
                       -------------------------------

       Section 7.1	Events of Default.
                        ------------------
       The occurrence of any one or more of the following events shall
constitute an "Event of Default" under the provisions of this Agreement:

                      7.1.1	Failure to Pay.
                                ---------------
                      The failure of the Borrowers to pay any of the Obligations
as and when due and payable in accordance with the provisions of this
Agreement, the Notes and/or any of the other Financing Documents.

                      7.1.2	Breach of Representations and Warranties.
                                -----------------------------------------
                      Any representation or warranty made in this Agreement or
in any report, statement, schedule, certificate, opinion (including any opinion
of counsel for the Borrowers), financial statement or other document furnished
in connection with this Agreement, any of the other Financing Documents, or
the Obligations, shall prove to have been false or misleading when made (or,
if applicable, when reaffirmed) in any material respect.

                      7.1.3	Failure to Comply with Covenants.
                                ---------------------------------
                      The failure of the Borrowers to perform, observe or comply
with any covenant, condition or agreement contained in this Agreement.

                      7.1.4	Default Under Other Financing Documents or
                                ------------------------------------------
Obligations.
- ------------
                      A default shall occur under any of the other Financing
Documents or under any other Obligations, and such default is not cured within
any applicable grace period provided therein.

                      7.1.5	Receiver; Bankruptcy.
                                ---------------------
                      Any Borrower or any Subsidiary shall (a) apply for or
consent to the appointment of a receiver, trustee or liquidator of itself or
any of its property, (b) admit in writing its inability to pay its debts as
they mature, (c) make a general assignment for the benefit of creditors, (d)
be adjudicated a bankrupt or insolvent, (e) file a voluntary petition in
bankruptcy or a petition or an answer seeking or consenting to reorganization
or an arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or take corporate
action for the purposes of effecting any of the foregoing, (f) by any act
indicate its consent to, approval of or acquiescence in any such proceeding or
the appointment of any receiver of or trustee for any of its property, or
suffer any such receivership, trusteeship or proceeding to continue
undischarged for a period of sixty (60) days, or (g) by any act indicate its
consent to, approval of or acquiescence in any order, judgment or decree by
any court of competent jurisdiction or any Governmental Authority enjoining or
otherwise prohibiting the operation of a material portion of any Borrower's or
any Subsidiary's business or the use or disposition of a material portion of
any Borrower's or any Subsidiary's assets.

                      7.1.6	Involuntary Bankruptcy, etc.
                                ----------------------------
                      (a) An order for relief shall be entered in any
involuntary case brought against any Borrower or any Subsidiary under the
Bankruptcy Code, or (b) any such case shall be commenced against any Borrower
or any Subsidiary and shall not be dismissed within sixty (60) days after the
filing of the petition, or (c) an order, judgment or decree under any other Law
 is entered by any court of competent jurisdiction or by any other Governmental
Authority on the application of a Governmental Authority or of a Person other
than any Borrower or any Subsidiary (i) adjudicating any Borrower, or any
Subsidiary bankrupt or insolvent, or (ii) appointing a receiver, trustee or
liquidator of any Borrower or of any Subsidiary, or of a material portion of any
Borrower's or any Subsidiary's assets, or (iii) enjoining, prohibiting or
otherwise limiting the operation of a material portion of any Borrower's or any
Subsidiary's business or the use or disposition of a material portion of any
Borrower's or any Subsidiary's assets, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days from the
date entered.

                      7.1.7	Judgment.
                                ---------
                      Unless adequately insured in the opinion of the Lender,
the entry of a final judgment for the payment of money involving more than
$200,000 against any Borrower or any Subsidiary, and the failure by such
Borrower or such Subsidiary to discharge the same, or cause it to be
discharged, within thirty (30) days from the date of the order, decree or
process under which or pursuant to which such judgment was entered, or to
secure a stay of execution pending appeal of such judgment.

                      7.1.8	Execution; Attachment.
                                ----------------------
                      Any execution or attachment shall be levied against the
Collateral, or any part thereof, and such execution or attachment shall not be
set aside, discharged or stayed within thirty (30) days after the same shall
have been levied.

                      7.1.9	Default Under Other Borrowings.
                                -------------------------------
                      Default shall be made with respect to any Indebtedness for
Borrowed Money of any of the Borrowers (other than the Loans) in excess of Two
Hundred Thousand Dollars ($200,000) if the effect of such default is to
accelerate the maturity of such Indebtedness for Borrowed Money or to permit
the holder or obligee thereof or other party thereto to cause such
Indebtedness for Borrowed Money to become due prior to its stated maturity.

                      7.1.10	Challenge to Agreements.
                                ------------------------
                      Any Borrower or any Guarantor shall challenge the validity
and binding effect of any provision of any of the Financing Documents or shall
state its intention to make such a challenge of any of the Financing Documents
or any of the Financing Documents shall for any reason (except to the extent
permitted by its express terms) cease to be effective or to create a valid and
perfected first priority Lien (except for Permitted Liens) on, or security
interest in, any of the Collateral purported to be covered thereby.

                      7.1.11	Material Adverse Change.
                                ------------------------
                      The Lender, in its sole discretion, determines in good
faith that a material adverse change has occurred in the financial condition of
any of the Borrowers.

                      7.1.12	Impairment of Position.
                                -----------------------
                      The Lender, in its sole discretion, determines in good
faith that an event has occurred which impairs the prospect of payment of any of
the Obligations and/or the value of the Collateral.

                      7.1.13	Collateral Inadequacy.
                                ----------------------
                      The determination in good faith by the Lender that the
security for the Obligations is inadequate.

                      7.1.14	Change in Ownership.
                                --------------------
                      The failure of VSE to own at least fifty one percent (51%)
of the voting capital stock of the other Borrowers.

                      7.1.15	Liquidation, Termination, Dissolution, Change
                                ---------------------------------------------
in Management, etc.
- -------------------
                      Any Borrower shall liquidate, dissolve or terminate its
existence or any change occurs in the management or control of any Borrower
without the prior written consent of the Lender.

                      7.1.16	De-Listing of Stock.
                                --------------------
                      The failure of the stock of VSE to be listed on NASDAQ or
a national stock exchange.

                      7.1.17	Government Default.
                                -------------------
                      The issuance to a Borrower or any Subsidiary or (a) a cure
notice or a show-cause notice relating to a possible termination for default
under any contract which is either a contract with a Governmental Authority or
is a subcontract (at any tier) which is related to a contract between a third
party and Governmental Authority and, within thirty (30) calendar days after
the date of such notice, no written notification is received by such Borrower
or such Subsidiary from the cognizant contracting officer or customer official
stating that a termination will not occur; or (b) a notice of actual
termination of default (complete or partial), under any such contract or
subcontract; provided, however, that no Event of Default shall be declared
based upon clauses (a) or (b) of this Section 7.1.17 if the notice in question
is issued at a time when the Unearned Contract Value of the contract or
subcontract in question is less than $500,000.

       Section 7.2	Remedies.
                        ---------
       Upon the occurrence of any Event of Default, the Lender may, in the
exercise of its sole and absolute discretion from time to time, and shall, at
any time thereafter exercise any one or more of the following rights, powers
or remedies.

                      7.2.1	Acceleration.
                                -------------
                      The Lender may declare any or all of the Obligations to be
immediately due and payable, notwithstanding anything contained in this
Agreement or in any of the other Financing Documents to the contrary, without
presentment, demand, protest, notice of protest or of dishonor, or other
notice of any kind, all of which the Borrowers hereby waive.

                      7.2.2	Further Advances.
                                -----------------
                      The Lender may from time to time without notice to the
Borrowers suspend, terminate or limit any further advances, loans or other
extensions of credit under the Revolving Credit Commitments, under this
Agreement and/or under any of the other Financing Documents.  Further, upon
the occurrence of an Event of Default or Default specified in Sections 7.1.5
(Receiver; Bankruptcy) or 7.1.6 (Involuntary Bankruptcy, etc.), the Revolving
Credit Commitments and any agreement in any of the Financing Documents to
provide additional credit and/or to issue Letters of Credit shall immediately
and automatically terminate and the unpaid principal amount of the Notes (with
accrued interest thereon) and all other Obligations then outstanding, shall
immediately become due and payable without further action of any kind and
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrowers.

                      7.2.3	Uniform Commercial Code.
                                ------------------------
                      The Lender shall have all of the rights and remedies of a
secured party under the applicable Uniform Commercial Code and other
applicable Laws.  Upon demand by the Lender, the Borrowers shall assemble the
Collateral and make it available to the Lender, at a place designated by the
Lender.  The Lender or its agents may without notice from time to time enter
upon any Borrower's premises to take possession of the Collateral, to remove
it, to render it unusable, to process it or otherwise prepare it for sale, or
to sell or otherwise dispose of it.

                      Any written notice of the sale, disposition or other
intended action by the Lender with respect to the Collateral which is sent by
regular mail, postage prepaid, to the Borrowers at the address set forth in
Section 8.1 (Notices), or such other address of the Borrowers which may from
time to time be shown on the Lender's records, at least ten (10) days prior to
such sale, disposition or other action, shall constitute commercially
reasonable notice to the Borrowers.  The Lender may alternatively or
additionally give such notice in any other commercially reasonable manner.
Nothing in this Agreement shall require the Lender to give any notice not
required by applicable Laws.

                      If any consent, approval, or authorization of any state,
municipal or other Governmental Authority or of any other Person or of any
Person having any interest therein, should be necessary to effectuate any sale
or other disposition of the Collateral, the Borrowers agree to execute all
such applications and other instruments, and to take all other action, as may
be required in connection with securing any such consent, approval or
authorization.

                      The Borrowers recognize that the Lender may be unable to
effect a public sale of all or a part of the Collateral consisting of
Investment Property by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, and other applicable Federal and state
Laws.  The Lender may, therefore, in its discretion, take such steps as it may
deem appropriate to comply with such Laws and may, for example, at any sale of
the Collateral consisting of securities restrict the prospective bidders or
purchasers as to their number, nature of business and investment intention,
including, without limitation, a requirement that the Persons making such
purchases represent and agree to the satisfaction of the Lender that they are
purchasing such securities for their account, for investment, and not with a
view to the distribution or resale of any thereof.  The Borrowers covenant and
agree to do or cause to be done promptly all such acts and things as the
Lender may request from time to time and as may be necessary to offer and/or
sell the securities or any part thereof in a manner which is valid and binding
and in conformance with all applicable Laws.  Upon any such sale or
disposition, the Lender shall have the right to deliver, assign and transfer
to the purchaser thereof the Collateral consisting of securities so sold.

                      7.2.4	Specific Rights With Regard to Collateral.
                                ------------------------------------------
                      In addition to all other rights and remedies provided
hereunder or as shall exist at law or in equity from time to time, the Lender
may (but shall be under no obligation to), without notice to any of the
Borrowers, and each Borrower hereby irrevocably appoints the Lender as its
attorney-in-fact, with power of substitution, in the name of the Lender and/or
in the name of any or all of the Borrowers or otherwise, for the use and
benefit of the Lender, but at the cost and expense of the Borrowers and
without notice to the Borrowers:

                      (a)	request any Account Debtor obligated on
any of the Accounts to make payments thereon directly to the
Lender, with the Lender taking control of the Proceeds thereof;
                      (b)	compromise, extend or renew any of the
Collateral or deal with the same as it may deem advisable;
                      (c)	make exchanges, substitutions or
surrenders of all or any part of the Collateral;
                      (d)	copy, transcribe, or remove from any place
of business of any Borrower or any Subsidiary all books, records,
ledger sheets, correspondence, invoices and documents, relating to
or evidencing any of the Collateral or without cost or expense to
the Lender, make such use of any Borrower's or any Subsidiary's
place(s) of business as may be reasonably necessary to administer,
control and collect the Collateral;
                      (e)	repair, alter or supply goods if necessary
to fulfill in whole or in part the purchase order of any Account
Debtor;
                      (f)	demand, collect, receipt for and give
renewals, extensions, discharges and releases of any of the
Collateral;
                      (g)	institute and prosecute legal and
equitable proceedings to enforce collection of, or realize upon,
any of the Collateral;
                      (h)	settle, renew, extend, compromise,
compound, exchange or adjust claims in respect of any of the
Collateral or any legal proceedings brought in respect thereof;
                      (i)	endorse or sign the name of any Borrower
upon any Items of Payment, certificates of title, Instruments,
Investment Property, stock powers, documents, documents of title,
financing statements, assignments, notices or other writing
relating to or part of the Collateral and on any proof of claim in
bankruptcy against an Account Debtor;
                      (j)	clear Inventory through customs in the
Lender's or any Borrower's name and to sign and deliver to customs
officials powers of attorney in any Borrower's name for such
purpose;
                      (k)	notify the Post Office authorities to
change the address for the delivery of mail to the Borrowers to
such address or Post Office Box as the Lender may designate and
receive and open all mail addressed to any of the Borrowers; and
                      (l)	take any other action necessary or
beneficial to realize upon or dispose of the Collateral or to
carry out the terms of this Agreement.

                      7.2.5	Application of Proceeds.
                                ------------------------
                      Any proceeds of sale or other disposition of the
Collateral will be applied by the Lender to the payment first to any and
all Enforcement Costs, and any balance of such proceeds will be applied to
the Obligations in such order and manner as the Lender shall determine.  If the
sale or other disposition of the Collateral fails to fully satisfy the
Obligations, the Borrowers shall remain liable to the Lender for any deficiency.

                      7.2.6	Performance by Lender.
                                ----------------------
                      If the Borrowers shall fail to pay the Obligations or
otherwise fail to perform, observe or comply with any of the conditions,
covenants, terms, stipulations or agreements contained in this Agreement or
any of the other Financing Documents, the Lender without notice to or demand
upon the Borrowers and without waiving or releasing any of the Obligations or
any Default or Event of Default, may (but shall be under no obligation to) at
any time thereafter make such payment or perform such act for the account and
at the expense of the Borrowers, and may enter upon the premises of the
Borrowers for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose and each of the Borrowers
hereby irrevocably appoints the Lender as its attorney-in-fact to do so, with
power of substitution, in the name of the Lender, or in the name of any or all
of the Borrowers or otherwise, for the use and benefit of the Lender, but at
the cost and expense of the Borrowers and without notice to the Borrowers.
All sums so paid or advanced by the Lender together with interest thereon from
the date of payment, advance or incurring until paid in full at the Post-
Default Rate and all costs and expenses, shall be deemed part of the
Enforcement Costs, shall be paid by the Borrowers to the Lender on demand, and
shall constitute and become a part of the Obligations.

                      7.2.7	Other Remedies.
                                ---------------
                      The Lender may from time to time proceed to protect or
enforce its rights by an action or actions at law or in equity or by any other
appropriate proceeding, whether for the specific performance of any of the
covenants contained in this Agreement or in any of the other Financing
Documents, or for an injunction against the violation of any of the terms of
this Agreement or any of the other Financing Documents, or in aid of the
exercise or execution of any right, remedy or power granted in this Agreement,
the Financing Documents, and/or applicable Laws.  The Lender is authorized to
offset and apply to all or any part of the Obligations all moneys, credits and
other property of any nature whatsoever of any or all of the Borrowers now or
at any time hereafter in the possession of, in transit to or from, under the
control or custody of, or on deposit with, the Lender or any Affiliate of the
Lender.

                                  ARTICLE VIII
                                  MISCELLANEOUS
                                  -------------

       Section 8.1	Notices.
                        --------
       All notices, requests and demands to or upon the parties to this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:

              Borrowers:	VSE Corporation
                                2550 Huntington Avenue
                                Alexandria, Virginia 22303
                                Attention:  R.J. Hannah

              Lender:	        Citizens Bank of Pennsylvania
                                8521 Leesburg Pike, Suite 405
                                Vienna, Virginia 22182
                                Attention:  Leslie Grizzard

              with a copy to:	Troutman Sanders LLP
                                1660 International Drive, Suite 600
                                McLean, Virginia 22102
                                Attention:  Richard M. Pollak, Esq.

       By written notice, each party to this Agreement may change the address
to which notice is given to that party, provided that such changed notice
shall include a street address to which notices may be delivered by overnight
courier in the ordinary course on any Business Day.

       Section 8.2	Amendments; Waivers.
                        --------------------
                      8.2.1	In General.
                                -----------
                      This Agreement and the other Financing Documents may not
be amended, modified, or changed in any respect except by an agreement in
writing signed by the Lender and the Borrowers.  No waiver of any provision of
this Agreement or of any of the other Financing Documents, nor consent to any
departure by the Borrowers therefrom, shall in any event be effective unless
the same shall be in writing signed by the Lender.  No course of dealing
between the Borrowers and the Lender and no act or failure to act from time to
time on the part of the Lender shall constitute a waiver, amendment or
modification of any provision of this Agreement or any of the other Financing
Documents or any right or remedy under this Agreement, under any of the other
Financing Documents or under applicable Laws.

       Section 8.3	Cumulative Remedies.
                        --------------------
       The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Lender
shall determine, subject to the provisions of this Agreement, and are in
addition to, and not exclusive of, rights, powers and remedies provided by
existing or future applicable Laws.  In order to entitle the Lender to
exercise any remedy reserved to it in this Agreement, it shall not be
necessary to give any notice, other than such notice as may be expressly
required in this Agreement.  Without limiting the generality of the foregoing
and subject to the terms of this Agreement, the Lender may:

                      (a)	proceed against any one or more of the
Borrowers with or without proceeding against any other Person
(including, without limitation, any one or more of the Guarantors)
who may be liable (by endorsement, guaranty, indemnity or
otherwise) for all or any part of the Obligations;

                      (b)	proceed against any one or more of the
Borrowers with or without proceeding under any of the other
Financing Documents or against any Collateral or other collateral
and security for all or any part of the Obligations;

                      (c)	without reducing or impairing the
obligation of the Borrowers and without notice, release or
compromise with any guarantor or other Person liable for all or
any part of the Obligations under the Financing Documents or
otherwise;

                      (d)	without reducing or impairing the
obligations of the Borrowers and without notice thereof:

                          (i)	fail to perfect the Lien in any or
all Collateral or to release any or all the Collateral or to
accept substitute Collateral;

                          (ii)	approve the making of advances under
the Revolving Loan under this Agreement;

                          (iii)	waive any provision of this
Agreement or the other Financing Documents;

                          (iv)	exercise or fail to exercise rights
of set-off or other rights; or

                          (v)	accept partial payments or extend
from time to time the maturity of all or any part of the
Obligations.

       Section 8.4	Severability.
                        -------------
       In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:

                      (a)	the validity, legality and enforceability
of the remaining provisions shall remain effective and binding on
the parties thereto and shall not be affected or impaired thereby;

                      (b)	the obligation to be fulfilled shall be
reduced to the limit of such validity;

                      (c)	if such provision or part thereof pertains
to repayment of the Obligations, then, at the sole and absolute
discretion of the Lender, all of the Obligations of the Borrowers
to the Lender shall become immediately due and payable; and

                      (d)	if the affected provision or part thereof
does not pertain to repayment of the Obligations, but operates or
would prospectively operate to invalidate this Agreement in whole
or in part, then such provision or part thereof only shall be
void, and the remainder of this Agreement shall remain operative
and in full force and effect.

       Section 8.5	Successors and Assigns.
                        -----------------------
       This Agreement and all other Financing Documents shall be binding upon
and inure to the benefit of the Borrowers, the Lender and their respective
heirs, personal representatives, successors and assigns, except that the
Borrowers shall not have the right to assign their rights hereunder or any
interest herein without the prior written consent of Lender.

       Section 8.6	Continuing Agreements.
                        ----------------------
       All covenants, agreements, representations and warranties made by the
Borrowers in this Agreement, in any of the other Financing Documents, and in
any certificate delivered pursuant hereto or thereto shall survive the making
by the Lender of the Loans, the issuance of Letters of Credit by the Lender
and the execution and delivery of the Notes, shall be binding upon the
Borrowers regardless of how long before or after the date hereof any of the
Obligations were or are incurred, and shall continue in full force and effect
so long as any of the Obligations are outstanding and unpaid. From time to
time upon the Lender's request, and as a condition of the release of any one
or more of the Security Documents, the Borrowers and other Persons obligated
with respect to the Obligations shall provide the Lender with such
acknowledgments and agreements as the Lender may require to the effect that
there exists no defenses, rights of setoff or recoupment, claims,
counterclaims, actions or causes of action of any kind or nature whatsoever
against the Lender, and/or any of its or its agents and others, or to the
extent there are, the same are waived and released.

       Section 8.7	Enforcement Costs.
                        ------------------
       The Borrowers agree to pay to the Lender on demand all Enforcement
Costs, together with interest thereon from the date incurred or advanced until
paid in full at a per annum rate of interest equal at all times to the Post-
Default Rate. Enforcement Costs shall be immediately due and payable at the
time advanced or incurred, whichever is earlier.  Without implying any
limitation on the foregoing, the Borrowers agree, as part of the Enforcement
Costs, to pay upon demand any and all stamp and other Taxes and fees payable
or determined to be payable in connection with the execution and delivery of
this Agreement and the other Financing Documents and to save the Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay any Taxes or fees referred to in
this Section.  The provisions of this Section shall survive the execution and
delivery of this Agreement, the repayment of the other Obligations and shall
survive the termination of this Agreement.

       Section 8.8	Applicable Law; Jurisdiction.
                        -----------------------------
                      8.8.1	Applicable Law.
                                ---------------
                      As a material inducement to the Lender to enter into this
Agreement, each of the Borrowers acknowledges and agrees that the Financing
Documents, including, this Agreement, shall be governed by the Laws of the
State, as if each of the Financing Documents and this Agreement had each been
executed, delivered, administered and performed solely within the State even
though for the convenience and at the request of the Borrowers, one or more of
the Financing Documents may be executed elsewhere.  The Lender acknowledges,
however, that remedies under certain of the Financing Documents that relate to
property outside the State may be subject to the laws of the state in which
the property is located.

                      8.8.2	Submission to Jurisdiction.
                                ---------------------------
                      The Borrowers irrevocably submit to the jurisdiction of
any state or federal court sitting in the State over any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Financing Documents.  Each of the Borrowers irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum.  Final judgment in
any such suit, action or proceeding brought in any such court shall be
conclusive and binding upon the Borrowers and may be enforced in any court in
which the Borrowers are subject to jurisdiction, by a suit upon such judgment,
provided that service of process is effected upon the Borrowers in one of the
manners specified in this Section or as otherwise permitted by applicable
Laws.

                      8.8.3	Appointment of Agent for Service of Process.
                                --------------------------------------------
                      The Borrowers hereby irrevocably designate and appoint
__________________________________________________________ as the Borrowers'
authorized agent to receive on the Borrowers' behalf service of any and all
process that may be served in any suit, action or proceeding of the nature
referred to in this Section in any state or federal court sitting in the
State.  If such agent shall cease so to act, the Borrowers shall irrevocably
designate and appoint without delay another such agent in the State
satisfactory to the Lender and shall promptly deliver to the Lender evidence
in writing of such other agent's acceptance of such appointment and its
agreement that such appointment shall be irrevocable.

                      8.8.4	Service of Process.
                                -------------------
                      Each of the Borrowers hereby consents to process being
served in any suit, action or proceeding of the nature referred to in this
Section by (a) the mailing of a copy thereof by registered or certified mail,
postage prepaid, return receipt requested, to the Borrower at the Borrower's
address designated in or pursuant to Section 8.1 (Notices), and (b) serving a
copy thereof upon the agent, if any, designated and appointed by the Borrower
as the Borrower's agent for service of process by or pursuant to this Section.
The Borrowers irrevocably agree that such service (y) shall be deemed in every
respect effective service of process upon the Borrowers in any such suit,
action or proceeding, and (z) shall, to the fullest extent permitted by law,
be taken and held to be valid personal service upon the Borrowers.  Nothing in
this Section shall affect the right of the Lender to serve process in any
manner otherwise permitted by law or limit the right of the Lender otherwise
to bring proceedings against the Borrowers in the courts of any jurisdiction
or jurisdictions.

       Section 8.9	Duplicate Originals and Counterparts.
                        -------------------------------------
       This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.

       Section 8.10	Headings.
                        ---------
       The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.

       Section 8.11	No Agency.
                        ----------
       Nothing herein contained shall be construed to constitute the Borrowers
as the agent of the Lender for any purpose whatsoever or to permit the
Borrowers to pledge any of the credit of the Lender. The Lender shall not be
responsible or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may be located and
regardless of the cause thereof.  The Lender shall not by anything herein or
in any of the Financing Documents or otherwise, assume any of the Borrowers'
obligations under any contract or agreement assigned to the Lender, Lender
shall not be responsible in any way for the performance by the Borrowers of
any of the terms and conditions thereof.

       Section 8.12	Date of Payment.
                        ----------------
       Should the principal of or interest on the Notes become due and payable
on other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day and in the case of principal, interest shall be
payable thereon at the rate per annum specified in the Notes during such
extension.

       Section 8.13	Entire Agreement.
                        -----------------
       This Agreement is intended by the Lender and the Borrowers to be a
complete, exclusive and final expression of the agreements contained herein.
Neither the Lender nor the Borrowers shall hereafter have any rights under any
prior agreements pertaining to the matters addressed by this Agreement but
shall look solely to this Agreement for definition and determination of all of
their respective rights, liabilities and responsibilities under this
Agreement.

       Section 8.14	Waiver of Trial by Jury.
                        ------------------------
       THE BORROWERS, AND THE LENDER HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY
BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B)
ANY OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL.  THIS WAIVER
CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO
SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES TO THIS AGREEMENT.

       This waiver is knowingly, willingly and voluntarily made by the
Borrowers and the Lender, and the Borrowers and the Lender hereby represent
that no representations of fact or opinion have been made by any individual to
induce this waiver of trial by jury or to in any way modify or nullify its
effect.  The Borrowers and the Lender further represent that they have been
represented in the signing of this Agreement and in the making of this waiver
by independent legal counsel, selected of their own free will, and that they
have had the opportunity to discuss this waiver with counsel.

       Section 8.15	Liability of the Lender.
                        ------------------------
       The Borrowers hereby agree that the Lender shall not be chargeable for
any negligence, mistake, act or omission of any accountant, examiner, agency
or attorney employed by the Lender in making examinations, investigations or
collections, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations.

       By inspecting the Collateral or any other properties of the Borrowers or
by accepting or approving anything required to be observed, performed or
fulfilled by the Borrowers or to be given to the Lender pursuant to this
Agreement or any of the other Financing Documents, the Lender shall not be
deemed to have warranted or represented the condition, sufficiency, legality,
effectiveness or legal effect of the same, and such acceptance or approval
shall not constitute any warranty or representation with respect thereto by
the Lender.

       Section 8.16	Indemnification.
                        ----------------
       The Borrowers agrees to indemnify and hold harmless, the Lender, the
parent and Affiliates of the Lender and the parent's and Affiliates' officers,
directors, shareholders, employees and agents (each an "Indemnified Party,"
and collectively, the "Indemnified Parties"), from and against any and all
claims, liabilities, losses, damages, costs and expenses (whether or not such
Indemnified Party is a party to any litigation), including without limitation,
reasonable attorney's fees and costs and costs of investigation, document
production, attendance at depositions or other discovery, incurred by any
Indemnified Party with respect to, arising out of or as a consequence of (a)
this Agreement or any of the other Financing Documents, including without
limitation, any failure of the Borrowers to pay when due (at maturity, by
acceleration or otherwise) any principal, interest, fee or any other amount
due under this Agreement or the other Loan documents, or any other Event of
Default; (b) the use by the Borrowers of any proceeds advanced hereunder; (c)
the transactions contemplated hereunder; or (d) any claim, demand, action or
cause of action being asserted against (i) the Borrowers or any of their
Affiliates by any other Person, or (ii) any Indemnified Party by the Borrowers
in connection with the transactions contemplated hereunder.  Notwithstanding
anything herein or elsewhere to the contrary, the Borrowers shall not be
obligated to indemnify or hold harmless any Indemnified Party from any
liability, loss or damage resulting from the gross negligence, willful
misconduct or unlawful actions of such Indemnified Party.  Any amount payable
to the Lender under this Section will bear interest at the Post-Default Rate
from the due date until paid.

                  [SIGNATURES APPEAR ON THE FOLLOWING PAGE]


IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Business Loan and Security Agreement under their respective
seals as of the day and year first written above.

WITNESS/ATTEST:	                VSE CORPORATION

/s/ R. J. Hannah                    /s/ D. M. Ervine
_________________________	By: ____________________________(Seal)
                                    Name: D. M. Ervine
                                    Title: Chairman, President and CEO/COO

WITNESS/ATTEST:	                ENERGETICS INCORPORATED

/s/ R. J. Hannah                    /s/ D. M. Ervine
_________________________	By: ____________________________(Seal)
                                    Name: D. M. Ervine
                                    Title: Chairman of the Board

WITNESS/ATTEST:	                VSE SERVICES INTERNATIONAL, INC.

/s/ R. J. Hannah                    /s/ D. M. Ervine
_________________________	By: ____________________________(Seal)
                                    Name: D. M. Ervine
                                    Title: Chairman of the Board

WITNESS/ATTEST:	                INTEGRATED CONCEPTS AND RESEARCH
                                CORPORATION

/s/ R. J. Hannah                    /s/ D. M. Ervine
_________________________	By: ____________________________(Seal)
                                    Name: D. M. Ervine
                                    Title: Chairman of the Board

WITNESS:	                CITIZENS BANK OF PENNSYLVANIA

/s/ Laurie Louis                    /s/ Leslie Grizzard
_________________________	By:____________________________(Seal)
                                   Name: Leslie Grizzard
                                   Title: Senior Vice President


                              LIST OF EXHIBITS
                              ----------------
A.	Additional Borrower Joinder Supplement
B.	Revolving Credit Note
C.	Form of Compliance Certificate


                              LIST OF SCHEDULES
                              -----------------

Schedule 4.1.8		Litigation
Schedule 4.1.11	        Indebtedness for Borrowed Money
Schedule 4.1.16 	Employee Relations
Schedule 4.1.18	        Perfection and Priority of Collateral


                             TABLE OF CONTENTS
                             -----------------
BUSINESS LOAN AND SECURITY AGREEMENT	                                       1

RECITALS	                                                               1

AGREEMENTS                                                                     1

ARTICLE I DEFINITIONS                                                          1
Section 1.1	Certain Defined Terms.	                                       1
Section 1.2	Accounting Terms and Other Definitional Provisions.	      19

ARTICLE II THE CREDIT FACILITIES	                                      19
Section 2.1	The Revolving Credit Facility.	                              19
2.1.1	Revolving Credit Facility.	                                      19
2.1.2	Procedure for Making Advances Under the Revolving Loan; Lender
        Protection Loans.	                                              19
2.1.3	Borrowing Base.	                                                      20
2.1.4	Borrowing Base Report.	                                              21
2.1.5	Revolving Credit Note.	                                              21
2.1.6	Mandatory Prepayments of Revolving Loan.	                      21
2.1.7	Optional Prepayments of Revolving Loan.	                              22
2.1.8	The Collateral Account.	                                              22
2.1.9	Revolving Loan Account.	                                              22
2.1.10	Revolving Credit Unused Line Fee.	                              23
2.1.11	Optional Reduction of Total Revolving Credit Committed Amount.	      23
Section 2.2	The Letter of Credit Facility.	                              24
2.2.1	Letters of Credit.	                                              24
2.2.2	Letter of Credit Fees.	                                              24
2.2.3	Terms of Letters of Credit; Post-Expiration Date Letters of
        Credit.	                                                              24
2.2.4	Procedures for Letters of Credit.	                              25
2.2.5	Payments of Letters of Credit.	                                      26
2.2.6	Change in Law; Increased Cost.	                                      27
2.2.7	General Letter of Credit Provisions.	                              27
Section 2.3	Interest.	                                              28
2.3.1	General Provisions.	                                              28
2.3.2	Inability to Determine Rate.	                                      28
2.3.3	Indemnity.	                                                      29
2.3.4	Payment of Interest.	                                              30
Section 2.4	General Financing Provisions.	                              30
2.4.1	Borrowers' Representatives.	                                      30
2.4.2	Use of Proceeds of the Loans.	                                      32
2.4.3	Field Examination Fees.	                                              32
2.4.4	Computation of Interest and Fees.	                              32
2.4.5	Maximum Interest Rate.	                                              32
2.4.6	Payments.	                                                      32
2.4.7	Liens; Setoff.	                                                      33
2.4.8	Requirements of Law.	                                              33
2.4.9	Guaranty.	                                                      33
2.4.10	ACH Transactions and Swap Transactions.	                              36

ARTICLE III THE COLLATERAL	                                              36
Section 3.1	Debt and Obligations Secured.	                              36
Section 3.2	Grant of Liens.	                                              37
Section 3.3	Collateral Disclosure List.	                              37
Section 3.4	Personal Property.	                                      37
3.4.1	Investment Property, Chattel Paper, Promissory Notes, etc.	      37
3.4.2	Patents, Copyrights and Other Property Requiring Additional Steps
        to Perfect.	                                                      38
3.4.3	Government Contracts Requiring Additional Steps to Perfect.	      38
Section 3.5	Record Searches.	                                      38
Section 3.6	Costs.	                                                      38
Section 3.7	Release.	                                              39
Section 3.8	Inconsistent Provisions.	                              39

ARTICLE IV REPRESENTATIONS AND WARRANTIES	                              39
Section 4.1	Representations and Warranties.	                              39
4.1.1	Subsidiaries.	                                                      39
4.1.2	Good Standing.	                                                      39
4.1.3	Power and Authority.	                                              39
4.1.4	Binding Agreements.	                                              40
4.1.5	No Defaults, Violations.	                                      40
4.1.6	Compliance with Laws.	                                              40
4.1.7	Investment Company Act.	                                              40
4.1.8	Litigation.	                                                      40
4.1.9	Financial Condition.	                                              40
4.1.10	Full Disclosure.	                                              41
4.1.11	Indebtedness for Borrowed Money.	                              41
4.1.12	Taxes.	                                                              41
4.1.13	ERISA.	                                                              41
4.1.14	Title to Properties.	                                              42
4.1.15	Patents, Trademarks, Etc.	                                      42
4.1.16	Employee Relations.	                                              42
4.1.17	Presence of Hazardous Materials or Hazardous Materials
        Contamination.	                                                      43
4.1.18	Perfection and Priority of Collateral.	                              43
4.1.19	Places of Business and Location of Collateral.	                      43
4.1.20	Business Names and Addresses.	                                      43
4.1.21	Equipment.	                                                      43
4.1.22	Inventory.	                                                      43
4.1.23	Accounts.	                                                      44
4.1.24	Compliance with Eligibility Standards.	                              44
4.1.25	Solvency	                                                      44
4.1.26	Claims and Investigations.	                                      44
4.1.27	Government Contract Obligations.	                              44
4.1.28	Post-closing Financial Statements.	                              45
Section 4.2	Survival; Updates of Representations and Warranties.	      45

ARTICLE V CONDITIONS PRECEDENT	                                              45
Section 5.1	Conditions to the Initial Advance and Initial Letter
                of Credit.                                                    45
5.1.1	Organizational Documents - Borrowers	                              45
5.1.2	Consents, Licenses, Approvals, Etc.	                              46
5.1.3	Note.	                                                              46
5.1.4	Financing Documents and Collateral.	                              46
5.1.5	Other Documents, Etc.	                                              46
5.1.6	Payment of Fees.	                                              46
5.1.7	Collateral Disclosure List.	                                      46
5.1.8	Recordings and Filings.	                                              46
5.1.9	Insurance Certificate.	                                              47
5.1.10	Landlord's Waivers.	                                              47
Section 5.2	Conditions to all Extensions of Credit.	                      47
5.2.1	Compliance.	                                                      47
5.2.2	Borrowing Base.	                                                      47
5.2.3	Default.	                                                      47
5.2.4	Representations and Warranties.	                                      47
5.2.5	Adverse Change.	                                                      47
5.2.6	Legal Matters.	                                                      48

ARTICLE VI COVENANTS OF THE BORROWERS	                                      48
Section 6.1	Affirmative Covenants.	                                      48
6.1.1	Financial Statements.	                                              48
6.1.2	Reports to SEC and to Stockholders.	                              49
6.1.3	Recordkeeping, Rights of Inspection, Field Examination, Etc.	      49
6.1.4	Corporate Existence.	                                              50
6.1.5	Compliance with Laws.	                                              50
6.1.6	Preservation of Properties.	                                      50
6.1.7	Line of Business.	                                              51
6.1.8	Insurance.	                                                      51
6.1.9	Taxes.	                                                              51
6.1.10	ERISA.	                                                              51
6.1.11	Notification of Events of Default and Adverse Developments.	      52
6.1.12	Hazardous Materials; Contamination.	                              52
6.1.13	Disclosure of Significant Transactions.	                              53
6.1.14	Financial Covenants.	                                              53
6.1.15	Collection of Receivables.	                                      54
6.1.16	Assignments of Receivables.	                                      54
6.1.17	Government Accounts.	                                              54
6.1.18	Notice of Returned Goods, etc.	                                      55
6.1.19	Inventory.	                                                      55
6.1.20	Insurance With Respect to Equipment and Inventory.	              55
6.1.21	Maintenance of the Collateral.	                                      55
6.1.22	Equipment.	                                                      56
6.1.23	Defense of Title and Further Assurances.	                      56
6.1.24	Business Names; Locations.	                                      56
6.1.25	Subsequent Opinion of Counsel as to Recording Requirements.	      57
6.1.26	Use of Premises and Equipment.	                                      57
6.1.27	Protection of Collateral.	                                      57
Section 6.2	Negative Covenants.	                                      57
6.2.1	Capital Structure, Merger, Acquisition or Sale of Assets.	      57
6.2.2	Subsidiaries.	                                                      58
6.2.3	Issuance of Stock.	                                              58
6.2.4	Purchase or Redemption of Securities, Dividend Restrictions.	      58
6.2.5	Indebtedness.	                                                      58
6.2.6	Investments, Loans and Other Transactions.	                      59
6.2.7	Stock of Subsidiaries.	                                              59
6.2.8	Liens.	                                                              59
6.2.9	Transactions with Affiliates.	                                      60
6.2.10	Other Businesses.                                            	      60
6.2.11	ERISA Compliance.	                                              60
6.2.12	Prohibition on Hazardous Materials.	                              60
6.2.13	Method of Accounting; Fiscal Year.	                              60
6.2.14	Compensation.	                                                      61
6.2.15	Transfer of Collateral.	                                              61
6.2.16	Sale and Leaseback.	                                              61
6.2.17	Disposition of Collateral.	                                      61
6.2.18	Capital Expenditures	                                              61

ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES	                              61
Section 7.1	Events of Default.	                                      61
7.1.1	Failure to Pay.	                                                      61
7.1.2	Breach of Representations and Warranties.	                      61
7.1.3	Failure to Comply with Covenants.	                              62
7.1.4	Default Under Other Financing Documents or Obligations.	              62
7.1.5	Receiver; Bankruptcy.	                                              62
7.1.6	Involuntary Bankruptcy, etc.	                                      62
7.1.7	Judgment.	                                                      63
7.1.8	Execution; Attachment.	                                              63
7.1.9	Default Under Other Borrowings.	                                      63
7.1.10	Challenge to Agreements.	                                      63
7.1.11	Material Adverse Change.	                                      63
7.1.12	Impairment of Position.	                                              63
7.1.13	Collateral Inadequacy.	                                              63
7.1.14	Change in Ownership.	                                              63
7.1.15	Liquidation, Termination, Dissolution, Change in Management, etc.     64
7.1.16	De-Listing of Stock.	                                              64
7.1.17	Government Default.	                                              64
Section 7.2	Remedies.	                                              64
7.2.1	Acceleration.	                                                      64
7.2.2	Further Advances.	                                              64
7.2.3	Uniform Commercial Code.	                                      65
7.2.4	Specific Rights With Regard to Collateral.	                      65
7.2.5	Application of Proceeds.	                                      66
7.2.6	Performance by Lender.	                                              67
7.2.7	Other Remedies.	                                                      67

ARTICLE VIII MISCELLANEOUS	                                              67
Section 8.1	Notices.	                                              67
Section 8.2	Amendments; Waivers.	                                      68
8.2.1	In General.	                                                      68
Section 8.3	Cumulative Remedies.	                                      68
Section 8.4	Severability.	                                              69
Section 8.5	Successors and Assigns.	                                      69
Section 8.6	Continuing Agreements.	                                      69
Section 8.7	Enforcement Costs.	                                      70
Section 8.8	Applicable Law; Jurisdiction.	                              70
8.8.1	Applicable Law.	                                                      70
8.8.2	Submission to Jurisdiction.	                                      70
8.8.3	Appointment of Agent for Service of Process.	                      71
8.8.4	Service of Process.	                                              71
Section 8.9	Duplicate Originals and Counterparts.	                      71
Section 8.10	Headings.	                                              71
Section 8.11	No Agency.	                                              71
Section 8.12	Date of Payment.	                                      72
Section 8.13	Entire Agreement.	                                      72
Section 8.14	Waiver of Trial by Jury.	                              72
Section 8.15	Liability of the Lender.	                              72
Section 8.16	Indemnification.	                                      72

LIST OF EXHIBITS	                                                      75

LIST OF SCHEDULES	                                                      76

TABLE OF CONTENTS	                                                       1



       ________________________________________________________________
                    BUSINESS LOAN AND SECURITY AGREEMENT

                                    Dated

                               August 14, 2007

                                By and Among

                              VSE CORPORATION,

                          ENERGETICS INCORPORATED,

                      VSE SERVICES INTERNATIONAL, INC.

                INTEGRATED CONCEPTS AND RESEARCH CORPORATION

                                as Borrowers,

                       CITIZENS BANK OF PENNSYLVANIA,

                                  as Lender
_______________________________________________________________________________





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>exh10-2.txt
<DESCRIPTION>FIRST AMENDMENT TO BUSINESS LOAN AND SECURITY AGREEMENT
<TEXT>
                                                                   Exhibit 10.2
                             FIRST AMENDMENT TO
                    BUSINESS LOAN AND SECURITY AGREEMENT
                    ------------------------------------

       THIS FIRST AMENDMENT TO BUSINESS LOAN AND SECURITY AGREEMENT (this
"Agreement") made as of the 21st day of May, 2008 by and among VSE CORPORATION,
a corporation organized under the laws of the State of Delaware ("VSE"),
ENERGETICS INCORPORATED, a corporation organized under the laws of the State of
Maryland ("Energetics"), VSE SERVICES INTERNATIONAL, INC., a corporation
organized under the laws of the State of Delaware ("VSI"), INTEGRATED CONCEPTS
AND RESEARCH CORPORATION, a corporation organized under the laws of the District
of Columbia ("ICRC"), G&B SOLUTIONS, INC., a corporation organized under the
laws of the Commonwealth of Virginia ("G&B"), jointly and severally (each of
VSE, Energetics, VSI, ICRC and G&B a "Borrower"; and collectively, the
"Borrowers") and CITIZENS BANK OF PENNSYLVANIA, a bank chartered in the State of
Pennsylvania, its successors and assigns (the "Lender").

                                  RECITALS
                                  --------
       A.	The Lender has made a revolving line of credit in the current
maximum principal amount of Twenty-Five Million Dollars ($25,000,000), jointly
and severally, to the Borrowers (the "Loan") pursuant to that certain Business
Loan and Security Agreement, dated August 14, 2007, by and among VSE,
Energetics, VSI, ICRC and the Lender (the Business Loan and Security Agreement,
as amended from time to time, is hereinafter called, the "Business Loan
Agreement").

       B.	The Loan is currently evidenced by that certain Revolving
Promissory Note, dated August 14, 2007, from VSE, Energetics, VSI, and ICRC in
favor of the Lender in the maximum principal amount of Twenty-Five Million
Dollars ($25,000,000) (as amended from time to time, is hereinafter called the
"Note").

       C.	Pursuant to that certain Additional Borrower Joinder Supplement
dated April 14, 2008 by and among VSE, Energetics, VSI, ICRC, G&B and Lender,
G&B was added as a party to each of the Financing Documents.

       D.	The Borrowers have requested that the Lender increase the
maximum principal amount of the Loan and revise other provisions of the Business
Loan Agreement and the Lender has agreed on the condition, among others, that
this Agreement be executed and delivered by the Borrowers to the Lender.

       E.	All capitalized terms used herein and not otherwise defined
shall have the meanings given to such terms in the Business Loan Agreement.

       NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

       1. Recitals.  The parties hereto acknowledge and agree that the above
Recitals are true and correct in all respects and that the same are incorporated
herein and made a part hereof by reference.

       2. Definitions.
              (a)	The following defined terms set forth in Section 1.1 of
the Business Loan Agreement are amended and restated in their entirety as
follows:

       "Fees" means the collective reference to each fee payable to the Lender,
under the terms of this Agreement or under the terms of any of the other
Financing Documents, including, without limitation, the Revolving Credit Unused
Line Fees, Letter of Credit Fees and the Field Examination Fees.

       "Leverage Ratio" means the ratio of Total Funded Debt on a specified date
to EBITDA for the four (4) quarter period then ending on such date.

       "LIBOR rate" means the London interbank offered rate of major banks for
deposits in United States Dollars for a designated period (e.g. one, two, three
or six months) as set forth at Telerate Page 3750 at approximately 11:00 a.m.
London time on the third Euro-Dollar Business Day preceding the date when the
LIBOR-based Rate will be become effective; provided, however, that if such
information is not available on Telerate, the "LIBOR rate" shall be determined
from information supplied to the Lender by a nationally recognized reporting
service for similar information acceptable to the Lender.

       "LIBOR Rate Margin" means the amount determined to be in effect from time
to time using the chart set forth below.  The initial LIBOR Rate Margin will be
determined at the Supplemental Closing Date using the Leverage Ratio calculated
by reference to the consolidated financial statements of VSE most recently
received by the Lender.  Commencing on the date following the Supplemental
Closing Date when the Lender receives the consolidated financial statements of
VSE in accordance with this Agreement and on each such date thereafter, the
LIBOR Rate Margin will be reset based on the Leverage Ratio calculated by
reference to such consolidated financial statements.

          LIBOR Rate Margin              Leverage Ratio
          -----------------              --------------
                1.25%                 Less than 1.0 to 1.0
                1.75%                 Equal to or greater than 1.0 to 1.0 but
                                      less than 2.0 to 1.0
                2.00%                 Equal to or greater than 2.0 to 1.0

       In the event VSE fails to provide such consolidated financial statements
when due, the LIBOR Rate Margin shall be 2.00% until such time as such
consolidated financial statements are submitted as required by this Agreement.

       "Obligations" means all present and future, whether now existing or
contemplated or hereafter arising, of any one or more of the Borrowers to the
Lender under, arising pursuant to, in connection with and/or on account of the
provisions of this Agreement, each Note, each Security Document, and/or any of
the other Financing Documents, the Loans, and/or any of the Facilities
including, without limitation, the principal of, and interest on, each Note,
late charges, the Fees, Enforcement Costs, and prepayment fees (if any), letter
of credit reimbursement obligations, letter of credit fees or fees charged with
respect to any guaranty of any letter of credit; also means all other present
and future indebtedness, duties, obligations, and liabilities, whether now
existing or contemplated or hereafter arising, of any one or more of the
Borrowers to the Lender or its Affiliates of any nature whatsoever, including,
without limitation, any indebtedness, duties, obligations, and liabilities,
under or in connection with, any Swap Transaction or Bank Products, regardless
of whether such indebtedness, duties, obligations, and liabilities be direct,
indirect, primary, secondary, joint, several, joint and several, fixed or
contingent; and also means any and all renewals, extensions, substitutions,
amendments, restatements and rearrangements of any such indebtedness, duties,
obligations, and liabilities.

       "Prime Rate Margin" means zero percent (0.0%).

       "Revolving Credit Expiration Date" means May 21, 2010.
              (b)	The following defined terms are added in alphabetical
order to Section 1.1 of the Business Loan Agreement:

       "Bank Products" shall mean any (i) commercial credit card, purchase card
and merchant card services, or other commercial credit card services or
facilities, (ii) cash management services or facilities, (iii) foreign
investment or exchange products or services or (iv) products under any non-
speculative hedging agreement or arrangement, extended to any Borrower by Lender
or any Affiliate of Lender, from time to time.

       "EBITDA" means as to Borrowers for any period of determination thereof,
the sum of (a) net profit (or loss) determined in accordance with GAAP
consistently applied, plus (b) interest expense and income tax provisions for
such period, plus (c) depreciation and amortization of assets for such period,
plus (d) non-cash stock compensation, plus (e) non-cash non-recurring charges,
as approved in writing by the Lender prior to the due date of the Compliance
Certificate as required under Sections 6.1.1(a) (Annual Statements and
Certificates) and 6.1.1(b) (Quarterly Statements and Certificates), minus any
non-cash gains to the extent included in net income.  EBITDA shall be determined
on a rolling basis, based on the four (4) quarter period then ending.  EBITDA
from any Permitted Acquisitions will be included on a pro forma basis.

       "Fixed Charge Coverage Ratio" means as to Borrowers for any period of
determination thereof the ratio of (a) the sum of (i) EBITDA, plus
(ii) operating lease payments (including rent), minus (iii) cash taxes, minus
(iv) dividends, minus (v) share repurchases to (b) Fixed Charges.

       "Fixed Charges" means as to Borrowers for any period of determination
thereof, the sum of (i) scheduled or required principal payments on all
Indebtedness for Borrowed Money of Borrowers, plus (ii) all operating lease
payments (including rent), plus (iii) cash interest expense, plus (iv) any earn
out payments of Borrowers.

       "Supplemental Closing Date" means May 21, 2008.

       "Total Funded Debt" means as to Borrowers for any period of determination
thereof the sum of (i) all Indebtedness for Borrowed Money of Borrowers, plus
(ii) any accrued earn out payments of Borrowers (net of any Cash Equivalents for
purposes of calculating accrued earn out payments of Borrowers).

       "Unused Fee Margin" means that per annum percentage rate determined by
Lender from time to time in accordance with the chart set forth below.

Revolving Credit Unused Line Fee          Leverage Ratio
- --------------------------------          --------------
            0.10%                    Less than 1.0 to 1.0
            0.15%                    Equal to or greater than 1.0
                                     to 1.0 but less than 2.0 to 1.0
            0.20%                    Equal to or greater than 2.0 to 1.0

       3. Revolving Credit Facility.  Section 2.1.1 of the Loan Agreement is
hereby amended and restated in its entirety as follows:

                      2.1.1	Revolving Credit Facility.

                      Subject to and upon the provisions of this Agreement, the
Lender establishes a revolving credit facility in favor of the Borrowers.  The
aggregate of all advances under the Revolving Credit Facility is sometimes
referred to in this Agreement collectively as the "Revolving Loan".  The
Lender's "Revolving Credit Committed Amount" is $35,000,000.  During the
Revolving Credit Commitment Period, any or all of the Borrowers may request
advances under the Revolving Credit Facility in accordance with the provisions
of this Agreement; provided that after giving effect to any Borrower's request
the aggregate outstanding principal balance of the Revolving Loan and all Letter
of Credit Obligations would not exceed the lesser of (i) the Revolving Credit
Committed Amount or (ii) the Borrowing Base.

                      Unless sooner paid, the unpaid Revolving Loan, together
with interest accrued and unpaid thereon and all other Obligations shall be due
and payable in full on the Revolving Credit Expiration Date.  Interest on the
Revolving Loan shall be payable on each Interest Payment Date.

       4. Revolving Credit Unused Line Fee.  Section 2.1.10 of the Loan
Agreement is hereby amended and restated in its entirety as follows:

                      2.1.10	Revolving Credit Unused Line Fee.

                      Borrowers shall pay to Lender a revolving credit facility
fee (collectively, the "Revolving Credit Unused Line Fees" and individually, a
"Revolving Credit Unused Line Fee") in an amount equal to the Unused Fee Margin
multiplied by the average daily unused and undisbursed portion of the Revolving
Credit Committed Amount in effect from time to time accruing during each
calendar quarter.  For purposes of clarification, the face amount of outstanding
Letters of Credit shall be considered usage of the Revolving Credit Committed
Amount.  The accrued and unpaid portion of the Revolving Credit Unused Line Fee
shall be paid by Borrowers to Lender on the last day of each calendar quarter,
commencing on the first such date following the Supplemental Closing Date, and
on the Revolving Credit Termination Date.

       5. Financial Statements.  Section 6.1.1 of Business Loan Agreement is
hereby amended as follows:

              (a)	Section 6.1.1(c) is hereby amended and restated in its
entirety as follows:
                      (c)	Quarterly Reports.  The Borrowers shall furnish
to the Lender within twenty (20) days after the end of each fiscal quarter, a
Borrowing Base Report, and a report containing the following information:

                          (i)	a detailed aging schedule of all Receivables by
Account Debtor, in such detail, and accompanied by such supporting information,
as the Lender may from time to time reasonably request;

                          (ii)	a detailed aging of all accounts payable by
supplier, in such detail, and accompanied by such supporting information, as the
Lender may from time to time reasonably request; and

                          (iii)	such other information as the Lender may
reasonably request.

              (b)	Section 6.1.1(g) is hereby added its entirety
immediately after Section 6.1.1(f) as follows:

                      (g)	Annual Projections.  The Borrowers shall furnish
to the Lender as soon as available, but in no event less than forty-five (45)
days after the end of each fiscal year, management prepared annual financial
projections on a consolidated basis for the Borrowers for the immediately
succeeding fiscal year.

       6. Financial Covenants.  Section 6.1.14 of the Business Loan Agreement is
hereby amended and restated in its entirety as follows:

              6.1.14	Financial Covenants.

                      (a)	Leverage Ratio.  Borrowers will maintain, on a
consolidated basis and tested as of the last day of each of Borrowers' fiscal
quarters, commencing on March 31, 2008, for the four (4) quarter period ending
on that date, a Leverage Ratio of not greater than 3.00 to 1.00.

                      (b)	Fixed Charge Coverage Ratio.  Borrowers will
maintain, on a consolidated basis and tested as of the last day of each of
Borrowers' fiscal quarters, commencing on March 31, 2008, for the four (4)
quarter period ending on that date, a Fixed Charge Coverage Ratio of not less
than 1.25 to 1.00.

                      (c)	Profitability.  Borrowers will maintain, on a
consolidated basis and tested as of the last day of each of Borrowers' fiscal
quarters, commencing on March 31, 2008, for the four (4) quarter period ending
on that date, net income, minus cash dividends declared by Borrowers during
such period, in excess of $1.00.

       7. Exhibits to Loan Agreement.  Exhibit B (Revolving Credit Note) to the
Business Loan Agreement is hereby replaced in its entirety with the form
attached hereto as Exhibit A.

       8. Conditions Precedent.  This Agreement shall be deemed effective by
Lender upon the satisfaction by Borrowers of each of the following:
              (a) the due execution and delivery to Lender of this Agreement
by each party hereto;

              (b) the due execution and delivery to Lender of that certain
Amended and Restated Revolving Promissory Note, dated as of the date hereof,
by each Borrower in favor of Lender;

              (c) the due execution and delivery to Lender of the Collateral
Disclosure List by each party thereto;

              (d) a legal opinion letter from Borrowers' counsel, Arent Fox,
dated as of the date hereof;

              (e) proof that the Borrowers have paid all fees, costs and
expenses to the Lender in connection with this Agreement, including, but not
limited to, the Lender's attorneys fees; and

              (f) such other information, instruments, opinions, documents,
certificates and reports as the Lender may deem necessary.

       9. Representations.  The Borrowers hereby confirm that:

              (a) The representations, warranties and covenants set forth in
Articles IV and VI of the Business Loan Agreement, are true and correct as of
the date hereof; and

              (b) The Borrowers have no defenses, rights of setoff, claims,
counterclaims, or causes of action of any kind or nature whatsoever against the
Lender, or any agent, attorney, legal representative, predecessor-in-interest,
or affiliate of the Lender, directly or indirectly in any manner connected with,
pursuant to, or by virtue of the Obligations or any of the Financing Documents,
and TO THE EXTENT ANY SUCH DEFENSES, RIGHTS OF SETOFF, CLAIMS, COUNTERCLAIMS, OR
CAUSES OF ACTION EXIST, SUCH DEFENSES, RIGHTS, CLAIMS, COUNTERCLAIMS, AND CAUSES
OF ACTION ARE HEREBY FOREVER WAIVED, DISCHARGED AND RELEASED.

       10. Counterparts.  This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.

       11. Financing Documents; Governing Law; Etc.  This Agreement is one of
the Financing Documents defined in the Business Loan Agreement and shall be
governed and construed in accordance with the laws of the Commonwealth of
Virginia.  The headings and captions in this Agreement are for the convenience
of the parties only and are not a part of this Agreement.

       12. Acknowledgments.  Each Borrower hereby confirms to Lender the
enforceability and validity of each of the Financing Documents.  In addition,
each Borrower hereby agrees to the execution and delivery of this Agreement and
the terms and provisions, covenants or agreements contained in this Agreement
shall not in any manner release, impair, lessen, modify, waive or otherwise
limit the joint and several liability and obligations of the Borrowers under the
terms of any of the Financing Documents, except as otherwise specifically set
forth in this Agreement.

       13. Modifications.  This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.

                   [signatures are on the following page.]

       IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Agreement under their respective seals as of the day and year
first written above.

	                        BORROWERS:

WITNESS/ATTEST:	                VSE CORPORATION

/s/ R. J. Hannah	           /s/ M. A. Gauthier
_________________________	By:________________________(Seal)
                                   Name: Maurice A. Gauthier
                                   Title: CEO, President, and COO

WITNESS/ATTEST:	                ENERGETICS INCORPORATED

/s/ R. J. Hannah	           /s/ D. M. Ervine
_________________________	By:________________________(Seal)
                                   Name: D. M. Ervine
                                   Title: Chairman of the Board

WITNESS/ATTEST:	                VSE SERVICES INTERNATIONAL, INC.

/s/ R. J. Hannah	           /s/ D. M. Ervine
_________________________	By:________________________(Seal)
                                   Name: D. M. Ervine
                                   Title: Chairman of the Board

WITNESS/ATTEST:	                INTEGRATED CONCEPTS AND RESEARCH
                                CORPORATION

/s/ R. J. Hannah	           /s/ D. M. Ervine
_________________________	By:________________________(Seal)
                                   Name: D. M. Ervine
                                   Title: Chairman of the Board

WITNESS:	                G&B SOLUTIONS, INC.

/s/ R. J. Hannah	           /s/ D. M. Ervine
_________________________	By:________________________(Seal)
                                   Name: D. M. Ervine
                                   Title: Chairman of the Board


                                LENDER:
WITNESS:	                CITIZENS BANK OF PENNSYLVANIA

                                   /s/ Owen Burman
_________________________	By:_________________________(Seal)
                                   Name: Owen Burman
                                   Title: Vice President






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>exh10-3.txt
<DESCRIPTION>SEVERENCE AND MUTUAL PROTECTION AGREEMENT
<TEXT>
                                                                   Exhibit 10.3
                  SEVERANCE AND MUTUAL PROTECTION AGREEMENT

	This Severance and Mutual Protection Agreement ("Agreement") is by and
between VSE Corporation ("Employer") and Thomas M. Kiernan ("Employee").
Employer and Employee will be referred to collectively as the "Parties."

	Employer is in the business of creating, sustaining, and improving the
systems, equipment, and processes of government through core competencies in
legacy systems sustainment, obsolescence management, prototyping, reverse
engineering, technology insertion, supply chain management, foreign military
sales, management consulting, and process improvement, and providing
innovative services and technologies including program management to help its
customers succeed in the engineering, energy, environment, information
technology, infrastructure and defense services markets (collectively, the
"Employer Business"). Employee acknowledges that in connection with Employee's
employment with Employer, Employee will have access to and will obtain
knowledge about Corporate Opportunities and Confidential Information of
Employer as defined below; and will develop relationships with actual and
potential customers, contractors, vendors, suppliers and employees.  Employer
acknowledges that Employee holds a key position with Employer and Employer
wishes to provide an incentive for Employee to remain employed and protection
in the event Employee is terminated without Cause or resigns for a Good Reason
as defined below.

       In consideration for Employee's initial and/or continued employment with
Employer, and for the promises contained in this Agreement, and for other good
and valuable consideration, the Parties agree to the following terms:

	1.  Duty of Loyalty:  Employee agrees that during Employee's employment
with Employer, Employee has a duty of undivided loyalty to Employer, and
Employee will not engage in any conduct that violates this duty of loyalty or
that presents a conflict between Employee's own personal interests and the
interests of Employer.

	2.  Corporate Opportunities:  During Employee's employment with
Employer, Employee promptly will inform Employer in writing of all
opportunities he becomes aware of that, given the nature of Employer Business,
reasonably would be of interest to Employer for consideration ("Corporate
Opportunities").  During and after Employee's employment with Employer,
Employee will not directly or indirectly use, disclose, divert, exploit, trade
upon, solicit, participate in or otherwise benefit from any of such Corporate
Opportunities for himself or any other party, unless Employer expressly
forever disclaims any interest in such opportunity in a written document
signed by an authorized representative of Employer.

	3.  Nondisclosure:  Except as required by law or as authorized in the
performance of Employee's duties for Employer and for the benefit of Employer,
during and after employment with Employer, Employee will not directly or
indirectly disclose or use any Confidential Information.  For the purposes of
this Agreement, "Confidential Information" means information about Employer
and/or its parents, subsidiaries and affiliated entities (collectively
"Affiliates") and its and their business, operations, finances, personnel and
customers, that is not in the public domain and that Employee obtained in the
course of employment with Employer and includes without limitation information
constituting or relating to trade secrets; Corporate Opportunities; strategic
plans; marketing plans; financial information; bid information; contract
information; personnel information; actual and potential customers; customer
lists; carrier information; contact lists; passwords, source codes and other
similar information.  Information does not lose its protection as Confidential
Information if it was disclosed by Employee or any other person in violation
of an obligation not to disclose such information.

	4.  Nonsolicitation of Employees:  During Employee's employment with
Employer and for a period of two (2) years thereafter, Employee will not, for
the benefit of Employee or any other person or entity besides Employer,
whether as an employee, consultant, independent contractor, officer, director,
shareholder (except as a shareholder of a publicly traded company in which
Employee owns less than 5% of the stock), owner, member, partner or in any
other capacity, directly or indirectly solicit for hire, any person who then
is,  an employee of Employer;  The foregoing sentence will only prohibit such
conduct where the purpose or effect of such conduct is directly or indirectly
to encourage, assist, permit, facilitate, result in, or cause the person (aa)
to cease, curtail or refrain from entering into such a relationship with
Employer; or (bb) to enter into such a relationship with any other person
engaged in a Competing Business.  For the purposes of this Agreement, a
"Competing Business" is any enterprise engaged in the Employer Business. Such
provision will not prohibit assisting with the hiring of Employer's
employee(s) if such employee(s) respond to a public job posting, provided
Employee does not direct Employer's employee(s) to the existence of such job
posting.

	5. Third Party Board membership.  Notwithstanding paragraph 1 above,
Employer shall permit Employee to serve as a member of the Board of Directors
of an unrelated company, provided such membership (1) is not with a company
which substantially is in the same Employer Business and is commonly viewed as
a competitor of Employer and (2) such membership does not pose a conflict of
interest with Employee's duty of loyalty to the Employer.  Employee shall
request written consent in writing to serve on such a Board and Employer shall
grant reasonable consent in writing.

	6.  Reasonableness and Remedies:  Employee acknowledges that the
provisions of this Agreement are reasonable and necessary for the legitimate
business interests of Employer.  Employee further agrees that in the event
Employee materially breaches any provision of this Agreement, Employer may
suffer irreparable injury that could not be adequately remedied by money
damages alone, and thus Employer would be entitled to seek and receive
appropriate injunctive relief in addition to all other relief that a court may
deem proper, including without limitation money damages.

	7.  Employment Status:  Nothing in this Agreement will guarantee that
Employee will be employed by Employer for a definite period of time, or alter
the at-will employment relationship between the Parties.  Either party may
terminate their relationship at any time for any lawful reason with or without
Cause or Good Reason as defined below.

	8.  Severance Benefits:  If at any time during Employee's employment
with Employer, Employer terminates Employee's employment without Cause or
Employee resigns for a Good Reason, Employer will provide Employee with a
severance benefit equal to continuation of Employee's base salary for twelve
months (12) months from the date of termination plus the pro-rated value up to
the date of termination of any additional compensation plans for which
Employee was then a participant, including but not limited to, the Corporate
Performance Bonus Plan, Deferred Supplemental Compensation Plan, the
Restricted Stock Plan (with automatic vesting as of the date of termination)
and all accrued annual leave earned during the period up to such termination
date, less applicable withholdings and deductions, payable in installments in
accordance with Employer's payroll practices (the "Severance Benefits").
Employee's entitlement to the Severance Benefits will be conditional upon (i)
Employee's execution of a separation agreement and mutual general release
mutually agreed upon by the Parties; and (ii) Employee's continuing compliance
with all of the terms of this Agreement.

	For the purposes of this Agreement, "Cause" shall mean Employee has (A)
engaged in gross negligence or willful misconduct in the performance of
Employee's duties; (B) willfully engaged in conduct that Employee knows or,
based on facts known to Employee, should know is materially injurious to
Employer or any of its Affiliates; (C) materially breached any provision of
this Agreement; (D) been convicted of, or entered a plea bargain or settlement
admitting guilt for, fraud, embezzlement, or any other felony (but
specifically excluding felonies involving a traffic violation); or (E)
materially violated any substantial policy of Employer, but in each case only
if Employer has provided written notice to Employee within 90 days after the
condition providing the basis for such Cause first exists and if such Cause
has not been corrected or cured by Employee (if cureable) within 30 days after
Employee has received written notice from Employer of Employer's intent to
terminate Employee's employment for Cause and specifying in detail the basis
for such termination.

	For the purposes of this Agreement, "Good Reason" means  (A) a material
diminution in Employee's base salary rate; (B) a material diminution in
Employee's authority, duties or responsibilities; (C) a material change in the
geographic location at which Employee must perform Employee's duties; or (D)
any other material breach of this Agreement by Employer, but in each case only
if Employee has provided written notice to Employer within 90 days after the
condition providing the basis for such Good Reason first exists and if such
Good Reason has not been corrected or cured by Employer (if cureable) within
30 days after Employer has received written notice from Employee of Employee's
intent to terminate Employee's employment for Good Reason and specifying in
detail the basis for such termination.

 	 9. Change in Control.  **Note: Would like to discuss what compensation
benefits there are, if any, for Officers if there is a change in control.**

	10. Severability:  The invalidity of any provision of this Agreement
will not affect the validity of any remaining provisions.  The court will
modify any invalid provisions to make them valid to the maximum extent
permitted by law.

	11. Choice of Law:  This Agreement will be governed by the law of the
Commonwealth of Virginia, without reference to the principles of conflicts of
law in that state.

	12. Waiver:  The failure of either party to enforce any provision of
this Agreement shall not in any way be construed as a waiver of such provision
in that instance or as to any future violation of that provision, nor will  it
affect the non-breaching party's right to enforce that provision or any other
provision of the Agreement.

	13. Successors and Assigns:  This Agreement will be binding upon and
will inure to the benefit of each of the Parties and their respective
successors and assigns.  Employer may assign its rights and obligations under
this Agreement to its successors and assigns.  Employee may not assign
Employee's rights and obligations under this Agreement without the prior
written consent of Employer.

	14. Section 409A: To the extent that such requirements are applicable,
this Agreement is intended to comply with the requirements of Section 409A of
the Internal Revenue Code ("Section 409A") and shall be interpreted and
administered in accordance with that intent.  If any provision of the
Agreement would otherwise conflict with or frustrate this intent, that
provision will be interpreted and deemed amended so as to avoid the conflict.
Further, for purposes of the limitations on nonqualified deferred compensation
under Section 409A, each payment of compensation under this Agreement shall be
treated as a separate payment of compensation for purposes of applying the
deferral election rules under Section 409A and the exclusion from Section 409A
for certain short-term deferral amounts.  Anything to the contrary herein
notwithstanding, in the event that any such benefit or payment is deemed to
not comply with Section 409A, Employer and Employee agree to renegotiate in
good faith any such benefit or payment so that either (i) Section 409A will
not apply or (ii) compliance with Section 409A will be achieved.
Notwithstanding the above, if Executive qualifies as a "specified employee,"
as defined in Section 409A, and incurs a separation from service for any
reason other than death and becomes entitled to a distribution under this
Agreement, then to the extent required by Section 409A, no distribution
otherwise payable to Executive during the first six (6) months after the date
of such separation from service, shall be paid to Executive until the date
which is one day after the date which is six (6) months after the date of such
separation from service (or, if earlier, the date of Executive's death).

	15. Entire Agreement:  This Agreement represents the entire agreement
of the parties, and supersedes all other agreements, discussions or
understandings of the parties concerning the subject matter.  This Agreement
may not be amended except in a written amendment signed by both Parties.

	The Parties have duly signed this Agreement, intending to be legally
bound.

EMPLOYEE				      VSE CORPORATION


Thomas M. Kiernan                             /s/ M. A. Gauthier
______________________________                _________________________________
Print Name				      Signature

/s/ Thomas M. Kiernan			      M. A. Gauthier, CEO/President/COO
_____________________________		      _________________________________
Sign Name				      Printed Name and Title

November 6, 2008			      November 7, 2008
_____________________________		      _________________________________
Date					      Date






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>exh21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
                                                                     Exhibit 21

                       SUBSIDIARIES OF THE REGISTRANT


The following is a listing of the subsidiaries of the Registrant:


                                                     Jurisdiction of
                                                      Organization
                                                      ------------

  Energetics Incorporated             			Maryland

  G&B Solutions, Inc.                                   Virginia

  Integrated Concepts and Research Corporation          District of Columbia

  VSE Services International, Inc.			Delaware

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>exh23-1.txt
<DESCRIPTION>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
<TEXT>
                                                                   Exhibit 23.1

Consent of Independent Registered Public Accounting Firm



We consent to the incorporation by reference in the following Registration
Statements of our reports dated March 2, 2009, with respect to the
consolidated financial statements of VSE Corporation and subsidiaries and with
respect to the effectiveness of internal control over financial reporting of
VSE Corporation included in this Annual Report (Form 10-K), for the year ended
December 31, 2008:

                                           Registration
                  Name                        Number              Date Filed
                  ----                        ------              ----------
Registration Statements on Form S-8
- -----------------------------------
2006 Restricted Stock Plan                  333-134285             5/19/2006
2004 Stock Option Plan and
2004 Non-employee Directors Stock Plan      333-115218              5/6/2004



                                                         /s/ Ernst & Young LLP



McLean, Virginia
March 2, 2009
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>7
<FILENAME>exh31-1.txt
<DESCRIPTION>SECTION 302 CEO CERTIFICATION
<TEXT>
                                                                  Exhibit 31.1

                          CERTIFICATION PURSUANT TO
             RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
                            AS ADOPTED PURSUANT TO
                SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, M. A. Gauthier, certify that:

1.	I have reviewed this annual report on Form 10-K of VSE Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;

4.	The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the
registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;

(b)	Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;

(c)	Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the  end of the period covered by this report based on such
evaluation; and

(d)	Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):

(a) 	All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.





Dated: March 3, 2009                     /s/ M. A. Gauthier
                                         ___________________________________
                                         M. A. Gauthier
                                         Chief Executive Officer, President
                                         and Chief Operating Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>8
<FILENAME>exh31-2.txt
<DESCRIPTION>SECTION 302 CFO AND PAO CERTIFICATION
<TEXT>
                                                                  Exhibit 31.2

                          CERTIFICATION PURSUANT TO
             RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
                            AS ADOPTED PURSUANT TO
                SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, T. R. Loftus, certify that:

1.	I have reviewed this annual report on Form 10-K of VSE Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;

4.	The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the
registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;

(b)	Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;

(c)	Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the  end of the period covered by this report based on such
evaluation; and

(d)	Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):

(a) 	All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.





Dated: March 3, 2009   	                 /s/ T. R. Loftus
                                         ___________________________
                                         T. R. Loftus
                                         Executive Vice President and
                                         Chief Financial Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>9
<FILENAME>exh32-1.txt
<DESCRIPTION>SECTION 906 CEO CERTIFICATION
<TEXT>
                                                                   Exhibit 32.1

                          CERTIFICATION PURSUANT TO
          SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
                            AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned, as President, Chief Executive Officer and Chief Operating Officer
of VSE Corporation (the "Company"), does hereby certify that to the best of
the undersigned's knowledge:


	1) our Annual Report on Form 10-K for the year ending December 31,
2008 (the "Report"), fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

	2) the information contained in our Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


Dated: March 3, 2009                     /s/ M. A. Gauthier
                                         ___________________________________
                                         M. A. Gauthier
                                         Chief Executive Officer, President
                                         and Chief Operating Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>10
<FILENAME>exh32-2.txt
<DESCRIPTION>SECTION 906 CFO AND PAO CERTIFICATION
<TEXT>
                                                                   Exhibit 32.2

                          CERTIFICATION PURSUANT TO
          SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
                            AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned, as Executive Vice President and Chief Financial Officer of VSE
Corporation (the "Company"), does hereby certify that to the best of the
undersigned's knowledge:


	1) our Annual Report on Form 10-K for the year ending December 31,
2008 (the "Report"), fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

	2) the information contained in our Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


Dated: March 3, 2009   	                 /s/ T. R. Loftus
                                         ___________________________
                                         T. R. Loftus
                                         Executive Vice President and
                                         Chief Financial Officer

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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