EXHIBIT 10.40.1 Westinghouse Government Services Group Morrison Knudsen Corporation 1500 West 3/rd/ Street Cleveland, OHIO 44113-1406 Phone: (216) 523-3777
Thomas H. Zarges Chairman
August 18, 1999
CONFIDENTIAL AND PROPRIETARY
Mr. Ambrose L. Schwallie Westinghouse Savannah River Company Building 703-A Aiken, SC 29808
Re: Employment Letter Agreement
This letter agreement (the "Employment Agreement," or the "Agreement") documents the terms of your employment. The Employment Agreement is made between you and Westinghouse Government Services Company LLC and is effective as of August 1, 1999. The Agreement covers the general terms of your employment as well as special retention incentives related to the sale of the Westinghouse businesses.
For purposes of this Employment Agreement, the following terms have specific meanings. "Westinghouse" refers to the CBS Corporation operating unit that contained the government and environmental services business (GESCO), including the Westinghouse Savannah River Company, as it existed before the Closing Date. This operating unit, which is now primarily contained in Westinghouse Government Services Company LLC, is referred to in this letter as "WGS," and the Westinghouse Savannah River Company LLC is referred to as "WSRC." "MK" refers to Morrison Knudsen Corporation and its affiliates. "Related Entity" refers to WGS, WSRC, MK, any at least 50%-owned subsidiaries of WGS or MK and to Westinghouse Government Environmental Services Company LLC and Westinghouse Electric Company LLC and any at least 50%-owned subsidiaries of those entities. "WGSG" refers collectively to WGS, Westinghouse Government Environmental Services Company LLC and any at least 50%-owned subsidiaries of those entities. "Common Stock" refers to the common stock of MK, par value of $.01 per share. "Closing Date" means March 22, 1999, the date of the closing formalizing the transfer of the Westinghouse assets from CBS Corporation to WGS.
Mr. Ambrose Schwallie August 20, 1999 Page 2
1. Position and Duties. From August 1, 1999, through August 31, 1999, you will be employed as the President of WSRC. During that period, you will be the senior executive of the Department of Energy Savannah River site and will be accountable to the President of WGS.
After August 31, 1999, you will be employed as an Executive Vice President of MK and as Chief Executive Officer and President of WGSG. In that capacity, you will be accountable to the Chairman of the Board of WGS.
During the term of this Agreement, you agree to devote your full attention and time during normal business hours to the business and affairs of WSRC and/or WGSG, as the case may be, and to use your reasonable best efforts to perform faithfully and efficiently such responsibilities.
2. Term. This Employment Agreement will have a term commencing August 1, 1999 and expiring March 31, 2000, except as otherwise mutually agreed by you and WGS.
3. Compensation and Incentive Arrangements.
a. Base Salary. Effective August 1, 1999, you will be entitled to a Base Salary at the rate of $325,000 per year, payable monthly. (Although the increase in Base Salary rate will be effective as of August 1, 1999, actual payment of the increased rate will commence after August 31, 1999.) Your Base Salary will be subject to periodic review and adjustment by WGS.
b. Retention Bonus. You will receive a retention bonus in the amount of $191,500 upon the first anniversary of the Closing Date, conditioned upon your continued employment through such anniversary and upon the satisfactory performance of your job duties as determined by the Chairman of the WGS Board.
c. Annual Incentive. You will receive Annual Incentive compensation pursuant to a plan established by WGS. Your initial award will be based on the percentage of the annual Business Plan target that WGSG meets for the fiscal year ending November 30, 1999. Your award will be determined based on the following chart (employing straight-line interpolation for the percentages not shown on the chart):
Percentage of Target Achieved Award Amount
80% $ 48,750
100% $162,500 (target award)
Mr. Ambrose Schwallie August 20, 1999 Page 3
WGS may adjust the target award amount from time to time at its discretion, including for the purpose of taking into account events beyond your control. All awards are subject to final WGS Board approval.
d. Stock Options. In connection with your election as an Executive Vice President of MK, you will be granted options to purchase 50,000 shares of Common Stock of MK at a price equal to the per share closing price of MK's Common Stock as of the date of grant. The option will be granted under, and be subject to, the terms and conditions of the Morrison Knudsen Corporation Amended Restated Stock Option Plan and will vest 25% each year for four years. The option will be granted in lieu of your participation in the Long-Term Incentive Compensation Plan established by WGS.
4. Other Benefits and Perquisites.
a. Other Benefits. From August 1, 1999, through August 31, 1999, you will be eligible for the benefit arrangements offered to WSRC executives generally, including the pension plan, executive pension plan, 401(k) plan, annual vacation, relocation allowance, and medical and dental, group life, accidental death and dismemberment, business travel, and disability income coverages. After August 31, 1999, you will be eligible for the benefit arrangements offered to WGSG executives generally, including the pension plan, executive pension plan, 401(k) plan, annual vacation, relocation allowance, and medical/and dental, group life, accidental death and dismemberment, business travel, and disability income coverages.
b. Perquisites. You will receive an annual lump sum perquisite allowance of $8,000. This lump sum allowance is in lieu of all specific reimbursements, except that we will provide you with certain AYCO Company financial planning services, including estate planning, insurance planning, cash flow analysis, income tax position planning, retirement planning, and capital planning.
c. Relocation Allowance. If you are required to relocate during the term of this Agreement to a job location more than 50 miles from your current job location, you will receive a relocation allowance of $50,000 in addition to any relocation allowance under the regular relocation program. In return for receiving this special relocation allowance, you agree to waive any severance benefits to which you might otherwise become entitled by virtue of the relocation.