UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________ to ________ Commission File Number 1-8929 ABM INDUSTRIES INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 94-1369354 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number) 160 PACIFIC AVENUE, SUITE 222, SAN FRANCISCO, CALIFORNIA 94111 (Address and zip code of principal executive offices) TELEPHONE: 415/733-4000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: None 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 requirements 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. [ ] As of November 30, 2001, nonaffiliates of the registrant beneficially owned 19,416,422 shares of the registrant's common stock with an aggregate market value of $586,375,944. As of November 30, 2001, there were 24,444,266 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be used by the Company in connection with its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
ABM INDUSTRIES INCORPORATED FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001 TABLE OF CONTENTS PAGE ---- PART I Item 1 Business.......................................................................... 3 Executive Officers of the Company................................................. 6 Item 2 Properties........................................................................ 7 Item 3 Legal Proceedings................................................................. 7 Item 4 Submission of Matters to a Vote of Security Holders............................... 7 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters............. 7 Item 6 Selected Consolidated Financial Data.............................................. 8 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................ 9 Item 7A Qualitative and Quantitative Disclosures About Market Risk........................ 15 Item 8 Financial Statements and Financial Statement Schedule............................. 15 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................................................ 33 PART III Item 10 Directors and Executive Officers of the Registrant................................ 33 Item 11 Executive Compensation............................................................ 33 Item 12 Security Ownership of Certain Beneficial Owners and Management.................... 33 Item 13 Certain Relationships and Related Transactions.................................... 33 PART IV Item 14 Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K..... 33 Signatures........................................................................ 35 Exhibit Index..................................................................... 36
PART I ITEM 1. BUSINESS ABM Industries Incorporated ("ABM") is the largest facility services contractor listed on the New York Stock Exchange. With annual revenues exceeding $1.9 billion and more than 60,000 employees, ABM and its subsidiaries (the "Company") provide air conditioning, elevator, engineering, janitorial, lighting, parking and security services to thousands of commercial, industrial and institutional customers in hundreds of cities across North America. ABM was reincorporated in Delaware on March 19, 1985, as the successor to a business founded in California in 1909. The Corporate Headquarters of the Company are located at 160 Pacific Avenue, Suite 222, San Francisco, California 94111, and its telephone number is 415/733-4000. INDUSTRY INFORMATION The Company's operations are grouped into eight divisions (comprised of one or more subsidiaries of the Company), as they existed at October 31, 2001. Referred to as "ABM Industries Incorporated Family of Services", they are listed below by their respective division name: - ABM Engineering Services - ABM Janitorial Services - ABM Service Network - American Commercial Security Services - Ampco System Parking - Amtech Elevator Services - Amtech Lighting Services - CommAir Mechanical Services Additional information relating to the Company's industry segments appears in Note 13 of Notes to Consolidated Financial Statements contained in Item 8, "Financial Statements and Financial Statement Schedule." The business activities of the Company's industry segments, as they existed at October 31, 2001, are more fully described below. - ABM ENGINEERING SERVICES provides building owners and managers with on-site engineers to operate, maintain and repair electrical, energy management, mechanical, and plumbing systems utilizing computerized maintenance management systems ("CMMS"). This service is primarily for high-rise office buildings, but customers also include schools, warehouses, factories, shopping malls and universities. ABM Engineering Services operates in 21 states through ten regional offices, three of which are in California and one each in Arizona, Colorado, Florida, Illinois, Pennsylvania, New York and Texas. In 1999, this Division earned ISO 9002 Certification, the first national engineering services provider of on-site operating engineers to earn this exclusive designation. ISO is a quality standard comprised of a rigorous set of guidelines and good business practices against which companies are rated through a comprehensive independent audit process that can take several years. - ABM JANITORIAL SERVICES (also known as "American Building Maintenance") provides a wide range of basic janitorial services for a variety of structures and organizations, including office buildings, industrial plants, banks, department stores, theaters, warehouses, educational and health institutions and airport terminals. Services provided include floor cleaning and finishing, wall and window washing, furniture polishing, rug cleaning, dusting, as well as other building cleaning services. ABM Janitorial Services maintains 99 offices in 35 states, the District of Columbia and one Canadian province, and operates under thousands of individually negotiated building maintenance contracts, the majority of which are obtained by competitive bidding. Generally, profit margins on maintenance contracts tend to be inversely proportional to the size of the contract. Although many of this Division's maintenance contracts are fixed-price agreements, others contain clauses under which the customer agrees to reimburse the full amount of wages, payroll taxes, insurance charges and other expenses plus a profit percentage. The majority of ABM Janitorial Services contracts are for one-year periods, contain automatic renewal clauses and are subject to termination by either party by a 30 to 90 day written notice. 3
- ABM SERVICE NETWORK (also known as "ABM Facility Services") provides customers with streamlined, centralized control and coordination of multiple facility service needs. This process is consistent with the greater competitive demands on corporate organizations to become more efficient in the business market today. By leveraging the core competencies of the Company's other divisions, this Division attempts to reduce overhead, such as redundant personnel, for its customers by providing multiple services under a single contract, with one contact and one invoice. Its National Service Center provides centralized dispatching, emergency services, accounting and related reports to financial institutions, high-tech companies, and other customers regardless of industry or size. ABM Service Network is headquartered in San Francisco, where it also maintains its National Service Center. - AMERICAN COMMERCIAL SECURITY SERVICES (also known as "ACSS" and "ABM Security Services") provides security guards, electric monitoring of fire, life, safety, and access control devices, and security consulting services to a wide range of businesses in the major metropolitan areas of Phoenix, Arizona; San Francisco, San Diego and Los Angeles, California; Chicago, Illinois; New Orleans, Louisiana; Minneapolis, Minnesota; Portland, Oregon; Houston, Dallas, Fort Worth, Austin and San Antonio, Texas; Seattle, Washington; and Salt Lake City, Utah. Much like ABM Janitorial Services, the majority of this Division's contracts are for one-year periods, contain automatic renewal clauses and are subject to termination by either party by a 30 to 90 day written notice. - AMPCO SYSTEM PARKING (also known as "Ampco System Airport Parking" and "Ampco Express Airport Parking") operates approximately 1,600 parking lots and garages, which are either leased from or operated through management contracts for third parties. The lease terms generally range from 5 to 20 years and usually contain provisions for renewal options. Leases which expire may continue on a month-to-month basis or may be replaced by similar leases. Many leases contain provisions for contingent rentals based on revenues. Ampco System Parking currently operates in 26 states and the following airports: Austin, Texas; Denver, Colorado; Detroit, Michigan; Honolulu, Hawaii; and San Francisco, California, to name a few. In conjunction with its on-airport parking services, this Division also operates off-airport parking facilities in Philadelphia, Pennsylvania; Houston, Texas; Los Angeles and San Diego, California, and parking shuttle bus services at thirteen locations. - AMTECH ELEVATOR SERVICES maintains, modernizes and repairs elevators and escalators in major metropolitan areas of California; Houston, Texas; Cincinnati, Ohio; Detroit, Michigan; Upper Marlboro, Maryland; Las Vegas, Nevada; Pennsauken, New Jersey; Atlanta, Georgia; Philadelphia, Pennsylvania; Phoenix, Arizona; Denver, Colorado; Chicago, Illinois; and Washington, D.C. Amtech Elevator Services maintains 18 offices and several parts warehouses, and operates a fleet of radio-equipped service vehicles. - AMTECH LIGHTING SERVICES provides relamping, fixture cleaning, and periodic lighting maintenance service to a variety of commercial, retail, and industrial customers. Amtech Lighting Services also maintains electrical outdoor signage and provides electrical service and repairs for their customer base. This Division maintains 28 offices, eight of which are located in California, four are in Texas, two in North Carolina; and one office in each of the following states: Alabama, Arizona, Florida, Georgia, Illinois, Louisiana, Maryland, Minnesota, Nevada, New Jersey, New York, Oklahoma, Oregon, and Washington. - COMMAIR MECHANICAL SERVICES (also known as "CommAir Preferred Mechanical Services") installs, maintains, and repairs heating, ventilation and air conditioning equipment, performs chemical water treatment, and provides energy conservation services for commercial, industrial and institutional facilities. CommAir Mechanical Services maintains nine offices, eight of which are located in California, and one in Phoenix, Arizona. Effective April 30, 2001, the Company sold its Easterday Janitorial Supply Division, which in fiscal 2000 had annual revenues of $43.9 million, of which 27% were intercompany sales. Additional information regarding this transaction appears in Note 10 of Notes to Consolidated Financial Statements contained in Item 8, "Financial Statements and Financial Statement Schedule." The effect on revenues and operations of the September 11 terrorist attacks is described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 4
TRADEMARKS The Company believes that it owns or is licensed to use all corporate names, trade names, trademarks, service marks, copyrights, patents and trade secrets which are material to the Company's operations. COMPETITION The Company believes that each aspect of its business is highly competitive, and that such competition is based primarily on price and quality of service. Nearly all services provided by the Company are under contracts originally obtained through competitive bidding. The Company's competitors include a large number of regional and local companies located in major cities throughout the United States and Canada. While the majority of the Company's competitors operate in a limited geographic area, the operating divisions of a few large, diversified facility service companies compete with the Company on a national basis. SALES AND MARKETING The Company's sales and marketing efforts are conducted by its corporate, division, region, branch and district offices. Sales, marketing, management and operations personnel in each of these offices participate directly in selling and servicing customers. The broad geographic scope of these offices enables the Company to provide a full range of facility services through intercompany sales referrals, multi-service "bundled" sales and national account sales. The Company also has designated a nationwide group of "ABM Family of Services" executives to market all of the Company's facility services capabilities. The Company has a broad customer base including airports, apartment complexes, city centers, colleges and universities, financial institutions, industrial plants, office buildings, retail stores, shopping centers and theme parks. No customer accounted for more than 5% of its revenues during the fiscal year ended October 31, 2001. EMPLOYEES The Company employs over 60,000 persons, of whom the vast majority are service employees who perform air conditioning, elevator, engineering, janitorial, lighting, parking and security services. Approximately 24,900 of these employees are covered under collective bargaining agreements. There are about 3,600 employees with executive, managerial, supervisory, administrative, professional, sales, marketing or clerical responsibilities or other office assignments. ENVIRONMENTAL MATTERS The nature of the Company's operations, primarily services, would not ordinarily involve it in environmental contamination. However, the Company's operations are subject to various federal, state and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. These laws generally have the effect of increasing costs and potential liabilities associated with the conduct of the Company's operations, although historically they have not had a material adverse effect on the Company's financial position, cash flows, or results of operations. The Company is currently involved in three proceedings relating to environmental matters: one involving alleged potential soil and groundwater contamination at a Company facility in Florida; one involving alleged potential soil contamination at a former Company facility in Arizona; and one involving alleged potential soil and groundwater contamination at a former dry-cleaning facility leased by the Company in Nevada. While it is difficult to predict the ultimate outcome of these matters, based on information currently available, management believes that none of these matters, individually or in the aggregate, are reasonably likely to have a material adverse effect on the Company's financial position, cash flows, or results of operations. As any liability related to these claims is neither probable nor estimable, no accruals have been made related to these matters. 5
EXECUTIVE OFFICERS OF ABM The executive officers of ABM as of October 31, 2001 were as follows: NAME AGE PRINCIPAL OCCUPATIONS AND BUSINESS EXPERIENCE DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------------ Henrik C. Slipsager 46 President & Chief Executive Officer since November 2000; Executive Vice President of ABM, and President of the Janitorial Services Division, from November 1999 through October 2000; Senior Vice President of ABM from March 1998 through October 1999; Executive Vice President of the Janitorial Services Division from January 1997 through October 1999 Martinn H. Mandles 61 Chairman of the Board since December 1997; Chief Administrative Officer since November 1991; Executive Vice President from November 1991 through November 1997 Jess E. Benton III 61 Chief Operating Officer since November 2000; Executive Vice President since November 1999; Senior Vice President from July 1994 through October 1999 Donna M. Dell 53 Senior Vice President of Human Resources since November 1999; Chief Employment Counsel since April 1997; Vice President of Human Resources from July 1994 through October 1999 Harry H. Kahn 58 Senior Vice President since November 1999; General Counsel & Corporate Secretary since November 1991; Vice President from November 1991 through October 1999 George B. Sundby 50 Senior Vice President & Chief Financial Officer since June 2001; Senior Vice President & Chief Financial Officer of Transamerica Finance Corporation from September 1999 through March 2001; also served as Vice President of Financial Planning and Analysis of Transamerica Corporation from January 1995 through March 2001 Gary R. Wallace 50 Senior Vice President, Director of Business Development & Chief Marketing Officer of ABM since November 2000; Senior Vice President of the Janitorial Services Division from September 1995 through October 2000 Maria de la Pena 42 Vice President & Controller since July 2001; Controller of Vectiv Corporation from March 2001 through June 2001; Assistant Controller of Transamerica Finance Corporation from December 1999 through March 2001; Director of Accounting of Transamerica Corporation from December 1997 through November 1999; Accounting Manager of Transamerica Corporation from March 1994 through November 1997 Anthony D. Lackey 38 Vice President since November 1999; Director of Electronic Services & Chief Technology Officer since July 1996; Assistant Vice President from July 1996 through October 1999 Terry D. McNeil 54 Vice President since November 1999; Director of Insurance Services since October 1988; Assistant Vice President from July 1996 through October 1999 Eleonora C. Walsh 61 Vice President since November 1999; Director of Administrative Services since November 1991; Assistant Vice President from July 1996 through October 1999 6
ITEM 2. PROPERTIES The Company has corporate, division, regional, branch, or district offices in over 250 locations throughout the United States, and Canada. Thirteen of these facilities are owned by the Company and the remainder are leased. At October 31, 2001, the real estate owned by the Company had an aggregate net book value of $3.6 million and was located in: Phoenix, Arizona; Fresno, California; Jacksonville and Tampa, Florida; Portland, Oregon; Arlington, Houston and San Antonio, Texas; and Kennewick, Seattle, Spokane and Tacoma, Washington. Rental payments under long and short-term lease agreements amounted to $103.3 million for the fiscal year ended October 31, 2001. Of this amount, $69.7 million in rental expense was attributable to public parking lots and garages that Ampco System Parking leases and operates. The remaining expense was for the rental or lease of office space, computers, operating equipment and motor vehicles. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION AND DIVIDENDS ABM's common stock is listed on the New York Stock Exchange. ABM's credit agreement places certain limitations on dividend payments based on net income (see Note 4 of Notes to Consolidated Financial Statements contained in Item 8). The following table sets forth the high and low prices of ABM's common stock and quarterly cash dividends on common shares for the periods indicated: FISCAL QUARTER ------------------------------------------------------ FIRST SECOND THIRD FOURTH YEAR --------- --------- --------- --------- --------- 2001 Price range of common stock: High $ 32.13 $ 33.00 $ 38.20 $ 37.65 $ 38.20 Low $ 27.56 $ 28.46 $ 30.72 $ 24.96 $ 24.96 Dividends per share $ 0.165 $ 0.165 $ 0.165 $ 0.165 $ 0.66 2000 Price range of common stock: High $ 23.88 $ 28.00 $ 26.19 $ 28.00 $ 28.00 Low $ 19.25 $ 20.25 $ 21.75 $ 23.94 $ 19.25 Dividends per share $ 0.155 $ 0.155 $ 0.155 $ 0.155 $ 0.62 At November 30, 2001, there were approximately 4,735 registered holders of ABM's common stock, in addition to stockholders in street name. 7
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below is derived from the Company's consolidated financial statements for each of the years in the five-year period ended October 31, 2001. (in thousands, except per share amounts and ratios) 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- OPERATIONS Revenues and other income $1,950,038 $1,807,557 $1,629,716 $1,501,827 $1,252,472 ---------- ---------- ---------- ---------- ---------- Expenses Operating expenses and cost of goods sold 1,722,334 1,573,998 1,413,541 1,298,423 1,076,078 Selling, general and administrative 172,157 157,546 146,984 142,431 126,755 Interest 2,602 3,320 1,959 3,465 2,675 ---------- ---------- ---------- ---------- ---------- Total expenses 1,897,093 1,734,864 1,562,484 1,444,319 1,205,508 ---------- ---------- ---------- ---------- ---------- Income before income taxes 52,945 72,693 67,232 57,508 46,964 Income taxes 20,119 28,350 27,565 23,578 19,725 ---------- ---------- ---------- ---------- ---------- Net income $ 32,826 $ 44,343 $ 39,667 $ 33,930 $ 27,239 ========== ========== ========== ========== ========== Net income per common share Basic $ 1.36 $ 1.94 $ 1.77 $ 1.58 $ 1.33 Diluted $ 1.30 $ 1.85 $ 1.65 $ 1.44 $ 1.22 ========== ========== ========== ========== ========== Common and common equivalent shares Basic 23,799 22,551 22,067 21,110 20,143 Diluted 25,010 23,709 23,748 23,161 21,872 ========== ========== ========== ========== ========== FINANCIAL STATISTICS Dividends paid per common share $ 0.66 $ 0.62 $ 0.56 $ 0.48 $ 0.40 Stockholders' equity $ 361,177 $ 316,309 $ 276,951 $ 236,838 $ 197,278 Common shares outstanding at October 31 24,389 22,999 22,407 21,601 20,464 Stockholders' equity per common share $ 14.81 $ 13.75 $ 12.36 $ 10.96 $ 9.64 Working capital $ 229,542 $ 224,199 $ 184,279 $ 165,788 $ 137,223 Current ratio 1.97 2.05 2.01 2.05 1.89 Long-term debt (less current portion) $ 942 $ 36,811 $ 28,903 $ 33,720 $ 38,402 Redeemable cumulative preferred stock $ -- $ 6,400 $ 6,400 $ 6,400 $ 6,400 Total assets $ 683,100 $ 641,985 $ 563,384 $ 501,363 $ 464,251 Property, plant and equipment--net $ 42,936 $ 40,734 $ 35,181 $ 27,307 $ 26,584 Capital expenditures $ 16,922 $ 18,717 $ 19,451 $ 11,715 $ 13,272 Depreciation and amortization $ 26,328 $ 23,524 $ 20,698 $ 19,593 $ 16,118 Trade accounts receivable--net $ 367,201 $ 353,017 $ 290,920 $ 255,758 $ 226,093 ========== ========== ========== ========== ========== Stockholders' equity per common share is calculated by dividing stockholders' equity at the end of the fiscal year by the number of shares of common stock outstanding at that date. The Company believes that stockholders' equity per common share is a standard measure commonly reported and widely used by analysts, investors and other interested persons. However, stockholders' equity per common share as presented in this report may not be comparable to similarly titled measures reported by other companies. 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto contained in Item 8, "Financial Statements and Financial Statement Schedule." All information in the discussion and references to the years are based on the Company's fiscal year that ends on October 31. Funds provided from operations and bank borrowings have historically been the sources for meeting working capital requirements, financing capital expenditures and acquisitions, and paying cash dividends. Management believes that funds from these sources will remain available and adequately serve the Company's liquidity needs. The Company has an unsecured revolving credit agreement with a syndicate of U.S. banks that provides a $150 million line of credit expiring July 1, 2002. At the Company's option, the credit facility provides interest at the prime rate or IBOR+.35%. As of October 31, 2001 the total amount outstanding was approximately $52 million, which was comprised of loans in the amount of $10 million and standby letters of credit of $42 million. This agreement requires the Company to meet certain financial ratios and places some limitations on outside borrowing. In addition, the Company has a loan agreement with a major U.S. bank with a balance of $1.8 million at October 31, 2001. This loan bears interest at a fixed rate of 6.78% with annual payments of principal, in varying amounts, and interest due each February 15 through 2003. On September 4, 2001, the Company redeemed 6,400 shares of Series B 8% Senior Redeemable Cumulative Preferred Stock having a par value of $0.01 per share and redemption price of $1,000 per share. Operating activities generated cash flows in 2001, 2000 and 1999 of $65.8 million, $18.9 million and $35.3 million, respectively. While each year's cash flows were impacted by higher volume in revenues, the 2000 decrease reflected slower payments by some large customers. Cash paid for acquisitions during the fiscal years ended October 31, 2001, 2000 and 1999, including payments pursuant to contractual arrangements involved in prior acquisitions, were approximately $23.4 million, $14.2 million and $11.0 million, respectively. Capital expenditures during fiscal years 2001, 2000 and 1999 were $16.9 million, $18.7 million and $19.5 million, respectively. Cash dividends paid to stockholders of common and redeemable preferred stock and amounts used to repurchase common stock were approximately $16.2 million in 2001, $22.9 million in 2000, and $18.5 million in 1999. Cash from financing activities changed in 2001 compared to 2000 primarily due to repayments of nearly $26 million in debt and a reduction in the bank overdraft (outstanding checks) of nearly $16 million . At October 31, 2001, working capital was $229.5 million as compared to $224.2 million at October 31, 2000. The largest component of working capital consists of trade accounts receivable that totaled $367 million at October 31, 2001 compared to $353 million at October 31, 2000. These amounts were net of an allowance for doubtful accounts of $9.4 million and $8.8 million at October 31, 2001 and 2000, respectively. As of October 31, 2001, accounts receivable that were over 90 days past due had increased $6.6 million to $55.9 million (15% of the total outstanding) from $49.3 million (14% of the total outstanding) at October 31, 2000. The Company self-insures, generally up to $500,000 per occurrence, certain insurable risks such as general liability, property damage and workers' compensation. Commercial umbrella policies are obtained to provide for $125 million of coverage above the self-insured retention limits. It is the Company's policy to annually retain an outside actuary to review the adequacy of its self-insurance claim reserves. The energy crisis in the State of California has not had a material impact on the Company. IMPACT OF SEPTEMBER 11, 2001 TERRORIST ATTACKS As previously reported by the Company, the World Trade Center in New York was the Company's largest single job site with annual revenues of approximately $65 million (3% of ABM's consolidated revenues). Nearly 800 operating engineers, janitorial workers and lighting technicians from three divisions of the Company worked various shifts throughout the day and night. There has been no further information regarding the fate of seventeen employees still missing and now presumed dead. The Company estimates that annual gross profits 9
on this business approached $10 million. Additionally, the Company provided approximately $60 million in annual services to neighboring job sites which had various major disruptions. The Company has commercial insurance policies covering business interruption, property damage and other losses related to this tragic incident and has been working with its carrier, Zurich Insurance, in providing preliminary claim information regarding the property damage and lost business income. Zurich has neither accepted nor denied coverage for all or any part of the claim as of the date of this filing. However, Zurich filed for a Declaratory Judgement Action in the Southern District of New York claiming the loss of the business profit falls under a Contingent Business Interruption Sub-limit within the policy of $10 million. Based on review of the policy and consultation with coverage counsel and other claim experts, the Company believes that its business interruption claim does not fall under the $10 million sub-limit on contingent business interruption. Zurich's filing does not impact any other aspects of the claim. Under the guidance published by the Emerging Issues Task Force of the Financial Accounting Standards Board "Accounting for the Impact of the Terrorist Attacks of September 11, 2001", the Company has not recognized the amounts it expects to recover from its business interruption insurance as income. Any gain from insurance proceeds is considered a contingent gain and, under Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," can only be recognized as income in the period when any and all contingencies relating to the insurance claim have been resolved. The Company has recognized income from insurance policies to the extent of costs incurred for property damage and direct expenditures related to the attacks. In response to these announced developments, on September 16, 2001, the Company's Board of Directors authorized the repurchase of up to one million shares of its outstanding stock at any time through December 31, 2001. On December 17, 2001, the Board of Directors extended this authorization to repurchase until December 31, 2002. As of the filing date of this report, there has been no repurchase by the Company of its outstanding shares. EFFECT OF INFLATION The low rates of inflation experienced in recent years have had no material impact on the financial statements of the Company. The Company attempts to recover increased costs by increasing sales prices to the extent permitted by contracts and competition. ACQUISITIONS The operating results of businesses acquired have been included in the accompanying consolidated financial statements from their respective dates of acquisition and are more fully discussed in Note 10 to the Consolidated Financial Statements. Acquisitions made during the three fiscal years ended October 31, 2001, contributed approximately $119.2 million to fiscal 2001 revenues. RESULTS OF OPERATIONS COMPARISON OF 2001 TO 2000 The Company reported record revenues for 2001. Revenues and other income (hereinafter called "revenues") were over $1.9 billion in 2001, up $142 million or 8%, from $1.8 billion reported in 2000. The increase in revenues in 2001 over 2000 was attributable to new business and acquisitions made during the prior years. Revenues generated from acquisitions during the prior year contributed $9.4 million of the 2001 increase while the current year acquisitions added $65.7 million. Although the Company achieved record annual revenues, net income fell by 26% to $32.8 million ($1.30 per diluted share) in 2001 from $44.3 million ($1.85 per diluted share) in 2000 primarily due to a $20 million pre-tax charge to strengthen the Company's self-insurance reserves reflecting the results of the annual independent actuarial review completed in December. The actuarial report this year revealed that while the frequency of claims is trending favorably as expected, the severity of claims in 2000 and 2001 trended higher than anticipated in the report received last year. The impact of these trends on known claims and Claims Incurred But Not Reported (IBNR) called for an increase of approximately $8.5 million for fiscal 2001 claims while approximately $10.5 million reflects the unfavorable trend on pre-2001 claims. Additionally, 2001 required a loss of $1.0 million in claims related to the 10
World Trade Center terrorist attack. As a result of the actuarial report, the Company has increased its self-insurance rates in 2002 by 21% over 2001. The estimated future charge is designed to capture the recent experience and trends. Actual results could be different. Excluding the insurance charge of $0.50 per diluted share, net income per diluted share declined 3% to $1.80 for 2001 from $1.85 for 2000 due to the increase in diluted average shares outstanding resulting from option exercises. As a percentage of revenues, operating expenses and cost of goods sold was 88.3% for 2001, compared to 87.1% in 2000. Consequently, as a percentage of revenues, the Company's gross profit (revenues minus operating expenses and cost of goods sold) of 11.7% in 2001 was lower than the gross profit of 12.9% in 2000. The decrease in gross profit as a percentage of revenues was mostly due to the $20 million insurance adjustment, higher labor and related costs and continued competitive pressure to maintain or lower prices. Selling, general and administrative expenses were $172 million in 2001, an increase of 9% from $158 million in 2000. As a percentage of revenues, selling, general and administrative expenses increased from 8.7% for 2000 to 8.8% for 2001, primarily due to an increase in bad debt expense of $3.2 million over the prior year and to salaries and expenses associated with acquisitions including the amortization of goodwill. Interest expense was $2.6 million in 2001 compared to $3.3 million for 2000, a decrease of $718,000. This decrease was primarily due to lower weighted average borrowings and interest rates in 2001. The effective income tax rate for 2001 was 38%, compared to 39% in 2000. The lower tax rate was due for the most part to a significant increase in the federal work opportunity tax credits in relation to pre-tax income. The Company is currently organized into eight separate operating divisions as defined under Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information". However, only the ABM Janitorial, Ampco System Parking, ABM Engineering, Amtech Lighting, and Amtech Elevator Divisions are reportable using the criteria of SFAS No. 131. Results of Easterday Janitorial Supply Division are included in Other Segments prior to its sale on April 29, 2001. Additional information relating to the Company's industry segments appears in Note 13 of Notes to Consolidated Financial Statements contained in Item 8, "Financial Statements and Financial Statement Schedule." The results of operations from the five reportable operating divisions for 2001 as compared to 2000 are more fully described below: The ABM Janitorial Services Division reported revenues for 2001 of $1.2 billion, an increase of $107 million, or 10%, from 2000. This is the Company's largest Division and accounted for nearly 60% of the Company's consolidated revenues in 2001. ABM Janitorial Services revenues increased as a result of acquisitions and new business, particularly in the Mid-Atlantic and Northeast regions. Revenues generated from acquisitions during the prior year contributed $4.8 million of the 2001 increase while the current year acquisitions added $51.1 million. ABM Janitorial Services' operating profits increased 13% in 2001 to $59.9 million when compared to 2000. The higher percentage increase in profits compared to revenues can be primarily attributed to the Company's fixed price contracts on which hourly workers were paid one less workday in 2001 compared to 2000. The change in the number of workdays affects the profit margin on this type of contract. Ampco System Parking revenues decreased by 4% in 2001 from 2000 to $166 million, and its operating profits decreased by 53% to $4.1 million during 2001 compared to 2000. The decrease in revenues was mostly due to the loss of three airport contracts, the conversion of lease contracts to management fee contracts, and the effect of the terrorist attacks on September 11, 2001 on sales at airport and hotel facilities. The decrease in operating profits resulted from litigation expense, increased insurance costs and the decline in sales. The ABM Engineering Services Division increased revenues by 9% in 2001 from 2000 to $171 million, while its operating profits increased 11% to $9 million for 2001 compared to 2000. The revenue increase was due primarily to additional business. The increase in operating profits is due to the increase in sales and slightly higher profit margins as a result of lower administrative costs. 11
Amtech Lighting Services reported a 22% revenue increase to $144 million in 2001 from 2000 due to acquired business from the purchase of SLI Lighting Solutions in March 2001, and sales increases in the Northwest region. The smaller increase in operating profits of 9% to $11 million during 2001 compared to the prior year is attributable to lower margins in the Southeast on business acquired in 2001. Revenues for Amtech Elevator Services were $121 million, up by 6% for 2001 over 2000, largely due to an increased customer base. The Amtech Elevator Division reported $4.8 million in operating profits in 2001, a 29% decrease compared to 2000. This decrease in operating profits can be attributed primarily to lower margins on maintenance contracts and losses on several modernization contracts, as well as higher insurance, bad debt, communications and computer related expenses. The significant increase in unallocated Corporate expenses for 2001 includes the $20 million insurance adjustment mentioned previously and centralization of marketing and sales expenses compared to the prior year. Other Segments represent the results of the remaining divisions including the operating results of Easterday Janitorial Supply Company prior to its sale effective April 30, 2001, which includes a pre-tax gain on sale of $718,000. The loss of Easterday's income in the third and fourth quarter of 2001 was more than offset by the increase in the operating profit of the Company's American Commercial Security Services and CommAir Mechanical Services Divisions. COMPARISON OF 2000 TO 1999 Revenues were $1.8 billion in 2000, up $178 million or 11%, from $1.6 billion reported in 1999. The increase in revenues in 2000 over 1999 was attributable to new business and acquisitions made during the prior years. Acquisitions during 2000 accounted for approximately $17.4 million, or 10%, of the total revenue increase of $178 million for 1999. Net income for 2000 was $44.3 million, an increase of 12%, compared to net income of $39.7 million in 1999. Diluted net income per common share also rose 12% to $1.85 for 2000 compared to $1.65 for the same period in 1999. On September 22, 1999 the Company announced a stock repurchase program for up to one million outstanding shares. As of October 31, 2000, 603,000 shares had been reacquired. As a percentage of revenues, operating expenses and cost of goods sold were 87.1% for 2000, compared to 86.7% in 1999. Consequently, the Company's gross profit as a percentage of revenues of 12.9% in 2000 was slightly lower than the gross profit of 13.3% in 1999. The gross profit percentage declined mostly due to higher labor and related costs, particularly workers' compensation insurance, and continued competitive pressure to maintain or lower prices. In addition, the Company's hourly workers were paid two additional workdays in 2000 compared to 1999. On fixed price monthly contacts, such increases are not recovered. Selling, general and administrative expenses increased 7.2% for 2000 compared to 1999. However, as a percentage of revenues, selling, general and administrative expenses decreased from 9.0% for 1999, to 8.7% for 2000, primarily due to certain costs that do not increase at the same rate as sales. The dollar increase in selling, general and administrative expenses is primarily due to salaries and expenses associated with acquisitions including the amortization of goodwill, and costs associated with the implementation of a new accounting system. The cost increases were somewhat offset by decreased profit sharing expense. Interest expense was $3.3 million in 2000 compared to $2.0 million for 1999, a decrease of $1.3 million. This decrease was primarily due to lower weighted average borrowings and interest rates in 2000. The income before income taxes (pre-tax income) for 2000 was $72.7 million compared to $67.2 million, an increase of 8% over 1999. Pre-tax income did not increase at the same rate as revenues due to the higher operating expenses. The effective income tax rate for 2000 was 39%, compared to 41% in 1999. The lower tax rate was due for the most part to a significant increase in the federal work opportunity tax credits. The results of operations from the Company's five reportable operating divisions for 2000 as compared to 1999 are more fully described below: 12
Revenues of the ABM Janitorial Services Division increased by 13% during 2000 to $1.1 billion over 1999, as a result of new business, particularly in the Mid-Atlantic, Northwest and Southwest regions. Revenues generated from acquisitions during 1999 contributed about $11.8 million of the 2000 increase while the 2000 acquisitions added $10.8 million. Operating profits increased 8% in 2000 to $53.1 million when compared to 1999. The lower percentage increase in profits can be attributed to low profit margins and high startup costs on some large contracts in this Division's Southeast region as well as the expense of extra workdays in fiscal 2000, as discussed previously. Ampco System Parking's revenues increased by 6% to $172.4 million, and its operating profits also increased by 4% to $8.7 million during 2000 compared to 1999. The increase in revenues and operating profits was mostly due to growth in California and Texas, along with small acquisitions in Florida, Texas and Washington. The ABM Engineering Services Division increased revenues by 2% to $156.3 million, while its operating profits decreased by 2% to $8.2 million for 2000 compared to 1999. The large revenue increase was due primarily to additional business obtained in New York City and Southern California. The decrease in operating profits was due to lower profit margins and increased administrative costs. Amtech Lighting Services reported a 24% revenue increase to $118.4 million in 2000 from 1999 due to increased business in all its markets, except Northern California, and an acquisition in the Southeast. Operating profits increased by 35% to $10.1 million during 2000 compared to the prior year. Profit margins improved due to a reduction in labor and material costs. Revenues for Amtech Elevator Services were $114.4 million, up by 18% for 2000 over 1999, largely due to an increased customer base. The Amtech Elevator Division reported a 3% increase in operating profits in 2000 to $6.8 million compared to 1999. The smaller increase in operating profits can be attributed primarily to increased labor, material and insurance costs as well as computer-related expenses. RECENT ACCOUNTING PRONOUNCEMENTS In fiscal 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS Nos. 137 and 138). SFAS No. 133 relates to accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires that an entity recognizes all derivatives as either assets or liabilities and measures those instruments at fair value. The Company adopted SFAS No. 133 on November 1, 2000; however, the Company is not a party to any contracts that would meet the definition of a derivative under SFAS No. 133. Upon adoption of this standard there was no effect on the Company's financial statements. In July 2001, FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. Historically, all acquisitions by the Company have been accounted for as purchases, thus there was no effect on the Company's financial statements upon adoption of this standard. SFAS No. 142 becomes effective in fiscal years beginning after December 15, 2001, with early adoption permitted. The Company plans to early adopt the provisions of SFAS No. 142 beginning in the first quarter of fiscal 2002. In accordance with this standard, goodwill will no longer be amortized but will be subject to annual assessment for impairment by applying a fair-value-based test. All other intangible assets will continue to be amortized over their estimated useful lives. Goodwill amortization expense was $12.3 million for the twelve months ended October 31, 2001. The Company's preliminary determination has indicated no impairment of its goodwill carrying value. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset 13
retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 is not anticipated to have a material effect on the Company's results of operations or financial condition. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of", and elements of APB 30, "Reporting the Results of Operations--Reporting the Effects on Disposal of a Segment of a Business and Extraordinary, Unusual or Infrequently Occurring Events and Transactions". SFAS No. 144 establishes a single-accounting model for long-lived assets to be disposed of while maintaining many of the provisions relating to impairment testing and valuation. SFAS No. 144 is effective for fiscal years beginning after December 31, 2001. The adoption of SFAS No. 144 is not anticipated to have a material effect on the Company's results of operations or financial condition. SAFE HARBOR STATEMENT Cautionary Safe Harbor Disclosure for Forward Looking Statements under the Private Securities Litigation Reform Act of 1995: Because of the factors set forth below, as well as other variables affecting the Company's operating results, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. The statements contained herein which are not historical facts are forward-looking statements that are subject to meaningful risks and uncertainties, including but not limited to: (1) significant decreases in commercial real estate occupancy, resulting in reduced demand and prices for building maintenance and other facility services in the Company's major markets, (2) loss or bankruptcy of one or more of the Company's major customers, which could adversely affect the Company's ability to collect its accounts receivable or recover its deferred costs, (3) major collective bargaining issues that may cause loss of revenues or cost increases that non-union companies can use to their advantage in gaining market share, (4) significant shortfalls in adding additional customers in existing and new territories and markets, (5) a protracted slowdown in the Company's acquisition activities, (6) legislation or other governmental action that severely impacts one or more of the Company's lines of business, such as price controls that could restrict price increases, or the unrecovered cost of any universal employer-paid health insurance, as well as government investigations that adversely affect the Company, (7) reduction or revocation of the Company's line of credit, which would increase interest expense or the cost of capital, (8) cancellation or nonrenewal of the Company's primary insurance policies, as many customers contract out services based on the contractor's ability to provide adequate insurance coverage and limits, (9) catastrophic uninsured or underinsured claims against the Company, the inability of the Company's insurance carriers to pay otherwise insured claims, or inadequacy in the Company's reserve for self-insured claims, (10) inability to employ entry level personnel due to labor shortages, (11) resignation, termination, death or disability of one or more of the Company's key executives, which could adversely affect customer retention and day-to-day management of the Company, and (12) other material factors that are disclosed from time to time in the Company's public filings with the United States Securities and Exchange Commission, such as reports on Forms 8-K, 10-K and 10-Q. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. The operations of the Company are conducted primarily in the United States, and, as such, are not subject to material foreign currency exchange rate risk. Although the Company has outstanding debt and related interest expense, market risk in interest rate exposure in the United States is currently not material. 14
ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors ABM Industries Incorporated: We have audited the accompanying consolidated balance sheets of ABM Industries Incorporated and subsidiaries as of October 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 31, 2001. In connection with our audits of the consolidated financial statements, we also have audited the related financial statement schedule II. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of ABM Industries Incorporated and subsidiaries as of October 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended October 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP - ------------------------- KPMG LLP San Francisco, California December 17, 2001 15
ABM Industries Incorporated and Subsidiaries CONSOLIDATED BALANCE SHEETS OCTOBER 31 2001 2000 (in thousands, except share amounts) --------- --------- ASSETS Cash and cash equivalents $ 3,052 $ 2,000 Trade accounts receivable (less allowances of $9,420 and $8,825) 367,201 353,017 Inventories 25,974 25,513 Deferred income taxes 26,806 17,531 Prepaid expenses and other current assets 42,508 38,758 --------- --------- Total current assets 465,541 436,819 Investments and long-term receivables 13,871 13,920 Property, plant and equipment (less accumulated depreciation of $65,951 and $65,753) 42,936 40,734 Goodwill (less accumulated amortization of $73,264 and $61,693) 113,199 109,407 Deferred income taxes 35,400 32,537 Other assets 12,153 8,568 --------- --------- $ 683,100 $ 641,985 ========= ========= LIABILITIES Current portion of long-term debt $ 10,877 $ 865 Bank overdraft -- 15,952 Trade accounts payable 50,671 45,312 Income taxes payable 6,816 8,083 Accrued liabilities: Compensation 62,854 54,901 Taxes--other than income 20,409 18,195 Insurance claims 48,193 43,361 Other 36,179 25,951 --------- --------- Total current liabilities 235,999 212,620 Long-term debt (less current portion) 942 36,811 Retirement plans 21,483 22,386 Insurance claims 63,499 47,459 --------- --------- Total liabilities 321,923 319,276 SERIES B 8% SENIOR REDEEMABLE CUMULATIVE PREFERRED STOCK, 6,400 shares authorized, issued and outstanding, stated at redemption value, $1,000 per share at October 31, 2000 -- 6,400 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 500,000 shares authorized; none issued -- -- Common stock, $.01 par value; 100,000,000 shares authorized; 24,389,000 and 22,999,000 shares issued and outstanding at October 31, 2001 and 2000, respectively 244 230 Additional paid-in capital 131,242 102,902 Accumulated other comprehensive income (763) (653) Retained earnings 230,454 213,830 --------- --------- Total stockholders' equity 361,177 316,309 --------- --------- $ 683,100 $ 641,985 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 16
ABM Industries Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED OCTOBER 31 2001 2000 1999 (in thousands, except per share amounts) ---------- ---------- ---------- REVENUES AND OTHER INCOME $1,950,038 $1,807,557 $1,629,716 ---------- ---------- ---------- EXPENSES Operating expenses and cost of goods sold 1,722,334 1,573,998 1,413,541 Selling, general and administrative 172,157 157,546 146,984 Interest 2,602 3,320 1,959 ---------- ---------- ---------- 1,897,093 1,734,864 1,562,484 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 52,945 72,693 67,232 Income taxes 20,119 28,350 27,565 ---------- ---------- ---------- NET INCOME $ 32,826 $ 44,343 $ 39,667 ========== ========== ========== NET INCOME PER COMMON SHARE Basic $ 1.36 $ 1.94 $ 1.77 Diluted $ 1.30 $ 1.85 $ 1.65 ========== ========== ========== COMMON AND COMMON EQUIVALENT SHARES Basic 23,799 22,551 22,067 Diluted 25,010 23,709 23,748 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 17-A
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Accumulated YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999 Common Stock Additional Other ---------------- Paid-in Comprehensive Retained (in thousands) Shares Amount Capital Income Earnings Total ------ ------ ---------- ------------- -------- ----- BALANCE OCTOBER 31, 1998 21,601 $ 216 $ 79,904 $ (696) $ 157,414 $236,838 Comprehensive income: Net income 39,667 39,667 Other comprehensive income: Foreign currency translation 61 61 -------- Comprehensive income 39,728 Dividends: Common stock (12,543) (12,543) Preferred stock (512) (512) Tax benefit from exercise of stock options 387 387 Stock purchases (220) (2) (5,446) (5,448) Stock issued under employees' stock purchase and option plans and for acquisition 1,026 10 18,491 18,501 ------ ----- --------- ------ --------- -------- BALANCE OCTOBER 31, 1999 22,407 224 93,336 (635) 184,026 276,951 Comprehensive income: Net income 44,343 44,343 Other comprehensive income: Foreign currency translation (18) (18) -------- Comprehensive income 44,325 Dividends: Common stock (14,027) (14,027) Preferred stock (512) (512) Tax benefit from exercise of stock options 480 480 Stock purchases (383) (4) (8,386) (8,390) Stock issued under employees' stock purchase and option plans and for acquisition 975 10 17,472 17,482 ------ ----- --------- ------ --------- -------- BALANCE OCTOBER 31, 2000 22,999 230 102,902 (653) 213,830 316,309 Comprehensive income: Net income 32,826 32,826 Other comprehensive income: Foreign currency translation (110) (110) -------- Comprehensive income 32,716 Dividends: Common stock (15,770) (15,770) Preferred stock (432) (432) Tax benefit from exercise of stock options 3,651 3,651 Stock issued under employees' stock purchase and option plans and for acquisition 1,390 14 24,689 24,703 ------ ----- --------- ------ --------- -------- BALANCE OCTOBER 31, 2001 24,389 $ 244 $ 131,242 $ (763) $ 230,454 $361,177 ====== ===== ========= ====== ========= ======== The accompanying notes are an integral part of the consolidated financial statements. 17-B
ABM Industries Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31 2001 2000 1999 (in thousands) ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 1,918,558 $ 1,739,297 $ 1,589,775 Other operating cash receipts 5,523 2,347 1,491 Interest received 859 580 870 Cash paid to suppliers and employees (1,822,629) (1,686,988) (1,522,495) Interest paid (2,991) (3,209) (2,025) Income taxes paid (33,524) (33,102) (32,311) ----------- ----------- ----------- Net cash provided by operating activities 65,796 18,925 35,305 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (16,922) (18,717) (19,451) Proceeds from sale of assets 1,253 1,164 922 Decrease (increase) in investments and long-term receivables 49 370 (1,885) Purchase of businesses (23,401) (14,191) (10,980) Proceeds from sale of business 12,000 -- -- ----------- ----------- ----------- Net cash used in investing activities (27,021) (31,374) (31,394) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued, including tax benefit 26,688 16,381 17,178 Common stock purchases -- (8,390) (5,448) Preferred stock redemption (6,400) -- -- Dividends paid (16,202) (14,539) (13,055) (Decrease) increase in bank overdraft (15,952) 10,985 2,492 Long-term borrowings 108,000 126,000 57,064 Repayments of long-term borrowings (133,857) (118,127) (61,847) ----------- ----------- ----------- Net cash (used in) provided by financing activities (37,723) 12,310 (3,616) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,052 (139) 295 Cash and cash equivalents beginning of year 2,000 2,139 1,844 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS END OF YEAR $ 3,052 $ 2,000 $ 2,139 =========== =========== =========== RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 32,826 $ 44,343 $ 39,667 ADJUSTMENTS: Depreciation 13,710 12,265 10,815 Amortization 12,618 11,259 9,883 Provision for bad debts 6,134 2,971 2,257 Gain on sale of assets (41) (265) (160) Gain on sale of business (718) -- -- Increase in deferred income taxes (12,138) (5,517) (6,537) Increase in trade accounts receivable (24,340) (65,555) (39,304) Increase in inventories (3,223) (2,217) (331) Increase in prepaid expenses and other current assets (3,045) (1,200) (1,950) (Increase) decrease in other assets 40 2,475 (3,295) (Decrease) increase in income taxes payable (1,267) 765 1,791 (Decrease) increase in retirement plans accrual (903) 3,092 3,320 Increase in insurance claims liability 18,872 7,155 4,500 Increase in trade accounts payable and other accrued liabilities 27,271 9,354 14,649 ----------- ----------- ----------- Total adjustments to net income 32,970 (25,418) (4,362) ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 65,796 $ 18,925 $ 35,305 =========== =========== =========== SUPPLEMENTAL DATA: Non-cash investing activities: Common stock issued for net assets of business acquired $ 1,666 $ 1,581 $ 1,710 =========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 18
ABM Industries Incorporated and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of ABM Industries Incorporated and its subsidiaries ("the Company"). All material intercompany transactions and balances have been eliminated. Certain reclassifications of prior year amounts have been made to conform with the current year presentation. USE OF ESTIMATES: The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Changes in such estimates may affect amounts reported in future periods. TRADE ACCOUNTS RECEIVABLE: The Company's accounts receivable arise from services provided to its customers and are generally due and payable on terms varying from the receipt of invoice to net thirty days. The Company does not believe that it has any material exposure due to either industry or regional concentrations of credit risk. INVENTORIES: Inventories are valued at amounts approximating the lower of cost (first-in, first-out basis) or market. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost less accumulated depreciation and amortization. At the time property, plant and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Maintenance and repairs are charged against income. Depreciation and amortization are calculated principally on the straight-line method. Lives used in computing depreciation for transportation equipment average 3 to 5 years and 2 to 20 years for machinery and other equipment. Buildings are depreciated over periods of 20 to 40 years. Leasehold improvements are amortized over the shorter of the terms of the respective leases, or the assets' useful lives. The Company is implementing an enterprise-wide information system. External direct costs of materials and services and payroll-related costs of employees working solely on the development of the system are capitalized. Capitalized costs of the project are being amortized over a period of seven years beginning on May 1, 2000. Training costs are expensed as incurred. GOODWILL: Goodwill, which represents the excess of cost over fair value of net tangible assets of businesses acquired, is amortized on a straight-line basis over periods not exceeding 40 years. It is the Company's policy to carry goodwill applicable to acquisitions prior to 1971 of $1,433,000 at cost until such time as there may be evidence of diminution in value. INCOME TAXES: Income tax expense is based on reported results of operations before income taxes. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes 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. REVENUE RECOGNITION: The Company earns revenue primarily under service contracts that are either fixed price or are time and materials based. In both contract types, revenue is recognized as the services are performed. Under the fixed price contacts, there are no up-front fee arrangements or 19
acceptance requirements that would require deferral of revenue recognition under Staff Accounting Bulletin No. 101. NET INCOME PER COMMON SHARE: The Company has reported its earnings in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share". Basic net income per common share, after the reduction for preferred stock dividends, is based on the weighted average number of shares outstanding during the period. Diluted net income per common share, after the reduction for preferred stock dividends, is based on the weighted average number of shares outstanding during the period, including common stock equivalents. The calculation of these amounts is as follows: 2001 2000 1999 ------------ ------------ ------------ Net income $ 32,826,000 $ 44,343,000 $ 39,667,000 Preferred stock dividends (432,000) (512,000) (512,000) ------------ ------------ ------------ $ 32,394,000 $ 43,831,000 $ 39,155,000 ============ ============ ============ Common shares outstanding -- basic 23,799,000 22,551,000 22,067,000 Effect of dilutive securities: Stock options 1,150,000 1,035,000 1,544,000 Other 61,000 123,000 137,000 ------------ ------------ ------------ Common shares outstanding -- diluted 25,010,000 23,709,000 23,748,000 ============ ============ ============ For the purposes of computing diluted net income per common share, weighted average common share equivalents do not include stock options with an exercise price that exceeds the average fair market value of the Company's common stock for the period. On October 31, 2001, 2000 and 1999, options to purchase common shares of 874,000, 1,078,000 and 1,268,000 at a weighted average exercise price of $32.62, $31.71 and $31.09, respectively, were excluded from the computation. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid instruments with original maturities of three months or less to be cash and cash equivalents. STOCK-BASED COMPENSATION: The Company accounts for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". COMPREHENSIVE INCOME: Comprehensive income consists of net income and other related gains and losses affecting shareholders' equity that, under generally accepted accounting principles, are excluded from net income. For the Company, such comprehensive income items consist of unrealized foreign currency translation gains and losses. 2. INSURANCE Certain insurable risks such as general liability, property damage and workers' compensation are self-insured by the Company. However, the Company has umbrella insurance coverage for certain risk exposures subject to specified limits. Accruals for claims under the Company's self-insurance program are recorded on a claim-incurred basis. The accrual includes any general liability, property damage or workers' compensation claim that as of the applicable accounting period end was incurred. The Company's method accounts for known claims and incurred but not reported claims. The claim-incurred method includes cost factors for inflation and the cost of litigation and administration. The Company uses independent actuaries to annually evaluate and record the Company's estimated claim costs and liabilities and accrues an amount that is within an actuarial range of exposure. The estimated liability for claims incurred but unpaid at October 31, 2001 and 2000 was $111,692,000 and $90,820,000, respectively. In the fourth quarter of fiscal year 2001, the Company recorded a $20,000,000 pre-tax expense to strengthen reserves as a result of the actuarial evaluation. In connection with certain self-insurance agreements, the Company has standby letters of credit at October 31, 2001 supporting the estimated unpaid liability in the amount of $39,800,000. 20
3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at October 31, consisted of the following: (in thousands of dollars) 2001 2000 -------- -------- Land $ 876 $ 878 Buildings 4,120 4,334 Transportation equipment 15,546 13,127 Machinery and other equipment 73,543 73,056 Leasehold improvements 14,802 15,092 -------- -------- 108,887 106,487 Less accumulated depreciation and amortization 65,951 65,753 -------- -------- $ 42,936 $ 40,734 ======== ======== 4. LONG-TERM DEBT AND CREDIT AGREEMENT The Company has a $150 million syndicated line of credit which will expire July 1, 2002. The unsecured revolving credit facility provides, at the Company's option, interest at the prime rate or IBOR+.35%. The facility calls for a commitment fee payable quarterly, in arrears, of .12% based on the average, daily, unused portion. For purposes of this calculation, irrevocable standby letters of credit issued in conjunction with the Company's self-insurance program plus cash borrowings are considered to be outstanding amounts. As of October 31, 2001, the total outstanding amount under this facility was $52,000,000, comprised of $10,000,000 in loans and $42,000,000 in standby letters of credit. The interest rate at October 31, 2001, on loans outstanding under this agreement was 2.9%. The Company is required under this agreement to maintain certain financial ratios and has limitations on outside borrowings. One of the provisions of the Company's revolving credit facility required a fixed charge ratio to be maintained at the end of each quarterly reporting period. As a result of its fiscal 2001 fourth quarter loss, the Company's fixed charge ratio did not meet this requirement for the quarter ended October 31, 2001. The Company received a waiver from its lenders addressing the deficiency for the quarter ended October 31, 2001. The Company was in compliance with all other debt covenants as of October 31, 2001. The Company has a loan agreement with a major U.S. bank with a balance of $1,808,000, at October 31, 2001. This loan bears interest at a fixed rate of 6.78% with annual payments of principal, in varying amounts, and interest due February 15, 2002 and 2003. The long-term debt and credit facility of $11,819,000 matures in the years ending October 31 as follows: $10,877,000 in 2002 and $942,000 in 2003. Long-term debt at October 31, is summarized as follows: (in thousands of dollars) 2001 2000 ------- ------- Revolving credit facility with interest at 2.9 -- 9.5% $10,000 $35,000 Note payable to bank with interest at 6.78% 1,808 2,622 Other 11 54 ------- ------- 11,819 37,676 Less current portion 10,877 865 ------- ------- $ 942 $36,811 ======= ======= 21
5. EMPLOYEE BENEFIT PLANS All of the Company's employee benefit plans are unfunded, thus there is no additional pension liability and hence no other comprehensive income to disclose. (a) RETIREMENT AGREEMENTS The Company has unfunded retirement agreements for approximately 52 current and former directors and senior executives, many of which are fully vested. The agreements provide for annual benefits for ten years commencing at the later of the respective retirement dates of those executives or age 65. The benefits are accrued over various periods based on expected retirement dates. During 2001, 2000 and 1999, amounts accrued under these agreements were $506,000, $684,000 and $674,000, respectively. Payments were made in 2001, 2000 and 1999 in the amounts of $242,000, $171,000 and $231,000, respectively. At October 31, 2001, the present value of estimated future payments under these agreements is approximately $4,400,000. (b) 401(k) AND PROFIT SHARING PLAN The Company has a profit sharing and 401(k) plan covering certain qualified employees, which includes employer participation in accordance with the provisions of Section 401(k) of the Internal Revenue Code. The plan allows participants to make pretax contributions and the Company matches certain percentages of employee contributions depending on the participant's length of service. The profit sharing portion of the plan is discretionary and noncontributory. All amounts contributed to the plan are deposited into a trust fund administered by independent trustees. The Company provided for profit sharing contributions of $1,643,000 for 1999. No contribution was provided for fiscal year 2001 and 2000. The Company's matching 401(k) contributions required by the 401(k) plan for 2001, 2000 and 1999 were approximately $1,534,000, $1,191,000 and $1,210,000, respectively. Effective January 1, 2002, the Company is amending its plan to adopt the "safe harbor" rules of 401(k) plans. These rules contain more generous company match provisions and cover many employees not previously included. Therefore, the Company will incur additional future costs, which will be dependent on increased levels of voluntary participation. (c) SERVICE AWARD BENEFIT PLAN In 1989, the Company adopted an unfunded service award benefit plan, with a retroactive vesting period of five years. This plan is a "severance pay plan" as defined by the Employee Retirement Income Security Act (ERISA) and covers certain qualified employees. The plan provides participants, upon termination, with a guaranteed seven days pay for each year of employment subsequent to November 1, 1989. The Company, at its discretion, may also award additional days each year. Effective January 1, 2002, this plan will be amended to no longer award any additional days to employees. The enhancement of the 401(k) plan has replaced benefits previously provided under this plan. The Company will continue to incur interest costs related to this plan as the value of previously earned benefits continues to increase. Net cost of the plan is comprised of: (in thousands of dollars) 2001 2000 1999 ------ ------ ------ Service cost $ 427 $ 380 $ 396 Interest 358 318 255 ------ ------ ------ Net cost $ 785 $ 698 $ 651 Actuarial present value of: Vested benefit obligation $4,479 $3,895 $3,724 Accumulated benefit obligation $4,662 $4,067 $3,850 Projected benefit obligation $5,342 $4,746 $4,571 ====== ====== ====== 22
Assumptions used in accounting for the plan as of October 31 were: 2001 2000 1999 ---- ---- ---- Weighted average discount rate 7.5% 7.5% 6.5% Rate of increase in compensation level 5.0% 5.0% 5.0% === === === (d) PENSION PLAN UNDER COLLECTIVE BARGAINING Certain qualified employees of the Company are covered under union-sponsored collectively bargained multi-employer defined benefit plans. Contributions for these plans were approximately $30,259,000, $26,913,000 and $25,516,000 in 2001, 2000 and 1999, respectively. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. 6. LEASE COMMITMENTS AND RENTAL EXPENSE The Company is obligated under noncancelable operating leases for various facilities and equipment. As of October 31, 2001, future minimum lease commitments under noncancelable operating leases are as follows: Years ending (in thousands of dollars) - ------------ 2002 $ 45,888 2003 36,139 2004 23,945 2005 17,613 2006 12,671 Thereafter 65,652 --------- Total minimum lease commitments $ 201,908 ========= Rental expense for the years ended October 31, is summarized as follows: (in thousands of dollars) 2001 2000 1999 -------- -------- -------- Minimum rentals under noncancelable leases $ 55,780 $ 53,387 $ 52,231 Contingent rentals 43,645 42,641 41,441 Short-term rental agreements 3,911 4,682 2,758 -------- -------- -------- $103,336 $100,710 $ 96,430 ======== ======== ======== Contingent rentals are applicable to leases of parking lots and garages and are based on percentages of the gross receipts attributable to the related facilities. 7. REDEEMABLE CUMULATIVE PREFERRED STOCK On June 23, 1993, the Company authorized and on September 1, 1993, issued 6,400 shares of preferred stock having a par value of $0.01 per share shares in conjunction with the acquisition of System Parking. These shares designated as Series B 8% Senior Redeemable Cumulative Preferred Stock (Series B Preferred Stock) were entitled to one vote per share on all matters upon which common stockholders were entitled to vote and had a redemption price of $1,000 per share, together with accrued 23
and unpaid dividends thereon. Redemption of the Series B Preferred Stock was at the option of the holders for any or all of the outstanding shares after September 1, 1998 or at the option of the Company after September 1, 2001. The total redemption value of the shares outstanding at October 31, 2000 in an amount of $6,400,000 was classified on the Company's balance sheet as redeemable cumulative preferred stock. In the event of any liquidation, dissolution or winding up of the affairs of the Company, holders of the Series B Preferred Stock would have been paid the redemption price plus all accrued dividends to the date of liquidation, dissolution or winding up of affairs before any payment to other stockholders. On September 4, 2001, the Company redeemed 6,400 shares of Series B 8% Senior Redeemable Cumulative Preferred Stock having a par value of $0.01 per share and redemption price of $1,000 per share. Dividends of $128,000 were due and payable each quarter on the Series B Preferred Stock. In fiscal 2001, $128,000 was paid in each of the first three quarters and $48,000 was paid for the remaining period at time of redemption. The dividends were deducted from net income in determining net income per common share. 8. CAPITAL STOCK The Company is authorized to issue 500,000 shares of preferred stock, of which 50,000 shares have been designated as Series A Junior Participating Preferred Stock of $.01 par value. None of these preferred shares have been issued. In March 1998, the Company's Board of Directors adopted a stockholder rights plan to replace an existing rights plan that expired on April 22, 1998. The new plan provides for a dividend distribution of one preferred stock purchase right (a "Right") for each outstanding share of common stock, distributed to stockholders of record on April 22, 1998. The Rights will be exercisable only if a person or group acquires 20% or more of the Company's common stock (an "Acquiring Person") or announces a tender offer for 20% or more of the common stock. Each Right will entitle stockholders to buy one-thousandth of a share of newly created Participating Preferred Stock, par value $.01 per share, of the Company at an initial exercise price of $175 per Right, subject to adjustment from time to time. However, if any person becomes an Acquiring Person, each Right will then entitle its holder (other than the Acquiring Person) to purchase at the exercise price common stock (or, in certain circumstances, Participating Preferred Stock) of the Company having a market value at that time of twice the Right's exercise price. These Rightsholders would also be entitled to purchase an equivalent number of shares at the exercise price if the Acquiring Person were to control the Company's Board of Directors and cause the Company to enter into certain mergers or other transactions. In addition, if an Acquiring Person acquired between 20% and 50% of the Company's voting stock, the Company's Board of Directors may, at its option, exchange one share of the Company's common stock for each Right held (other than Rights held by the Acquiring Person). Rights held by the Acquiring Person will become void. The Rights Plan excludes from its operation The Theodore Rosenberg Trust and The Sydney J. Rosenberg Trust, and certain related persons, and, as a result, their holdings will not cause the Rights to become exercisable or nonredeemable or trigger the other features of the Rights. The Rights will expire on April 22, 2008, unless earlier redeemed by the Board at $0.01 per Right. As discussed in Note 1, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and its related interpretations. In the three-year period ended October 31, 2001, the exercise price of all options granted to employees had equivalent fair market values. Therefore, no compensation expense has been recognized in the financial statements for employee stock awards. Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", requires the disclosure of pro forma net earnings and earnings per share had the 24
Company adopted the fair value method as of the beginning of fiscal 1996. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. The use of these models requires subjective assumptions, including future stock price volatility and expected time to exercise, which can have a significant effect on the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life 9.2 years, 9.1 years, and 11.9 years from the date of grant in fiscal 2001, 2000, and 1999, respectively; expected stock price volatility of 28.1%, 27.7% and 26.2%, respectively; expected dividend yields of 2.2%, 3.1% and 1.9%, and risk free interest rates of 5.3%, 6.7%, and 5.0% in fiscal 2001, 2000, and 1999, respectively. The Company's calculations are based on a single option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the fiscal awards had been amortized to expense over the vesting period of the awards, pro forma net earnings would have been $29,102,000 ($1.15 per diluted share) for fiscal 2001, $39,477,000 ($1.64 per diluted share) for fiscal 2000, and $35,409,000 ($1.47 per diluted share) for fiscal 1999. The impact of outstanding stock options granted prior to fiscal 1996 has been excluded from the pro forma calculation; accordingly, the fiscal 2001, 2000, and 1999 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all future applicable stock grants. Under the "Price-Vested" Performance Stock Option Plan options were granted with a ten-year term. If, during the first four years, the stock price achieved and maintained a set price for ten out of thirty consecutive trading days, the options associated with the price would vest. The prices established were $25, $30, $35 and $40, with 25% of the options vesting at each price point. If, at the end of four years, any of the stock price performance targets were not achieved, then the remaining options would vest at the end of eight years from the date the options were granted. SFAS 123 requires that the projected value of the options be determined on the grant date and recognized over the period in which the options are earned (the vesting period). For these options, the projected value of the options was determined and that value was to be recognized over the eight-year vesting period unless vesting occurs at an earlier date. In fiscal 2001 ABM stock achieved and maintained for the requisite ten-day period, the price required for the third target. As a result, 75% of all options issued prior to the current fiscal year are now vested, and the projected value of that 75% less any amounts previously recognized for outstanding options is recognized in this year's pro forma calculation. Additionally as a result of the price performance, the options awarded during the current fiscal year will vest 75% in December 2001, the one-year anniversary of the grant date. Of the remaining 25% of the granted options yet to be vested, one-eighth is recognized annually from the grant date, unless vesting occurs at an earlier date by the stock achieving a price of $40 per share and maintaining that price for ten out of 30 consecutive trading days. "TIME-VESTED" INCENTIVE STOCK OPTION PLAN, AS AMENDED In 1987, the Company adopted a stock option plan under which 1,200,000 shares were reserved for grant until December 31, 1996. In March 1994, this plan was amended to reserve an additional 1,000,000 shares. In March 1996, the plan was amended again to reserve another 2,000,000 shares. Options which terminate without being exercised may be reissued. At October 31, 2001, 637,850 shares remained available for grant. Transactions under this plan are summarized as follows: Weighted Number Average of Exercise Options Price ------- -------- Balance October 31, 1998 2,012,000 $16.40 Granted (Weighted average fair value of $8.34) 126,000 $30.86 Exercised (296,000) $10.28 Terminated (35,000) $18.30 25
--------- ------ Balance October 31, 1999 1,807,000 $18.37 Granted (Weighted average fair value of $6.18) 225,000 $21.22 Exercised (155,000) $11.29 Terminated (25,000) $24.53 --------- ------ Balance October 31, 2000 1,852,000 $19.23 Granted (Weighted average fair value of $9.50) 273,000 $30.31 Exercised (434,000) $13.76 Terminated (108,000) $24.52 --------- ------ Balance October 31, 2001 1,583,000 $22.28 ========= ====== Outstanding Exercisable - ------------------------------------------------------------------ ----------------------- Weighted Average Weighted Weighted Range Number Remaining Average Number Average of of Contractual Exercise of Exercise Prices Options Life (Years) Price Options Price - --------------- ------- ------------ -------- ------- -------- $ 8.49 -- 13.32 263,000 2.4 $ 9.39 263,000 $ 9.39 $17.44 -- 28.22 817,000 5.9 $20.53 572,000 $19.40 $29.41 -- 36.59 503,000 7.7 $31.85 149,000 $32.88 =============== ======= === ====== ======= ====== "PRICE-VESTED" PERFORMANCE STOCK OPTION PLAN In December 1996, the Company adopted a stock option plan under which 1,500,000 shares have been reserved. The options expire 10 years after the date of grant and any options which terminate without being exercised may be reissued. Each option will have a pre-defined vesting price which provides for accelerated vesting if the fair market value of the Company's common stock is equal to or greater than the pre-defined vesting price for 10 trading days in any period of 30 consecutive trading days. Vested options will become exercisable only after the first anniversary of its grant date. Any option that has not vested prior to the fourth anniversary of its grant date will vest on the eighth anniversary of its grant date. At October 31, 2001, 100,000 shares remained available for grant. Transactions under this plan are summarized as follows: Weighted Number Average of Exercise Options Price --------- -------- Balance October 31, 1998 1,150,000 $22.40 Exercised (15,000) $20.00 --------- ------ Balance October 31, 1999 1,135,000 $22.37 Granted (Weighted average fair value of $7.01) 160,000 $20.75 Exercised (75,000) $20.00 Terminated (75,000) $22.98 --------- ------ Balance October 31, 2000 1,145,000 $22.33 Granted (Weighted average fair value of $10.96) 180,000 $30.75 Exercised (210,000) $20.18 Terminated (85,000) $27.90 --------- ------ Balance October 31, 2001 1,030,000 $23.78 ========= ====== 26
Outstanding Exercisable - ----------------------------------------------------------- --------------------- Weighted Average Weighted Weighted Range Number Remaining Average Number Average of of Contractual Exercise of Exercise Prices Options Life (Years) Price Options Price - --------------- ------- ------------ -------- ------- -------- $20.00 -- 25.59 750,000 5.6 $20.40 530,000 $20.42 $30.75 -- 36.59 280,000 8.2 $32.84 50,000 $36.59 =============== ======= === ====== ====== ====== "AGE-VESTED" CAREER STOCK OPTION PLAN, AS AMENDED In 1984, the Company adopted a stock option plan whereby 680,000 shares were reserved for grant. In March of 1996, another 1,000,000 shares were reserved for grant under the plan. As amended December 20, 1994, options which have been granted at fair market value are 50% exercisable when the option holders reach their 61st birthday and the remaining 50% will vest on their 64th birthday. To the extent vested, the options may be exercised at any time prior to one year after termination of employment. Options which terminate without being exercised may be reissued. At October 31, 2001, 418,000 shares remained available for grant. Transactions under this plan are summarized as follows: Weighted Number Average of Exercise Options Price --------- ------- Balance October 31, 1998 1,184,000 $ 18.29 Granted (Weighted average fair value of $14.59) 75,000 $ 31.88 Exercised (56,000) $ 6.22 Terminated (16,000) $ 9.31 --------- ------- Balance October 31, 1999 1,187,000 $ 19.86 Granted (Weighted average fair value of $7.54) 75,000 $ 20.75 Exercised (56,000) $ 5.92 Terminated (105,000) $ 19.80 --------- ------- Balance October 31, 2000 1,101,000 $ 20.96 Granted (Weighted average fair value of $12.84) 73,000 $ 30.75 Exercised (211,000) $ 11.30 Terminated (46,000) $ 20.57 --------- ------- Balance October 31, 2001 917,000 $ 23.00 ========= ======= Outstanding Exercisable - ---------------------------------------------------------- -------------------- Weighted Average Weighted Weighted Range Number Remaining Average Number Average of of Contractual Exercise Of Exercise Prices Options Life (Years) Price Options Price - --------------- ------- ------------ -------- ------- -------- $ 5.72 154,000 4.6 $ 5.72 6,000 $ 5.72 $11.25 -- 19.44 130,000 6.4 $11.72 25,000 $11.25 $20.75 60,000 15.3 $20.75 -- -- $29.41 -- 36.59 573,000 11.7 $30.45 89,000 $30.62 =============== ======= ==== ====== ====== ====== 27
EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED In 1985, the Company adopted an employee stock purchase plan under which sale of 5 million shares of its common stock has been authorized. In March of 1996 and 1999, sales of an additional 1,200,000 shares each were authorized, and again in March of 2001, 1,200,000 additional shares were authorized under this plan. The purchase price of the shares under the plan is the lesser of 85% of the fair market value at the commencement of each plan year or 85% of the fair market value on the date of purchase. Employees may designate up to 10% of their compensation for the purchase of stock. During 2001, 2000, and 1999, 527,000, 635,000, and 602,000 shares of stock were issued under the plan for an aggregate purchase price of $12,142,000, $12,588,000 and $13,632,000, respectively. The weighted average fair value of those purchase rights granted in 2001, 2000, and 1999 was $7.00, $7.27, and $7.32, respectively, and were issued at a weighted average price of $23.04, $19.84 and $23.25, respectively. At October 31, 2001, 930,000 shares remained unissued under the plan. 9. INCOME TAXES The provision for income taxes is made up of the following components for each of the years ended October 31: (in thousands of dollars) 2001 2000 1999 -------- -------- -------- Current Federal $ 28,046 $ 29,793 $ 29,807 State 4,170 4,051 4,286 Foreign 41 23 9 Deferred Federal (11,002) (5,071) (6,022) State (1,136) (446) (515) -------- -------- -------- $ 20,119 $ 28,350 $ 27,565 ======== ======== ======== Income tax expense attributable to income from operations differs from the amounts computed by applying the U.S. statutory rates to pretax income from operations as a result of the following for the years ended October 31: 2001 2000 1999 ---- ---- ---- Statutory rate 35.0% 35.0% 35.0% State and local taxes on income, net of federal tax benefit 3.6 3.1 3.5 Tax credits (5.1) (3.6) (2.6) Nondeductible expenses and other--net 4.5 4.5 5.1 ---- ---- ---- 38.0% 39.0% 41.0% ==== ==== ==== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at October 31, are presented below: 28
(in thousands of dollars) 2001 2000 -------- -------- Deferred tax assets: Self-insurance claims $ 43,183 $ 33,214 Bad debt allowance 3,652 2,464 Deferred and other compensation 13,579 12,063 Goodwill amortization 5,026 4,099 Other 1,952 2,967 -------- -------- Total gross deferred tax assets 67,392 54,807 -------- -------- Deferred tax liabilities: Deferred software development cost (3,817) (2,038) Union pension contributions (1,369) (2,701) -------- -------- Total gross deferred tax liabilities (5,186) (4,739) -------- -------- Net deferred tax assets $ 62,206 $ 50,068 ======== ======== Management has determined that it is more likely than not that the total net deferred tax asset will be realized. 10. ACQUISITIONS AND DIVESTITURES All acquisitions have been accounted for using the purchase method of accounting; operations of the companies and businesses acquired have been included in the accompanying consolidated financial statements from their respective dates of acquisition. The excess of the purchase price over fair value of the net assets acquired is generally included in goodwill. Most purchase agreements provide for contingent payments based on the annual pretax income for subsequent periods ranging generally from three to five years. Any such future payments are generally capitalized as goodwill when paid. Cash paid for acquisitions, including any contingent amounts based on subsequent earnings, was $23,401,000 in 2001. In addition, common shares, with a fair market value of $1,666,000 at the date of issuance, were issued in 2001 under the contingent payment provisions of a prior year acquisition. As these acquisitions were not significant, pro forma information is not included in these financial statements. Acquisitions and dispositions made during the fiscal year 2001 are discussed below: Effective February 1, 2001, the Company acquired the operations and selected assets of Arcade Cleaning L.P., a janitorial services company, with customers located in the Northeast and Midwest regions. The terms included a cash payment made at closing plus annual contingent payments based on operating profits to be made over five years. This acquisition contributed $47,141,000 in revenues in fiscal year 2001. Effective March 26, 2001, the Company acquired selected customer contracts and certain assets of SLI Lighting Solutions, a lighting services company, with customers in the Mid-Atlantic and Southeastern regions. The terms included a cash payment made at closing plus semi-annual contingent payments based on gross profits to be made over three years. This acquisition contributed $13,455,000 in revenues in fiscal year 2001. Effective April 1, 2001, the Company acquired the operations and selected assets of CarpetMaster Cleaning, a provider of janitorial and related services in Albany and the surrounding capital district of New York. The terms included a cash payment, of which 51% was made at closing and 49% paid in May 2001, plus annual contingent payments based on operating profits to be made over five years. This acquisition contributed $3,946,000 in revenues in fiscal year 2001. Effective June 11, 2001, the Company acquired the operations and selected assets of Sundown Security, Inc., a security services company, with customers located in the Sacramento, California area. The terms included a cash payment made at closing plus annual contingent payments based on 29
operating profits to be made over five years. This acquisition contributed $1,130,000 in revenues in fiscal year 2001. The aggregate consideration paid for these acquisitions was $11,749,000 including $7,222,000 allocated to goodwill. Effective April 30, 2001, the Company sold its Easterday Janitorial Supply Division to AmSan West, Inc. In fiscal 2000, this Division had annual revenues of $43,868,000, of which 27% were intercompany sales, and assets of $11,574,000. In 2001, this Division contributed $15,054,000 in revenues after intercompany sales elimination. The sale of Easterday will allow the Company to focus on its building maintenance and other operational services. The sale does not have a material effect on the Company's consolidated net assets, financial position or results of operations. The sales price for Easterday was $12,000,000, which was received on May 1, 2001. Included in operating profits for the fiscal year ended October 31, 2001, is a pre-tax gain of $718,000. 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts reported in the balance sheet for cash and cash equivalents approximate fair value due to the short-maturity of these instruments. Financial instruments included in investments and long-term receivables have no quoted market prices and, accordingly, a reasonable estimate of fair market value could not be made without incurring excessive costs. However, the Company believes by reference to stated interest rates and security held that the fair value of the assets would not differ significantly from the carrying value. The fair value of the Company's long-term debt approximates carrying value based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. 12. COMMITMENTS AND CONTINGENCIES The Company and certain of its subsidiaries have been named defendants in certain litigation arising in the ordinary course of business. In the opinion of management, based on advice of legal counsel, such matters should have no material effect on the Company's financial position, results of operations or cash flows. 13. SEGMENT INFORMATION Under Statements of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information" segment information is presented under the management approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS 131 also requires disclosures about products and services, geographic areas and major customers. The Company is organized into nine separate operating segments as defined under SFAS 131. However, only the ABM Janitorial, Amtech Elevator, ABM Engineering, Amtech Lighting and Ampco System Parking operating segments are reportable using the quantitative threshold criteria under SFAS 131. Included in other segments are ABM Service Network, American Commercial Security, CommAir Mechanical Services, and Easterday Janitorial Supply Company that was sold, as previously reported, during the second quarter of fiscal year 2001. In addition, the corporate expenses are not allocated. The significant increase in unallocated Corporate expenses for 2001 includes the $20 million insurance adjustment mentioned previously and centralization of marketing and sales expenses compared to the prior year. All of these segments are distinct business units. They are managed separately because of their unique services, technology and marketing requirements. Nearly 100% of the operations and related revenues are within the United States and no single customer accounts for more than 10% of sales. 30
SEGMENT INFORMATION (in thousands) Ampco ABM System ABM Amtech Amtech Janitorial Parking Engineering Lighting Elevator ----------- ----------- ----------- ----------- ----------- FOR THE YEAR ENDED OCTOBER 31, 2001 Revenues and other income $ 1,159,914 $ 165,940 $ 171,008 $ 144,319 $ 121,371 Intersegment revenues $ 572 $ -- $ -- $ 217 $ -- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 1,160,486 $ 165,940 $ 171,008 $ 144,536 $ 121,371 =========== =========== =========== =========== =========== Operating profit $ 59,862 $ 4,050 $ 9,035 $ 11,038 $ 4,820 Interest, expense $ (917) $ -- $ (7) $ -- $ (2) ----------- ----------- ----------- ----------- ----------- Income before income taxes $ 58,945 $ 4,050 $ 9,028 $ 11,038 $ 4,818 =========== =========== =========== =========== =========== Identifiable assets $ 285,979 $ 86,837 $ 47,948 $ 82,528 $ 42,127 =========== =========== =========== =========== =========== Depreciation expense $ 4,980 $ 1,980 $ 79 $ 1,542 $ 248 =========== =========== =========== =========== =========== Amortization expense $ 7,909 $ 2,749 $ 369 $ 945 $ 192 =========== =========== =========== =========== =========== Capital expenditures $ 3,659 $ 1,612 $ 79 $ 2,572 $ 255 =========== =========== =========== =========== =========== FOR THE YEAR ENDED OCTOBER 31, 2000 ----------- ----------- ----------- ----------- ----------- Revenues and other income $ 1,052,865 $ 172,427 $ 156,314 $ 118,054 $ 114,409 Intersegment revenues $ 546 $ -- $ -- $ 302 $ -- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 1,053,411 $ 172,427 $ 156,314 $ 118,356 $ 114,409 =========== =========== =========== =========== =========== Operating profit $ 53,050 $ 8,726 $ 8,164 $ 10,088 $ 6,832 Interest, expense $ (9) $ -- $ -- $ -- $ (1) ----------- ----------- ----------- ----------- ----------- Income before income taxes $ 53,041 $ 8,726 $ 8,164 $ 10,088 $ 6,831 =========== =========== =========== =========== =========== Identifiable assets $ 274,704 $ 92,401 $ 45,459 $ 65,160 $ 37,356 =========== =========== =========== =========== =========== Depreciation expense $ 4,962 $ 1,834 $ 80 $ 1,260 $ 316 =========== =========== =========== =========== =========== Amortization expense $ 6,817 $ 2,742 $ 366 $ 735 $ 192 =========== =========== =========== =========== =========== Capital expenditures $ 4,568 $ 1,521 $ 524 $ 1,469 $ 390 =========== =========== =========== =========== =========== FOR THE YEAR ENDED OCTOBER 31, 1999 ----------- ----------- ----------- ----------- ----------- Revenues and other income $ 933,293 $ 162,358 $ 153,758 $ 95,521 $ 96,618 Intersegment revenues $ 374 $ -- $ 188 $ 270 $ -- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 933,667 $ 162,358 $ 153,946 $ 95,791 $ 96,618 =========== =========== =========== =========== =========== Operating profit $ 49,017 $ 8,385 $ 8,352 $ 7,457 $ 6,651 Interest, expense $ (13) $ -- $ -- $ -- $ -- ----------- ----------- ----------- ----------- ----------- Income before income taxes $ 49,004 $ 8,385 $ 8,352 $ 7,457 $ 6,651 =========== =========== =========== =========== =========== Identifiable assets $ 242,117 $ 84,360 $ 34,864 $ 59,921 $ 32,411 =========== =========== =========== =========== =========== Depreciation expense $ 4,575 $ 1,998 $ 101 $ 1,454 $ 381 =========== =========== =========== =========== =========== Amortization expense $ 5,866 $ 2,568 $ 368 $ 531 $ 192 =========== =========== =========== =========== =========== Capital expenditures $ 6,632 $ 1,763 $ 168 $ 1,506 $ 354 =========== =========== =========== =========== =========== Other Consolidated Segments Corporate Eliminations Totals ----------- ----------- ------------ ------------ FOR THE YEAR ENDED OCTOBER 31, 2001 Revenues and other income $ 186,168 $ 1,318 $ -- $ 1,950,038 Intersegment revenues $ 5,813 $ -- $ (6,602) $ -- ----------- ----------- ----------- ----------- Total Revenues $ 191,981 $ 1,318 $ (6,602) $ 1,950,038 =========== =========== =========== =========== Operating profit $ 8,000 $ (41,258) $ -- $ 55,547 Interest, expense $ (9) $ (1,667) $ -- $ (2,602) ----------- ----------- ----------- ----------- Income before income taxes $ 7,991 $ (42,925) $ -- $ 52,945 =========== =========== =========== =========== Identifiable assets $ 38,371 $ 99,310 $ -- $ 683,100 =========== =========== =========== =========== Depreciation expense $ 726 $ 4,155 $ -- $ 13,710 =========== =========== =========== =========== Amortization expense $ 454 $ -- $ -- $ 12,618 =========== =========== =========== =========== Capital expenditures $ 1,606 $ 7,139 $ -- $ 16,922 =========== =========== =========== =========== FOR THE YEAR ENDED OCTOBER 31, 2000 ----------- ----------- ----------- ----------- Revenues and other income $ 193,073 $ 415 $ -- $ 1,807,557 Intersegment revenues $ 11,954 $ -- $ (12,802) $ -- ----------- ----------- ----------- ----------- Total Revenues $ 205,027 $ 415 $ (12,802) $ 1,807,557 =========== =========== =========== =========== Operating profit $ 6,362 $ (17,209) $ -- $ 76,013 Interest, expense $ (10) $ (3,300) $ -- $ (3,320) ----------- ----------- ----------- ----------- Income before income taxes $ 6,352 $ (20,509) $ -- $ 72,693 =========== =========== =========== =========== Identifiable assets $ 56,120 $ 70,785 $ -- $ 641,985 =========== =========== =========== =========== Depreciation expense $ 959 $ 2,854 $ -- $ 12,265 =========== =========== =========== =========== Amortization expense $ 407 $ -- $ -- $ 11,259 =========== =========== =========== =========== Capital expenditures $ 692 $ 9,553 $ -- $ 18,717 =========== =========== =========== =========== FOR THE YEAR ENDED OCTOBER 31, 1999 ----------- ----------- ----------- ----------- Revenues and other income $ 187,306 $ 862 $ -- $ 1,629,716 Intersegment revenues $ 12,567 $ -- $ (13,399) $ -- ----------- ----------- ----------- ----------- Total Revenues $ 199,873 $ 862 $ (13,399) $ 1,629,716 =========== =========== =========== =========== Operating profit $ 7,128 $ (17,799) $ -- $ 69,191 Interest, expense $ (10) $ (1,936) $ -- $ (1,959) ----------- ----------- ----------- ----------- Income before income taxes $ 7,118 $ (19,735) $ -- $ 67,232 =========== =========== =========== =========== Identifiable assets $ 52,798 $ 56,913 $ -- $ 563,384 =========== =========== =========== =========== Depreciation expense $ 1,032 $ 1,274 $ -- $ 10,815 =========== =========== =========== =========== Amortization expense $ 358 $ -- $ -- $ 9,883 =========== =========== =========== =========== Capital expenditures $ 1,468 $ 7,560 $ -- $ 19,451 =========== =========== =========== =========== Intersegment revenues are recorded at prices negotiated between the entities. Certain prior year amounts have been restated to conform to the current year's presentation. 31
14. QUARTERLY INFORMATION (UNAUDITED) (in thousands, except per share amounts) Fiscal Quarter ---------------------------------------------------------- First Second Third Fourth Year ---------- ---------- ---------- ---------- ---------- 2001 Revenues and other income $ 470,419 $ 490,494 $ 492,454 $ 496,671 $1,950,038 Gross profit 57,338 64,436 62,679 43,251 227,704 Net income (loss) 8,404 12,054 13,233 (865) 32,826 Net income (loss) per common share: Basic 0.36 0.50 0.55 (0.04) 1.36 Diluted 0.34 0.48 0.52 (0.04) 1.30 ---------- ---------- ---------- ---------- ---------- 2000 Revenues and other income $ 428,581 $ 439,988 $ 461,890 $ 477,098 $1,807,557 Gross profit 52,883 56,684 60,136 63,856 233,559 Net income 7,527 9,880 12,445 14,491 44,343 Net income per common share: Basic 0.33 0.43 0.54 0.64 1.94 Diluted 0.32 0.41 0.52 0.60 1.85 ---------- ---------- ---------- ---------- ---------- SCHEDULE II CONSOLIDATED VALUATION ACCOUNTS Years ended October 31, 2001, 2000 and 1999 (in thousands) Balance Charges to Deductions Other Balance Beginning Costs and Net of Additions End of of Year Expenses Recoveries (Reductions) Year --------- ---------- ---------- ------------ ------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Years ended October 31, 2001 $ 8,825 $ 6,134 $ (5,539) $ -- $ 9,420 2000 7,490 2,971 (1,636) -- 8,825 1999 6,761 2,257 (1,528) -- 7,490 ------- ------- -------- ---- ------- 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item regarding the Company's directors and executive officers not included in Part I under "Executive Officers" is incorporated by reference to the information set forth under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Compliance Reporting" contained in the Proxy Statement to be used by the Company in connection with its 2002 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information set forth under the caption "Executive Compensation" contained in the Proxy Statement to be used by the Company in connection with its 2002 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the information set forth under the caption "Principal Stockholders" contained in the Proxy Statement to be used by the Company in connection with its 2002 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the information set forth under the captions "Executive Compensation" and "Further Information Concerning the Board of Directors" contained in the Proxy Statement to be used by the Company in connection with the 2002 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. Consolidated Financial Statements of ABM Industries Incorporated and Subsidiaries (see Item 8): Independent Auditors' Report Consolidated Balance Sheets -- October 31, 2001 and 2000 Consolidated Statements of Income -- Years ended October 31, 2001, 2000 and 1999 33
Consolidated Statements of Stockholders' Equity and Comprehensive Income -- Years ended October 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows -- Years ended October 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements. 2. Consolidated Financial Statement Schedule of ABM Industries Incorporated and Subsidiaries (see Item 8): Schedule II -- Consolidated Valuation Accounts -- Years ended October 31, 2001, 2000 and 1999 All other schedules are omitted because they are not applicable or because the required information is included in the consolidated financial statements or the notes thereto. The individual financial statements of the registrant's subsidiaries have been omitted since the registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements are wholly owned subsidiaries. 3. Exhibits: See Exhibit Index. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of fiscal year 2001. 34
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. ABM INDUSTRIES INCORPORATED By: /s/ Henrik C. Slipsager ----------------------------------------- Henrik C. Slipsager President, Chief Executive Officer and Director December 21, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Henrik C. Slipsager /s/ Martinn H. Mandles - -------------------------------------------- --------------------------------------------- Henrik C. Slipsager, President, Martinn H. Mandles Chief Executive Officer and Director Chairman of the Board, (Principal Executive Officer) Chief Administrative Officer and Director December 21, 2001 December 21, 2001 /s/ George B. Sundby /s/ Maria de la Pena - -------------------------------------------- --------------------------------------------- George B. Sundby Maria de la Pena Senior Vice President and Vice President, Controller and Chief Financial Officer Chief Accounting Officer (Principal Financial Officer) (Principal Accounting Officer) December 21, 2001 December 21, 2001 /s/ Maryellen C. Herringer /s/ Linda Chavez - -------------------------------------------- --------------------------------------------- Maryellen C. Herringer, Director Linda Chavez, Director December 21, 2001 December 21, 2001 /s/ Luke S. Helms /s/ Charles T. Horngren - -------------------------------------------- --------------------------------------------- Luke S. Helms, Director Charles T. Horngren, Director December 21, 2001 December 21, 2001 /s/ Henry L. Kotkins, Jr. /s/ Theodore Rosenberg - -------------------------------------------- --------------------------------------------- Henry L. Kotkins, Jr., Director Theodore Rosenberg, Vice Chairman of the December 21, 2001 Executive Committee and Director December 21, 2001 /s/ William W. Steele /s/ William E. Walsh - -------------------------------------------- --------------------------------------------- William W. Steele, Chairman of the William E. Walsh, Director Executive Committee and Director December 21, 2001 December 21, 2001 35
EXHIBIT INDEX Exhibit Number Description - ------- ------------------------------------------------------------------------------------------------ 3.1 [a] Restated Certificate of Incorporation of ABM Industries Incorporated, dated March 22, 2000 3.2 [u] By-laws, as amended July 23, 2001 4.1 [k] Credit Agreement, dated June 25, 1997, between Bank of America National Trust and Savings Association and the Company 4.2 [q] First Amendment to Credit Agreement dated as of October 31, 1997 4.3 [t] Second Amendment to Credit Agreement dated as of September 22, 1999 4.5 [c] Business Loan Agreement dated February 13, 1996 10.3 [b]* Supplemental Medical and Dental Plan 10.4 [j]* 1984 Executive Stock Option Plan as amended effective December 19, 1995 (now known as "Age-Vested" Career Stock Option Plan) 10.13 [j]* 1987 Stock Option Plan as amended effective December 19, 1995 (now known as "Time-Vested" Incentive Stock Option Plan) 10.16 [d] Rights Agreement, dated as of March 17, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent 10.19 [e]* Service Award Plan 10.21 [f]* Amended and Restated Retirement Plan for Outside Directors 10.22 [f]* Amendment No. 1 to Service Award Plan 10.23 [g]* Form of Outside Director Retirement Agreement (dated June 16, 1992) 10.27 [h] Guaranty of American Building Maintenance Industries, Inc. 10.28 [i]* Deferred Compensation Plan 10.29 [i]* Form of Existing Executive Employment Agreement Other Than Those Specifically Named 10.30 [l]* Executive Employment Agreement with Martinn H. Mandles, as amended by Amendments One and Two 10.35 [l]* Form of Amendments of Corporate Executive Employment Agreements with Other Than Those Named 10.36 [m]* Form of Indemnification for Directors 10.39 [n]* Third Amendment of Corporate Executive Employment Agreement with Martinn H. Mandles 10.40 [p]* 1996 ABM Industries Incorporated Long-Term Senior Executive Stock Option Plan (now known as "Price-Vested" Performance Stock Option Plan) 10.40 [o]* Fourth Amendment of Corporate Executive Employment Agreement with Martinn H. Mandles 10.47 [t]* Amendment No. 1 to the 1987 Incentive Stock Option Plan 10.48 [t]* Amendment No. 2 to the ABM Industries Incorporated 1987 Incentive Stock Option Plan (December 19, 1994 Restatement) 10.49 [t]* Amendment No. 3 to the "Time-Vested" Incentive Stock Option Plan 10.50 [t]* Amendment No. 4 to the ABM Industries Incorporated "Time-Vested" Incentive Stock Option Plan (December 19, 1994 Restatement) 10.51 [t]* Amendment No. 1 to the 1984 Executive Stock Option Plan 10.52 [t]* Amendment No. 2 to the 1984 Executive Stock Option Plan (December 1994 Restatement) 10.53 [t]* Amendment No. 3 to the ABM Industries Incorporated "Age-Vested" Career Stock Option Plan (December 19, 1995 Restatement) 10.54 [t]* Amendment No. 1 to the Long-Term Senior Executive Incentive Stock Option Plan Adopted December 1996 10.55 [t]* Amendment No. 2 to the "Price-Vested" Performance Stock Option Plan 10.56 [t]* Amendment No. 3 to the ABM Industries Incorporated "Price-Vested" Performance Stock Option Plan 10.58 [r]* Corporate Executive Employment Agreement with Henrik C. Slipsager 10.59 [r]* Employee Stock Purchase Plan (as amended through May 1, 2000) 10.60 [s]* Amendment No. 1 to Employee Stock Purchase Plan (May 2000 Restatement) 10.61 * Amendment of Division Executive Employment Agreement -- Increase in Supplemental Executive Retirement Pension ("SERP") -- with Martinn H. Mandles 10.62 * Corporate Executive Employment Agreement with Harry H. Kahn 10.63 * Corporate Executive Employment Agreement with Jess E. Benton 36
10.65 * First Amendment of Division Executive Employment Agreement dated November 1, 2000 with Henrik C. Slipsager 10.66 * Corporate Executive Employment Agreement with George B. Sundby 10.67 * Corporate Executive Employment Agreement with Donna M. Dell 10.68 * First Amendment of Corporate Executive Employment Agreement dated November 1, 1999 with Donna M. Dell 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Certified Public Accountants - -------------------------------------------------------------------------------- [a] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2000. [b] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1984. [c] Incorporated by reference to the exhibit bearing the same numeric description, which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended January 31, 1996. [d] Incorporated by reference to exhibit 4.1 to the Company's report on Form 8-K dated March 17, 1998. [e] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1990. [f] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1991. [g] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 31, 1992. [h] Incorporated by reference to the exhibit bearing the same numeric reference which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 31, 1993. [i] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1993. [j] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended April 30, 1996. [k] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 31, 1997. [l] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1994. [m] Incorporated by reference to exhibit 10.20 which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended April 30, 1991. [n] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1996. [o] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 31, 1998. 37
[p] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended April 30, 1997. [q] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1997. [r] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarter report on Form 10-Q for the fiscal quarter ended January 31, 2001. [s] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarter report on Form 10-Q for the fiscal quarter ended April 30, 2001. [t] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended October 31, 1999. [u] Incorporated by reference to the exhibit bearing the same numeric description which was filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 31, 2001. * Management contract, compensatory plan or arrangement. 38
EXHIBIT 10.61 [ABM INDUSTRIES INCORPORATED LETTERHEAD] June 30, 1998 Mr. Martinn H. Mandles ABM Industries Incorporated 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 RE: AMENDMENT OF DIVISION EXECUTIVE EMPLOYMENT AGREEMENT -- INCREASE IN SUPPLEMENTAL EXECUTIVE RETIREMENT PENSION ("SERP") Dear Martinn: I am pleased to inform you that the Executive Officer Compensation and Stock Option Committee of ABM's Board of Directors has approved an increase in the monthly benefit payable to you to $4,167.00 under this plan. Accordingly, the maximum benefit payable to you shall increase to $500,000. This letter shall, in this regard, amend your Executive Employment Agreement, as follows: The monthly Consulting Fees benefit set forth in paragraph X.5 CONSULTANCY shall be $4,167.00. Please sign and date all three (3) originals and return two (2) of them to me. Very truly yours /s/ WILLIAM W. STEELE - ---------------------------------- William W. Steele I hereby agree to the foregoing amendment. /s/ MARTINN H. MANDLES Dated: June 30, 1998. - ----------------------------------- --------------------------------- Martinn H. Mandles New York Stock Exchange Symbol: ABM
EXHIBIT 10.62 1 CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT THIS CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of November 1, 1999, by and between Harry H. Kahn ("Executive"), and ABM Industries Incorporated ("Company") for itself and on behalf of its subsidiary corporations as applicable herein. WHEREAS, Company is engaged in the building maintenance and related service businesses, and WHEREAS, Executive is experienced in the administration, finance, marketing, and operation of such services, and WHEREAS, Company has invested significant time and money to develop proprietary trade secrets and other confidential business information, as well as invaluable goodwill among its customers, sales prospects and employees, and WHEREAS, Executive wishes to, or has been and desires to remain employed by Company, and to utilize such proprietary trade secrets, other confidential business information and goodwill, and WHEREAS, Company has disclosed or will disclose to Executive such proprietary trade secrets and other confidential business information which Executive will utilize in the performance of this Agreement; NOW THEREFORE, Executive and Company agree as follows: A. EMPLOYMENT: Company hereby agrees to employ Executive, and Executive hereby accepts such employment, on the terms and conditions set forth in this Agreement. B. TITLE: Executive's title shall be Senior Vice President, General Counsel & Corporate Secretary of Company. C. DUTIES & RESPONSIBILITIES: Executive shall be expected to assume and perform such executive or managerial duties and responsibilities as are assigned from time-to-time by the Chairman of the Board and Chief Administrative Officer of Company, to whom Executive shall report and be accountable. D. TERM OF AGREEMENT: Employment hereunder shall commence on November 1, 1999, for a term of two (2) years ("Initial Term"), unless sooner terminated pursuant to Paragraph O hereof, or later extended pursuant to Paragraph N hereof ("Extended Term"). E. PRINCIPAL OFFICE: During the Initial Term and any Extended Term, as applicable, of this Agreement, Executive shall be based at a Company office located in San Francisco ("County of Employment"), California ("State of Employment). F. COMPENSATION: Company agrees to compensate Executive, and Executive agrees to accept as compensation in full, for Executive's assumption and performance of duties and responsibilities pursuant to this Agreement: 1. SALARY: A base salary paid in equal installments of no less frequently than semi-monthly at the annual rate set forth in Paragraph X.l hereof. 2. BONUS: A bonus or other incentive or contingent compensation, if any, pursuant to Paragraph X.2 hereof, and the bonus set forth in Paragraph X.4, hereof. 3. FRINGE BENEFITS: The then current fringe benefits generally provided by Company to all of its Executives. Such benefits may include but not be limited to the use of a Company-leased car or a car allowance, group health benefits, long-term disability benefits, group life
2 insurance, sick leave and vacation, and a Service Award Benefit Plan. Each of these fringe benefits is subject to the applicable Company policy at all times. Company reserves the right to add, increase, reduce or eliminate any fringe benefit at any time, but no such benefit or benefits shall be reduced or eliminated as to Executive unless generally reduced or eliminated as to comparable executives within the Company. G. PAYMENT OR REIMBURSEMENT OF BUSINESS EXPENSES: Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with Company business, and approved in writing by the person(s) with the title set forth in Paragraph C hereof, upon presentation to such person(s) by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, nature, recipient, purpose and amount of each such expense, accompanied by receipts for all such expenses in excess of Twenty-Five Dollars ($25) each. H. BUSINESS CONDUCT: Executive shall make reasonable best efforts to comply with all applicable laws pertaining to the performance of this Agreement, and with all lawful and ethical rules, regulations, policies, procedures and instructions of Company, including but not limited to the following: 1. GOOD FAITH: Executive shall not act in any way contrary to the best interests of Company. 2. BEST EFFORTS: During all full-time employment hereunder, Executive shall devote full working time and attention to Company, and shall not at any time be directly or indirectly employed by, own, operate, assist or otherwise be involved, invested or associated in any business that is similar or competitive to any business of Company; except that Executive may own up to five percent (5%) of any such publicly-held business(es), provided that Executive: (a) shall give Company notice(s) of such ownership in accordance with Paragraph W hereof, and (b) shall not at any time be directly or indirectly employed by or operate, assist, or otherwise be involved or associated with any such business(es). 3. VERACITY: Executive shall make no claims or promises to any employee, supplier, contractor, customer or sales prospect of Company that are unauthorized by Company or are in any way untrue. 4. DRIVER'S LICENSE: Executive shall have and carry a valid driver's license issued by the State of Employment hereunder and a driver's permit issued by the Company whenever Executive is driving any motor vehicle in connection with Company business. Executive agrees to immediately notify Company in writing if Executive's driver's license is lost, expired, restricted, suspended or revoked for any reason whatsoever. I. NO CONFLICT: Executive represents to Company that Executive is not bound by any contract with a previous employer or with any other business that might prevent Executive from entering into this Agreement or disclosing information about any previous employer or any other business to Company, or might otherwise interfere with Executive's employment hereunder. J. COMPANY PROPERTY: Company shall, from time to time, entrust to the care, custody and control of Executive certain of Company's property, such as motor vehicles, equipment, supplies and documents. Such documents may include, but shall not be limited to customer lists, financial statements, cost data, price lists, invoices, forms, electronic files and media, mailing lists, contracts, reports, manuals, personnel files or directories, correspondence, business cards, copies or notes made from Company documents and documents compiled or prepared by Executive for Executive's use in connection with Company business. Executive specifically acknowledges that all such documents are the property of Company, notwithstanding their preparation, care, custody, control or possession by Executive at any time(s) whatsoever.
3 K. GOODWILL & PROPRIETARY INFORMATION: In connection with Executive's employment hereunder: 1. Executive agrees to utilize and further Company's goodwill ("Goodwill") among its customers, sales prospects and employees, and acknowledges that Company may disclose to Executive and Executive may disclose to Company, proprietary trade secrets and other confidential information not in the public domain ("Proprietary Information") including but not limited to specific customer data such as: (a) the identity of Company's customers and sales prospects, (b) the nature, extent, frequency, methodology, cost, price and profit associated with their services and products purchased from Company, (c) any particular needs or preferences regarding their service or supply requirements, (d) the names, office hours, telephone numbers and street addresses of their purchasing agents or other buyers, (e) their billing procedures, (f) their credit limits and payment practices, and (g) their organization structure. 2. Executive agrees that such Proprietary Information and Goodwill have unique value to Company, are not generally known or readily available to Company's competitors, and could only be developed by others after investing significant time and money. Company would not make such Proprietary Information and Goodwill available to Executive unless Company is assured that all such Proprietary Information and Goodwill will be held in trust and confidence by Executive. Executive hereby acknowledges that to use this Proprietary Information and Goodwill except for the benefit of Company would be improper and unfair to Company. L. RESTRICTIVE COVENANTS: In recognition of Paragraph K hereof, Executive hereby agrees that during the Initial Term and the Extended Term, if any, of this Agreement, and thereafter for as long as it shall be enforceable: 1. Except in the proper performance of this Agreement, Executive shall not directly or indirectly solicit or otherwise encourage or arrange for any employee to terminate employment with Company. 2. Except in the proper performance of this Agreement, Executive shall not directly or indirectly disclose or deliver to any other person or business, any Proprietary Information obtained directly or indirectly by Executive from, or for, Company. 3. Executive shall not seek, solicit, divert, take away, obtain or accept the patronage of any customer or sales prospect of Company through the direct or indirect use of any Proprietary Information of Company, or by any other unfair or unlawful business practice. 4. Executive agrees that for a reasonable time after the termination of this Agreement, which Executive and Company hereby agree to be one (1) year, Executive shall not directly or indirectly, for Executive or for any other person or business, seek, solicit, divert, take away, obtain or accept any site-specific customer account or site-specific sales prospect with which Executive had direct business involvement on behalf of Company within the one (1) year period prior to termination of this Agreement. 5. Nothing in this Agreement shall be binding upon the parties to the extent it is void or unenforceable for any reason in the State of Employment, including, without limitation, as a result of any law regulating competition or proscribing unlawful business practices. M. MODIFICATION OF EMPLOYMENT: At any time during the then current Initial or Extended Term, as applicable, of this Agreement, a majority of the Board of Directors of Company shall have the absolute right, with or without cause and without terminating this Agreement or Executive's employment hereunder, to modify the nature of Executive's employment for the remainder of the
4 then current Initial or Extended Term, as applicable, of this Agreement, from that of a fill-time employee to that of a part-time employee ("Modification Period"). The Modification Period shall commence immediately upon Company giving Executive written notice of such change. 1. Upon commencement of the Modification Period: (a) Executive shall immediately resign as a full-time employee of Company and as an officer and/or director of Company, as applicable, (b) Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof, and (c) Company shall pay Executive all previously earned and vested but as yet unpaid, salary, prorated bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 2. During the Modification Period: (a) Company shall continue to pay Executive's monthly salary pursuant to Paragraph F.l hereof, and to the extent available under the Company's group insurance policies, continue to provide Executive with the same group health and life insurance (subject to Executive continuing to pay the employee portion of any such premium) to which Executive would be entitled as a full-time employee, with the understanding and agreement that such monthly salary and group insurance, if available, shall constitute the full extent of Company's obligation to compensate Executive, (b) Executive shall not be eligible or entitled to receive or participate in any bonus or fringe benefits other than the aforementioned group insurance, if available, (c) in the alternative, Executive may exercise rights under COBRA to obtain medical insurance coverage as may be available to Executive, (d) Executive shall be deemed a part-time employee and not a full-time employee of Company, (e) Executive shall provide Company with such occasional executive or managerial services as reasonably requested by the persons with the title set forth in Paragraph C hereof, except that failure to render such services by reason of any physical or mental illness or disability other than Total Disability or death as set forth in Paragraph O.2 hereof, or unavailability because of absence from the State of Employment hereunder, shall not affect Executive's right to receive such salary and (f) Company shall pay directly or reimburse Executive in accordance with the provisions of Paragraph G hereof for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof. 3. The Modification Period shall continue until the earlier of: (a) Total Disability or death as set forth in Paragraph O.2 hereof, (b) termination of this Agreement by Company for "just cause" as hereinafter defined, (c) Executive accepting employment or receiving any other compensation from operating, assisting or otherwise being involved, invested or associated with any business that is similar to or competitive with any business in which Company is engaged on the commencement date of the Modification Period, or (d) expiration of the then current Term of this Agreement. N. EXTENSION OF EMPLOYMENT: Absent at least ninety (90) days written Notice of Termination from either party to the other party prior to expiration of the then Initial or Extended Term, as applicable, of this Agreement, employment hereunder shall continue for an Extended Term (or another Extended Term, as applicable) of two (2) years, by which Executive and Company intend that all terms and conditions of this Agreement shall remain in full force and effect for another twenty four (24) months, except that the highest base salary specified in Paragraph X.1.a shall be increased annually as set forth in Paragraph X.1.b for each year of the Extended Term. Company has the option, without terminating this Agreement or Executive's employment hereunder, of placing Executive on a leave of absence at the full compensation set forth in Paragraph F hereof for any or all of such ninety (90) day period in lieu of the aforementioned Notice of Termination. O. TERMINATION OF EMPLOYMENT: 1. a. Termination of employment at the expiration of the then current Initial or
5 Extended Term shall be effective with or without cause. b. Except as provided in Paragraph O.1.a, the Company shall have the right to terminate Executive's employment hereunder at any time during the then current Initial or Extended Term, as applicable, of this Agreement, without notice subject only to a good faith determination by a majority of the Board of Directors of Company of "just cause." "Just cause" includes but is not limited to any theft or other dishonesty, or any material: (i) neglect of employment duties, (ii) inability or unwillingness to perform employment duties, (iii) insubordination, (iv) abuse of alcohol or other drugs, (v) breach of this Agreement; or for (vi) other misconduct, unethical or unlawful activity. c. At any time during the then current Initial or Extended Term, as applicable, of this Agreement, with or without cause, Executive may terminate employment hereunder by giving Company ninety (90) days prior written notice. 2. Employment hereunder shall automatically terminate upon the total disability ("Total Disability") or death of Executive. Total Disability shall be deemed to occur on the ninetieth (90th) consecutive or non-consecutive calendar day within any twelve (12) month period that Executive is unable to perform the duties set forth in Paragraph C hereof because of any physical or mental illness or disability. Company shall pay when due to Executive or his estate, as applicable, all prorated salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits which would have otherwise been payable to Executive under this Agreement, through the end of the month in which Total Disability or death occurs. 3. Upon termination of employment hereunder, Executive shall immediately resign as an employee of Company and as an officer and/or director of Company, as applicable. Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to, any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof. Company shall pay Executive, when due, all previously earned and vested but as yet unpaid, salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 4. Nothing contained in this Agreement shall entitle Executive to receive a bonus or other incentive or contingent compensation from Company based on any sales or profits made by Company after termination of employment hereunder. P. GOVERNING LAW: This Agreement shall be interpreted and enforced in accordance with the laws of the State of Employment hereunder. Q. ARBITRATION CLAUSE: 1. Except for the interpretation and enforcement of injunctive relief pursuant to Paragraph R hereof (which, at Company's option, shall be subject to litigation in any court having proper jurisdiction), any claim or dispute related to or arising from this Agreement (whether based in contract or tort, in law or equity) including, but not limited to, claims or disputes between Executive and Company or its directors, officers, employees and agents regarding Executive's employment or termination of employment hereunder, or any other business of Company, shall be resolved by mandatory, final, binding arbitration in accordance with the rules of the American Arbitration Association; provided, however, that no party shall be entitled to an award of general or punitive damages hereunder. 2. Any such arbitration must be requested in writing within one (1) year from the date the
6 party initiating the arbitration knew or should have known about the claim or dispute, or all claims arising from that dispute are forever waived. Any such arbitration (or court proceeding as applicable hereunder) shall be held in the County of Employment. Judgment upon the award rendered through such arbitration may be entered and enforced in any court having proper jurisdiction. R. REMEDIES & DAMAGES: 1. The parties agree that, in the event of a material breach or threatened material breach of Paragraph L hereof, the damage or imminent damage to the value of Company's business shall be inestimable, and therefore any remedy at law or in damages shall be inadequate. Accordingly, the parties hereto agree that Company shall be entitled to the immediate issuance of a restraining order or an injunction against Executive in the event of such breach or threatened breach, in addition to any other relief available to Company pursuant to this Agreement or under law. 2. Executive agrees that the actual amount of damages resulting from any material breach of any of the provisions of Paragraph L hereof would be impractical or impossible to ascertain. It is therefore agreed that the damages resulting from any such breach which involves any customer of Company shall be liquidated damages, not a penalty, in an amount equal to four (4) times the lost monthly revenue to the Company based on the average monthly revenue which was payable by that customer to Company during the four (4) months immediately preceding such breach. This provision for liquidated damages is in addition to any other relief available to Company pursuant to this Agreement or under law. 3. To the full extent permitted under the laws of the State of Employment hereunder, Executive authorizes Company to withhold from Executive's compensation and from any other funds held for Executive's benefit by Company, any damages or losses sustained by Company as a result of any material breach or other material violation of this Agreement by Executive, pending arbitration between the parties as provided for herein. S. NO WAIVER: Failure by either party to enforce any term or condition of this Agreement at any time shall not preclude that party from enforcing that provision, or any other provision of this Agreement, at any later time. T. SEVERABILITY: The provisions of this Agreement are severable. If any arbitrator (or court as applicable hereunder) rules that any portion of this Agreement is invalid or unenforceable, the arbitrator's or court's ruling shall not affect the validity and enforceability of other provisions of this Agreement. It is the intent of the parties that if any provision of this Agreement is ruled to be overly broad, the arbitrator or court shall interpret such provision with as much permissible breadth as is allowable under law rather than to consider such provision void. U. SURVIVAL: All terms and conditions of this Agreement which by reasonable implication are meant to survive the termination of this Agreement, including but not limited to, the Restrictive Covenants and Arbitration Clause herein, shall remain in full force and effect after the termination of this Agreement. V. CONSTRUCTION: This Agreement was negotiated in good faith by the parties hereto, who hereby agree to share the responsibility for any ambiguities, uncertainties or inconsistencies herein. Paragraph headings are used herein only for ease of reference, and shall not in any way affect the interpretation or enforcement of this Agreement. W. NOTICES: 1. Any notice required or permitted to be given pursuant to this Agreement shall be in
7 writing and delivered in person, or sent prepaid by certified mail, bonded messenger or overnight express, to the party named at the address set forth below or at such other address as either party may hereafter designate in writing to the other party: EXECUTIVE: HARRY H. KAHN 2444 Leavenworth Street San Francisco, CA 94133 COMPANY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: Chairman of the Board COPY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: Chief Employment Counsel 2. Any such notice shall be assumed to have been received when delivered in person, or forty-eight (48) hours after being sent in the manner specified above. X. SPECIAL PROVISIONS: 1. SALARY: a. Two Hundred Sixty Five Thousand Eight Hundred Sixty Four Dollars ($265,864) per year effective November 1, 1999 through October 31, 2000 at the monthly rate of $22,155 payable semi-monthly b. Effective November 1, 2000 through October 31, 2001, and for each year of the then current Initial or Extended Term of this Agreement, as applicable, the Salary in Paragraph X.1.a will be adjusted upward annually to reflect the percentage increase change in the American Compensation Association ("ACA"), or any successor thereof, Index for the Western Region ("ACA Index") with a (6%) maximum increase. The adjustment, if any, shall be based upon the projected ACA Index as published for the ACA fiscal year ending on the June 30th immediately preceding the effective date of the proposed increase hereunder. Notwithstanding the foregoing, there shall be no annual increase in Salary for any such year unless the Company's earning per share ("EPS") for the fiscal year of the Company (commencing November 1, and ending October 31st) ("Fiscal Year") then ending are equal to or greater than the Company's EPS for the previous Fiscal Year. There shall be no downward adjustment in salary in the event the ACA Index shows a decrease from the prior Fiscal Year. 2. BONUS: Subject to proration in the event of modification or termination of employment hereunder and further subject to the potential prospective re-set provisions set forth in Paragraph X.2.c, Executive shall be paid a bonus ("Bonus") based on the profit ("Profit") for each Fiscal Year, or partial Fiscal Year, of employment hereunder during the Term, and during the Extended Term, if any, of this Agreement: a. Such Bonus for each Fiscal Year shall be 0.1600% of the Company's Profit on a pro-rata basis. b. Profit is defined as the consolidated income before income taxes of the Company, excluding: (i) gains or losses on sales or exchanges of real property or on sales or exchanges of all or substantially all of the stock or assets of a subsidiary corporation
8 or any other business unit of Company, (ii) gains or losses on the discontinuation of any business unit of Company, and (iii) the discretionary portion of any contributions made to any profit sharing, service award, employee retirement or savings or similar plan. c. Subject to proration in the event of modification or termination of employment under this Agreement, and further subject to a re-set in the event Executive's Bonus for any Fiscal Year has been limited as hereinafter provided, Executive's maximum Bonus for each Fiscal Year shall be fifty percent (50%) the Salary for that year set forth in Paragraph X.1 herein. If, however, in any completed Fiscal Year, the Bonus which might have been earned by Executive for that year exceeds said fifty percent (50%) maximum, Executive's Salary and Bonus for the next year shall be re-computed as follows: (i) notwithstanding the six percent (6%) maximum set forth hereinabove, the Salary set forth in Paragraph X.1 shall be adjusted to equal seventy-five percent (75%) of the prior Fiscal Year's combined Salary and Bonus, plus an amount equal to the increase, if any, set forth in Paragraph X.l based upon said ACA Index; and (ii) the Bonus percentage set forth in Paragraph X.2.a shall be adjusted by multiplying the prior Fiscal Year's combined Salary and Bonus by twenty-five percent (25%), and dividing that product by the actual Profit earned in the prior Fiscal Year. d. Executive shall have the right to obtain an advance against such Bonus at the end of each month of each Fiscal Year in an amount equal to fifty percent (50% of, or 0.5 times) the projected amount of such Bonus based on the Profit at that time. e. The independent public accounting firm for the Company shall determine the Profit and Bonus for each Fiscal Year. Company shall pay Executive the Bonus for the Fiscal Year (or the balance thereof after any advances) when such accounting firm has made such determination, but no later than ninety (90) days after the end of each Fiscal Year. The Bonus for any partial Fiscal Year shall be prorated for the fraction of the Fiscal Year for which such Bonus is payable. Absent bad faith or material error, the conclusions of such accounting firm or department with respect to the amounts of the Profits and Bonuses shall be conclusive upon Executive and Company. f. Notwithstanding the foregoing, no Bonus for any Fiscal Year of the Company shall be payable unless the Company's net income per share for the Fiscal Year then ending is equal to or greater than eighty percent (80%) of the Company's net income per share for the previous Fiscal Year of the Company. 3. POST-EMPLOYMENT CONSULTANCY: After Executive's retirement, resignation and/or termination from employment with Company, but commencing no earlier than what is or would have been Executive's sixty-fifth (65th) birthday and concluding no later than ten (10) years thereafter ("Consultancy Period"), Company shall pay to Executive consulting fees ("Consulting Fees") of: a. 120 equal monthly installments accrued at 1/120th of $150,000 for each month of employment completed by Executive from November 1, 1989 through October 31, 1999, plus b. 120 equal monthly installments accrued at 1/60th of $100,000 for each month of employment completed by Executive from November 1, 1999 through October 31, 2004. c. During the Consultancy Period: (i) Executive shall provide Company with such
9 occasional executive or managerial services as reasonably requested by the person with the title set forth in Paragraph C hereof, except that failure to render such services by reason of death or disability, or unavailability because of absence from the County of Employment, shall not effect Executive's right to receive such Consulting fees, (ii) Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof, upon presentation to that person by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, receipts for all such expenses in excess of Twenty-Five Dollars ($25) each, (iii) Company shall pay Executive's Consulting Fees pursuant to this Paragraph X.3 herein, (iv) Executive shall not be eligible or entitled to receive or participate in any other of the Company's then current fringe benefits, and (v) Executive shall be deemed an independent contractor and not an employee of the Company. d. If Executive dies before receiving any or all payments to Executive of such Consulting Fees, all unpaid Consulting Fees shall be paid monthly to Executive's estate or trust commencing from the month in which Executive would have reached Executive's sixty-fifth (65th) birthday or continuing from the date of death following such commencement. Y. SCOPE OF CERTAIN PROVISIONS: All references to Company in Paragraphs H, I, J, K, L, M, N, O.3, O.4, Q, R and Z in this Agreement shall include Company, its affiliated and its subsidiary corporations. Z. ENTIRE AGREEMENT: Unless otherwise specified herein, this Agreement sets forth every contract, understanding and arrangement as to the employment relationship between Executive and Company, and may only be changed by a written amendment signed by both Executive and Company. 1. The parties intend that this Agreement speak for itself, and that no evidence with respect to its terms and conditions other than this Agreement itself may be introduced in any arbitration or judicial proceeding to interpret or enforce this Agreement. 2. It is specifically understood and accepted that this Agreement supersedes all oral and written employment agreements between Executive and Company prior to the date hereof, as well as all conflicting provisions of Company's Guidelines For Corporate Approval and its Human Resources Manual, including but not limited to, the termination, discipline and discharge provisions contained therein. Said Guidelines and Manual are not an Agreement between Executive and Company, nor shall they be binding on either party. The purpose and intent of said Guidelines and Manual are only to suggest guidance for Company managers to apply as they see fit on a case by case basis. ZZ. FULL KNOWLEDGE & UNDERSTANDING: Executive and Company hereby acknowledge that they have carefully read and fully understand all terms and conditions of this Agreement, and that they are voluntarily entering into this Agreement with full knowledge of the benefits and burdens, and the risks and rewards, contained herein.
10 IN WITNESS WHEREOF, Executive and Company have executed this Agreement as of the date set forth above: EXECUTIVE: Signature: /s/ HARRY H. KAHN ----------------------------------------------- Date: 11/30/00 ----------------------------------------------- COMPANY: By: Martinn H. Mandles ----------------------------------------------- Date: 11/29/00 ----------------------------------------------- Signature: /s/ MARTINN H. MANDLES ----------------------------------------------- Title: Chairman of the Board and Chief Administrative Officer ----------------------------------------------- ABM Industries Incorporated
EXHIBIT 10.63 1 CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT THIS CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of November 1, 2000, by and between JESS E. BENTON ("Executive"), and ABM Industries Incorporated ("Company") for itself and on behalf of its subsidiary corporations as applicable herein. WHEREAS, Company is engaged in the building maintenance and related service businesses, and WHEREAS, Executive is experienced in the administration, finance, marketing, and operation of such services, and WHEREAS, Company has invested significant time and money to develop proprietary trade secrets and other confidential business information, as well as invaluable goodwill among its customers, sales prospect and employees, and WHEREAS, Executive wishes to, or has been and desires to remain employed by Company, and to utilize such proprietary trade secrets, other confidential business information and goodwill, and WHEREAS, Company has disclosed or will disclose to Executive such proprietary trade secrets and other confidential business information which Executive will utilize in the performance of this Agreement; NOW THEREFORE, Executive and Company agree as follows: A. EMPLOYMENT: Company hereby agrees to employ Executive, and Executive hereby accepts such employment, on the terms and conditions set forth in this Agreement. B. TITLE: Executive's title shall be Executive Vice President and Chief Operating Officer of Company. C. DUTIES & RESPONSIBILITIES: Executive shall be expected to assume and perform such executive or managerial duties and responsibilities as are assigned from time-to-time by the President and CEO of Company, to whom Executive shall report and be accountable. D. TERM OF AGREEMENT: Employment hereunder shall commence on November 1, 2000, for a term of two (2) years ("Initial Term") ending on October 31, 2002, unless sooner terminated pursuant to Paragraph O hereof, or later extended pursuant to Paragraph N hereof ("Extended Term"). E. PRINCIPAL OFFICE: During the Initial Term and any Extended Term, as applicable, of this Agreement, Executive shall be based at a Company office located in San Francisco ("County of Employment"), California ("State of Employment). F. COMPENSATION: Company agrees to compensate Executive, and Executive agrees to accept as compensation in full, for Executive's assumption and performance of duties and responsibilities pursuant to this Agreement: 1. SALARY: A base salary paid in equal installments of no less frequently than semi-monthly at the annual rate set forth in Paragraph X.l hereof. 2. BONUS: A bonus or other incentive or contingent compensation, if any, pursuant to Paragraph X.2 hereof, and the bonus set forth in Paragraph X.4, hereof.
2 3. FRINGE BENEFITS: The then current fringe benefits generally provided by Company to all of its Executives. Such benefits may include but not be limited to the use of a Company-leased car or a car allowance, group health benefits, long-term disability benefits, group life insurance, sick leave and vacation, and a service award benefit. Each of these fringe benefits is subject to the applicable Company policy at all times. Company reserves the right to add, increase, reduce or eliminate any fringe benefit at any time, but no such benefit or benefits shall be reduced or eliminated as to Executive unless generally reduced or eliminated as to comparable executives within the Company. G. PAYMENT OR REIMBURSEMENT OF BUSINESS EXPENSES: Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with Company business, and approved in writing by the person(s) with the title set forth in Paragraph C hereof, upon presentation to such person(s) by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, nature, recipient, purpose and amount of each such expense, accompanied by receipts for all such expenses in excess of Twenty-Five Dollars ($25) each. H. BUSINESS CONDUCT: Executive shall make reasonable best efforts to comply with all applicable laws pertaining to the performance of this Agreement, and with all lawful and ethical rules, regulations, policies, procedures and instructions of Company, including but not limited to the following: 1. GOOD FAITH: Executive shall not act in any way contrary to the best interest of Company. 2. BEST EFFORTS: During all full-time employment hereunder, Executive shall devote full working time and attention to Company, and shall not at any time be directly or indirectly employed by, own, operate, assist or otherwise be involved, invested or associated in any business that is similar or competitive to any business of Company; except that Executive may own up to five percent (5%) of any such publicly-held business(es), provided that Executive: (a) shall give Company notice(s) of such ownership in accordance with Paragraph W hereof, and (b) shall not at any time be directly or indirectly employed by or operate, assist, or otherwise be involved or associated with any such business(es). 3. VERACITY: Executive shall make no claims or promises to any employee, supplier, contractor, customer or sales prospect of Company that are unauthorized by Company or are in any way untrue. 4. DRIVER'S LICENSE: Executive shall have and carry a valid driver's license issued by the State of Employment hereunder and a driver's permit issued by the Company whenever Executive is driving any motor vehicle in connection with Company business. Executive agrees to immediately notify Company in writing if Executive's driver's license is lost, expired, restricted, suspended or revoked for any reason whatsoever. I. NO CONFLICT: Executive represents to Company that Executive is not bound by any contract with a previous employer or with any other business that might prevent Executive from entering into this Agreement or disclosing information about any previous employer or any other business to Company, or might otherwise interfere with Executive's employment hereunder. J. COMPANY PROPERTY: Company shall, from time to time, entrust to the care, custody and control of Executive certain of Company's property, such as motor vehicles, equipment, supplies and documents. Such documents may include, but shall not be limited to customer lists, financial statements, cost data, price lists, invoices, forms, electronic files and media, mailing lists, contracts, reports, manuals, personnel files or directories, correspondence, business cards, copies or notes
3 made from Company documents and documents compiled or prepared by Executive for Executive's use in connection with Company business. Executive specifically acknowledges that all such documents are the property of Company, notwithstanding their preparation, care, custody, control or possession by Executive at any time(s) whatsoever. K. GOODWILL & PROPRIETARY INFORMATION: In connection with Executive's employment hereunder: 1. Executive agrees to utilize and further Company's goodwill ("Goodwill") among its customers, sales prospects and employees, and acknowledges that Company may disclose to Executive and Executive may disclose to Company, proprietary trade secrets and other confidential information not in the public domain ("Proprietary Information") including but not limited to specific customer data such as: (a) the identity of Company's customers and sales prospects, (b) the nature, extent, frequency, methodology, cost, price and profit associated with their services and products purchased from Company, (c) any particular needs or preferences regarding their service or supply requirements, (d) the names, office hours, telephone numbers and street addresses of their purchasing agents or other buyers, (e) their billing procedures, (f) their credit limits and payment practices, and (g) their organization structure. 2. Executive agrees that such Proprietary Information and Goodwill have unique value to Company, are not generally known or readily available to Company's competitors, and could only be developed by others after investing significant time and money. Company would not make such Proprietary Information and Goodwill available to Executive unless Company is assured that all such Proprietary Information and Goodwill will be held in trust and confidence by Executive. Executive hereby acknowledges that to use this Proprietary Information and Goodwill except for the benefit of Company would be improper and unfair to Company. L. RESTRICTIVE COVENANTS: In recognition of Paragraph K hereof, Executive hereby agrees that during the Initial Term and the Extended Term, if any, of this Agreement, and thereafter for as long as it shall be enforceable: 1. Except in the proper performance of this Agreement, Executive shall not directly or indirectly solicit or otherwise encourage or arrange for any employee to terminate employment with Company. 2. Except in the proper performance of this Agreement, Executive shall not directly or indirectly disclose or deliver to any other person or business, any Proprietary Information obtained directly or indirectly by Executive from, or for, Company. 3. Executive shall not seek, solicit, divert, take away, obtain or accept the patronage of any customer or sales prospect of Company through the direct or indirect use of any Proprietary Information of Company, or by any other unfair or unlawful business practice. 4. Executive agrees that for a reasonable time after the termination of this Agreement, which Executive and Company hereby agree to be one (1) year, Executive shall not directly or indirectly, for Executive or for any other person or business, seek, solicit, divert, take away, obtain or accept any site-specific customer account or site-specific sales prospect with which Executive had direct business involvement on behalf of Company within the one (1) year period prior to termination of this Agreement.
4 5. Nothing in this Agreement shall be binding upon the parties to the extent it is void or unenforceable for any reason in the State of Employment, including, without limitation, as a result of any law regulating competition or proscribing unlawful business practices. M. MODIFICATION OF EMPLOYMENT: At any time during the then current Initial or Extended Term, as applicable, of this Agreement, a majority of the Board of Directors of Company shall have the absolute right, with or without cause and without terminating this Agreement or Executive's employment hereunder, to modify the nature of Executive's employment for the remainder of the then current Initial or Extended Term, as applicable, of this Agreement, from that of a full-time employee to that of a part-time employee ("Modification Period"). The Modification Period shall commence immediately upon Company giving Executive written notice of such change. 1. Upon commencement of the Modification Period: (a) Executive shall immediately resign as a full-time employee of Company and as an officer and/or director of Company, as applicable, (b) Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof, and (c) Company shall pay Executive all previously earned and vested but as yet unpaid, salary, prorated bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 2. During the Modification Period: (a) Company shall continue to pay Executive's monthly salary pursuant to Paragraph F.l hereof, and to the extent available under the Company's group insurance policies, continue to provide Executive with the same group health and life insurance (subject to Executive continuing to pay the employee portion of any such premium) to which Executive would be entitled as a full-time employee, with the understanding and agreement that such monthly salary and group insurance, if available, shall constitute the full extent of Company's obligation to compensate Executive, (b) Executive shall not be eligible or entitled to receive or participate in any bonus or fringe benefits other than the aforementioned group insurance, if available, (c) in the alternative, Executive may exercise rights under COBRA to obtain medical insurance coverage as may be available to Executive, (d) Executive shall be deemed a part-time employee and not a full-time employee of Company, (e) Executive shall provide Company with such occasional executive or managerial services as reasonably requested by the persons with the title set forth in Paragraph C hereof, except that failure to render such services by reason of any physical or mental illness or disability other than Total Disability or death as set forth in Paragraph O.2 hereof, or unavailability because of absence from the State of Employment hereunder, shall not affect Executive's right to receive such salary and (f) Company shall pay directly or reimburse Executive in accordance with the provisions of Paragraph G hereof for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof. 3. The Modification Period shall continue until the earlier of (a) Total Disability or death as set forth in Paragraph O.2 hereof, (b) termination of this Agreement by Company for "just cause" as hereinafter defined, (c) Executive accepting employment or receiving any other compensation from operating, assisting or otherwise being involved, invested or associated with any business that is similar to or competitive with any business in which Company is engaged on the commencement date of the Modification Period, or (d) expiration of the then current Term of this Agreement. N. EXTENSION OF EMPLOYMENT: Absent at least ninety (90) days written Notice of Termination from either party to the other party prior to expiration of the then Initial or Extended Term, as applicable, of this Agreement, employment hereunder shall continue for an Extended Term (or another Extended Term, as applicable) of two (2) years, by which Executive and Company intend that all terms and conditions of this Agreement shall remain in full force and effect
5 for another twenty four (24) months, except that the highest base salary specified in Paragraph X.1.a. shall be increased annually as set forth in Paragraph X.l.b for each year of the Extended Term. Company has the option, without terminating this Agreement or Executive's employment hereunder, of placing Executive on a leave of absence at the full compensation set forth in Paragraph F hereof for any or all of such ninety (90) day period in lieu of the aforementioned Notice of Termination. O. TERMINATION OF EMPLOYMENT: 1. a. Termination of employment at the expiration of the then current Initial or Extended Term shall be effective with or without cause. b. Except as provided in Paragraph O.1.a, the Company shall have the right to terminate Executive's employment hereunder at any time during the then current Initial or Extended Term, as applicable, of this Agreement, without notice subject only to a good faith determination by a majority of the Board of Directors of Company of "just cause." "Just cause" includes but is not limited to any theft or other dishonesty, or any material: (i) neglect of employment duties, (ii) inability or unwillingness to perform employment duties, (iii) insubordination, (iv) abuse of alcohol or other drugs, (v) breach of this Agreement; or for (vi) other misconduct, unethical or unlawful activity. c. At any time during the then current Initial or Extended Term, as applicable, of this Agreement, with or without cause, Executive may terminate employment hereunder by giving Company ninety (90) days prior written notice. 2. Employment hereunder shall automatically terminate upon the total disability ("Total Disability") or death of Executive. Total Disability shall be deemed to occur on the ninetieth (90th) consecutive or non-consecutive calendar day within any twelve (12) month period that Executive is unable to perform the essential job functions as set forth in Paragraph C hereof because of any physical or mental illness or disability. Company shall pay when due to Executive or his estate, as applicable, all prorated salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits which would have otherwise been payable to Executive under this Agreement, through the end of the month in which Total Disability or death occurs. 3. Upon termination of employment hereunder, Executive shall immediately resign as an employee of Company and as an officer and/or director of Company, as applicable. Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to, any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof. Company shall pay Executive, when due, all previously earned and vested but as yet unpaid, salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 4. Nothing contained in this Agreement shall entitle Executive to receive a bonus or other incentive or contingent compensation from Company based on any sales or profits made by Company after termination of employment hereunder. P. GOVERNING LAW: This Agreement shall be interpreted and enforced in accordance with the laws of the State of Employment hereunder.
6 Q. ARBITRATION CLAUSE: 1. Except for the interpretation and enforcement of injunctive relief pursuant to Paragraph R hereof (which, at Company's option, shall be subject to litigation in any court having proper jurisdiction), any claim or dispute related to or arising from this Agreement (whether based in contract or tort, in law or equity) including, but not limited to, claims or disputes between Executive and Company or its directors, officers, employees and agents regarding Executive's employment or termination of employment hereunder, or any other business of Company, shall be resolved by mandatory, final, binding arbitration in accordance with the rules of the American Arbitration Association; provided, however, that no party shall be entitled to an award of general or punitive damages hereunder. 2. Any such arbitration must be requested in writing within one (1) year from the date the party initiating the arbitration knew or should have known about the claim or dispute, or all claims arising from that dispute are forever waived. Any such arbitration (or court proceeding as applicable hereunder) shall be held in the County of Employment. Judgment upon the award rendered through such arbitration may be entered and enforced in any court having proper jurisdiction. R. REMEDIES & DAMAGES: 1. The parties agree that, in the event of a material breach or threatened material breach of Paragraph L hereof, the damage or imminent damage to the value of Company's business shall be inestimable, and therefore any remedy at law or in damages shall be inadequate. Accordingly, the parties hereto agree that Company shall be entitled to the immediate issuance of a restraining order or an injunction against Executive in the event of such breach or threatened breach, in addition to any other relief available to Company pursuant to this Agreement or under law. 2. Executive agrees that the actual amount of damages resulting from any material breach of any of the provisions of Paragraph L hereof would be impractical or impossible to ascertain. It is therefore agreed that the damages resulting from any such breach which involves any customer of Company shall be liquidated damages, not a penalty, in an amount equal to four (4) times the lost monthly revenue to the Company based on the average monthly revenue which was payable by that customer to Company during the four (4) months immediately preceding such breach. This provision for liquidated damages is in addition to any other relief available to Company pursuant to this Agreement or under law. 3. To the full extent permitted under the laws of the State of Employment hereunder, Executive authorizes Company to withhold from Executive's compensation and from any other funds held for Executive's benefit by Company, any damages or losses sustained by Company as a result of any material breach or other material violation of this Agreement by Executive, pending arbitration between the parties as provided for herein. S. NO WAIVER: Failure by either party to enforce any term or condition of this Agreement at any time shall not preclude that party from enforcing that provision, or any other provision of this Agreement, at any later time. T. SEVERABILITY: The provisions of this Agreement are severable. If any arbitrator (or court as applicable hereunder) rules that any portion of this Agreement is invalid or unenforceable, the arbitrator's or court's ruling shall not affect the validity and enforceability of other provisions of this Agreement. It is the intent of the parties that if any provision of this Agreement is ruled to be overly broad, the arbitrator or court shall interpret such provision with as much permissible breadth as is allowable under law rather than to consider such provision void.
7 U. SURVIVAL: All terms and conditions of this Agreement which by reasonable implication are meant to survive the termination of this Agreement, including but not limited to, the Restrictive Covenants and Arbitration Clause herein, shall remain in full force and effect after the termination of this Agreement. V. CONSTRUCTION: This Agreement was negotiated in good faith by the parties hereto, who hereby agree to share the responsibility for any ambiguities, uncertainties or inconsistencies herein. Paragraph headings are used herein only for ease of reference, and shall not in any way affect the interpretation or enforcement of this Agreement. W. NOTICES: 1. Any notice required or permitted to be given pursuant to this Agreement shall be in writing and delivered in person, or sent prepaid by certified mail, bonded messenger or overnight express, to the party named at the address set forth below or at such other address as either party may hereafter designate in writing to the other party: EXECUTIVE: JESS E. BENTON 50 Orange Court Hillsborough, CA 94010 COMPANY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: President and Chief Executive Officer COPY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: Chief Employment Counsel 2. Any such notice shall be assumed to have been received when delivered in person, or forty-eight (48) hours after being sent in the manner specified above. X. SPECIAL PROVISIONS: 1. SALARY: a. Four Hundred Fifty Thousand Dollars ($450,000) per year effective November 1, 2000 through October 31, 2001 at the monthly rate of $37,500 (payable semi-monthly). b. Effective November 1, 2001 through October 31, 2002, and for each year of the then current Initial or Extended Term of this Agreement, as applicable, the Salary in Paragraph X.1.a. will be adjusted upward annually to reflect the percentage increase change in the American Compensation Association ("ACA"), or any successor thereof, Index for the Western Region ("ACA Index") with a (6%) maximum increase. The adjustment, if any, shall be based upon the projected ACA Index as published for the ACA fiscal year ending on the June 30th immediately preceding the effective date of the proposed increase hereunder. Notwithstanding the foregoing, there shall be no annual increase in Salary for any such year unless the Company's earning per share ("EPS") for the fiscal year of the Company (commencing November 1, and ending October 31st) ("Fiscal Year") then ending are equal to or
8 greater than the Company's EPS for the previous Fiscal Year. There shall be no downward adjustment in salary in the event the ACA Index shows a decrease from the prior Fiscal Year. 2. BONUS: Subject to proration in the event of modification or termination of employment hereunder and further subject to the potential prospective re-set provisions set forth in Paragraph X.2.c, Executive shall be paid a bonus ("Bonus") based on the profit ("Profit") for each Fiscal Year, or partial Fiscal Year, of employment hereunder during the Term, and during the Extended Term, if any, of this Agreement: a. Such Bonus for each Fiscal Year shall be (i) 0.0451% of the Company's Profit on a pro-rata basis and (ii) 1.0362% of the amount of any increase in the Company's Profit over the previous Fiscal Year's Profit, all on a pro-rata basis. b. Profit is defined as the consolidated income before income taxes of the Company, excluding: (i) gains or losses on sales or exchanges of real property or on sales or exchanges of all or substantially all of the stock or assets of a subsidiary corporation or any other business unit of Company, (ii) gains or losses on the discontinuation of any business unit of Company, and (iii) the discretionary portion of any contributions made to any profit sharing, service award, employee retirement or savings or similar plan. c. Subject to proration in the event of modification or termination of employment under this Agreement, and further subject to a re-set in the event Executive's Bonus for any Fiscal Year has been limited as hereinafter provided, Executive's maximum Bonus for each Fiscal Year shall be one hundred percent (100%) the Salary for that year set forth in Paragraph X.l herein. If, however, in any completed Fiscal Year, the Bonus which might have been earned by Executive for that year exceeds said one-hundred percent (100%) maximum, Executive's Salary and Bonus for the next year shall be re-computed as follows: (i) notwithstanding the six percent (6%) maximum set forth hereinabove, the Salary set forth in Paragraph X.l shall be adjusted to equal seventy-five percent (75%) of the prior Fiscal Year's combined Salary and Bonus, plus an amount equal to the increase, if any, set forth in Paragraph X.l based upon said ACA Index; and (ii) the Bonus percentage set forth in Paragraph X.2.a shall be adjusted by multiplying the prior Fiscal Year's combined Salary and Bonus by twenty-five percent (25%), and dividing that product by the actual Profit earned in the prior Fiscal Year. d. Executive shall have the right to obtain an advance against such Bonus at the end of each month of each Fiscal Year in an amount equal to fifty percent (50% of, or 0.5 times) the projected amount of such Bonus based on the Profit at that time. e. The independent public accounting firm for the Company shall determine the Profit and Bonus for each Fiscal Year. Company shall pay Executive the Bonus for the Fiscal Year (or the balance thereof after any advances) when such accounting firm has made such determination, but no later than ninety (90) days after the end of each Fiscal Year. The Bonus for any partial Fiscal Year shall be prorated for the fraction of the Fiscal Year for which such Bonus is payable. Absent bad faith or material error, the conclusions of such accounting firm or department with respect to the amounts of the Profits and Bonuses shall be conclusive upon Executive and Company. f. Notwithstanding the foregoing, no Bonus for any Fiscal Year of the Company shall be payable unless the Company's net income per share for the Fiscal Year then
9 ending is equal to or greater than eighty percent (80%) of the Company's net income per share for the previous Fiscal Year of the Company. 3. POST-EMPLOYMENT CONSULTANCY: After Executive's retirement, resignation and/or termination from employment with Company, but commencing no earlier than what is or would have been Executive's sixty-fifth (65th) birthday and concluding no later than ten (10) years after commencement ("Consultancy Period"), Company shall pay to Executive consulting fees ("Consulting Fees") of: a. 120 equal monthly installments of $2,083.00 for a total of $250,000. b. During the Consultancy Period: (i) Executive shall provide Company with such occasional executive or managerial services as reasonably requested by the person with the title set forth in Paragraph C hereof, except that failure to render such services by reason of death or disability, or unavailability because of absence from the County of Employment, shall not effect Executive's right to receive such Consulting fees, (ii) Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof, upon presentation to that person by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, receipts for all such expenses in excess of Twenty-Five Dollars ($25) each, (iii) Company shall pay Executive's Consulting Fees pursuant to this Paragraph X.3 herein, (iv) Executive shall not be eligible or entitled to receive or participate in any other of the Company's then current fringe benefits, and (v) Executive shall be deemed an independent contractor and not an employee of the Company. c. If Executive dies before receiving any or all payments to Executive of such Consulting Fees, all unpaid Consulting Fees shall be paid monthly to Executive's estate or trust commencing from the month in which Executive would have reached Executive's sixty-fifth (65) birthday or continuing from the date of death following such commencement. Y. SCOPE OF CERTAIN PROVISIONS: All references to Company in Paragraphs H, I, J, K, L, M, N, O.3, O.4, Q, R and Z in this Agreement shall include Company, its affiliated and its subsidiary corporations. Z. ENTIRE AGREEMENT: Unless otherwise specified herein, this Agreement sets forth every contract, understanding and arrangement as to the employment relationship between Executive and Company, and may only be changed by a written amendment signed by both Executive and Company. 1. The parties intend that this Agreement speak for itself, and that no evidence with respect to its terms and conditions other than this Agreement itself may be introduced in any arbitration or judicial proceeding to interpret or enforce this Agreement. 2. It is specifically understood and accepted that this Agreement supersedes all oral and written employment agreements between Executive and Company prior to the date hereof, as well as all conflicting provisions of Company's Guidelines For Corporate Approval and its Human Resources Manual, including but not limited to, the termination, discipline and discharge provisions contained therein. Said Guidelines and Manual are not an Agreement between Executive and Company, nor shall they be binding on either party. The purpose and intent of said Guidelines and Manual are only to suggest guidance for Company managers to apply as they see fit on a case by case basis.
10 ZZ. FULL KNOWLEDGE & UNDERSTANDING: Executive and Company hereby acknowledge that they have carefully read and fully understand all terms and conditions of this Agreement, and that they are voluntarily entering into this Agreement with full knowledge of the benefits and burdens, and the risks and rewards, contained herein. IN WITNESS WHEREOF, Executive and Company have executed this Agreement as of the date set forth above: EXECUTIVE: Signature: /s/ JESS E. BENTON ----------------------------------------------- Date: June 25, 2001 ----------------------------------------------- COMPANY: Signature: /s/ HENRIK C. SLIPSAGER ----------------------------------------------- By: Henrik C. Slipsager ----------------------------------------------- Title: President and Chief Executive Officer ----------------------------------------------- Date: July 11, 2001 -----------------------------------------------
EXHIBIT 10.65 [ABM INDUSTRIES INCORPORATED LETTERHEAD] March 12, 2001 Mr. Henrik Slipsager President and Chief Executive Officer ABM Industries, Incorporated 160 Pacific Avenue, Suite 222 San Francisco, California 94111 Re: First Amendment ("Amendment") of Division Executive Employment Agreement dated November 1, 2000 ("Agreement") Dear Henrik, Your Employment Agreement effective November 1, 2000, is hereby amended as follows, pursuant to Resolution No. 00-036 of the ABM Industries Incorporated Board of Directors (Resolved December 19, 2000): Paragraph X. SPECIAL PROVISIONS 2. BONUS (a) Such Bonus for each Fiscal Year shall be: (i) 0.0649% of the Company's Profit plus (ii) 1.8176 % of the amount of any increase in the Company's Profit over the previous Fiscal Year's Profit, all on a pro-rata basis. This Amendment shall be effective as of November 1, 2000. In all other respects the Agreement shall remain unchanged. Please sign both original copies of this letter, returning one to me and retaining one fully executed original for your records. Sincerely, /s/ DONNA M. DELL - ----------------------------------------- Donna M. Dell, Esq. Senior Vice President of Human Resources and Chief Employment Counsel I agree to the foregoing: /s/ HENRIK C. SLIPSAGER Dated: 3/12/01 - ----------------------------------------- ------------------------- Henrik C. Slipsager New York Stock Exchange Symbol: ABM
EXHIBIT 10.66 1 CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT THIS CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of June 1, 2001, by and between George B. Sundby ("Executive"), and ABM Industries Incorporated ("Company") for itself and on behalf of its subsidiary corporations as applicable herein. WHEREAS, Company is engaged in the building maintenance and related service businesses, and WHEREAS, Executive is experienced in the financial control and reporting, acquisitions and divestitures, information technology, risk management and board and investor communications generally applicable to such businesses, and WHEREAS, Company has invested significant time and money to develop proprietary trade secrets and other confidential business information, as well as invaluable goodwill among its customers, sales prospects and employees, and WHEREAS, Executive wishes to, or has been and desires to remain employed by Company, and to utilize such proprietary trade secrets, other confidential business information and goodwill, and WHEREAS, Company has disclosed or will disclose to Executive such proprietary trade secrets and other confidential business information which Executive will utilize in the performance of this Agreement; NOW THEREFORE, Executive and Company agree as follows: A. EMPLOYMENT: Company hereby agrees to employ Executive, and Executive hereby accepts such employment, on the terms and conditions set forth in this Agreement. B. TITLE: Executive's title shall be Senior Vice President and Chief Financial Officer of Company. C. DUTIES & RESPONSIBILITIES: Executive shall be expected to assume and perform such executive or managerial duties and responsibilities as are assigned from time-to-time by the President and CEO of Company, to whom Executive shall report and be accountable. D. TERM OF AGREEMENT: Employment hereunder shall commence on June 1, 2001, for a term of two (2) years and five (5) months ("Initial Term"), unless sooner terminated pursuant to Paragraph O hereof, or later extended pursuant to Paragraph N hereof ("Extended Term"). E. PRINCIPAL OFFICE: During the Initial Term and any Extended Term, as applicable, of this Agreement, Executive shall be based at a Company office located in San Francisco ("County of Employment"), California ("State of Employment). F. COMPENSATION: Company agrees to compensate Executive, and Executive agrees to accept as compensation in full, for Executive's assumption and performance of duties and responsibilities pursuant to this Agreement: 1. SALARY: A base salary paid in equal installments of no less frequently than semi-monthly at the annual rate set forth in Paragraph X.1 hereof. 2. BONUS: A bonus or other incentive or contingent compensation, if any, pursuant to Paragraph X.2 hereof, and the bonus set forth in Paragraph X.4, hereof.
2 3. FRINGE BENEFITS: The then current fringe benefits generally provided by Company to all of its Executives. Such benefits may include but not be limited to the use of a Company-leased car or a car allowance, group health benefits, long-term disability benefits, group life insurance, sick leave and vacation, and a service award benefit. Company agrees to grant to Executive vacation accrual at a rate equivalent to four (4) weeks per year. Each of these fringe benefits is otherwise subject to the applicable Company policy at all times. Company reserves the right to add, increase, reduce or eliminate any fringe benefit at any time, but no such benefit or benefits shall be reduced or eliminated as to Executive unless generally reduced or eliminated as to comparable executives within the Company. G. PAYMENT OR REIMBURSEMENT OF BUSINESS EXPENSES: Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with Company business, and approved in writing by the person(s) with the title set forth in Paragraph C hereof, upon presentation to such person(s) by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, nature, recipient, purpose and amount of each such expense, accompanied by receipts for all such expenses in excess of Twenty-Five Dollars ($25) each. H. BUSINESS CONDUCT: Executive shall make reasonable best efforts to comply with all applicable laws pertaining to the performance of this Agreement, and with all lawful and ethical rules, regulations, policies, procedures and instructions of Company, including but not limited to the following: 1. GOOD FAITH: Executive shall not act in any way contrary to the best interest of Company. 2. BEST EFFORTS: During all full-time employment hereunder, Executive shall devote full working time and attention to Company, and shall not at any time be directly or indirectly employed by, own, operate, assist or otherwise be involved, invested or associated in any business that is similar or competitive to any business of Company; except that Executive may own up to five percent (5%) of any such publicly-held business(es), provided that Executive: (a) shall give Company notice(s) of such ownership in accordance with Paragraph W hereof, and (b) shall not at any time be directly or indirectly employed by or operate, assist, or otherwise be involved or associated with any such business(es). 3. VERACITY: Executive shall make no claims or promises to any employee, supplier, contractor, customer or sales prospect of Company that are unauthorized by Company or are in any way untrue. 4. DRIVER'S LICENSE: Executive shall have and carry a valid driver's license issued by the State of Employment hereunder and a driver's permit issued by the Company whenever Executive is driving any motor vehicle in connection with Company business. Executive agrees to immediately notify Company in writing if Executive's driver's license is lost, expired, restricted, suspended or revoked for any reason whatsoever. I. NO CONFLICT: Executive represents to Company that Executive is not bound by any contract with a previous employer or with any other business that might prevent Executive from entering into this Agreement. J. COMPANY PROPERTY: Company shall, from time to time, entrust to the care, custody and control of Executive certain of Company's property, such as motor vehicles, equipment, supplies and documents. Such documents may include, but shall not be limited to customer
3 lists, financial statements, cost data, price lists, invoices, forms, electronic files and media, mailing lists, contracts, reports, manuals, personnel files or directories, correspondence, business cards, copies or notes made from Company documents and documents compiled or prepared by Executive for Executive's use in connection with Company business. Executive specifically acknowledges that all such documents are the property of Company, notwithstanding their preparation, care, custody, control or possession by Executive at any time(s) whatsoever. K. GOODWILL & PROPRIETARY INFORMATION: In connection with Executive's employment hereunder: 1. Executive agrees to utilize and further Company's goodwill ("Goodwill") among its customers, sales prospects and employees, and acknowledges that Company may disclose to Executive proprietary trade secrets and other confidential information not in the public domain ("Proprietary Information") including but not limited to specific customer data such as: (a) the identity of Company's customers and sales prospects, (b) the nature, extent, frequency, methodology, cost, price and profit associated with their services and products purchased from Company, (c) any particular needs or preferences regarding their service or supply requirements, (d) the names, office hours, telephone numbers and street addresses of their purchasing agents or other buyers, (e) their billing procedures, (f) their credit limits and payment practices, and (g) their organization structure. 2. Executive agrees that such Proprietary Information and Goodwill have unique value to Company, are not generally known or readily available to Company's competitors, and could only be developed by others after investing significant time and money. Company would not make such Proprietary Information and Goodwill available to Executive unless Company is assured that all such Proprietary Information and Goodwill will be held in trust and confidence by Executive. Executive hereby acknowledges that to use this Proprietary Information and Goodwill except for the benefit of Company would be improper and unfair to Company. L. RESTRICTIVE COVENANTS: In recognition of Paragraph K hereof, Executive hereby agrees that during the Initial Term and the Extended Term, if any, of this Agreement, and thereafter for as long as it shall be enforceable: 1. Except in the proper performance of this Agreement, Executive shall not directly or indirectly solicit or otherwise encourage or arrange for any employee to terminate employment with Company. 2. Except in the proper performance of this Agreement, Executive shall not directly or indirectly disclose or deliver to any other person or business, any Proprietary Information obtained directly or indirectly by Executive from, or for, Company. 3. Executive shall not seek, solicit, divert, take away, obtain or accept the patronage of any customer or sales prospect of Company through the direct or indirect use of any Proprietary Information of Company, or by any other unfair or unlawful business practice. 4. Executive agrees that for a reasonable time after the termination of this Agreement, which Executive and Company hereby agree to be one (1) year, Executive shall not directly or indirectly, for Executive or for any other person or business, seek, solicit, divert, take away, obtain or accept any site-specific customer account or site-specific sales prospect with which Executive had direct business involvement on behalf of Company within the one (1) year period prior to termination of this Agreement.
4 5. Nothing in this Agreement shall be binding upon the parties to the extent it is void or unenforceable for any reason in the State of Employment, including, without limitation, as a result of any law regulating competition or proscribing unlawful business practices. M. MODIFICATION OF EMPLOYMENT: At any time during the then current Initial or Extended Term, as applicable, of this Agreement, a majority of the Board of Directors of Company shall have the absolute right, with or without cause and without terminating this Agreement or Executive's employment hereunder, to modify the nature of Executive's employment for the remainder of the then current Initial or Extended Term, as applicable, of this Agreement, from that of a full-time employee to that of a part-time employee ("Modification Period"). The Modification Period shall commence immediately upon Company giving Executive written notice of such change. 1. Upon commencement of the Modification Period: (a) Executive shall immediately resign as an officer and/or director of Company, as applicable, (b) Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof, and (c) Company shall pay Executive all previously earned and vested but as yet unpaid, salary, prorated bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 2. During the Modification Period: (a) Company shall continue to pay Executive's monthly salary pursuant to Paragraph F.1 hereof, and to the extent available under the Company's group insurance policies, continue to provide Executive with the same group health and life insurance (subject to Executive continuing to pay the employee portion of any such premium) to which Executive would be entitled as a full-time employee, with the understanding and agreement that such monthly salary and group insurance, if available, shall constitute the full extent of Company's obligation to compensate Executive, (b) Executive shall not be eligible or entitled to receive or participate in any bonus or fringe benefits other than the aforementioned group insurance, if available, (c) in the alternative, Executive may exercise rights under COBRA to obtain medical insurance coverage as may be available to Executive, (d) Executive shall be deemed a part-time employee and not a full-time employee of Company, (e) Executive shall provide Company with such occasional executive or managerial services as reasonably requested by the persons with the title set forth in Paragraph C hereof, except that failure to render such services by reason of any physical or mental illness or disability other than Total Disability or death as set forth in Paragraph O.2 hereof, or unavailability because of absence from the State of Employment hereunder, shall not affect Executive's right to receive such salary and (f) Company shall pay directly or reimburse Executive in accordance with the provisions of Paragraph G hereof for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof. 3. The Modification Period shall continue until the earlier of: (a) Total Disability or death as set forth in Paragraph O.2 hereof, (b) termination of this Agreement by Company for "just cause" as hereinafter defined, (c) Executive accepting employment or receiving any other compensation from operating, assisting or otherwise being involved, invested or associated with any business that is similar to or competitive with any business in which Company is engaged on the commencement date of the Modification Period, or (d) expiration of the then current Term of this Agreement.
5 N. EXTENSION OF EMPLOYMENT: Absent at least ninety (90) days written Notice of Termination from either party to the other party prior to expiration of the then Initial or Extended Term, as applicable, of this Agreement, employment hereunder shall continue for an Extended Term (or another Extended Term, as applicable) of two (2) years, by which Executive and Company intend that all terms and conditions of this Agreement shall remain in full force and effect for another twenty four (24) months, except that the highest base salary specified in Paragraph X.1.a shall be increased annually as set forth in Paragraph X.1.b for each year of the Extended Term. Company has the option, without terminating this Agreement or Executive's employment hereunder, of placing Executive on a leave of absence at the full compensation set forth in Paragraph F hereof for any or all of such ninety (90) day period in lieu of the aforementioned Notice of Termination. O. TERMINATION OF EMPLOYMENT: 1. a. Termination of employment at the expiration of the then current Initial or Extended Term shall be effective with or without cause. b. Except as provided in Paragraph O.1.a, the Company shall have the right to terminate Executive's employment hereunder at any time during the then current Initial or Extended Term, as applicable, of this Agreement, without notice subject only to a good faith determination by a majority of the Board of Directors of Company of "just cause." "Just cause" includes but is not limited to any theft or other dishonesty, or any material: (i) neglect of employment duties, (ii) inability or unwillingness to perform employment duties, (iii) insubordination, (iv) abuse of alcohol or other drugs, (v) breach of this Agreement; or for (vi) other misconduct, unethical or unlawful activity. c. At any time during the then current Initial or Extended Term, as applicable, of this Agreement, with or without cause, Executive may terminate employment hereunder by giving Company ninety (90) days prior written notice. 2. Employment hereunder shall automatically terminate upon the total disability ("Total Disability") or death of Executive. Total Disability shall be deemed to occur on the ninetieth (90th) consecutive or non-consecutive calendar day within any twelve (12) month period that Executive is unable to perform the essential job functions set forth in Paragraph C hereof because of any physical or mental illness or disability. Company shall pay when due to Executive or his estate, as applicable, all prorated salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits which would have otherwise been payable to Executive under this Agreement, through the end of the month in which Total Disability or death occurs. 3. Upon termination of employment hereunder, Executive shall immediately resign as an employee of Company and as an officer and/or director of Company, as applicable. Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to, any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof. Company shall pay Executive, when due, all previously earned and vested but as yet unpaid, salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 4. Nothing contained in this Agreement shall entitle Executive to receive a bonus or other incentive or contingent compensation from Company based on any sales or profits made by Company after termination of employment hereunder.
6 P. GOVERNING LAW: This Agreement shall be interpreted and enforced in accordance with the laws of the State of Employment hereunder. Q. ARBITRATION CLAUSE: 1. Except for the interpretation and enforcement of injunctive relief pursuant to Paragraph R hereof (which, at Company's option, shall be subject to litigation in any court having proper jurisdiction), any claim or dispute related to or arising from this Agreement (whether based in contract or tort, in law or equity) including, but not limited to, claims or disputes between Executive and Company or its directors, officers, employees and agents regarding Executive's employment or termination of employment hereunder, or any other business of Company, shall be resolved by mandatory, final, binding arbitration in accordance with the rules of the American Arbitration Association; provided, however, that no party shall be entitled to an award of general or punitive damages hereunder. 2. Any such arbitration must be requested in writing within one (1) year from the date the party initiating the arbitration knew or should have known about the claim or dispute, or all claims arising from that dispute are forever waived. Any such arbitration (or court proceeding as applicable hereunder) shall be held in the County of Employment. Judgment upon the award rendered through such arbitration may be entered and enforced in any court having proper jurisdiction. R. REMEDIES & DAMAGES: 1. The parties agree that, in the event of a material breach or threatened material breach of Paragraph L hereof, the damage or imminent damage to the value of Company's business shall be inestimable, and therefore any remedy at law or in damages shall be inadequate. Accordingly, the parties hereto agree that Company shall be entitled to the immediate issuance of a restraining order or an injunction against Executive in the event of such breach or threatened breach, in addition to any other relief available to Company pursuant to this Agreement or under law. 2. Executive agrees that the actual amount of damages resulting from any material breach of any of the provisions of Paragraph L hereof would be impractical or impossible to ascertain. It is therefore agreed that the damages resulting from any such breach which involves any customer of Company shall be liquidated damages, not a penalty, in an amount equal to four (4) times the lost monthly revenue to the Company based on the average monthly revenue which was payable by that customer to Company during the four (4) months immediately preceding such breach. This provision for liquidated damages is in addition to any other relief available to Company pursuant to this Agreement or under law. 3. To the full extent permitted under the laws of the State of Employment hereunder, Executive authorizes Company to withhold from Executive's compensation and from any other funds held for Executive's benefit by Company, any damages or losses sustained by Company as a result of any material breach or other material violation of this Agreement by Executive, pending arbitration between the parties as provided for herein. S. NO WAIVER: Failure by either party to enforce any term or condition of this Agreement at any time shall not preclude that party from enforcing that provision, or any other provision of this Agreement, at any later time.
7 T. SEVERABILITY: The provisions of this Agreement are severable. If any arbitrator (or court as applicable hereunder) rules that any portion of this Agreement is invalid or unenforceable, the arbitrator's or court's ruling shall not affect the validity and enforceability of other provisions of this Agreement. It is the intent of the parties that if any provision of this Agreement is ruled to be overly broad, the arbitrator or court shall interpret such provision with as much permissible breadth as is allowable under law rather than to consider such provision void. U. SURVIVAL: All terms and conditions of this Agreement which by reasonable implication are meant to survive the termination of this Agreement, including but not limited to, the Restrictive Covenants and Arbitration Clause herein, shall remain in full force and effect after the termination of this Agreement. V. CONSTRUCTION: This Agreement was negotiated in good faith by the parties hereto, who hereby agree to share the responsibility for any ambiguities, uncertainties or inconsistencies herein. Paragraph headings are used herein only for ease of reference, and shall not in any way affect the interpretation or enforcement of this Agreement. W. NOTICES: 1. Any notice required or permitted to be given pursuant to this Agreement shall be in writing and delivered in person, or sent prepaid by certified mail, bonded messenger or overnight express, to the party named at the address set forth below or at such other address as either party may hereafter designate in writing to the other party: EXECUTIVE: GEORGE B. SUNDBY 90 Cedro Avenue San Francisco, CA 94124 COMPANY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: President and Chief Executive Officer COPY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: Chief Employment Counsel 2. Any such notice shall be assumed to have been received when delivered in person, or forty-eight (48) hours after being sent in the manner specified above. X. SPECIAL PROVISIONS: 1. SALARY: a. Three Hundred Thousand Dollars ($300,000) per year effective June 1, 2001 through October 31, 2001 at the monthly rate of $25,000 payable semi-monthly. b. Effective November 1, 2001 through October 31, 2002, and for each year of the then current Initial or Extended Term of this Agreement, as applicable, the Salary in Paragraph X.1a will be adjusted upward annually to reflect the percentage increase change in the American Compensation Association ("ACA"), or any successor thereof, Index for the Western Region ("ACA Index") with a (6%) maximum increase. The adjustment, if any, shall be based upon the projected
8 ACA Index as published for the ACA fiscal year ending on the June 30th immediately preceding the effective date of the proposed increase hereunder. Notwithstanding the foregoing, there shall be no annual increase in Salary for any such year unless the Company's earning per share ("EPS") for the fiscal year of the Company (commencing November 1, and ending October 31st) ("Fiscal Year") then ending are equal to or greater than the Company's EPS for the previous Fiscal Year. There shall be no downward adjustment in salary in the event the ACA Index shows a decrease from the prior Fiscal Year. 2. BONUS: Subject to proration in the event of modification or termination of employment hereunder and further subject to the potential prospective re-set provisions set forth in Paragraph X.2.c, Executive shall be paid a bonus ("Bonus") based on the profit ("Profit") for each Fiscal Year, or partial Fiscal Year, of employment hereunder during the Term, and during the Extended Term, if any, of this Agreement: a. Such Bonus for each Fiscal Year shall be 0.1204% of the Company's Profit which shall be pro-rated for any partial year of employment, excepting Fiscal Year 2001 for which said bonus will be paid in full.. b. Profit is defined as the consolidated income before income taxes of the Company, excluding: (i) gains or losses on sales or exchanges of real property or on sales or exchanges of all or substantially all of the stock or assets of a subsidiary corporation or any other business unit of Company, (ii) gains or losses on the discontinuation of any business unit of Company, and (iii) the discretionary portion of any contributions made to any profit sharing, service award, employee retirement or savings or similar plan. c. Subject to proration in the event of modification or termination of employment under this Agreement, and further subject to a re-set in the event Executive's Bonus for any Fiscal Year has been limited as hereinafter provided, Executive's maximum Bonus for each Fiscal Year shall be fifty percent (50%) the Salary for that year set forth in Paragraph X.1 herein. If, however, in any completed Fiscal Year, the Bonus which might have been earned by Executive for that year exceeds said fifty percent (50%) maximum, Executive's Salary and Bonus for the next year shall be re-computed as follows: (i) notwithstanding the six percent (6%) maximum set forth hereinabove, the Salary set forth in Paragraph X.1 shall be adjusted to equal seventy-five percent (75%) of the prior Fiscal Year's combined Salary and Bonus, plus an amount equal to the increase, if any, set forth in Paragraph X.1 based upon said ACA Index; and (ii) the Bonus percentage set forth in Paragraph X.2.a shall be adjusted by multiplying the prior Fiscal Year's combined Salary and Bonus by twenty-five percent (25%), and dividing that product by the actual Profit earned in the prior Fiscal Year. d. Executive shall have the right to obtain an advance against such Bonus at the end of each month of each Fiscal Year in an amount equal to fifty percent (50% of, or 0.5 times) the projected amount of such Bonus based on the Profit at that time. e. The independent public accounting firm for the Company shall determine the Profit and Bonus for each Fiscal Year. Company shall pay Executive the Bonus for the Fiscal Year (or the balance thereof after any advances) when such accounting firm has made such determination, but no later than ninety (90) days after the end of each Fiscal Year. The Bonus for any partial Fiscal Year shall be prorated for the fraction of the Fiscal Year for which such Bonus is payable. Absent bad faith or material error, the conclusions of such accounting firm or
9 department with respect to the amounts of the Profits and Bonuses shall be conclusive upon Executive and Company. f. Notwithstanding the foregoing, no Bonus for any Fiscal Year of the Company shall be payable unless the Company's net income per share for the Fiscal Year then ending is equal to or greater than eighty percent (80%) of the Company's net income per share for the previous Fiscal Year of the Company. 3. POST-EMPLOYMENT CONSULTANCY: After Executive's retirement, resignation and/or termination from employment with Company, but commencing no earlier than what is or would have been Executive's sixty-fifth (65th) birthday and concluding no later than ten (10) years thereafter ("Consultancy Period"), Company shall pay to Executive consulting fees ("Consulting Fees") of: a. 120 equal monthly installments accrued at 1/120th of $150,000 for each month of employment completed by Executive from June 1, 2001 through May 31, 2011. b. During the Consultancy Period: (i) Executive shall provide Company with such occasional executive or managerial services as reasonably requested by the person with the title set forth in Paragraph C hereof, except that failure to render such services by reason of death or disability, or unavailability because of absence from the County of Employment, shall not effect Executive's right to receive such Consulting fees, (ii) Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof, upon presentation to that person by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, receipts for all such expenses in excess of Twenty-Five Dollars ($25) each, (iii) Company shall pay Executive's Consulting Fees pursuant to this Paragraph X.3 herein, (iv) Executive shall not be eligible or entitled to receive or participate in any other of the Company's then current fringe benefits, and (v) Executive shall be deemed an independent contractor and not an employee of the Company. c. If Executive dies before receiving any or all payments to Executive of such Consulting Fees, all unpaid Consulting Fees shall be paid monthly to Executive's estate or trust commencing from the month in which Executive would have reached Executive's sixty-fifth (65th) birthday or continuing from the date of death following such commencement. Y. SCOPE OF CERTAIN PROVISIONS: All references to Company in Paragraphs H, I, J, K, L, M, N, O.3, O.4, Q, R and Z in this Agreement shall include Company, its affiliated and its subsidiary corporations. Z. ENTIRE AGREEMENT: Unless otherwise specified herein, this Agreement sets forth every contract, understanding and arrangement as to the employment relationship between Executive and Company, and may only be changed by a written amendment signed by both Executive and Company. 1. The parties intend that this Agreement speak for itself, and that no evidence with respect to its terms and conditions other than this Agreement itself may be introduced in any arbitration or judicial proceeding to interpret or enforce this Agreement. 2. It is specifically understood and accepted that this Agreement supersedes all oral and
10 written employment agreements between Executive and Company prior to the date hereof, as well as all conflicting provisions of Company's Guidelines For Corporate Approval and its Human Resources Manual, including but not limited to, the termination, discipline and discharge provisions contained therein. Said Guidelines and Manual are not an Agreement between Executive and Company, nor shall they be binding on either party. The purpose and intent of said Guidelines and Manual are only to suggest guidance for Company managers to apply as they see fit on a case by case basis. ZZ. FULL KNOWLEDGE & UNDERSTANDING: Executive and Company hereby acknowledge that they have carefully read and fully understand all terms and conditions of this Agreement, and that they are voluntarily entering into this Agreement with full knowledge of the benefits and burdens, and the risks and rewards, contained herein. IN WITNESS WHEREOF, Executive and Company have executed this Agreement as of the date set forth above: EXECUTIVE: Signature: /s/ GEORGE B. SUNDBY ----------------------------------------- Date: May 15, 2001 ----------------------------------------- COMPANY: By: ABM Industries Incorporated ----------------------------------------- Date: May 15, 2001 ----------------------------------------- Signature: /s/ HENRIK SLIPSAGER ----------------------------------------- Henrik Slipsager Title: President and Chief Executive Officer -----------------------------------------
EXHIBIT 10.67 1 CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT THIS CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of November 1, 1999, by and between Donna M. Dell ("Executive"), and ABM Industries Incorporated ("Company") for itself and on behalf of its subsidiary corporations as applicable herein. WHEREAS, Company is engaged in the building maintenance and related service businesses, and WHEREAS, Executive is experienced in the administration, finance, marketing, and operation of such services, and WHEREAS, Company has invested significant time and money to develop proprietary trade secrets and other confidential business information, as well as invaluable goodwill among its customers, sales prospects and employees, and WHEREAS, Executive wishes to, or has been and desires to remain employed by Company, and to utilize such proprietary trade secrets, other confidential business information and goodwill, and WHEREAS, Company has disclosed or will disclose to Executive such proprietary trade secrets and other confidential business information which Executive will utilize in the performance of this Agreement; NOW THEREFORE, Executive and Company agree as follows: A. EMPLOYMENT: Company hereby agrees to employ Executive, and Executive hereby accepts such employment, on the terms and conditions set forth in this Agreement. B. TITLE: Executive's title shall be Senior Vice President of Human Resources and Chief Employment Counsel of Company. C. DUTIES & RESPONSIBILITIES: Executive shall be expected to assume and perform such executive or managerial duties and responsibilities as are assigned from time-to-time by the Chairman of the Board and Chief Administrative Officer of Company, to whom Executive shall report and be accountable. D. TERM OF AGREEMENT: Employment hereunder shall commence on November 1, 1999, for a term of two (2) years ("Initial Term"), unless sooner terminated pursuant to Paragraph O hereof, or later extended pursuant to Paragraph N hereof ("Extended Term"). E. PRINCIPAL OFFICE: During the Initial Term and any Extended Term, as applicable, of this Agreement, Executive shall be based at a Company office located in San Francisco ("County of Employment"), California ("State of Employment). F. COMPENSATION: Company agrees to compensate Executive, and Executive agrees to accept as compensation in full, for Executive's assumption and performance of duties and responsibilities pursuant to this Agreement: 1. SALARY: A base salary paid in equal installments of no less frequently than semi-monthly at the annual rate set forth in Paragraph X.1 hereof. 2. BONUS: A bonus or other incentive or contingent compensation, if any, pursuant to Paragraph X.2 hereof, and the bonus set forth in Paragraph X.4, hereof. 3. FRINGE BENEFITS: The then current fringe benefits generally provided by Company to all of its Executives. Such benefits may include but not be limited to the use of a Company-leased car or a car allowance, group health benefits, long-term disability benefits, group life
2 insurance, sick leave and vacation, and a Service Award Benefit Plan. Each of these fringe benefits is subject to the applicable Company policy at all times. Company reserves the right to add, increase, reduce or eliminate any fringe benefit at any time, but no such benefit or benefits shall be reduced or eliminated as to Executive unless generally reduced or eliminated as to comparable executives within the Company. G. PAYMENT OR REIMBURSEMENT OF BUSINESS EXPENSES: Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with Company business, and approved in writing by the person(s) with the title set forth in Paragraph C hereof, upon presentation to such person(s) by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, nature, recipient, purpose and amount of each such expense, accompanied by receipts for all such expenses in excess of Twenty-Five Dollars ($25) each. H. BUSINESS CONDUCT: Executive shall make reasonable best efforts to comply with all applicable laws pertaining to the performance of this Agreement, and with all lawful and ethical rules, regulations, policies, procedures and instructions of Company, including but not limited to the following: 1. GOOD FAITH: Executive shall not act in any way contrary to the best interest of Company. 2. BEST EFFORTS: During all full-time employment hereunder, Executive shall devote full working time and attention to Company, and shall not at any time be directly or indirectly employed by, own, operate, assist or otherwise be involved, invested or associated in any business that is similar or competitive to any business of Company; except that Executive may own up to five percent (5%) of any such publicly-held business(es), provided that Executive: (a) shall give Company notice(s) of such ownership in accordance with Paragraph W hereof, and (b) shall not at any time be directly or indirectly employed by or operate, assist, or otherwise be involved or associated with any such business(es). 3. VERACITY: Executive shall make no claims or promises to any employee, supplier, contractor, customer or sales prospect of Company that are unauthorized by Company or are in any way untrue. 4. DRIVER'S LICENSE: Executive shall have and carry a valid driver's license issued by the State of Employment hereunder and a driver's permit issued by the Company whenever Executive is driving any motor vehicle in connection with Company business. Executive agrees to immediately notify Company in writing if Executive's driver's license is lost, expired, restricted, suspended or revoked for any reason whatsoever. I. NO CONFLICT: Executive represents to Company that Executive is not bound by any contract with a previous employer or with any other business that might prevent Executive from entering into this Agreement or disclosing information about any previous employer or any other business to Company, or might otherwise interfere with Executive's employment hereunder. J. COMPANY PROPERTY: Company shall, from time to time, entrust to the care, custody and control of Executive certain of Company's property, such as motor vehicles, equipment, supplies and documents. Such documents may include, but shall not be limited to customer lists, financial statements, cost data, price lists, invoices, forms, electronic files and media, mailing lists, contracts, reports, manuals, personnel files or directories, correspondence, business cards, copies or notes made from Company documents and documents compiled or prepared by Executive for Executive's use in connection with Company business. Executive specifically acknowledges that all such documents are the property of Company, notwithstanding their preparation, care, custody, control or possession by Executive at any time(s) whatsoever.
3 K. GOODWILL & PROPRIETARY INFORMATION: In connection with Executive's employment hereunder: 1. Executive agrees to utilize and further Company's goodwill ("Goodwill") among its customers, sales prospects and employees, and acknowledges that Company may disclose to Executive and Executive may disclose to Company, proprietary trade secrets and other confidential information not in the public domain ("Proprietary Information") including but not limited to specific customer data such as: (a) the identity of Company's customers and sales prospects, (b) the nature, extent, frequency, methodology, cost, price and profit associated with their services and products purchased from Company, (c) any particular needs or preferences regarding their service or supply requirements, (d) the names, office hours, telephone numbers and street addresses of their purchasing agents or other buyers, (e) their billing procedures, (f) their credit limits and payment practices, and (g) their organization structure. 2. Executive agrees that such Proprietary Information and Goodwill have unique value to Company, are not generally known or readily available to Company's competitors, and could only be developed by others after investing significant time and money. Company would not make such Proprietary Information and Goodwill available to Executive unless Company is assured that all such Proprietary Information and Goodwill will be held in trust and confidence by Executive. Executive hereby acknowledges that to use this Proprietary Information and Goodwill except for the benefit of Company would be improper and unfair to Company. L. RESTRICTIVE COVENANTS: In recognition of Paragraph K hereof, Executive hereby agrees that during the Initial Term and the Extended Term, if any, of this Agreement, and thereafter for as long as it shall be enforceable: 1. Except in the proper performance of this Agreement, Executive shall not directly or indirectly solicit or otherwise encourage or arrange for any employee to terminate employment with Company. 2. Except in the proper performance of this Agreement, Executive shall not directly or indirectly disclose or deliver to any other person or business, any Proprietary Information obtained directly or indirectly by Executive from, or for, Company. 3. Executive shall not seek, solicit, divert, take away, obtain or accept the patronage of any customer or sales prospect of Company through the direct or indirect use of any Proprietary Information of Company, or by any other unfair or unlawful business practice. 4. Executive agrees that for a reasonable time after the termination of this Agreement, which Executive and Company hereby agree to be one (1) year, Executive shall not directly or indirectly, for Executive or for any other person or business, seek, solicit, divert, take away, obtain or accept any site-specific customer account or site-specific sales prospect with which Executive had direct business involvement on behalf of Company within the one (1) year period prior to termination of this Agreement. 5. Nothing in this Agreement shall be binding upon the parties to the extent it is void or unenforceable for any reason in the State of Employment, including, without limitation, as a result of any law regulating competition or proscribing unlawful business practices. M. MODIFICATION OF EMPLOYMENT: At any time during the then current Initial or Extended Term, as applicable, of this Agreement, a majority of the Board of Directors of Company shall have the absolute right, with or without cause and without terminating this Agreement or Executive's employment hereunder, to modify the nature of Executive's employment for the remainder of the
4 then current Initial or Extended Term, as applicable, of this Agreement, from that of a full-time employee to that of a part-time employee ("Modification Period"). The Modification Period shall commence immediately upon Company giving Executive written notice of such change. 1. Upon commencement of the Modification Period: (a) Executive shall immediately resign as a full-time employee of Company and as an officer and/or director of Company, as applicable, (b) Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof, and (c) Company shall pay Executive all previously earned and vested but as yet unpaid, salary, prorated bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 2. During the Modification Period: (a) Company shall continue to pay Executive's monthly salary pursuant to Paragraph F.1 hereof, and to the extent available under the Company's group insurance policies, continue to provide Executive with the same group health and life insurance (subject to Executive continuing to pay the employee portion of any such premium) to which Executive would be entitled as a full-time employee, with the understanding and agreement that such monthly salary and group insurance, if available, shall constitute the full extent of Company's obligation to compensate Executive, (b) Executive shall not be eligible or entitled to receive or participate in any bonus or fringe benefits other than the aforementioned group insurance, if available, (c) in the alternative, Executive may exercise rights under COBRA to obtain medical insurance coverage as may be available to Executive, (d) Executive shall be deemed a part-time employee and not a full-time employee of Company, (e) Executive shall provide Company with such occasional executive or managerial services as reasonably requested by the persons with the title set forth in Paragraph C hereof, except that failure to render such services by reason of any physical or mental illness or disability other than Total Disability or death as set forth in Paragraph O.2 hereof, or unavailability because of absence from the State of Employment hereunder, shall not affect Executive's right to receive such salary and (f) Company shall pay directly or reimburse Executive in accordance with the provisions of Paragraph G hereof for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof. 3. The Modification Period shall continue until the earlier of: (a) Total Disability or death as set forth in Paragraph O.2 hereof, (b) termination of this Agreement by Company for "just cause" as hereinafter defined, (c) Executive accepting employment or receiving any other compensation from operating, assisting or otherwise being involved, invested or associated with any business that is similar to or competitive with any business in which Company is engaged on the commencement date of the Modification Period, or (d) expiration of the then current Term of this Agreement. N. EXTENSION OF EMPLOYMENT: Absent at least ninety (90) days written Notice of Termination from either party to the other party prior to expiration of the then Initial or Extended Term, as applicable, of this Agreement, employment hereunder shall continue for an Extended Term (or another Extended Term, as applicable) of two (2) years, by which Executive and Company intend that all terms and conditions of this Agreement shall remain in full force and effect for another twenty four (24) months, except that the highest base salary specified in Paragraph X.l.a shall be increased annually as set forth in Paragraph X.1.b for each year of the Extended Term. Company has the option, without terminating this Agreement or Executive's employment hereunder, of placing Executive on a leave of absence at the full compensation set forth in Paragraph F hereof for any or all of such ninety (90) day period in lieu of the aforementioned Notice of Termination. O. TERMINATION OF EMPLOYMENT: 1. a. Termination of employment at the expiration of the then current Initial or
5 Extended Term shall be effective with or without cause. b. Except as provided in Paragraph O.1.a, the Company shall have the right to terminate Executive's employment hereunder at any time during the then current Initial or Extended Term, as applicable, of this Agreement, without notice subject only to a good faith determination by a majority of the Board of Directors of Company of "just cause." "Just cause" includes but is not limited to any theft or other dishonesty, or any material: (i) neglect of employment duties, (ii) inability or unwillingness to perform employment duties, (iii) insubordination, (iv) abuse of alcohol or other drugs, (v) breach of this Agreement; or for (vi) other misconduct, unethical or unlawful activity. c. At any time during the then current Initial or Extended Term, as applicable, of this Agreement, with or without cause, Executive may terminate employment hereunder by giving Company ninety (90) days prior written notice. 2. Employment hereunder shall automatically terminate upon the total disability ("Total Disability") or death of Executive. Total Disability shall be deemed to occur on the ninetieth (90th) consecutive or non-consecutive calendar day within any twelve (12) month period that Executive is unable to perform the duties set forth in Paragraph C hereof because of any physical or mental illness or disability. Company shall pay when due to Executive or his estate, as applicable, all prorated salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits which would have otherwise been payable to Executive under this Agreement, through the end of the month in which Total Disability or death occurs. 3. Upon termination of employment hereunder, Executive shall immediately resign as an employee of Company and as an officer and/or director of Company, as applicable. Executive shall promptly return all Company property in Executive's possession to Company, including but not limited to, any motor vehicles, equipment, supplies and documents set forth in Paragraph J hereof. Company shall pay Executive, when due, all previously earned and vested but as yet unpaid, salary, bonus or other contingent compensation, reimbursement of business expenses and fringe benefits. 4. Nothing contained in this Agreement shall entitle Executive to receive a bonus or other incentive or contingent compensation from Company based on any sales or profits made by Company after termination of employment hereunder. P. GOVERNING LAW: This Agreement shall be interpreted and enforced in accordance with the laws of the State of Employment hereunder. Q. ARBITRATION CLAUSE: 1. Except for the interpretation and enforcement of injunctive relief pursuant to Paragraph R hereof (which, at Company's option, shall be subject to litigation in any court having proper jurisdiction), any claim or dispute related to or arising from this Agreement (whether based in contract or tort, in law or equity) including, but not limited to, claims or disputes between Executive and Company or its directors, officers, employees and agents regarding Executive's employment or termination of employment hereunder, or any other business of Company, shall be resolved by mandatory, final, binding arbitration in accordance with the rules of the American Arbitration Association; provided, however, that no party shall be entitled to an award of general or punitive damages hereunder. 2. Any such arbitration must be requested in writing within one (1) year from the date the
6 party initiating the arbitration knew or should have known about the claim or dispute, or all claims arising from that dispute are forever waived. Any such arbitration (or court proceeding as applicable hereunder) shall be held in the County of Employment. Judgment upon the award rendered through such arbitration may be entered and enforced in any court having proper jurisdiction. R. REMEDIES & DAMAGES: 1. The parties agree that, in the event of a material breach or threatened material breach of Paragraph L hereof, the damage or imminent damage to the value of Company's business shall be inestimable, and therefore any remedy at law or in damages shall be inadequate. Accordingly, the parties hereto agree that Company shall be entitled to the immediate issuance of a restraining order or an injunction against Executive in the event of such breach or threatened breach, in addition to any other relief available to Company pursuant to this Agreement or under law. 2. Executive agrees that the actual amount of damages resulting from any material breach of any of the provisions of Paragraph L hereof would be impractical or impossible to ascertain. It is therefore agreed that the damages resulting from any such breach which involves any customer of Company shall be liquidated damages, not a penalty, in an amount equal to four (4) times the lost monthly revenue to the Company based on the average monthly revenue which was payable by that customer to Company during the four (4) months immediately preceding such breach. This provision for liquidated damages is in addition to any other relief available to Company pursuant to this Agreement or under law. 3. To the full extent permitted under the laws of the State of Employment hereunder, Executive authorizes Company to withhold from Executive's compensation and from any other funds held for Executive's benefit by Company, any damages or losses sustained by Company as a result of any material breach or other material violation of this Agreement by Executive, pending arbitration between the parties as provided for herein. S. NO WAIVER: Failure by either party to enforce any term or condition of this Agreement at any time shall not preclude that party from enforcing that provision, or any other provision of this Agreement, at any later time. T. SEVERABILITY: The provisions of this Agreement are severable. If any arbitrator (or court as applicable hereunder) rules that any portion of this Agreement is invalid or unenforceable, the arbitrator's or court's ruling shall not affect the validity and enforceability of other provisions of this Agreement. It is the intent of the parties that if any provision of this Agreement is ruled to be overly broad, the arbitrator or court shall interpret such provision with as much permissible breadth as is allowable under law rather than to consider such provision void. U. SURVIVAL: All terms and conditions of this Agreement which by reasonable implication are meant to survive the termination of this Agreement, including but not limited to, the Restrictive Covenants and Arbitration Clause herein, shall remain in full force and effect after the termination of this Agreement. V. CONSTRUCTION: This Agreement was negotiated in good faith by the parties hereto, who hereby agree to share the responsibility for any ambiguities, uncertainties or inconsistencies herein. Paragraph headings are used herein only for ease of reference, and shall not in any way affect the interpretation or enforcement of this Agreement. W. NOTICES: 1. Any notice required or permitted to be given pursuant to this Agreement shall be in
7 writing and delivered in person, or sent prepaid by certified mail, bonded messenger or overnight express, to the party named at the address set forth below or at such other address as either party may hereafter designate in writing to the other party: EXECUTIVE: DONNA M. DELL 40 Mulberry Lane Walnut Creek, CA 94596 COMPANY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: Chairman of the Board COPY: ABM INDUSTRIES INCORPORATED 160 Pacific Avenue, Suite 222 San Francisco, CA 94111 Attention: General Counsel 2. Any such notice shall be assumed to have been received when delivered in person, or forty-eight (48) hours after being sent in the manner specified above. X. SPECIAL PROVISIONS: 1. SALARY: a. One Hundred Ninety Six Thousand, Six Hundred Thirty Eight Dollars ($196,638) per year effective November 1, 1999 through October 31, 2000 at the monthly rate of $16,387 payable semi-monthly. b. Effective November 1, 2000 through October 31, 2001, and for each year of the then current Initial or Extended Term of this Agreement, as applicable, the Salary in Paragraph X.1.a will be adjusted upward annually to reflect the percentage increase change in the American Compensation Association ("ACA"), or any successor thereof, Index for the Western Region ("ACA Index") with a (6%) maximum increase. The adjustment, if any, shall be based upon the projected ACA Index as published for the ACA fiscal year ending on the June 30th immediately preceding the effective date of the proposed increase hereunder. Notwithstanding the foregoing, there shall be no annual increase in Salary for any such year unless the Company's earning per share ("EPS") for the fiscal year of the Company (commencing November 1, and ending October 31st) ("Fiscal Year") then ending are equal to or greater than the Company's EPS for the previous Fiscal Year. There shall be no downward adjustment in salary in the event the ACA Index shows a decrease from the prior Fiscal Year. 2. BONUS: Subject to proration in the event of modification or termination of employment hereunder and further subject to the potential prospective re-set provisions set forth in Paragraph X.2.c, Executive shall be paid a bonus ("Bonus") based on the profit ("Profit") for each Fiscal Year, or partial Fiscal Year, of employment hereunder during the Term, and during the Extended Term, if any, of this Agreement: a. Such Bonus for each Fiscal Year shall be 0.0511% of the Company's Profit on a pro-rata basis. b. Profit is defined as the consolidated income before income taxes of the Company, excluding: (i) gains or losses on sales or exchanges of real property or on sales or
8 exchanges of all or substantially all of the stock or assets of a subsidiary corporation or any other business unit of Company, (ii) gains or losses on the discontinuation of any business unit of Company, and (iii) the discretionary portion of any contributions made to any profit sharing, service award, employee retirement or savings or similar plan. c. Subject to proration in the event of modification or termination of employment under this Agreement, and further subject to a re-set in the event Executive's Bonus for any Fiscal Year has been limited as hereinafter provided, Executive's maximum Bonus for each Fiscal Year shall be fifty percent (50%) the Salary for that year set forth in Paragraph X.l herein. If, however, in any completed Fiscal Year, the Bonus which might have been earned by Executive for that year exceeds said fifty percent (50%) maximum, Executive's Salary and Bonus for the next year shall be re- computed as follows: (i) notwithstanding the six percent (6%) maximum set forth hereinabove, the Salary set forth in Paragraph X.1 shall be adjusted to equal seventy-five percent (75%) of the prior Fiscal Year's combined Salary and Bonus, plus an amount equal to the increase, if any, set forth in Paragraph X.1 based upon said ACA Index; and (ii) the Bonus percentage set forth in Paragraph X.2.a shall be adjusted by multiplying the prior Fiscal Year's combined Salary and Bonus by twenty-five percent (25%), and dividing that product by the actual Profit earned in the prior Fiscal Year. d. Executive shall have the right to obtain an advance against such Bonus at the end of each month of each Fiscal Year in an amount equal to fifty percent (50% of, or 0.5 times) the projected amount of such Bonus based on the Profit at that time. e. The independent public accounting firm for the Company shall determine the Profit and Bonus for each Fiscal Year. Company shall pay Executive the Bonus for the Fiscal Year (or the balance thereof after any advances) when such accounting firm has made such determination, but no later than ninety (90) days after the end of each Fiscal Year. The Bonus for any partial Fiscal Year shall be prorated for the fraction of the Fiscal Year for which such Bonus is payable. Absent bad faith or material error, the conclusions of such accounting firm or department with respect to the amounts of the Profits and Bonuses shall be conclusive upon Executive and Company. f. Notwithstanding the foregoing, no Bonus for any Fiscal Year of the Company shall be payable unless the Company's net income per share for the Fiscal Year then ending is equal to or greater than eighty percent (80%) of the Company's net income per share for the previous Fiscal Year of the Company. 3. POST-EMPLOYMENT CONSULTANCY: After Executive's retirement, resignation and/or termination from employment with Company, but commencing no earlier than what is or would have been Executive's sixty-fifth (65th) birthday and concluding no later than ten (10) years thereafter ("Consultancy Period"), Company shall pay to Executive consulting fees ("Consulting Fees") of: a. 120 equal monthly installments accrued at 1/120th of $150,000 for each month of employment completed by Executive from July 1, 1994 through June 30, 2004, plus b. 120 equal monthly installments accrued at 1/60th of $100,000 for each month of employment completed by Executive from November 1, 1999 through October 31, 2004. c. During the Consultancy Period: (i) Executive shall provide Company with such
9 occasional executive or managerial services as reasonably requested by the person with the title set forth in Paragraph C hereof, except that failure to render such services by reason of death or disability, or unavailability because of absence from the County of Employment, shall not effect Executive's right to receive such Consulting fees, (ii) Company shall pay directly or reimburse Executive for reasonable business expenses of Company incurred by Executive in connection with such services requested by the persons with the title set forth in Paragraph C hereof, upon presentation to that person by Executive within sixty (60) days after incurring such expense of an itemized request for payment including the date, receipts for all such expenses in excess of Twenty-Five Dollars ($25) each, (iii) Company shall pay Executive's Consulting Fees pursuant to this Paragraph X.3 herein, (iv) Executive shall not be eligible or entitled to receive or participate in any other of the Company's then current fringe benefits, and (v) Executive shall be deemed an independent contractor and not an employee of the Company. d. If Executive dies before receiving any or all payments to Executive of such Consulting Fees, all unpaid Consulting Fees shall be paid monthly to Executive's estate or trust commencing from the month in which Executive would have reached Executive's sixty-fifth (65) birthday or continuing from the date of death following such commencement. Y. SCOPE OF CERTAIN PROVISIONS: All references to Company in Paragraphs H,I, J, K, L, M, N, O.3, O.4, Q, R and Z in this Agreement shall include Company, its affiliated and its subsidiary corporations. Z. ENTIRE AGREEMENT: Unless otherwise specified herein, this Agreement sets forth every contract, understanding and arrangement as to the employment relationship between Executive and Company, and may only be changed by a written amendment signed by both Executive and Company. 1. The parties intend that this Agreement speak for itself, and that no evidence with respect to its terms and conditions other than this Agreement itself may be introduced in any arbitration or judicial proceeding to interpret or enforce this Agreement. 2. It is specifically understood and accepted that this Agreement supersedes all oral and written employment agreements between Executive and Company prior to the date hereof, as well as all conflicting provisions of Company's Guidelines For Corporate Approval and its Human Resources Manual, including but not limited to, the termination, discipline and discharge provisions contained therein. Said Guidelines and Manual are not an Agreement between Executive and Company, nor shall they be binding on either party. The purpose and intent of said Guidelines and Manual are only to suggest guidance for Company . managers to apply as they see fit on a case by case basis. ZZ. FULL KNOWLEDGE & UNDERSTANDING: Executive and Company hereby acknowledge that they have carefully read and fully understand all terms and conditions of this Agreement, and that they are voluntarily entering into this Agreement with full knowledge of the benefits and burdens, and the risks and rewards, contained herein.
10 IN WITNESS WHEREOF, Executive and Company have executed this Agreement as of the date set forth above: EXECUTIVE: Signature: /s/ Donna M. Dell --------------------------------------------------- Date: 4/17/01 --------------------------------------------------- COMPANY: By: Martinn H. Mandles --------------------------------------------------- Date: 11/27/00 --------------------------------------------------- Signature: /s/ MARTINN H. MANDLES --------------------------------------------------- Title: Chairman of the Board and Chief Administrative Officer --------------------------------------------------- ABM Industries Incorporated
EXHIBIT 10.68 [ABM INDUSTRIES INCORPORATED LETTERHEAD] April 17, 2001 [ABM JANITORIAL Ms. Donna M. Dell SERVICES LOGO] 40 Mulberry Lane Walnut Creek, California 94596 [ABM ENGINEERING Re: First Amendment ("Amendment") of Corporate Executive SERVICES LOGO] Employment Agreement Dated November 1, 1999 ("Agreement") Dear Donna, [ABM FACILITY Your Employment Agreement dated November 1, 1999 is SERVICES LOGO] hereby amended as follows: Paragraph X. SPECIAL PROVISIONS: [ABM SECURITY 1. SALARY: SERVICES LOGO] a. Two Hundred Twenty-Five Thousand Dollars ($225,000) per year effective [ACS AMERICAN November 1, 2000 through October 31, COMMERCIAL 2001 at the monthly rate of $18,750, SECURITY LOGO] payable semi-monthly. b. (Deleted) [AMPCO SYSTEM 2. BONUS: PARKING LOGO] [AMPCO SYSTEM a. Such Bonus for each Fiscal Year AIRPORT PARKING effective November 1, 2000 and LOGO] thereafter, shall be 0.0903% of the Company's Profit on a pro-rata basis. [AMTECH ELEVATOR This Amendment shall be effective as of November 1, 2000. SERVICES LOGO] In all other respects the Agreement shall remain unchanged. [AMTECH LIGHTING Please sign both originals, returning one to your personnel SERVICES LOGO] file and retaining the other fully executed original for your records. Sincerely, [COMN AIR MERCHANT /s/ MARTINN H. MANDLES SERVICES LOGO] [EASTERDAY Martinn H. Mandles I agree to the foregoing: JANITORIAL SUPPLY Chairman of the Board & COMPANY LOGO] Chief Administrative Officer /s/ DONNA M. DELL -------------------------- Donna M. Dell cc: David Hebble New York Stock Exchange Symbol: ABM
EXHIBIT 21.1 Subsidiaries of Registrant as of 10/31/01 Percentage of Voting Securities Owned by State of Immediate Name Incorporation Parent - ---- ------------- ---------- ABM Industries Incorporated Delaware Registrant (*) ABM Co. of Boston California 100% ABM Engineering Services Company California 100% ABM Facility Services Company California 100% ABM Global Facility Services + California 100% ABM Janitorial Services - Northern California California 100% ABM Janitorial Services Co., Ltd. British Columbia 100% ABM Supply Company + California 100% Accurate Janitor Service, Inc. + California 100% American Building Maintenance Co. California 100% American Building Maintenance Co. of Georgia California 100% American Building Maintenance Co. of Hawaii + California 100% Allied Maintenance Services, Inc. California 100% American Building Maintenance Co. of Illinois California 100% American Building Maintenance Co. of Kentucky + California 100% American Building Maintenance Co. of New York California 100% American Building Maintenance Co. of Utah + California 100% American Building Maintenance Co. - West California 100% American Public Services California 100% American Security and Investigative Services, Inc. + California 100% ABMI Investigative Services + California 100% ABMI Security Services, Inc. California 100% American Commercial Security Services, Inc. California 100% Ampco System Parking California 100% Amtech Elevator Services California 100% Amtech Energy Services + California 100% Amtech Lighting & Electrical Services California 100% Amtech Lighting Services California 100% Amtech Lighting Services of the Midwest California 100% Amtech Reliable Elevator Company of Texas + Texas 100% Beehive Parking, Inc. + Utah 100% Bonded Maintenance Company Texas 100% Bradford Building Services, Inc. California 100% California Janitorial and Supply Co. + California 100% Canadian Building Maintenance Co., Ltd. + British Columbia 100% CommAir Mechanical Services California 100% Commercial Air Conditioning of Northern California, Inc. + California 100% Commercial Property Services, Inc. + California 100% Servall Services, Inc. Texas 100% Supreme Building Maintenance, Ltd. British Columbia 100% System Parking, Inc. + California 100% Towel and Linen Service, Inc.+ California 100% (*) Subsidiary relationship to registrant or to subsidiary parents shown by progressive indentation. + Inactive companies.
Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors ABM Industries Incorporated: We consent to incorporation by reference in the following Registration Statements on Form S-8 of ABM Industries Incorporated of our report dated December 17, 2001, relating to the consolidated balance sheets of ABM Industries Incorporated and subsidiaries as of October 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 31, 2001, and related financial statement schedule II, which report appears in the October 31, 2001, annual report on Form 10-K of ABM Industries Incorporated. Registration No. Form Plan - -------------------------------------------------------------------------------- 333-78423 S-8 "Age-Vested" Career Stock Option Plan 333-58408 S-8 Employee Stock Purchase Plan 333-78421 S-8 "Time-Vested" Incentive Stock Option Plan 333-48857 S-8 Long-Term Senior Executive Stock Option Plan /s/ KPMG LLP - ------------------ KPMG LLP San Francisco, California December 21, 2001
Minimum 15 minutes delayed. Source: LSEG