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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-22056
Rural/Metro Corporation
(Exact name of registrant as specified in its charter)
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DELAWARE 86-0746929
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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8401 EAST INDIAN SCHOOL ROAD, SCOTTSDALE, ARIZONA 85251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(602) 994-3886
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
TITLE OF EACH CLASS
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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 SEPTEMBER 26, 1997, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NON-AFFILIATES OF THE REGISTRANT, COMPUTED BY REFERENCE TO THE AVERAGE
SALES PRICE OF SUCH STOCK AS OF SUCH DATE ON THE NASDAQ NATIONAL MARKET, WAS
$334,880,384. SHARES OF COMMON STOCK HELD BY EACH OFFICER AND DIRECTOR AND BY
EACH PERSON WHO OWNED 5% OR MORE OF THE OUTSTANDING COMMON STOCK HAVE BEEN
EXCLUDED IN THAT SUCH PERSONS MAY BE DEEMED TO BE AFFILIATES. THIS DETERMINATION
OF AFFILIATE STATUS IS NOT NECESSARILY CONCLUSIVE.
As of September 26, 1997, there were 13,157,348 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the
registrant's 1997 Annual Meeting of Stockholders are incorporated by reference
in Part III hereof.
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TABLE OF CONTENTS
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PART I................................................................................ 1
1
ITEM 1. BUSINESS..........................................................
23
ITEM 2. PROPERTIES........................................................
23
ITEM 3. LEGAL PROCEEDINGS.................................................
23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............
PART II............................................................................... 23
23
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................
24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA..............................
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..............................................
PART III.............................................................................. 30
30
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............
30
ITEM 11. EXECUTIVE COMPENSATION............................................
31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................
31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................
PART IV............................................................................... 31
31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K...............................................................
SIGNATURES............................................................................ 35
FINANCIAL STATEMENTS.................................................................. F-1
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PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company provides "911" emergency and general transport ambulance
services, fire protection services, and other safety and health care related
services to municipal, residential, commercial, and industrial customers. The
Company believes that it is the only multi-state provider of both ambulance and
fire protection services in the United States and that it ranks as one of the
largest private-sector providers of ambulance services and fire protection
services in the world. The Company currently serves over 350 communities in 21
states, Canada, and Latin America. Ambulance services and fire protection
services accounted for approximately 81% and 13%, respectively, of the Company's
revenue for the fiscal year ended June 30, 1997.
Founded in 1948, the Company has been instrumental in the development of
protocols and policies applicable to the emergency services industry. The
Company has grown significantly since the late 1970s both through internal
growth and through acquisitions. To manage this growth, the Company invested in
the development of management and operational systems that have resulted in
productivity gains and increased profitability. The Company believes its current
systems and controls position it to continue its growth internally as well as
through acquisitions and enable it to operate profitably in both large and small
communities. The Company completed eight acquisitions in the fiscal year ended
June 30, 1994, 11 acquisitions in the fiscal year ended June 30, 1995, 18
acquisitions in the fiscal year ended June 30, 1996, and 19 acquisitions in the
fiscal year ended June 30, 1997.
Based on generally available industry data, it is estimated that annual
expenditures for ambulance services in the United States are between $4 billion
and $7 billion. Various factors, including the growth and aging of the
population, and trends towards the use of outpatient services and specialized
treatment facilities in an effort to contain health care costs have increased
the demand for ambulance services. At the same time, industry factors have
increased the standards of pre-hospital emergency care and have required faster
ambulance response times, increasing the capital and technological resources
necessary to provide higher levels of service. These factors, combined with the
historically fragmented nature of the ambulance service industry, are
contributing to consolidation within the industry.
Market-driven forces changing the health care industry are impacting the
ambulance industry as well. The Company believes the trend toward managed care
and away from fee-for-service arrangements is furthering industry consolidation.
The move to managed care benefits larger ambulance services providers, which can
service a larger portion of a managed care provider's needs. This allows the
managed care provider to reduce its number of suppliers, cutting administrative
costs and allowing them to negotiate more favorable rates.
Volunteer fire departments, tax-supported fire districts, and municipal
fire departments constitute the primary providers of fire protection services in
the United States. Because emergency medical response represents a significant
portion of fire response activity within many fire departments, the Company
believes that its ambulance and fire protection services operations are
complementary. The Company believes that its integration of such services can
provide operating economies, optimal coordination of the delivery of services,
efficiencies in the use of personnel and equipment, and enhanced levels of
service, especially in lower-utilization communities. Additionally, a variety of
economic pressures on the public sector may increase opportunities for
privatization and public/private partnerships in fire protection services.
The Company pursues a strategy designed to enable it to expand its business
in existing service areas, establish additional service areas both domestically
and internationally, respond to the needs of the public sector and health care
providers, expand fire protection services, integrate existing services, and
improve productivity. This strategy includes plans to (i) acquire additional
ambulance service providers operating in metropolitan areas and in communities
surrounding the metropolitan areas that the Company currently serves or plans to
serve; (ii) expand its emergency ambulance services through the pursuit of new
contracts with municipalities and fire districts and its general ambulance
services through increased marketing efforts to, and
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pursuit of other alliances with, managed care providers and other health care
providers; (iii) expand its fire protection services into selected additional
service areas through the pursuit of opportunities to supplant or enhance
services provided by volunteer fire departments, expand its services to newly
developed communities, and to develop public/private partnerships with tax
supported fire districts and municipal fire departments; (iv) continue the
integration of its fire protection and ambulance services to maximize
operational efficiencies and synergies; and (v) improve its productivity through
the more efficient utilization of equipment and personnel.
The Company was incorporated in Arizona in 1948 and reincorporated in
Delaware in May 1993. Unless the context indicates otherwise, all references to
the "Company" refer to Rural/Metro Corporation and its subsidiaries. The Company
maintains its principal executive offices at 8401 East Indian School Road,
Scottsdale, Arizona 85251, and its telephone number is (602) 994-3886.
INDUSTRY CONSIDERATIONS
Public-sector entities, private companies, hospitals, and volunteer
organizations provide ambulance services. Public-sector entities often serve as
the first responder to requests for such emergency ambulance services and often
provide emergency ambulance transport. When the public sector serves as first
responder, private companies often serve as the second responder and support the
first responder as needed. The private sector provides the majority of general
ambulance services. It is estimated that the ambulance service industry includes
more than 10,000 providers of service, 2,000 or more of which are private. Most
commercial providers are small companies serving one or a limited number of
markets. Several multi-state providers, including the Company, have emerged
through the acquisition and consolidation of smaller ambulance service providers
in recent years.
The growth in ambulance service expenditures has resulted from both an
increase in the number of transports and an increase in the average expenditures
per transport. The growth and aging of the population, the greater use of
outpatient care facilities and home care in response to health care cost
containment efforts, and increased patient travel between specialized treatment
health care facilities have increased the demand for emergency medical services
and general ambulance services. The increased availability of "911" emergency
service, the impact of educational programs on its use, and the practice of some
members of the population of utilizing a hospital's emergency room as the source
of their primary medical care also have increased the number of ambulance
transports. Industry considerations require ambulance service providers to
acquire more sophisticated emergency medical, dispatch, and communications
equipment, hire more highly trained personnel, and develop more sophisticated
dispatch and management systems to satisfy the faster response time and higher
quality of medical care assurance criteria required by municipalities and fire
districts for emergency ambulance services. Average expenditures per ambulance
transport have increased as a result of the additional costs to meet these
requirements. These requirements, combined with the fragmented nature of the
industry, are contributing to consolidation within the industry. Service
providers that do not have the financial or management resources to meet the
requirements for higher levels of service are candidates for acquisition.
Market reform continues to reshape the health care delivery system, with a
shift from fee-for-service providers to managed care providers. Managed care
providers are focusing on cost containment measures while seeking to provide the
most appropriate level of service at the most appropriate treatment facility.
While ambulances typically transport patients to the nearest treatment facility,
managed care providers are attempting to manage hospital utilization by working
with ambulance service providers to ensure transport of patients to affiliated
facilities and avoid unnecessary inter-facility transports. For non-life
threatening medical emergencies, managed care providers are beginning to explore
programs where plan members are encouraged to call the provider. Under this
program, a nurse will answer the call, analyze the medical situation, and
determine the best course of action and mode of transport. In an emergency
situation, an advanced life support ambulance will be dispatched. In certain
cases, patients could receive the required treatment level with a less costly
basic life support ambulance. However, to manage such a system, the managed care
provider must contract with an ambulance service provider that has the mix of
vehicles and geographic scope to cover the entire region served by the managed
care provider and can provide call center services.
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Based on the Company's experience, the Company believes that its ambulance
and fire protection services are complementary. Municipal fire departments,
tax-supported fire districts, and volunteer fire departments constitute the
principal providers of fire protection services in the United States. In most of
the communities served by municipal fire departments and tax-supported fire
districts, the fire department is the first to respond to a call for emergency
medical services. Approximately 27,000 volunteer fire departments, covering
approximately 40% of the United States population, operate throughout the United
States. Volunteer fire departments range from departments comprised entirely of
volunteer personnel to departments that utilize one or more paid personnel
located at each station supplemented by volunteers who proceed directly to the
fire scene. In addition to providing fire protection services to municipalities
and tax-supported fire districts, the private sector also provides fire
protection services to industrial complexes, including airports, large
industrial and petrochemical plants, power plants, and other large
self-contained facilities.
STRATEGY
The Company's strategy is to enhance its position as a leading provider of
emergency services in the United States and in other countries. Key elements of
this strategy include the acquisition of ambulance service providers, increased
marketing efforts aimed at the needs of the public sector and health care
providers, expansion of fire protection services, integration of ambulance and
fire protection operations, and improved productivity. The Company seeks to
utilize key business competencies in communications and in logistics management
to expand service offerings to customers and to seek new potential customers
through key business alliances, joint ventures, or other strategic business
arrangements.
Acquisition of Ambulance Service Providers
The Company seeks acquisitions that enable it to establish new service
areas both domestically and internationally and acquisitions that enable it to
expand its operations within its existing service areas. The Company believes
that the fragmented nature of the industry, combined with the lack of capital
and limited management systems that characterize many providers, continues to
provide an opportunity for the Company to acquire additional ambulance service
providers, including not-for-profit hospital-owned providers, that would benefit
from its management and operational systems, resulting in productivity gains and
enhanced levels of service.
The Company considers a number of factors in evaluating a proposed
acquisition candidate, including the quality of its management and medical
personnel, its historical operating results and future earnings potential, the
size and anticipated growth of its market, its relative position within that
market, and the competition to be encountered in such market. The Company pays
special attention to those potential service areas in which it can achieve
maximum productivity by achieving market leadership over a regional area, by
utilizing its ambulances to provide both "911" emergency and general ambulance
services, and by integrating ambulance services with fire protection services.
The Company continues to build its regional operations, which better position
the Company to serve the developing managed care customer base.
Increased Marketing Efforts Aimed at the Needs of the Public Sector and
Health Care Providers
In addition to expansion through acquisitions, the Company plans to expand
its general ambulance services through increased marketing efforts to hospitals,
health maintenance organizations, and other health care providers and its
emergency ambulance services through the pursuit of new contracts and alliances
with municipalities and fire districts. These efforts will focus on the
increased demand for emergency ambulance services caused by various factors,
including the growth and aging of the population, as well as on the increased
use of general ambulance services caused in part by increases in home health
care, patient travel between specialized health care facilities, and increased
requirements for transport to specific facilities operated by managed care
providers. The Company intends to respond to the needs of managed care providers
by delivering high quality, efficient, cost-effective services and the ability
to transport patients to the most appropriate treatment facility, particularly
in those geographic areas in which it has been able to achieve market
leadership. The Company intends to develop and offer innovative value-added
services to health care providers, such as access to a medical call center, to
better serve the demand management, telephone triage,
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and medical transport needs of the managed care market. The Company believes
that its communications and logistics expertise will enable it to offer services
that will improve the responsiveness and cost-effectiveness of health care
services in a managed care environment. The Company expects to pursue alliances
with health care providers through the pursuit of service contracts, the
development of relationships, and through acquisitions of health care and safety
related providers, which would provide opportunities for the Company to
integrate its services with such other service providers. In addition, the
Company will continue to seek to enter into public/private alliances to compete
for new business.
Expansion of Fire Protection Services
The Company plans to continue its efforts to expand its fire protection
services into areas not currently served. In seeking to expand its fire
protection services, the Company plans to emphasize the benefits of its services
in terms of lower per capita fire service costs, reduced insurance rates, and
lower loss of life and property resulting from its extensive experience, its
fire prevention initiatives, its management and operational systems, and its
system utilizing full-time fire fighters and part-time reservists. The Company's
strategy includes efforts to provide service to businesses and residences in
newly developed communities that have not yet arranged for fire protection
services as well as in areas served by volunteer fire departments and tax-
supported fire districts. The Company plans to respond to the economic pressures
on the public sector to reduce taxes and expenditures for emergency services by
offering the opportunity for the establishment of public/private alliances with
fire districts and municipalities. The Company also intends to pursue
opportunities to provide fire protection services to large industrial complexes,
including airports, large industrial and petrochemical plants, power plants, and
other self-contained facilities.
Integration of Ambulance and Fire Protection Services
Building upon the Company's successful integration of ambulance and fire
services under its contract with the City of Scottsdale, the Company plans to
continue the integration of its fire and ambulance services in certain of its
service areas and to pursue opportunities to provide integrated services in new
service areas. The Company believes that its integration of such services can
provide operating economies, optimal coordination of the delivery of services,
efficiencies in the use of personnel and equipment, and enhanced levels of
service, especially in lower-utilization communities.
Productivity Improvement and Enhancement
The Company intends to utilize its management and operational systems to
achieve enhanced productivity and profitability in its existing operations and
in acquired operations. The centralization of key management and operating
systems permits the Company to achieve economies of scale at both the
operational and corporate levels.
The Company believes that the achievement of its goal of establishing
market leadership in its various service areas (through initial acquisitions,
follow-on acquisitions, alliances, and internal growth) will enable it to
continue to improve its productivity in those areas by enabling it to more
efficiently utilize its equipment and personnel, to better serve large regional
health care providers, and to more effectively market its services. In certain
cases, follow-on acquisitions in existing service areas enable the Company to
enhance its productivity in that service area to an extent greater than the size
of the acquisition itself.
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CURRENT SERVICE AREAS
The Company provides its services in over 350 communities in the following
21 states, Canada, and Latin America:
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Alabama Iowa Ohio
Arizona Kentucky Oregon
Arkansas Louisiana Pennsylvania
California Mississippi South Carolina
Florida Nebraska South Dakota
Georgia New Jersey Tennessee
Indiana New York Texas
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The Company provides ambulance services in 19 states and Canada primarily
under the names Rural/Metro Ambulance and Rural/Metro Medical Services and under
the name Southwest Ambulance in some areas of Arizona. The Company may operate
under other names depending upon local statutes or contractual agreements. The
Company generally provides its ambulance services pursuant to a contract or
certificate of necessity on an exclusive or nonexclusive basis. It provides
"911" emergency ambulance services primarily pursuant to contracts or as a
result of providing fire protection services. Ambulance service contracts in
some service areas provide for the payment of a subsidy to the Company.
In some service areas, the Company is the only provider of both emergency
and general ambulance services. In other service areas, the Company competes for
general ambulance services. In all service areas, the Company responds to "911"
emergency calls if requested by a municipality or fire district, even in the
absence of a contract.
The Company provides fire protection services under the name Rural/Metro
Fire Department in six states and in Latin America. Fire protection services are
provided pursuant to master contracts or on a subscription basis.
AMBULANCE SERVICES
Emergency Medical Services
The Company generally provides emergency medical ambulance services
pursuant to contracts with counties, fire districts, and municipalities. These
contracts typically appoint the Company as the exclusive provider of "911"
emergency ambulance services in designated service areas and require the Company
to respond to every "911" emergency medical call in those areas. The Company
responds to virtually all "911" calls with advanced life support ("ALS")
ambulance units. The Company staffs its ALS ambulance units with two paramedics
or one paramedic and an emergency medical technician ("EMT") and equips such
units with ALS equipment (such as cardiac monitors, defibrillators, and oxygen
delivery systems) as well as pharmaceuticals and medical supplies.
Upon arrival at an emergency, the ALS crew members deploy portable life
support equipment, ascertain the patient's medical condition and, if required,
begin life support techniques and procedures that may include airway intubation,
cardiac monitoring, defibrillation of cardiac arrhythmias, and the
administration of medications and intravenous solutions. The crew also may
perform basic life support ("BLS") services which include basic airway
management, hemorrhage control, stabilization of fractures, emergency
childbirth, and basic vehicle extrication. As soon as medically appropriate, the
patient is placed on a portable gurney and carried into the ambulance. While a
paramedic monitors and treats the patient, the other crew member drives the
ambulance to a hospital designated either by the patient or the applicable
medical protocol. En route, the ALS crew alerts the hospital regarding the
patient's medical condition, and if necessary, the attending paramedic seeks
advice from a hospital emergency room physician as to treatment. Upon arrival at
the hospital, the patient generally is taken to the emergency room.
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General Ambulance Services
The Company provides general ambulance services to patients requiring
either advanced or basic levels of medical supervision during transfer to and
from residences and health care facilities. These services may be provided when
a home-bound patient requires examination or treatment at a health care facility
or when a hospital inpatient requires tests or treatments (such as MRI testing,
CAT scans, dialysis, or chemotherapy treatment) available at another facility.
The Company utilizes ALS or BLS ambulance units to provide general ambulance
services depending on the patient's needs and the proximity of available units.
The Company staffs its BLS ambulance units with two EMTs and equips such units
with medical supplies and equipment necessary to administer first aid and basic
medical treatment.
The Company also provides critical care transport services to medically
unstable patients (such as cardiac patients and neonatal patients) who require
critical care while being transported between health care facilities. Critical
care services differ from ALS services in that the ambulance may be equipped
with additional medical equipment and may be staffed by a medical specialist
provided by the Company or by a health care facility to attend to a patient's
special medical needs.
In addition to ambulance services, the Company provides non-medical
transportation for the handicapped and certain non-ambulatory persons in certain
service areas. Such transportation generally takes place between residences or
nursing homes and hospitals or other health care facilities. In providing this
service, the Company utilizes vans that contain hydraulic wheelchair lifts or
ramps operated by drivers who generally are trained in cardiopulmonary
resuscitation ("CPR").
The Company provides general ambulance services, critical care transports,
and nonmedical transportation services pursuant to contracts with governmental
agencies, health care facilities, or at the request of a patient. Such services
may be scheduled in advance or provided on an as needed basis. Contracts with
managed care providers provide for reimbursement on a per transport basis or on
a "capitated" basis under which the Company receives a fixed fee per person per
month. The Company currently has a contract to provide non-emergency ambulance
transportation for Aetna Health Plan of Ohio's 550,000 managed care plan members
on a fee-for-service basis. The contract may evolve into a capitated format
after the service utilization patterns are firmly established.
Medical Personnel and Quality Assurance
Paramedics and EMTs must be state certified in order to transport patients
and to perform emergency care services. Certification as an EMT requires
completion of a minimum of 164 hours of training in a program designated by the
United States Department of Transportation and supervised by state authorities.
EMTs also may complete advanced training courses to become certified to provide
certain additional emergency care services, such as administration of
intravenous fluids and advanced airway management. In addition to completion of
the EMT training program, the certification as a paramedic requires the
completion of more than 800 hours of training in advanced patient care
assessment, pharmacology, cardiology, and clinical and field skills. Many of the
paramedics currently employed by the Company served as EMTs for the Company
prior to their certification as paramedics.
Local physician advisory boards develop medical protocols to be followed by
paramedics and EMTs in a service area. In addition, instructions are conveyed on
a case-by-case basis through direct communications between the ambulance crew
and hospital emergency room physicians during the administration of advanced
life support procedures. Both paramedics and EMTs must complete continuing
education programs and, in some cases, state supervised refresher training
examinations to maintain their certifications. Certification and continuing
education requirements for paramedics and EMTs vary among states and counties.
The Company maintains a commitment to provide high quality pre-hospital
emergency medical care. In each location in which the Company provides services,
a medical director, who usually is a physician associated with a hospital the
Company serves, monitors adherence to medical protocol and conducts periodic
audits of the care provided. In addition, the Company holds retrospective care
audits with its employees to evaluate compliance with medical and performance
standards.
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The Company was one of the first ambulance service providers to obtain
accreditation for many of its larger ambulance operations from the Commission on
Accreditation of Ambulance Services, a joint program between the American
Ambulance Association and the American College of Emergency Physicians. The
process is voluntary and evaluates numerous qualitative factors in the delivery
of services. The Company believes municipalities and managed care providers will
consider accreditation as one of the criteria in awarding contracts in the
future.
FIRE PROTECTION SERVICES
Fire protection services consist primarily of fire prevention and fire
suppression. Other fire protection related activities include hazardous material
containment, underwater search and recovery, mountain and confined space rescue,
and public education. The Company provides various levels of fire protection
services ranging from fire stations that are fully staffed 24 hours per day to
reserve stations. The Company generally provides its services to municipalities
and other governmental bodies pursuant to master contracts and to residences,
commercial establishments, and industrial complexes pursuant to subscription fee
and other fee-for-service arrangements. Federal and state governments contract
with the Company from time to time to suppress forest fires or wildfires on
government lands.
The Company has placed fire prevention and education in the forefront of
its fire protection services and has developed a comprehensive program to
prevent and minimize fires rather than emphasizing a standing army to respond to
fires that occur. The Company believes that effective fire protection requires
the intensive training of personnel, the effective utilization of fire
equipment, the establishment of effective communication centers for the receipt
of emergency calls and the dispatch of equipment and personnel, the
establishment and enforcement of strict fire codes, and community educational
efforts.
The Company seeks to provide quality fire protection services at reduced
costs. The Company believes that it provides fire protection services at a cost
significantly lower than the national average as a result of its emphasis on
fire prevention, its advanced systems, and its use of a combination of full-time
fire fighters and part-time reservists. Based upon generally available industry
data, the Company believes that fire loss per capita in the areas serviced by
the Company has been substantially less than the national average.
Fire Protection Personnel
The Company's ability to provide its fire protection services at relatively
low costs results from its efficient use of personnel in addition to its fire
prevention efforts. Typically, personnel costs represent more than two-thirds of
the cost of providing fire protection services. The Company has been able to
reduce its labor costs through a system that utilizes full-time firefighters
complemented by paid part-time reservists as well as a modified every other day
shift schedule. By using trained reservists on an as needed basis, the Company
has the ability to supplement full-time fire fighters on a cost-effective basis.
Reservists comprise approximately 45% of the Company's operational work force.
All full-time and reservist firefighters undergo extensive training, which
exceed the standards recommended by the National Fire Protection Association
("NFPA"), and must qualify for state certification before being eligible for
full-time employment by the Company. Since approximately 70% to 80% of the
Company's fire response activity consists of emergency medical response, all of
the Company's firefighters are trained EMTs and an increasing number of its
firefighters are paramedics. Ongoing training includes instruction in new fire
service tactics and fire fighting techniques as well as continual physical
conditioning.
Fire Response
An alarm typically results in the dispatch of one or more engine companies
(each of which consists of an engine and two to four firefighters, including a
captain), a fire chief, and such other equipment as circumstances warrant. The
amount of equipment and personnel depends upon the type, location, and severity
of the incident. The Company generally responds to emergency medical calls and
small fires (such as grass or dumpster fires not involving the risk of
spreading) with a single engine staffed by two firefighters. The
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Company utilizes its dispatch capabilities to reposition equipment and
firefighters to maximize the availability and use of resources in a
cost-effective manner.
Fire Prevention
The Company believes that fire prevention programs result in both lower
fire loss and significant overall cost savings. The Company's fire prevention
programs include advice and recommendations for and the encouragement of various
fire prevention methods, including fire code design, building design to inhibit
the spread of fire, the design of automatic fire suppression sprinklers, fire
detector and smoke detector installations, the design of monitoring and alarm
systems, the placement and inspection of fire hydrants, fire code inspection and
enforcement, and the determination of fire cause and origin in arson suspected
fires. In addition, the Company's personnel perform community education programs
designed to reduce the risk of fire and increase the Company's community
profile.
The Company believes that its long standing public/private relationship
with the City of Scottsdale provides an example of an effective, cost-efficient
fire protection program. The Scottsdale program emphasizes the Company's
philosophy of fire prevention. With the cooperation and assistance of the
Company, the City of Scottsdale has designed comprehensive fire prevention
measures, including fire codes, inspections, and sprinkler and smoke detector
ordinances. The Company believes that as a result of strict fire codes, the
enactment of a sprinkler ordinance, and the effectiveness of the services
provided by the Company, Scottsdale's per capita cost for fire protection is 46%
lower than the national average and that its per capita fire loss is more than
200% less than the national average.
INDUSTRIAL FIRE PROTECTION SERVICES
The Company continues to seek opportunities to provide fire protection
services to large industrial complexes, such as airports, large industrial and
petrochemical plants, power plants, and other self-contained facilities. During
1996, the Company signed a three-year contract to provide firefighting and
hazardous materials response services to the Heath-Newark-Licking County Airport
Authority, located outside Columbus, Ohio and a four-year contract to provide
crash/rescue firefighting services at the Lafayette Regional Airport in
Lafayette, Louisiana. In 1997, the Company entered into a five-year contract to
provide crash/rescue firefighting services to three airports in Bolivia. The
Company intends to pursue similar contracts domestically and internationally.
FIRE TRAINING SERVICES AND PROTECTION SERVICES
The Company has instituted industrial fire training services and protection
services and provides sophisticated training for industrial, professional, and
specialized firefighters using live burn training to simulate realistic
firefighting situations. The training permits fire brigade and emergency
response teams to meet increased federal training requirements, the Occupational
Safety and Health Act ("OSHA"), and other regulatory requirements for work place
safety and on-site response teams.
The Company anticipates that its training services to industrial,
petrochemical, and other large private concerns will enhance its ability to
enter into contractual relationships to provide fire protection, security, and
other safety related services to these concerns and permit the complexes to
replace their fire brigades with professional firefighters and emergency
response teams. These activities have not resulted in significant revenue to
date. The combination of fire protection services with security services in
large industrial complexes has the potential to provide for greater efficiency
and utilization in the delivery of such services and to result in greatly
reduced cost to the industrial complexes for such services.
The Company utilizes its communications centers for home security, home
fire alarm monitoring and personal emergency response systems monitoring to
complement the emergency services it offers. The Company believes protection
services can be integrated with fire protection and ambulance services for
optimal efficiency and maximum cost-effectiveness. In August 1997, the Company
commenced a five-year contract to monitor global positioning satellite tracking
systems in vehicles.
8
<PAGE> 11
MANAGEMENT SYSTEMS
The Company utilizes sophisticated management systems, which it believes
enhance the productivity and profitability of the Company's existing operations
and enable it to enhance the productivity and profitability of acquired
operations. These systems permit the Company to achieve economies of scale at
the local operational level through the proper utilization of personnel and
equipment and at the corporate level through centralized systems for billings,
collections, purchasing, accounting, cash management, human resources, risk
management, and third-party reimbursement.
The Company has developed measurement systems that permit management to
monitor the performance level of each operation on a continual basis. The
Company's centralized management and information systems permit managers to
direct their attention primarily to operations. The systems include centralized
billings and collections procedures that provide for more efficient tracking and
collection of accounts receivable. Centralized purchasing permits the Company to
achieve significant discounts in the purchase of equipment and supplies through
a Company-developed catalogue from which managers select items needed for their
operations. Centralized third-party reimbursement allows the Company to maximize
the utilization of its expertise in Medicare, Medicaid, and other third-party
payor reimbursement programs and to ensure the most favorable classification for
all of the Company's operations under such programs.
The Company believes its investment in management systems and its effective
use of such systems represent key components in its success. The Company's
financial reporting system facilitates the Company's successful integration of
acquired companies. The Company is committed to an ongoing enhancement of its
systems to provide productive, timely information, and effective controls and
believes that its management systems have the capability to support sustained
long-term growth.
HUMAN RESOURCES
The Company strives to maximize the operational autonomy of its managers.
Managers receive extensive training in the use of management systems, customer
service, and supervisory practices. The Company's centralized human resources
division increases the Company's ability to assign the most appropriate
personnel for a position within any given operation and to reassign personnel as
necessary to meet operational needs. The human resources department participates
in all areas of training, career development, and succession planning of
employees and assesses the Company's personnel needs.
DISPATCH AND COMMUNICATIONS
The Company uses system status plans and flexible deployment systems to
position its ambulances within a designated service area because effective fleet
deployment represents a key factor in reducing response time and increasing
efficient use of resources. In certain service areas with a large volume of
calls, the Company analyzes data on traffic patterns, demographics, usage
frequency, and similar factors with the aid of computers to help it determine
optimal ambulance deployment and selection. The center that controls the
deployment and dispatch of ambulances in response to calls for ambulance service
may be owned and operated either by the applicable county or municipality or by
the Company itself. Each control center utilizes computer hardware and software
and sophisticated communications equipment and maintains responsibility for
fleet deployment and utilization 24 hours a day, seven days a week.
Depending on the emergency medical dispatch system used in a designated
service area, the public authority that receives "911" emergency medical calls
either dispatches the Company's ambulances directly from the public control
center or communicates information regarding the location and type of medical
emergency to the Company's control center which in turn dispatches ambulances to
the scene. In most service areas, the Company's control center receives the
calls from the police after the police have determined the call is for emergency
medical services. When the Company receives the "911" call, it dispatches one or
more ambulances directly from its control center while the call taker
communicates with the caller. All call takers and dispatchers are trained EMTs
with additional training that enables them to instruct a caller about applicable
pre-arrival emergency medical procedures, if necessary. In the Company's larger
control centers, a computer assists the dispatcher by analyzing a number of
factors, such as time of day, ambulance location, and
9
<PAGE> 12
historical traffic patterns, in order to recommend optimal ambulance selection.
In all cases, a dispatcher selects and dispatches the ambulance. While the
ambulance is en route to the scene, the ambulance receives information
concerning the patient's condition prior to the ambulance's arrival at the
scene.
The Company's communication systems allow the ambulance crew to communicate
directly with the destination hospital to alert hospital medical personnel of
the arrival of the patient and the patient's condition and to receive
instructions directly from emergency room personnel on specific pre-hospital
medical treatment. These systems also facilitate close and direct coordination
with other emergency service providers, such as the appropriate police and fire
departments, that also may be responding to a call.
Deployment and dispatch also represent important factors in providing
non-emergency ambulance services. The Company implements system status plans for
these services designed to assure appropriate response times to non-emergency
calls. The Company intends to establish call centers that will enable it to
implement demand management strategies for health care providers. Through its
strategic alliance with National Health Enhancement Systems, Inc., the Company
is working to develop a demand management system that integrates medical
protocols with the Company's logistics and "911" based communications expertise.
By combining telephone triage and medical transport services, the Company can
improve the responsiveness and cost-effectiveness of health care delivery in a
managed care system. Managed care providers could encourage their plan members
to contact a call center in non-life threatening emergencies. The call centers
are staffed by nurses who use medical protocols to analyze and triage the
medical situation and determine the best mode of transport. In non-emergency
situations, the call centers could dispatch a BLS ambulance rather than a more
expensive ALS ambulance. The call center can also direct the ambulance to
transport the patient to an affiliated facility specified by the managed care
center rather than to a non-member facility or a hospital emergency room,
thereby further reducing costs for the provider.
The Company utilizes communication centers in its fire protection
activities for the receipt of fire alarms and the dispatch of equipment and
personnel that are the same as or similar to those maintained for its ambulance
services. Response time represents an important criteria in the effectiveness of
fire suppression. Depending upon the area served, the Company's response time
from the receipt of a call to the arrival on the scene generally varies from 4
to 15 minutes. Response times depend on the level of protection sought by the
Company's customers in terms of fire station spacing, the size of the service
area covered, and the amount of equipment and personnel dedicated to fire
protection.
BILLINGS AND COLLECTIONS
The Company currently maintains 13 billing and payment processing centers
and a centralized billing and collection system at its headquarters in Arizona.
Invoices are generated at the regional level, and the account is processed by
the centralized system only if payment is not received in a timely manner.
Customer service is directed from each of the regional centers.
The Company derives a substantial portion of its ambulance fee collections
from reimbursement by third-party payors, including payments under Medicare,
Medicaid, and private insurance programs, typically invoicing and collecting
payments directly to and from those third-party payors. The Company also
collects payments directly from patients, including payments under deductible
and co-insurance provisions and otherwise. During fiscal 1995, 1996, and 1997,
the Company derived approximately 33%, 27%, and 26%, respectively, of its net
ambulance fee collections from Medicare, 12%, 11%, and 10%, respectively, from
Medicaid, 40%, 41%, and 38%, respectively, from private insurers (including
prepaid health plans and other non-government sources), and 15%, 21%, and 26%,
respectively, directly from patients. Companies in the ambulance service
industry maintain high provisions for doubtful accounts relative to companies in
other industries. Collection of complete and accurate patient billing
information during an emergency service call is sometimes difficult, and
incomplete information hinders post-service collection efforts. In addition, it
is not possible for the Company to evaluate the creditworthiness of patients
requiring emergency transport services. The Company's allowance for doubtful
accounts generally is higher with respect to revenue derived directly from
patients than for revenue derived from third-party payors and generally is
higher for transports resulting from "911" emergency calls than for general
transport requests.
10
<PAGE> 13
The Company has substantial experience in processing claims to third-party
payors and employs a collection staff specifically trained in third-party
coverage and reimbursement procedures. The Company uses specialized proprietary
software systems to specifically tailor the submission of claims to Medicare,
Medicaid, and certain other third-party payors and has the capability to
electronically submit claims to the extent third-party payors systems permit.
The Company's systems provide for accurate tracking of accounts receivable and
status pending payment, which facilitates the effective utilization of personnel
resources to resolve workload distribution and problem invoices. The Company
uses an automated dialer that preselects and dials accounts based on their
status within the billing and collection cycle, which optimizes the efficiency
of the collection staff. The Company believes that its experience in processing
third-party claims reduces the collection time of its receivables and results in
fewer rejected claims based on incomplete or inaccurate information.
State licensing requirements as well as contracts with counties,
municipalities, and health care facilities typically require the Company to
provide ambulance services without regard to a patient's insurance coverage or
ability to pay. As a result, the Company often does not receive compensation for
services provided to patients who are not covered by Medicare, Medicaid, or
private insurance. The anticipated level of uncompensated care and allowance for
uncollectible accounts may be considered in determining the Company's subsidy
and permitted rates under contracts with a county or municipality.
MARKETING AND SALES
Counties, fire districts, and municipalities generally award contracts to
provide "911" emergency services either through requests for competitive
proposals or bidding processes. In some instances in which the Company is the
existing provider, the county or municipality may elect to renegotiate the
Company's existing contract rather than re-bid the contract. The Company
believes that counties, fire districts, and municipalities consider the quality
of care, historical response time performance, and total cost, both to the
municipality or county and to the public, to be the most important factors in
awarding contracts. In addition, the Company will continue to seek to enter into
public/private alliances to compete for new business. The Company's alliance
with San Diego Fire & Life Safety Services allowed the entities to bid for and
win a contract to provide "911" and ambulance services throughout the city of
San Diego.
The Company markets its non-emergency ambulance services to hospitals,
health maintenance organizations, convalescent homes, and other health care
facilities that require a stable and reliable source of medical transportation
for their patients. The Company believes that its status as a "911" provider in
a designated service area increases its visibility and enhances its marketing
efforts for non-emergency services in that area. Contracts for non-emergency
services usually are based on criteria (such as quality of care, customer
service, response time, and cost) similar to those in contracts for emergency
services. The Company further believes that its strategy of building regional
operations will better position it to serve the developing managed care market.
The Company has implemented customer service training for all its personnel in
recognition of the increasing awareness of managed care providers to the
importance of customer service.
The Company markets its fire protection services to subscribers in rural
and suburban areas, volunteer fire departments, tax-supported fire districts and
municipalities, newly developed communities, and industrial complexes, including
airports, large industrial and petrochemical plants, power plants, and other
large self-contained facilities. The Company also provides fire protection
services to newly developed communities where the subscription fee is included
in the homeowner's association assessment.
CONTRACTS
The Company enters into contracts with counties, municipalities, and fire
districts to provide "911" emergency ambulance services in designated service
areas. These contracts typically specify maximum fees that the Company may
charge and set forth required criteria, such as response times, staffing levels,
types of vehicles and equipment, quality assurance, and insurance coverage.
Counties, municipalities, and fire districts also may require the Company to
provide a performance bond or other assurances of financial responsibility. The
amount of the subsidy, if any, that the Company receives from a county,
municipality, or fire district, and the rates that the Company may charge for
services under a contract for emergency ambulance services,
11
<PAGE> 14
depend in large part on the nature of the services rendered and performance
requirements. The four largest ambulance contracts accounted for 24%, 16%, and
13% of total revenue for the fiscal years ended June 30, 1995, 1996, and 1997,
respectively, with the contract with Orange County, Florida accounting for 9%,
7%, and 5%, respectively, of total revenue for the same periods. Rates to be
charged under the Orange County contract are agreed upon between the Company and
the county. The Company does not receive any subsidy from the county under this
contract.
The Company provides fire protection services pursuant to master contracts
or on a subscription basis. Master contracts provide for negotiated rates with
governmental entities. Certain contracts are performance based and require the
Company to meet certain dispatch and response times in a certain percentage of
responses. These contracts also set maximum thresholds for variances from the
performance criteria. These contracts establish the level of service required
and may encompass fire prevention and education activities as well as fire
suppression. Other contracts are level-of-effort based and require the Company
to provide a certain number of personnel for a certain time period for a
particular function, such as fire prevention or fire suppression. The largest of
these contracts accounted for 6%, 4%, and 3% of total revenue for the fiscal
years ended June 30, 1995, 1996, and 1997, respectively.
The Company provides fire protection services on a subscription basis in
areas where no governmental entity has assumed the financial responsibility for
providing fire protection. The Company derived approximately 56% of its fire
protection service revenue from subscriptions for fiscal 1995, 51% for fiscal
1996, and 50% for fiscal 1997. The Company had subscription contracts with
approximately 107,000 and 109,000 subscribing households as of June 30, 1996 and
1997, respectively, and approximately 3,000 commercial subscribers as of June
30, 1996 and 1997, primarily in Arizona, Knox County, Tennessee and Grants Pass,
Oregon. Subscription fees are collected annually in advance. Subscribers also
pay a membership fee upon subscribing for service. In the event that the Company
provides service for a nonsubscriber, the Company directly bills the property
owner for the cost of services rendered. The Company has developed a
computerized fire subscription billing system that allows the Company to monitor
accounts. The Company experienced renewal rates of approximately 88% during the
prior three fiscal years. Fire subscription rates are not currently regulated by
any government agency in the Company's service areas.
The Company's contracts generally extend for terms of three to five years,
with several contracts having terms of up to 10 years. The Company attempts to
renegotiate contracts substantially in advance of the expiration date and
generally has been successful in such renegotiations. The following table sets
forth certain information regarding the Company's five primary contracts at June
30, 1997 with counties, fire districts, and municipalities for ambulance
services and for fire protection services.
<TABLE>
<CAPTION>
EXPIRATION
TERM IN YEARS DATE TYPE OF SERVICE(1)
------------- --------------- ------------------
<S> <C> <C> <C>
Ambulance
Orange County,
Florida(2).............. 2 September 1998 911/General
Rochester, New York(3)..... 4 October 2000 911
Knox County,
Tennessee(4)............ 4 June 2002 911
Tucson, Arizona(5)......... 3 July 1997 911
Integrated Fire and Ambulance
Scottsdale, Arizona(6)..... 5 July 2001 911
</TABLE>
- ---------------
(1) Type of service for ambulance contracts indicates whether "911" emergency or
general ambulance services or both are provided pursuant to the contract.
(2) The contract was first entered into in 1962 by a provider that was acquired
by the Company in July 1984.
(3) The contract was first entered into in 1988 by a provider that was acquired
by the Company in May 1994.
(4) The contract was first entered into in July 1985 by the Company.
(5) The contract was first entered into in July 1993 by the Company. This
contract has been awarded to an ambulance service provider that is subject
to a pending acquisition by the Company.
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<PAGE> 15
(6) The contract was first entered into in 1952 by the Company. The contract has
two five-year renewal options exercisable by the City of Scottsdale.
The Company also enters into contracts with hospitals, nursing homes, and
other health care facilities to provide non-emergency and critical care
ambulance services. These contracts typically designate the Company as the first
ambulance service provider contacted to provide non-emergency ambulance services
to those facilities and permit the Company to charge a base fee, mileage
reimbursement, and additional fees for the use of particular medical equipment
and supplies. The Company provides a discount in rates charged to facilities
that assume the responsibility for payment of the charges to the persons
receiving services.
COMPETITION
The ambulance service industry is highly competitive. The principal
participants include governmental entities (including fire districts), other
national ambulance service providers, large regional ambulance service
providers, hospitals, and numerous local and volunteer private providers. In
addition, there can be no assurance that counties, municipalities, fire
districts, hospitals, or health care facilities that presently contract for
ambulance services will not choose to provide ambulance services directly in the
future. The Company is experiencing increased competition from fire departments
to provide ambulance service. Several of the Company's current and potential
competitors have greater capital and other resources than the Company. Ambulance
service providers compete primarily on the basis of quality of service,
performance, and cost. The Company believes that counties, fire districts, and
municipalities consider quality of care, historical response time performance,
and cost to be the most important factors in awarding a contract, although other
factors, such as customer service, financial stability, and personnel policies
and practices, also may be considered. Although commercial providers often
compete intensely for business within a particular community, it is generally
difficult to displace a provider that has a history of satisfying the quality of
care and response time performance criteria established within the service area.
Moreover, significant start-up costs together with the long-term nature of the
contracts under which services are provided and the relationships many providers
have within their communities create barriers to providers seeking to enter new
markets other than through acquisition.
Fire protection services for residential and commercial properties are
provided primarily by tax-supported fire districts or municipalities, and
volunteer departments. Private providers represent a small portion of the total
fire protection market. The private sector provides fire protection services
primarily where a tax-supported fire district or municipality has decided to
contract for the provision of fire protection services. No assurance can be
given that fire districts or municipalities will continue to contract for fire
protection services. In areas where no governmental entity has assumed financial
responsibility for providing fire protection, the Company provides fire
protection services on a subscription basis. No assurance can be given that a
subscription area will not be annexed by a municipality or be converted to a
fire district that provides service directly rather than through a master
contract.
GOVERNMENTAL REGULATION
The Company's business is subject to governmental regulation at the
federal, state, and local levels. At the federal level, the Company is subject
to regulations under OSHA designed to protect employees of the Company. The
federal government also recommends standards for ambulance design and
construction, medical training curriculum, and designation of appropriate trauma
facilities. Various state agencies may modify these standards.
Each state in which the Company operates regulates various aspects of its
ambulance and fire business. State requirements govern the licensing or
certification of ambulance service providers, training and certification of
medical personnel, the scope of services that may be provided by medical
personnel, staffing requirements, medical control, medical procedures,
communication systems, vehicles, and equipment. The Company's contracts in its
current service areas typically prescribe maximum rates that the Company may
charge for services. The process of determining rates includes cost reviews,
analyses of levels of reimbursement from all sources, and determination of
reasonable profits. Rate setting agencies may set rates to compensate
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<PAGE> 16
service providers by requiring paying customers to subsidize those who do not or
cannot pay. Regulations applicable to ambulance services may vary widely from
state to state.
Applicable federal, state, and local laws and regulations are subject to
change. The Company believes that it currently is in substantial compliance with
applicable regulatory requirements. These regulatory requirements, however, may
require the Company in the future to increase its capital and operating
expenditures in order to maintain current operations or initiate new operations.
REIMBURSEMENT
The Company must comply with various requirements in connection with its
participation in Medicare and Medicaid. Medicare is a federal health insurance
program for the elderly and for chronically disabled individuals, which pays for
ambulance services when medically necessary. Medicare uses a charge-based
reimbursement system for ambulance services and reimburses 80% of charges
determined to be reasonable by Medicare, subject to the limits fixed for the
particular geographic area. The patient is responsible for paying the balance of
the bill, and Medicare requires the Company to expend reasonable efforts to
collect the balance. In determining reasonable charges, Medicare considers and
applies the lowest of various charge factors, including the actual charge, the
customary charge, the prevailing charge in the same locality, the amount of
reimbursement for comparable services, or the inflation-indexed charge limit.
Medicaid is a combined federal-state program for medical assistance to
impoverished individuals who are aged, blind, or disabled or members of families
with dependent children. Medicaid programs or a state equivalent exist in all
states in which the Company operates. Although Medicaid programs differ in
certain respects from state to state, all are subject to federal requirements.
State Medicaid agencies have the authority to set levels of reimbursement within
federal guidelines. The Company receives only the reimbursement permitted by
Medicaid and is not permitted to collect from the patient any difference between
its customary charge and the amount reimbursed.
Like other Medicare and Medicaid providers, the Company is subject to
governmental audits of its Medicare and Medicaid reimbursement claims. The
Company has not experienced significant losses as a result of any such audit.
Government funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
determinations by intermediaries and governmental funding restrictions, all of
which could materially increase or decrease program reimbursements for ambulance
services. In recent years, Congress has consistently attempted to curb federal
spending on such programs. During June 1997, the Health Care Financing
Administration ("HCFA") issued proposed rules that would revise Medicare policy
on the coverage of ambulance services. Reimbursement is currently permitted if,
based on an assessment of the patient's condition, it is determined that ALS
service is medically necessary or if ALS response is required under "911"
contracts or state or local law. The new proposal would reimburse at ALS rates
only if ALS services were medically necessary. The proposed HCFA rules would
also require, among other things, that a physician's certification be obtained
prior to furnishing non-emergency ambulance service to patients, that certain
ambulance staffing requirements be maintained, that certain equipment be present
in each ambulance, and that certain additional information and documentation be
provided in order to qualify for reimbursement under the Medicare program. The
proposed rules have not been finalized. If implemented, such rules could result
in contract renegotiations or other action by the Company to offset any negative
impact of the proposed change in reimbursement policies.
During August 1997, President Clinton signed the "Balanced Budget Act of
1997" (the "Budget Act"). The Budget Act provides for certain changes to the
Medicare reimbursement system, including the development and implementation of a
prospective fee schedule, by January 2000, for ambulance services. The Budget
Act mandates that this fee schedule be developed through a negotiated rulemaking
process between HFCA and ambulance service providers and must consider the
following: (i) data from industry and other organizations involved in the
delivery of ambulance services, (ii) mechanisms to control increases in
expenditures for ambulance services, (iii) appropriate regional and operational
differences, (iv) adjustments to payment rates to account for inflation and
other relevant factors, and (v) the phase-in of payment rates
14
<PAGE> 17
under the fee schedule in an efficient and fair manner. Charges for ambulance
services provided during calendar years 1998 and 1999 will be increased by the
Consumer Price Index (CPI) less one percentage point.
The Budget Act also stipulates that individual states may now elect to no
longer provide payment for Medicare cost-sharing for coinsurance, or copayments,
for Medicaid beneficiaries. Medicare coverage has been extended for certain
paramedic services provided in rural areas.
Certain actions to partially mitigate any adverse effect of these changes
could be taken by the Company. These actions could include renegotiation of
rates and contract subsidies provided in the Company's "911" ambulance service
contracts and changes in staffing of ambulance crews based upon the negotiation
for longer response times under ambulance service contracts to reduce operating
costs.
There can be no assurance whether the proposed HCFA rules, a prospective
fee schedule, or other proposals involving various aspects of Medicare
reimbursements will be adopted or the effect on the Company of any such
adoption. No assurance can be given that future funding levels for Medicare and
Medicaid programs will be comparable to present levels. Changes in the
reimbursement policies, or other government action, could adversely affect the
Company's business, results of operations, and financial condition.
INSURANCE
The Company carries a broad range of automobile and general liability,
comprehensive property damage, malpractice, workers' compensation, and other
insurance coverages that the Company considers adequate for the protection of
its assets and operations. The Company operates in some states that adhere to
legal standards that hold emergency service providers to a gross negligence
standard in the delivery of emergency medical care, thereby subjecting them to
less exposure for tort judgments. The Company is subject to accident claims as a
result of the normal operation of its fleet of ambulances and fire vehicles.
There can be no assurance, however, that the coverage limits of the Company's
policies will be adequate. A successful claim against the Company in excess of
its insurance coverage could have a material adverse effect on the Company and
its financial condition. Claims against the Company, regardless of their merit
or outcome, also may have an adverse effect on the Company's reputation and
business. The Company has undertaken to minimize its exposure through an active
risk management program.
EMPLOYEES
At September 26, 1997, the Company employed approximately 5,500 full-time
and 3,700 part-time employees, including approximately 6,500 involved in
ambulance services, 600 in fire protection services, 550 in integrated ambulance
and fire protection services, and 1,550 in management, administrative, clerical,
and billing activities. Of these employees, 2,700 are paramedics and 3,900 are
EMTs. The Company is a party to a collective bargaining agreement relating to
its Rochester, New York operations and to certain of its ambulance services
employees in Arizona. The Company considers its relations with employees to be
good.
15
<PAGE> 18
EXECUTIVE OFFICERS AND KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -----------------------------------------------------
<S> <C> <C>
Warren S. Rustand........ 54 Chairman of the Board, Chief Executive Officer, and
Director
James H. Bolin........... 45 President and Director
Robert T. Edwards........ 57 Executive Vice President and Director
William R. Crowell....... 38 Senior Vice President -- Finance and Acquisitions
William F. Gillis........ 49 Senior Vice President -- Enterprise Services & Chief
Information officer
Mark E. Liebner.......... 45 Senior Vice President -- Chief Financial Officer &
Treasurer
Robert E. Ramsey, Jr..... 51 Senior Vice President and Director
James E. Stenger......... 54 Senior Vice President -- Executive Assistant to the
President
John E. Stuart........... 56 Senior Vice President -- Marketing & New Business
Development
Kurt R. Davis............ 35 Vice President -- Public Affairs & Corporate
Communications
Dean P. Hoffman.......... 37 Vice President -- Financial Services
Michel A. Sucher, M.D.... 50 Vice President -- Medical Affairs
Atul Vashistha........... 31 Vice President -- Marketing and Business Development
Louis G. Jekel........... 56 Secretary and Director
</TABLE>
In March 1995, the Board of Directors established an Office of Chief
Executive; it is currently comprised of three members, Mr. Rustand, Mr. Bolin
and Mr. Edwards. The Office of Chief Executive oversees the operation and
management of the Company and develops and implements strategic and long-range
planning for the Company.
WARREN S. RUSTAND has served as Chief Executive Officer of the Company
since August 1996, Chairman of the Board of Directors since May 1994, and a
member of the Board of Directors since August 1993. He also is a member of the
Office of Chief Executive. Mr. Rustand has been Chairman and Chief Executive
Officer of The Cambridge Company, Ltd., a merchant banking and management
consulting firm, since 1987. He has served as Chairman of Health Partners of
Arizona, a managed care provider, since February 1996. Mr. Rustand is also
Chairman of an additional company and director of four companies, including
LucasVarity PLC, a New York Stock Exchange listed company. Mr. Rustand served as
appointments secretary to President Ford from 1974 to 1976, and as special
assistant to Mr. Ford while he was Vice President in 1973 and 1974.
JAMES H. BOLIN has served as the President of the Company since March 1995
and a member of its Board of Directors since February 1981. He also is a member
of the Office of Chief Executive. Mr. Bolin served as Senior Vice
President -- Ambulance Services of the Company from October 1991 until March
1995, Chief Financial Officer from October 1988 through September 1991, Senior
Vice President -- Finance from August 1986 through September 1988, and Vice
President -- Finance from April 1981 through July 1986. Mr. Bolin also is the
Chairman and Treasurer of the Rural/Metro ESOP Administrative Committee. Mr.
Bolin is a certified public accountant. Mr. Bolin will retire from his full-time
duties as President effective January 1, 1998. He will remain with the Company
in a part-time capacity and as a member of the Company's Board of Directors.
ROBERT T. EDWARDS has served as Executive Vice President of the Company
since October 1995 and a member of its Board of Directors since May 1993. He is
also a member of the Office of Chief Executive. He served as Senior Vice
President -- Fire Protection Services of the Company from August 1991 until
October 1995. He served as Vice President and General Manager of the Company's
Maricopa County operations from February 1989 to August 1991 and as Vice
President from July 1986 until August 1991. From 1978 to July 1986, Mr. Edwards
served in various capacities with the Company.
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<PAGE> 19
WILLIAM R. CROWELL has served as Senior Vice President -- Finance and
Acquisitions of the Company since July, 1997 after having served as Vice
President -- Financial Services of the Company since January 1993. Mr. Crowell
served as Director of Financial Services from July 1992 through December 1992.
Mr. Crowell served as Vice President -- Finance of Peter Piper, Inc., an
international franchisor and food-service retailer, from January 1990 through
June 1992 and as Assistant Corporate Controller of W.A. Krueger Co., a publicly
held printing company, from April 1988 through December 1989. Mr. Crowell is a
certified public accountant.
WILLIAM F. GILLIS has served as Senior Vice President -- Enterprise
Services and Chief Information Officer since July 1997. Mr. Gillis served as
President of Motorola's INFO Enterprises subsidiary from July 1992 through July
1996. From July 1996 until July 1997, he served as Interim Chief Information
Officer for the American Graduate School of International Management
(Thunderbird), where he has served on the Board of Trustees since 1992.
Concurrently, he formed ParentCare Corporation, an information service for the
progeny of elder Americans.
MARK E. LIEBNER has served as Senior Vice President of the Company since
August 1994 and as Chief Financial Officer of the Company since October 1991.
From October 1991 to August 1994, Mr. Liebner served as Vice President of the
Company. From July 1988 until September 1991, he was a Vice President of Van
Kampen Merritt, having served in a consulting capacity to the Company in
connection with its 1990 debt restructurings. From March 1982 until June 1988,
Mr. Liebner served as Vice President of Lloyds International Corporation, a
merchant banking affiliate of Lloyds Bank PLC.
ROBERT E. RAMSEY, JR. has served as Senior Vice President of the Company
and as a member of its Board of Directors since June 1997. Mr. Ramsey is
President and Chief Executive Officer of SW General, Inc. and affiliated
companies, which he founded in 1982. He is currently President of the Arizona
Ambulance Association. SW General, Inc. and affiliated companies were purchased
by the Company in June 1997.
JAMES E. STENGER has served as Senior Vice President -- Executive Assistant
to the President of the Company since July 1997. Mr. Stenger served as Vice
President -- Executive Assistant to the President of the Company from February
1989 through July 1997. He served as Vice President and General Manager of the
Company's Pima and Yuma Counties operations from February 1989 through June 1991
and as Vice President and General Manager of the Company's Maricopa County
operations from July 1987 through January 1989. He served in various capacities
with the Company from 1966 to June 1987.
JOHN E. STUART has served as Senior Vice President -- Marketing and New
Business Development of the Company since January 1996 after having served as
Senior Vice President -- Marketing of the Company from May 1993 through January
1996. Mr. Stuart served as Senior Vice President -- Service Establishments for
American Express Travel Related Services, Inc. in London from January 1990 until
joining the Company in May 1993 and as Senior Vice President -- Marketing and
Sales of that company from January 1988 through December 1989.
KURT R. DAVIS has served as Vice President -- Public Affairs and Corporate
Communications since August 1995. Mr. Davis joined the Company in February 1992
as Director of Governmental Relations. After an eighteen-month sabbatical in the
Arizona Governor's office, Mr. Davis returned to the Company in January 1995 as
National Director of Public Affairs. Mr. Davis served as Executive Director of
the Arizona Republican Party from 1987 through 1991, and as Director of
Intergovernmental Affairs and Issues Analysis in the Arizona Attorney General's
Office from 1991 until joining the Company.
DEAN P. HOFFMAN has served as Vice President -- Financial Services since
July 1997 after having served as Director of Finance from June 1994 to June
1997. Mr. Hoffman served as Director of Accounting and Budgets of Pinnacle West
Capital Corporation, a public utility and real estate holding company from June
1987 until October 1992. From October 1992 until June 1994, he was a business
consultant in private practice. Mr. Hoffman is a certified public accountant.
MICHEL A. SUCHER, M.D., has served as Vice President -- Medical Affairs of
the Company since January 1995. He served as National Medical Director for the
Company from 1984 to 1995. From 1974 to 1995, Dr. Sucher engaged in the private
practice of emergency medicine and held several positions at Scottsdale
17
<PAGE> 20
Memorial Hospital, including the most recent position as President of the
Medical Staff. Dr. Sucher is board certified by the American Board of Emergency
Medicine and is a member of the American College of Emergency Physicians.
ATUL VASHISTHA has served as Vice President -- Marketing and Business
Development since September 1996. He served as Regional President of the
Company's Southern Arizona Operations from July 1994 through September 1996.
From December 1991 through July 1994, Mr. Vashistha served as the Company's
Director of Marketing and Sales.
LOUIS G. JEKEL has served as Secretary of the Company and as a member of
its Board of Directors since 1968. Mr. Jekel directs the Company's Wildland Fire
Protection Operations with the State of Arizona and the federal government. Mr.
Jekel is also the Secretary of the Rural/Metro ESOP Administrative Committee.
Mr. Jekel is a partner in the law firm of Jekel & Howard, Scottsdale, Arizona.
SPECIAL CONSIDERATIONS
Dependence on Certain Business Relationships
The Company depends to a great extent on certain contracts with
municipalities or fire districts to provide "911" emergency ambulance services
and fire protection services. The Company's five largest contracts accounted for
approximately 22% and 18% of total revenue for the fiscal years ended June 30,
1996 and 1997 respectively, with one contract accounting for approximately 7%
and 5% of total revenue for the same periods. The loss or cancellation of any
one or more of these contracts could have a material adverse effect on the
Company and its operations. No assurance can be given that the Company will be
successful in retaining its existing contracts or in obtaining new contracts for
ambulance services or for fire protection services. The Company also faces the
risk that areas in which it provides fire protection services through
subscription arrangements with residents and businesses will be converted to
tax-supported fire districts or annexed by municipalities. See
"Business -- Marketing and Sales," "Business -- Contracts" and
"Business -- Competition" contained in Item 1 of this Report.
Acquisition Strategy
The Company's strategy with respect to ambulance services depends in large
part on its continued ability to acquire and to operate successfully additional
ambulance service providers. The Company completed eight acquisitions in fiscal
1994, 11 acquisitions in fiscal 1995, 16 acquisitions in fiscal 1996, and 18
acquisitions of ambulance service providers in 1997. There can be no assurance
that the Company will be able to identify additional suitable acquisition
candidates, that it will be able to consummate any such acquisitions, or that it
will be able to integrate any such acquisitions successfully into its
operations. The Company expects to use cash and securities, including Common
Stock, as the principal consideration for future acquisitions. The Company's
acquisition program could be adversely affected if the Company does not generate
sufficient cash for future acquisitions from existing operations or through
external financings. There can be no assurance that the Company's operations
will generate sufficient cash for acquisitions, that any additional financings
for acquisitions will be available if and when needed or on terms acceptable to
the Company, or that financing that is obtained will be able to be deployed on a
prompt basis. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in Item 7 of this Report.
Possible Adverse Changes in Reimbursement Rates of Coverage
Payments received from third-party payors (including Medicare, Medicaid,
and private insurers represent a substantial portion of the Company's ambulance
receipts. The Company derived approximately 79% and 74% of its net ambulance fee
collections from such third-party payors during 1996 and 1997; including 27% and
26% from Medicare, respectively. There are continuing efforts of third-party
payors to control expenditures for health care, including proposals to revise
reimbursement policies.
During June 1997 HCFA issued proposed rules that would revise Medicare
policy on the coverage of ambulance services. These proposed rules have been
subject to public comment and, despite the passage of new law addressing changes
to the reimbursement of ambulance services by Medicare (discussed below),
18
<PAGE> 21
have not yet been withdrawn. The proposed new HCFA rules have not been
finalized. See "Business -- Reimbursement" contained in Item 1 of this Report.
In addition, in August 1997, the Budget Act became law. The Budget Act
provides for the development, negotiation, and implementation of a prospective
fee schedule for ambulance services between HCFA and ambulance service providers
by January 2000. The Budget Act also reduces the annual rate adjustment for
Medicare reimbursements from the Consumer Price Index (CPI) to CPI less one
percentage point.
If the proposed HCFA rules were to be finalized prior to the negotiation of
a prospective fee schedule as stipulated in the Budget Act, and the Company were
unable to mitigate the effect of the new rules, the Company's results of
operations could be adversely effected. The final outcome of the proposed rules
and the effect of the prospective fee schedule is uncertain. However, changes in
reimbursement policies, or other government action, together with the financial
instability of private third-party payors and budget pressures on payor sources
could influence the timing and, potentially, the ultimate receipt of
reimbursements. A reduction in coverage or reimbursement rates by third-party
payors could have a material adverse effect on the Company's results of
operations. See "Business -- Billings and Collections," "Business -- Government
Regulation," and "Business -- Reimbursement" contained in Item 1 of this Report.
Impact of Rate Structures and Limitations on Rates of Return
State or local government regulations or administrative policies regulate
rate structures in most states in which the Company conducts ambulance
operations. In certain service areas in which the Company is the exclusive
provider of services, the municipality or fire district sets the rates for
emergency service pursuant to a master contract and establishes the rates for
general ambulance services that the Company is permitted to charge. Rates in
most service areas are set at the same amounts for emergency and general
ambulance services. The State of Arizona establishes a rate of return on sales
the Company is permitted to earn in determining the ambulance service rates the
Company may charge in that state. Ambulance services revenue generated in
Arizona accounted for approximately 11% and 9% of total revenue for the fiscal
years ended June 30, 1996 and 1997, respectively. No assurance can be given that
the Company will be able to receive ambulance service rate increases on a timely
basis where rates are regulated or to establish or maintain satisfactory rate
structures where rates are not regulated. Under present coverage programs with
third-party payors, the Company faces the continuing risk of nonreimbursement to
the extent that uninsured individuals require ambulance service. Changes in
demographics in the Company's markets could increase the Company's risk of
doubtful accounts which, in turn, could have a material adverse effect on the
Company's operating results. See "Business -- Billings and Collections" and
"Business -- Governmental Regulation" contained in item 1 of this Report.
Municipalities and fire districts negotiate the payments to be made to the
Company for fire protection services pursuant to master contracts. These master
contracts are based on a budget and on level of effort or performance criteria
desired by the municipalities and fire districts. No assurance can be given that
the Company will be successful in negotiating or maintaining profitable
contracts with municipalities and fire districts. See "Business -- Contracts"
contained in Item 1 of this Report.
Governmental Regulation
Numerous federal, state, and local laws and regulations govern various
aspects of the business of ambulance service providers, covering matters such as
licensing, rates, employee certification, environmental matters, and other
factors. Certificates of necessity may be required from state or local
governments to operate ambulance services in a designated service area. Master
contracts from governmental authorities are subject to risks of cancellation or
unenforceability as a result of budgetary and other factors and may subject the
Company to certain liabilities or restrictions which traditionally have applied
only to governmental bodies or to which they are otherwise immune. There can be
no assurance that federal, state, or local governments will not adopt laws or
regulations that would increase the Company's cost of doing business, lower
reimbursement levels, or otherwise have a material adverse effect on the
Company's business. See "Business -- Governmental Regulation" and
"Business -- Reimbursement" contained in Item 1 of this Report.
19
<PAGE> 22
Industry Considerations
Numerous legislative proposals have been considered that would result in
major reforms in the United States health care system. The Company cannot
predict which, if any, health care reforms may be proposed or enacted or the
effect that any such legislation would have on the Company's business. In
addition, managed care providers are attempting to contain health care costs
through the use of outpatient services and specialized treatment facilities. No
assurance can be given that changing industry practices will not have an adverse
effect on the Company.
Competition
The ambulance service industry is highly competitive. The Company currently
encounters competition in providing ambulance services from governmental
entities (including fire districts), hospitals, other national ambulance service
providers, large regional ambulance service providers, and numerous local and
volunteer private providers. In addition, there can be no assurance that
municipalities, fire districts, or health care organizations that currently
contract for ambulance services will not choose to provide ambulance services
directly in the future. The Company is experiencing increased competition from
fire departments to provide emergency ambulance service. Some of the Company's
current competitors and certain potential competitors have greater capital and
other resources than the Company. Tax-supported fire districts, municipal fire
departments, and volunteer fire departments represent the principal providers of
fire protection services for residential and commercial properties. Private
providers represent only a small portion of the total fire protection market and
generally provide services where a tax-supported municipality or fire district
has decided to contract for the provision of fire protection services or has not
assumed the financial responsibility for fire protection. In these situations,
the Company provides services for a municipality or fire district on a contract
basis or provides fire protection services directly to residences and businesses
on a subscription basis. There can be no assurance that the Company will be able
to obtain additional fire protection businesses on a contractual or subscription
basis, that fire districts or municipalities will not choose to provide fire
protection services directly in the future, or that areas in which the Company
provides services through subscriptions will not be converted to tax-supported
fire districts or annexed by municipalities. See "Business -- Competition"
contained in Item 1 of this Report.
Dependence on Management and Other Key Personnel
The Company's success depends upon the retention of principal key personnel
and the recruitment and retention of additional key personnel. The loss of
existing key personnel or the failure to recruit and retain necessary additional
personnel would adversely affect the Company's business prospects. There can be
no assurance that the Company will be able to retain its current personnel or
attract and retain necessary additional personnel. The Company's internal growth
and its expansion into new geographic areas will require additional expertise,
such as marketing and operational management. These growth and expansion
activities will further increase the demand on the Company's resources and
require the addition of new personnel and the development of additional
expertise by existing personnel. The failure of the Company to attract and
retain personnel with the requisite expertise or to develop internally such
expertise could adversely affect the prospects for the Company's success. The
Company entered into three-year employment agreements with its executive
officers in May 1993, which were renewed in December 1995, and has entered into
similar agreements with certain other executive officers as they have joined the
Company. The Company maintains "key person" insurance on several of its key
executive officers. See "Business -- Executive Officers and Key Employees"
contained in Item 1 of this Report.
Control by Current Stockholders
The directors, executive officers, and their affiliates currently own
beneficially approximately 10%, and the Company's Employee Stock Ownership Plan
(the "ESOP") currently holds approximately 8%, of the outstanding shares of
Common Stock. Accordingly, these persons, if they act as a group, likely will be
able to significantly influence the election of the Company's directors and the
outcome of matters requiring approval by the stockholders of the Company.
20
<PAGE> 23
Change in Control Provisions
The Company's Second Restated Certificate of Incorporation (the "Restated
Certificate") and the Delaware General Corporation Law (the "General Corporation
Law") contain provisions that may have the effect of making more difficult or
delaying attempts by others to obtain control of the Company, even when these
attempts may be in the best interests of stockholders. The Restated Certificate
also authorizes the Board of Directors, without stockholder approval, to issue
one or more series of preferred stock which could have voting and conversion
rights that adversely affect the voting power of the holders of Common Stock and
provides for a classified board of directors. The General Corporation Law also
imposes conditions on certain business combination transactions with "interested
stockholders" (as defined therein).
The Company has also adopted a Rights Plan whereby, if and when the Rights
become exercisable, holders of shares of Common Stock will be entitled to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $145 (subject to certain antidilution
adjustments). The Rights will expire 10 years after issuance, and will be
exercisable only if a person or group becomes the beneficial owner of 15% or
more of the Common Stock (such person or group, a "15% holder") or commences a
tender or exchange offer which would result in the offeror beneficially owning
15% or more of the Common Stock. If the Rights become exercisable, each Right,
unless redeemed by the Company, entitles the holder to purchase for $145 an
amount of Common Stock of the Company, or in certain circumstances a combination
of securities and/or assets or the common stock of the acquiror, having a market
value of twice the purchase price.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by the Company at $.01
per Right prior to 10 days (as such period may be extended) after the public
announcement of the existence of a 15% holder.
Possible Volatility of Stock
The market price of the Company's Common Stock has increased since the
Company's initial public offering in July 1993. See "Market for the Registrant's
Common Equity and Related Stockholder Matters" contained in Item 5 of this
Report. The period was marked by generally rising stock prices, favorable
industry conditions, and improved operating results by the Company. The trading
price of the Company's Common Stock in the future could be subject to wide
fluctuations in response to quarterly variations in operating results of the
Company and others in its industry, actual or anticipated announcements
concerning the Company or its competitors, including government regulations and
reimbursement changes, the announcement and implementation of health care reform
proposals, changes in analysts' estimates of the Company's financial
performance, general conditions in the health care industry, general economic
and financial conditions, and other events or factors. In addition, the stock
market has experienced extreme price and volume fluctuations which have affected
the market prices for many companies involved in health care and related
industries and which often have been unrelated to the operating performance of
such companies. These broad market fluctuations and other factors may adversely
affect the market price of the Company's Common Stock. See
"Business -- Competition" and "Business -- Governmental Regulation" contained in
Item 1 of this Report.
Shares Eligible for Future Sale
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices. As of September 26, 1997, there were
13,157,348 shares of Common Stock outstanding, 9,874,095 shares of which were
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless held by an "affiliate" of the Company, as
that term is defined under the Securities Act. The Company also has outstanding
136,313 restricted shares, as that term is defined under Rule 144 (the
"Restricted Shares") under the Securities Act, that are eligible for sale in the
public market subject to compliance with the holding period, volume limitations,
and other requirements of Rule 144. In
21
<PAGE> 24
addition, the Company has registered 3,200,000 shares of Common Stock for
issuance in connection with acquisitions (of which 3,146,940 shares have been
issued), which shares are generally freely tradeable after their issuance under
Rule 145 of the Securities Act, unless held by an affiliate of the acquired
company, in which case such shares will be subject to the volume and manner of
sale restrictions under Rule 144.
The Company has registered for offer and sale up to 3,965,625 shares of
Common Stock that are reserved for issuance pursuant to the Company's stock
option plans. Shares issued after the effective date of such registration
statement upon the exercise of stock options issued under the Company's stock
option plans generally will be eligible for sale in the public market, except
that affiliates of the Company will continue to be subject to volume
limitations. The Company also has the authority to issue additional shares of
Common Stock and shares of one or more series of Preferred Stock. The issuance
of such shares could have a dilutive effect on earnings per share, and the sale
of such shares could depress the market price of the Company's Common Stock.
ITEM 2. PROPERTIES
FACILITIES AND EQUIPMENT
The Company leases its principal executive offices in Scottsdale, Arizona.
The Company leases administrative facilities and other facilities used
principally for ambulance and fire apparatus basing, garaging and maintenance in
those areas in which it provides ambulance and fire protection services. The
Company also owns six administrative facilities and 11 other facilities within
its service areas. Aggregate rental expense was approximately $5.3 million and
$6.6 million during fiscal 1996 and 1997, respectively. At September 26, 1997,
the Company's fleet included 1,363 owned and 198 leased ambulances, 120 owned
and 15 leased fire vehicles and 250 owned and 15 leased other vehicles.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is subject to litigation arising in the
ordinary course of business. There can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities occurring out of
such claims. In the opinion of management, the Company is not engaged in any
legal proceedings expected to have a material adverse effect on the financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol RURL since its initial public offering on July 16, 1993 at
$12.50 per share. The following table sets forth the high and low sale prices of
the Common Stock for the fiscal quarters indicated as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED JUNE 30, 1996
First quarter.............................................. $26.50 $21.75
Second quarter............................................. 25.25 22.50
Third quarter.............................................. 28.75 22.00
Fourth quarter............................................. 35.75 26.75
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED JUNE 30, 1997
First quarter.............................................. $37.13 $29.25
Second quarter............................................. 39.00 32.00
Third quarter.............................................. 35.88 30.50
Fourth quarter............................................. 32.75 26.50
</TABLE>
On September 26, 1997, the closing sale price of the Company's Common Stock
was $30.50 per share. On September 26, 1997, there were approximately 1,005
holders of record of the Company's Common Stock.
Pursuant to a private placement under Section 4(2) of the Securities Act,
in May 1997, the Company issued 11,751 shares at $30.63 per share to the former
shareholder of Response Medical Transport Service, Inc. ("Response") in
connection with the Company's acquisition of Response. In June 1997, pursuant to
Section 4(2), the Company issued 3,414 shares at $29.63 per share to the two
former shareholders of Lindsay and District Ambulance Service Ltd., 3,414 shares
at $29.63 per share to the two former shareholders of Owen Sound Emergency
Services Inc., 3,414 shares at $29.63 per share to the former shareholder of
Port Colborne and District Ambulance Service Ltd., and 3,414 shares at $29.63
per share to the two former shareholders of Noel Ambulance Service Limited in
connection with the Company's acquisition of such companies.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently plans to retain earnings to finance the growth of the
Company's business rather than to pay cash dividends. Payments of any cash
dividends in the future will depend on the financial condition, results of
operations, and capital requirements of the Company as well as other factors
deemed relevant by the Board of Directors. The Company's term notes and
revolving credit facility contain restrictions on the Company's ability to pay
cash dividends, and future borrowings may contain similar restrictions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" contained in Item 7 of this
Report.
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<PAGE> 26
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the fiscal years
ended June 30, 1997, 1996, 1995, 1994 and 1993 is derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants. The selected consolidated financial data
provided below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and related notes thereto appearing
elsewhere in this Report on Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenue
Ambulance services............................ $257,488 $197,201 $127,461 $68,942 $52,539
Fire protection services...................... 42,163 38,770 32,274 30,502 28,165
Other......................................... 20,154 14,292 11,848 4,920 3,377
-------- -------- -------- ------- -------
Total revenue.......................... 319,805 250,263 171,583 104,364 84,081
Operating expenses
Payroll and employee benefits................. 170,833 135,464 90,843 54,750 44,178
Provision for doubtful accounts............... 43,424 31,036 22,263 13,658 11,083
Depreciation.................................. 12,136 9,778 6,654 4,369 3,522
Amortization of intangibles................... 4,660 3,569 2,074 584 448
Other operating expenses...................... 54,922 45,752 33,809 21,613 17,798
Loss contract/restructuring charge............ 6,026 -- -- -- --
-------- -------- -------- ------- -------
Operating income................................ 27,804 24,664 15,940 9,390 7,052
Interest expense, net........................... 5,720 5,108 3,059 1,780 2,896
-------- -------- -------- ------- -------
Income before income taxes and.................. 22,084 19,556 12,881 7,610 4,156
Provision for income taxes...................... (9,364) (8,044) (5,288) (2,884) (1,471)
-------- -------- -------- ------- -------
Income before extraordinary item................ 12,720 11,512 7,593 4,726 2,685
Extraordinary item.............................. -- -- (693) -- --
-------- -------- -------- ------- -------
Net income.................................... $ 12,720 $ 11,512 $ 6,900 $ 4,726 $ 2,685
======== ======== ======== ======= =======
Net income available for common stock........... $ 12,720 $ 11,512 $ 6,900 $ 4,726 $ 2,685
======== ======== ======== ======= =======
Earnings per common stock and common stock
equivalent(1)
Income before extraordinary item.............. $ 1.04 $ 1.14 $ .92 $ .71 $ .63
Extraordinary item............................ -- -- (.08) -- --
-------- -------- -------- ------- -------
Net income............................. $ 1.04 $ 1.14 $ .84 $ .71 $ .63
======== ======== ======== ======= =======
Earnings per common stock equivalent assuming
full dilution(1).............................. $ .61
=======
Weighted average number of common stock and
common stock equivalents outstanding..........
Primary....................................... 12,271 10,075 8,249 6,668 4,171
Fully diluted................................. 4,414
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATE)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital............................... $ 94,766 $ 55,402 $ 26,358 $23,915 $ 4,784
Total assets.................................. 364,066 230,114 159,430 88,247 45,816
Current portion of long-term debt(2).......... 9,814 6,610 8,377 3,590 9,827
Long-term debt, net of current portion........ 144,643 60,731 53,282 13,339 15,382
Stockholders' equity.......................... 159,808 119,966 65,648 47,349 4,093
</TABLE>
- ---------------
(1) Primary and fully diluted earnings per share are considered to be the same
in all periods presented except for the year ended June 30, 1993.
(2) Includes balances outstanding under the Company's revolving credit facility
of $6,690,000 at June 30, 1993.
(3) Includes balances outstanding under the Company's revolving credit facility
of $134,000,000, $49,500,000 and $34,900,000 at June 30, 1997, 1996 and
1995, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data and the Consolidated Financial
Statements of the Company and related notes appearing elsewhere in this report
on Form 10-K.
INTRODUCTION
The Company derives its revenue primarily from fees charged for ambulance
and fire protection services. The Company provides ambulance services in
response to emergency medical calls ("911" emergency ambulance services) and
non-emergency transport services (general transport services) to patients on
both a fee-for-service basis and nonrefundable subscription fee basis. Per
transport revenue depends on various factors, including the mix of rates between
existing markets and new markets and the mix of activity between "911" emergency
ambulance services and general transport services as well as other competitive
factors. Fire protection services are provided either under contracts with
municipalities or fire districts or on a nonrefundable subscription fee basis to
individual homeowners or commercial property owners.
Ambulance service fees are recorded net of Medicare, Medicaid, and other
reimbursement limitations and are recognized when services are provided.
Payments received from third-party payors represent a substantial portion of the
Company's ambulance service fee receipts. Provision for doubtful accounts is
made for the expected difference between ambulance services fees charged and
amounts actually collected. The Company's provision for doubtful accounts
generally is higher with respect to collections to be derived directly from
patients than for collections to be derived from third-party payors and
generally is higher for "911" emergency ambulance services than for general
ambulance transport services.
Because of the nature of the Company's ambulance services, it is necessary
to respond to a number of calls, primarily "911" emergency ambulance service
calls, which may not result in transports. Results of operations are discussed
below on the basis of actual transports since transports are more directly
related to revenue. Expenses associated with calls that do not result in
transports are included in operating expenses. The percentage of calls not
resulting in transports varies substantially depending upon the mix of general
transport and "911" emergency ambulance service calls in the Company's markets
and is generally higher in markets in which the calls are primarily "911"
emergency ambulance service calls. Rates in the Company's markets take into
account the anticipated number of calls that may not result in transports. The
Company does not separately account for expenses associated with calls that do
not result in transports.
Revenue generated under fire protection services contracts is recognized
over the life of the contract. Subscription fees received in advance are
deferred and recognized over the term of the subscription agreement, which
generally is one year.
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<PAGE> 28
Other revenue primarily consists of fees associated with alternative
transportation services and home health care services and are recognized when
the services are provided.
Other operating expenses primarily consist of rent and related occupancy
expenses, maintenance and repairs, insurance, fuel and supplies, travel and
professional fees.
The Company's net income for the year ended June 30, 1997 was $12.7 million
or $1.04 per share. This compares to net income of $11.5 million and $6.9
million, or $1.14 and $0.84 per share for the years ended June 30, 1996 and
1995, respectively. Included in 1995 net income is an extraordinary charge to
earnings of $0.7 million, net of a $0.5 million tax benefit, or $0.08 per share,
to reflect the loss on early extinguishment of debt. During fiscal 1997, the
Company completed the acquisition of eighteen ambulance service providers
operating in Arizona, Arkansas, Georgia, Indiana, Kentucky, New York, Ohio,
Pennsylvania and Ontario, Canada. The following discussion provides greater
detail of the Company's results of operations and liquidity and capital
resources.
RESULTS OF OPERATIONS
The following table sets forth for the years ended June 30, 1997, 1996 and
1995, certain items from the Company's consolidated financial statements
expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenue
Ambulance services................................ 80.5% 78.8% 74.3%
Fire protection services.......................... 13.2 15.5 18.8
Other............................................. 6.3 5.7 6.9
----- ----- -----
Total revenue............................. 100.0 100.0 100.0
Operating expenses
Payroll and employee benefits..................... 53.4 54.1 52.9
Provision for doubtful accounts................... 13.6 12.4 13.0
Depreciation...................................... 3.8 3.9 3.9
Amortization of intangibles....................... 1.5 1.4 1.2
Other operating expenses.......................... 17.1 18.3 19.7
Loss contract/restructuring charge................ 1.9 -- --
----- ----- -----
Operating income.................................... 8.7 9.9 9.3
Interest expense, net............................. 1.8 2.1 1.8
----- ----- -----
Income before income taxes and extraordinary item... 6.9 7.8 7.5
Provision for income taxes........................ 2.9 3.2 3.1
----- ----- -----
Income before extraordinary item.................... 4.0% 4.6% 4.4%
===== ===== =====
</TABLE>
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1997
Revenue
Total revenue increased $69.5 million, or 27.8%, from $250.3 million for
the year ended June 30, 1996 to $319.8 million for the year ended June 30, 1997.
Approximately $43.6 million of this increase resulted from the acquisition of
ambulance service providers during fiscal 1997. Fire protection services revenue
increased by $3.4 million, and other revenue increased by $5.9 million.
Total ambulance transports increased by 205,000, or 28.9%, from 710,000 for
the year ended June 30, 1996 to 915,000 for the year ended June 30, 1997. The
acquisition of eighteen ambulance service companies during fiscal 1997 accounted
for 154,000 of these additional transports.
26
<PAGE> 29
Fire protection services revenue increased due to rate increases for fire
protection services and greater utilization of the Company's services under
fee-for-service arrangements. The increase also resulted from the revenue
generated from new fire protection contracts awarded to the Company through
competitive bidding.
Operating Expenses
Payroll and employee benefit expenses increased $35.4 million, or 26.1%,
from $135.4 million for the year ended June 30, 1996 to $170.8 million for the
year ended June 30, 1997. This increase was primarily due to the acquisition of
nineteen companies during fiscal 1997. Payroll and employee benefits decreased
from 54.1% of total revenue for the year ended June 30, 1996 to 53.4% of total
revenue for the year ended June 30, 1997 as a result of operational
efficiencies.
Provision for doubtful accounts increased $12.4 million, or 40.0%, from
$31.0 million for the year ended June 30, 1996 to $43.4 million for the year
ended June 30, 1997. Provision for doubtful accounts increased from 12.4% of
total revenue for the year ended June 30, 1996 to 13.6% of total revenue for the
year ended June 30, 1997, reflecting the effect of the acquisition of ambulance
service providers operating in markets with a greater mix of "911" emergency
activity.
Depreciation increased $2.3 million, or 23.5%, from $9.8 million for the
year ended June 30, 1996 to $12.1 million for the year ended June 30, 1997,
primarily due to increased property and equipment from recent acquisition
activity.
Amortization of intangibles increased by $1.1 million, or 30.6%, from $3.6
million for the year ended June 30, 1996 to $4.7 million for the year ended June
30, 1997. This increase was the result of increased intangible assets caused by
recent acquisition activity. Amortization of intangibles increased from 1.4% of
total revenue for the year ended June 30, 1996 to 1.5% for the year ended June
30, 1997.
Other operating expenses increased $9.2 million, or 20.1%, from $45.7
million for the year ended June 30, 1996 to $54.9 million for the year ended
June 30, 1997, primarily as a result of increased expenses associated with the
operation of the nineteen companies acquired during fiscal 1997. Other operating
expenses decreased from 18.3% of total revenue for the year ended June 30, 1996
to 17.1% of total revenue for the year ended June 30, 1997 as a result of
operational efficiencies.
The Company recorded a $6.0 million non-recurring pre-tax charge for the
year ended June 30, 1997. Included in this amount was an allowance of $3.2
million related to an unprofitable ambulance service contract. Also included was
a restructuring charge of $2.8 million relating to the integration of ambulance
company acquisitions. The charge consists primarily of severance costs and other
costs related to the elimination of redundant functions. Management expects the
integration to be completed during fiscal 1998.
Interest expense increased by $0.6 million, or 11.8%, from $5.1 million for
the year ended June 30, 1996 to $5.7 million for the year ended June 30, 1997.
This increase was caused by higher debt balances, reflecting increased
borrowings on the Company's revolving credit facility.
The Company's effective tax rate increased from 41.1% for the year ended
June 30, 1996 to 42.4% for the year ended June 30, 1997, primarily the result of
a higher percentage of the Company's taxable income being generated in higher
tax rate states and the effect of nondeductible goodwill generated in connection
with the acquisition of certain ambulance service providers.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1996
Revenue
Total revenue increased $78.7 million, or 45.9%, from $171.6 million for
the year ended June 30, 1995 to $250.3 million for the year ended June 30, 1996.
Approximately $56.1 million of this increase resulted from the acquisition of
ambulance service providers during fiscal 1996. Fire protection services revenue
increased by $6.5 million, and other revenue increased by $2.4 million.
27
<PAGE> 30
Total ambulance transports increased by 241,000, or 51.4%, from 469,000 for
the year ended June 30, 1995 to 710,000 for the year ended June 30, 1996. The
acquisition of sixteen ambulance service companies during fiscal 1996 accounted
for 227,000 of these additional transports.
Fire protection services revenue increased due to rate increases for fire
protection services and greater utilization of the Company's services under
fee-for-service arrangements. The increase also resulted from the acquisition of
a fire protection service company during the first quarter of fiscal 1996 and
revenue generated from new fire protection contracts awarded to the Company
through competitive bidding.
Operating Expenses
Payroll and employee benefit expenses increased $44.6 million, or 49.1%,
from $90.8 million for the year ended June 30, 1995 to $135.4 million for the
year ended June 30, 1996. This increase was primarily due to the acquisition of
eighteen companies during fiscal 1996.
Provision for doubtful accounts increased $8.7 million, or 39.0%, from
$22.3 million for the year ended June 30, 1995 to $31.0 million for the year
ended June 30, 1996. Provision for doubtful accounts decreased from 13.0% of
total revenue for the year ended June 30, 1995 to 12.4% of total revenue for the
year ended June 30, 1996, reflecting the effect of the acquisition of ambulance
service providers operating in markets with higher receivable collections as a
result of a greater mix of general transport activity.
Depreciation increased $3.1 million, or 46.3%, from $6.7 million for the
year ended June 30, 1995 to $9.8 million for the year ended June 30, 1996,
primarily due to increased property and equipment from recent acquisition
activity.
Amortization of intangibles increased by $1.5 million, or 71.4%, from $2.1
million for the year ended June 30, 1995 to $3.6 million for the year ended June
30, 1996. This increase was the result of increased intangible assets caused by
recent acquisition activity. Amortization of intangibles increased from 1.2% of
total revenue for the year ended June 30, 1995 to 1.4% for the year ended June
30, 1996.
Other operating expenses increased $11.9 million, or 35.2%, from $33.8
million for the year ended June 30, 1995 to $45.7 million for the year ended
June 30, 1996, primarily as a result of increased expenses associated with the
operation of the eighteen companies acquired during fiscal 1996. Other operating
expenses decreased from 19.7% of total revenue for the year ended June 30, 1995
to 18.3% of total revenue for the year ended June 30, 1996 as a result of
operational efficiencies.
Interest expense increased by $2.0 million, or 64.5%, from $3.1 million for
the year ended June 30, 1995 to $5.1 million for the year ended June 30, 1996.
This increase was caused by higher debt balances, reflecting increased
borrowings on the Company's revolving credit facility.
The Company's effective tax rate increased from 41.0% for the year ended
June 30, 1995 to 41.1% for the year ended June 30, 1996, primarily the result of
a higher percentage of the Company's taxable income being generated in higher
tax rate states and the effect of nondeductible goodwill generated in connection
with the acquisition of certain ambulance service providers. This increase was
partially offset by tax planning strategies implemented by the Company during
fiscal 1996.
28
<PAGE> 31
SEASONALITY AND QUARTERLY RESULTS
The following table reflects certain selected unaudited quarterly operating
results for each quarter of fiscal 1997 and 1996. The operating results of any
quarter are not necessarily indicative of results of any future period.
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- --------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Ambulance service.................. $43,404 $48,053 $51,789 $53,955 $59,028 $62,465 $69,161 $66,834
Fire protection.................... 9,255 9,435 9,813 10,267 10,305 10,349 10,551 10,958
Other revenue...................... 3,104 3,351 3,382 4,455 4,661 4,716 5,209 5,568
------- ------- ------- ------- ------- ------- ------- -------
Total revenue...................... 55,763 60,839 64,984 68,677 73,994 77,530 84,921 83,360
Operating Income................... 4,814 5,339 6,775 7,736 6,592 7,474 9,500 4,238
Net Income......................... 2,102 2,396 2,989 4,025 3,299 3,771 4,675 975
Earnings per common stock and common
stock equivalent: $ 0.23 $ 0.25 $ 0.31 $ 0.35 $ 0.28 $ 0.31 $ 0.38 $ 0.08
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company has historically experienced, and expects to continue to
experience, moderate seasonality in quarterly operating results. This
seasonality has resulted from a number of factors, including relatively higher
second and third fiscal quarter demand for transport services in the Company's
Arizona and Florida regions resulting from the greater winter populations in
those regions. The effect of the acquisition of ambulance service providers in
the northeastern and midwestern regions of the United States has reduced, and
will continue to reduce, the overall seasonality in operating results.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash requirements principally
through cash flow from operating activities, term and revolving indebtedness,
capital equipment lease financing, and the sale of stock through an initial
public offering in July 1993, generating net proceeds of approximately $19.5
million, and subsequent public stock offering in May 1994 and April 1996,
generating net proceeds of approximately $17.4 million and $34.8 million,
respectively.
During the year ended June 30, 1997, the Company used $11.1 million in cash
flow from operations compared with $1.4 million provided by operations in the
preceding year, due primarily to increases in accounts receivable, inventories
and prepaid expenses and decreases in accounts payable and accrued liabilities.
During September 1995, the Company funded a fully underwritten credit
agreement for a $125.0 million revolving credit facility. The Company used the
proceeds from the facility to repay the Company's then existing revolving credit
facility and its notes payable. Costs previously deferred related to certain
indebtedness resulted in an extraordinary charge to earnings of $693,000, net of
a $480,000 tax benefit, or $.08 per share in the year ended June 30, 1995. In
May 1997, the credit agreement was increased from $125.0 million to $175.0
million. Approximately $134.0 million was outstanding on the credit facility at
June 30, 1997. This six-year revolving credit facility is priced at the prime
rate or a LIBOR-based rate. The LIBOR-based rates range from LIBOR plus 0.75% to
LIBOR plus 1.75% depending upon the Company meeting certain financial covenants.
Beginning September 30, 1999, the amount available under the facility begins to
reduce at three-month intervals until the termination date at September 30,
2001. The facility is collateralized by the Company's accounts and notes
receivable, common stock of its subsidiaries and partnership interests. At
September 26, 1997, borrowings on the revolving credit facility were
approximately $150.0 million. At June 30, 1997, the Company had availability of
approximately $37.0 million under the revolving credit facility.
Exclusive of payments on the revolving credit facility, the Company repaid
$21.3 million of notes payable and capital lease obligations during the year
ended June 30, 1997 and $20.3 million during the year ended June 30, 1996.
Capital expenditures were $23.9 million during the year ended June 30, 1997
compared to
29
<PAGE> 32
$18.2 million during the prior year, of which $2.0 million was financed through
capital lease obligations in the year ended June 30, 1996.
During the year ended June 30, 1997, the Company purchased either all of
the issued and outstanding stock or certain of the assets of nineteen companies
operating in Arizona, Arkansas, Georgia, Indiana, Kentucky, New York, Ohio,
Pennsylvania and Ontario, Canada. The combined purchase price was $82.6 million.
The Company paid cash of $35.5 million, issued notes payable to sellers totaling
$4.5 million, issued 1.2 million shares of common stock to sellers (361,970
shares were related to pooling-of-interests transactions and the remaining
shares were valued at $18.7 million), and assumed $23.9 million of liabilities.
The Company funded the cash portion of the acquisitions through operating cash
flow and from the Company's revolving credit facility.
Subsequent to June 30, 1997 the Company purchased either all the issued and
outstanding stock or certain assets of four ambulance service providers with
operations in Alabama, Georgia, Mississippi, New Jersey, New York and Tennessee.
The combined purchase price was $6.1 million. The Company paid cash of $3.7
million, issued notes payable to sellers of $1.2 million and assumed $1.2
million of liabilities. The Company issued 641,009 shares related to two of the
acquisitions which were recorded as pooling-of-interests transactions.
The Company expects that existing working capital, together with cash flow
from operations and additional borrowing capacity, will be sufficient to meet
its operating and capital needs for existing operations for the twelve months
subsequent to June 30, 1997. The Company is engaged in an active acquisition
program. The Company intends to fund any acquisitions that it consummates
through the use of cash from operations, credit facilities, seller notes payable
and the issuance of common stock. In addition, the Company may seek to raise
additional capital through public or private debt or equity financings. The
availability of these capital sources will depend upon prevailing market
conditions, interest rates and the financial condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements, the Notes
thereto and Report of Independent Public Accountants thereon commencing at page
F-1 of this Report, which Consolidated Financial Statements, Notes and Report
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to
the information contained under the headings "Proposal to Elect
Directors -- Nominees" as set forth in the Company's definitive proxy statement
for its 1997 Annual Meeting of Stockholders. The information required by this
Item relating to executive officers of the Company is included in
"Business -- Executive Officers and Key Employees" contained in Item 1 of this
Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 relating to directors of the Company is
incorporated herein by reference to the information under the heading "Director
Compensation and Other Information" and the information relating to executive
officers of the Company is incorporated herein by reference to the information
under the heading "Executive Compensation" as set forth in the Company's
definitive proxy statement for its 1997 Annual Meeting of Stockholders.
30
<PAGE> 33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the information under the heading "Security Ownership of Principal Stockholders,
Directors and Officers" as set forth in the Company's definitive proxy statement
for its 1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the information under the heading "Certain Relationships and Related
Transactions" as set forth in the Company's definitive proxy statement for its
1997 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ---------------------------------------------------------------------------------
<S> <C>
2 Plan and Agreement of Merger and Reorganization, dated as of April 26, 1993(1)
3.1(a) Second Restated Certificate of Incorporation of the Registrant filed with the
Secretary of State of Delaware on January 18, 1995(12)
3.1(b) Rights Agreement dated as of August 23, 1995 between the Registrant and American
Securities Transfer, Inc., the Rights Agent(13)
3.2 Amended and Restated Bylaws of the Registrant(1)
4 Specimen Certificate representing shares of Common Stock, par value $.01 per
share(1)
10.3(a) 1989 Employee Stock Option Plan of Registrant, adopted August 10, 1989, as
amended(1)
10.3(b) Third Amendment to the 1989 Employee Stock Option Plan of Registrant, dated
February 4, 1994(2)
10.3(c) Fourth Amendment to 1989 Employee Stock Option Plan, dated August 25, 1994.(5)
10.4 Form of Stock Option Agreement pursuant to 1989 Employee Stock Option Plan of
Registrant(1)
10.5(a) Amended and Restated 1992 Stock Option Plan of Registrant, amended through
October 1995(14)
10.5(b) Amended and Restated 1992 Stock Option Plan of Registrant, amended through
September 6, 1996
10.6 Forms of Stock Option Agreements pursuant to the Amended and Restated 1992 Stock
Option Plan of Registrant(1)
10.15 Forms of Conditional Stock Grant and Repurchase Agreements by and between
Registrant and each of its executive officers and directors, dated May 14, 1993
and November 1, 1994(1)
10.16(a) Form of Employment Agreement by and between Registrant and each of the following
executive officers: James H. Bolin, Robert T. Edwards, Mark E. Liebner, John E.
Stuart, William R. Crowell, and James E. Stenger, each dated October 27, 1995,
and William F. Gillis, dated July 1, 1997.(19)
10.16(c) Form of Change of Control Agreement by and between the Registrant and the
following executive officers: (i) Warren S. Rustand, dated November 3, 1995 and
(ii) James H. Bolin, Robert T. Edwards, Mark E. Liebner, William R. Crowell,
James E. Stenger, and John E. Stuart, each dated December 1, 1995(18)
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ---------------------------------------------------------------------------------
<S> <C>
10.16(d) Employment Agreement by and between Registrant and Warren S. Rustand, dated
November 3, 1995.(18)
10.16(e) Employment Agreement by and between Registrant and Robert E. Ramsey Jr., dated
June 30, 1997.
10.17 Form of Indemnity Agreement by and between Registrant and each of its officers
and directors, dated in April, May, August and November 1993 and as of October
13, 1994(1)
10.18(a) Employee Stock Ownership Plan and Trust of the Registrant, effective July 1,
1989(1)
10.18(b) Amendment No. 1 to the Employee Stock Ownership Plan of the Registrant, dated
February 4, 1994(12)
10.18(c) Amendment No. 2 to the Employee Stock Ownership Plan of the Registrant, dated
April 14, 1994(13)
10.21 Retirement Savings Value Plan 401(k) of Registrant, as amended, dated July 1,
1990(1)
10.22 Master Lease Agreement by and between Plazamerica, Inc. and the Registrant, dated
January 30, 1990(1)
10.29 Stock Purchase Agreement by and among Rural/Metro Corporation of New Mexico-Texas
and John A. Suess with respect to the stock of Allied Ambulance, Inc., dated as
of May 26, 1994(3)
10.30 Stock Purchase Agreement by and among Rural/Metro Corporation of New Mexico-Texas
and Michael S. Harris and Stephanie J. Harris with respect to the stock of M.T.S.
Ambulance, Inc., dated as of May 21, 1994(3)
10.31 Stock Purchase Agreement by and among Rural/Metro Corporation of New Mexico-Texas
and Randy J. Cohen with respect to the stock of Medical Transportation Services,
Inc., dated as of May 21, 1994(3)
10.33 Bill of Sale and Asset Purchase Agreement by and between Patient Transfer System,
Inc., Charles B. Brockette, Sr., and Apollo Ambulance Service, Inc., dated August
13, 1994(3)
10.34 Stock Purchase Agreement by and among Rural/Metro of Nebraska, Inc. and Marty J.
Miller, Michael G. Dodge, Russel J. Bayer, Mike Stuhr, Rick Sheehy, and Doug
Wyatt, with respect to the stock of Eastern Ambulance Service, Inc., dated July
22, 1994(3)
10.35 Asset Purchase Agreement by and among PHAS, Inc., an indirect, wholly owned
subsidiary of the Company, Physicians Ambulance Service, Incorporated,
PhysiciansLifeline, Inc., Physmed, Inc., Physicians/Medic Transport,
Incorporated, and Hess Ambulance Service, Inc., and Ronald C. Hess and Robert
Hess, Jr., dated September 11, 1994(4)
10.36 Employee Stock Purchase Plan of Registrant, as amended through September 6,
1996(11)
10.37 Loan and Security Agreement by and among the CIT Group/Equipment Financing, Inc.
and the Registrant, together with its subsidiaries, dated December 28, 1994, and
related Promissory Note and Guaranty Agreement(5)
10.38 Loan Agreement by and between the Registrant, together with its subsidiaries, and
Bank One, Arizona, NA, with respect to the Registrant's existing revolving credit
facility, dated January 20, 1995(5)
10.39 Stock Purchase Agreement by and among Rural/Metro of Georgia, Inc., Barbara
Gallagher and Derek Fowkes with respect to the stock of E.M.S. Ventures, Inc. and
Professional Convalescent Ambulance Service, Inc., dated January 19, 1995(6)
10.40 Agreement of Merger and Plan of Reorganization by and among American Amco, Inc.,
Rural/Metro Corporation, American Ambulance Company and Donald P. Doepping, Sr.,
dated February 24, 1995(7)
10.41 Stock Purchase Agreement by and among Rural/Metro of New York, Inc., and Douglas
H. Baker with respect to the stock of LaSalle Ambulance, Inc., and The Western
New York Emergency Medical Services Training Institute, Inc., dated January 26,
1995(8)
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------- ---------------------------------------------------------------------------------
<S> <C>
10.42 Asset Purchase Agreement by and among EMS Ventures of South Carolina, Inc.,
Midlands Ambulance Corp. and Jane L. East, dated May 4, 1995(9)
10.43 Stock Purchase Agreement by and among Rural/Metro of New York, Inc., Joseph H.
Oddo and Lillian E. Oddo with respect to the stock of Towns Ambulance Service,
Inc., dated May 10, 1995(9)
10.44 Agreement and Plan of Reorganization by and between the Registrant and Daniel H.
Becker, dated May 19, 1995(10)
10.45 Credit Agreement, as amended, dated as of December 30, 1996, by and among
Registrant as guarantor, certain of its subsidiaries as borrowers, First Union
National Banking Association, as agent and as lender, and various other lenders,
and related Form of Note, Form of Security Agreement and Form of Pledge
Agreement(15)
10.46 Stock Purchase Agreement by and among Rural/Metro of New York, Inc. and Alan D.
Lewis, Sr. and Pamela A. Lewis with respect to the stock of Corning Ambulance
Service, Inc., dated June 15, 1995(16)
10.47 Agreement of Merger and Plan of Reorganization by and among Aid Acquisition,
Inc., Rural/Metro Corporation and The Aid Company, Inc., Stanley I. Guilkey, Jack
H. Herider, and Nancy C. Herider, dated October 10, 1995(17)
10.48 Agreement of Merger and Plan of Reorganization by and among Vigo Acquisition,
Inc., Rural/Metro Corporation, and Aid Ambulance at Vigo County, Inc., Stanley I.
Guilkey, Jack H. Herider and Nancy C. Herider, Jean M. Yoho and Gregory A. Yoho,
dated October 10, 1995(17)
10.49 Agreement of Purchase and Sale between Rural/Metro Corporation and Robert E.
Ramsey, Jr. and Barry Landon, as trustee of the Employee Stock Ownership Plan for
the benefit of the Company's employees, with respect to the stock of SW General,
Inc., as amended.(20)
10.50 Agreement of Purchase and Sale between Rural/Metro Corporation and Robert E.
Ramsey, Jr. with respect to the stock of Southwest Ambulance of Casa Grande,
Inc., as amended.(20)
10.51 Agreement of Purchase and Sale between Rural/Metro Corporation and Robert E.
Ramsey, Jr., Patrick McGroder, Barry Landon and Gary Ramsey, the vendors, with
respect to the stock of Southwest General Services, Inc., as amended.(20)
10.52 Agreement of Purchase and Sale between Rural/Metro Corporation and Robert E.
Ramsey, Jr., with respect to Medical Emergency Devices and Services, Inc., as
amended.(20)
10.53 Second Amendment to Credit Agreement by and among Rural/Metro Corporation,
certain subsidiaries of Rural/Metro Corporation, and First Union National Bank,
as Agent for the Lenders, dated May 29, 1997.
21 Subsidiaries of Registrant
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference to the Registration Statement on Form S-1 of the
Registrant (Registration No. 33-63448) filed May 27, 1993 and declared
effective July 15, 1993.
(2) Incorporated by reference to the Registration Statement on Form S-1 of the
Registrant (Registration No. 33-76458) filed March 15, 1994 and declared
effective May 5, 1994.
(3) Incorporated by reference to the Registrant's Form 10-K Annual Report filed
with the Commission on or about September 28, 1994.
(4) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about September 26, 1994, as amended by the
Registrant's Form 8-K/A Current Reports filed on or about November 25, 1994
and August 1, 1995.
33
<PAGE> 36
(5) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about May 12, 1995.
(6) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about February 2, 1995.
(7) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about March 10, 1995.
(8) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about April 7, 1995, as amended by the
Registrant's Form 8-K/A Current Reports filed on or about May 15, 1995 and
August 1, 1995.
(9) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about May 19, 1995.
(10) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about June 2, 1995.
(11) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about February 14, 1997.
(12) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (Registration No. 33-88172) filed with the Commission on December
30, 1994 and declared effective January 19, 1995.
(13) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about August 28, 1995.
(14) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about February 14, 1996.
(15) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about February 14, 1997.
(16) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about August 18, 1995, as amended by the
Registrant's Form 8-K/A Current Report filed on or about August 28, 1995.
(17) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about November 10, 1995.
(18) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about May 15, 1996.
(19) Incorporated by reference to the Registrant's Form 10-K filed with the
Commission on or about September 27, 1996.
(20) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about July 15, 1997, as amended by the
Registrant's Form 8-K/A Current Report on or about August 12, 1997.
(b) Financial Statements filed as part of this report:
Consolidated Financial Statements and Supplemental Schedules as listed in
the Index to Consolidated Financial Statements on page F-1 of this report.
(c) Reports on Form 8-K:
None.
(d) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted on the basis of immateriality or
because such schedules are not otherwise applicable.
34
<PAGE> 37
SIGNATURES
Pursuant to the requirement 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.
RURAL/METRO CORPORATION
By: /s/ DEAN P. HOFFMAN
------------------------------------
Dean P. Hoffman
Vice President, Financial Services
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------------------- -------------------
<C> <S> <C>
By: /s/ WARREN S. RUSTAND Chairman of the Board of September 29, 1997
- ---------------------------------------- Directors
Warren S. Rustand and Chief Executive Officer
(Principal Executive Officer)
By: /s/ JAMES H. BOLIN President and Director September 29, 1997
- ---------------------------------------- (Principal Executive Officer)
James H. Bolin
By: /s/ ROBERT T. EDWARDS Executive Vice President and September 29, 1997
- ---------------------------------------- Director (Principal Executive
Robert T. Edwards Officer)
By: /s/ MARK E. LIEBNER Senior Vice President, Chief September 29, 1997
- ---------------------------------------- Financial Officer and
Mark E. Liebner Treasurer
(Principal Financial Officer)
By: /s/ ROBERT E. RAMSEY Senior Vice President and September 29, 1997
- ---------------------------------------- Director
Robert E. Ramsey
By: /s/ DEAN P. HOFFMAN Vice President, Financial September 29, 1997
- ---------------------------------------- Services
Dean P. Hoffman (Principal Accounting Officer)
By: /s/ COR J. CLEMENT Director September 29, 1997
- ----------------------------------------
Cor J. Clement
By: /s/ LOUIS G. JEKEL Director September 29, 1997
- ----------------------------------------
Louis G. Jekel
By: /s/ WILLIAM C. TURNER Director September 29, 1997
- ----------------------------------------
William C. Turner
By: /s/ HENRY G. WALKER Director September 29, 1997
- ----------------------------------------
Henry G. Walker
By: /s/ LOUIS A. WITZEMAN Director September 29, 1997
- ----------------------------------------
Louis A. Witzeman
</TABLE>
35
<PAGE> 38
RURAL/METRO CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and 1996............................ F-3
Consolidated Statements of Income for the years ended June 30, 1997, 1996 and
1995............................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended June
30, 1997, 1996 and 1995.......................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1996 and
1995............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
Supplemental Schedule
Schedule II -- Valuation and Qualifiying Accounts................................... F-20
</TABLE>
F-1
<PAGE> 39
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rural/Metro Corporation:
We have audited the accompanying consolidated balance sheets of RURAL/METRO
CORPORATION (a Delaware corporation) and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rural/Metro Corporation and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and supplementary data is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
August 21, 1997.
F-2
<PAGE> 40
RURAL/METRO CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................................. $ 3,398 $ 1,388
Accounts receivable, net of allowance for doubtful accounts of
$35,814 and $26,571, respectively (Notes 1 and 4)................. 106,978 68,642
Inventories (Note 1)................................................. 8,645 5,170
Prepaid expenses and other........................................... 7,162 5,710
-------- --------
Total current assets......................................... 126,183 80,910
PROPERTY AND EQUIPMENT, net (Notes 1 and 3)............................ 70,645 48,401
INTANGIBLE ASSETS, net (Notes 1 and 2)................................. 160,282 96,373
OTHER ASSETS........................................................... 6,956 4,430
-------- --------
$364,066 $230,114
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................................... $ 4,359 $ 4,092
Accrued liabilities (Note 1)......................................... 17,244 14,806
Current portion of long-term debt (Notes 3 and 4).................... 9,814 6,610
-------- --------
Total current liabilities.................................... 31,417 25,508
LONG-TERM DEBT, net of current portion (Notes 3 and 4)................. 144,643 60,731
NON-REFUNDABLE SUBSCRIPTION INCOME..................................... 13,367 12,582
DEFERRED INCOME TAXES (Note 9)......................................... 10,772 9,060
OTHER LIABILITIES...................................................... 4,059 2,267
-------- --------
Total liabilities............................................ 204,258 110,148
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (Notes 2, 6 and 7)
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
issued at June 30, 1997 and 1996.................................. -- --
Common stock, $.01 par value, 23,000,000 shares authorized;
12,770,147 and 11,092,736 shares outstanding at June 30, 1997 and
1996, respectively................................................ 130 113
Additional paid-in capital........................................... 121,355 92,359
Retained earnings.................................................... 40,334 30,181
Deferred compensation................................................ (772) (1,448)
Treasury stock, at cost, 149,456 shares at June 30, 1997 and 1996.... (1,239) (1,239)
-------- --------
Total stockholders' equity................................... 159,808 119,966
-------- --------
$364,066 $230,114
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 41
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Ambulance services....................................... $257,488 $197,201 $127,461
Fire protection services................................. 42,163 38,770 32,274
Other.................................................... 20,154 14,292 11,848
-------- -------- --------
Total revenue.................................... 319,805 250,263 171,583
-------- -------- --------
OPERATING EXPENSES
Payroll and employee benefits............................ 170,833 135,464 90,843
Provision for doubtful accounts.......................... 43,424 31,036 22,263
Depreciation............................................. 12,136 9,778 6,654
Amortization of intangible assets........................ 4,660 3,569 2,074
Other operating expenses................................. 54,922 45,752 33,809
Loss contract/restructuring charge (Note 1).............. 6,026 -- --
-------- -------- --------
Total expenses................................... 292,001 225,599 155,643
-------- -------- --------
OPERATING INCOME........................................... 27,804 24,664 15,940
INTEREST EXPENSE, net (Note 4)............................. 5,720 5,108 3,059
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.......... 22,084 19,556 12,881
PROVISION FOR INCOME TAXES (Note 9)........................ 9,364 8,044 5,288
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........................... 12,720 11,512 7,593
EXTRAORDINARY ITEM (Note 4)
Loss on early extinguishment of debt (net of tax effect
of $480).............................................. -- -- 693
-------- -------- --------
NET INCOME................................................. $ 12,720 $ 11,512 $ 6,900
======== ======== ========
EARNINGS PER COMMON STOCK AND COMMON STOCK EQUIVALENT (Note
1)
Income before extraordinary item......................... $ 1.04 $ 1.14 $ .92
Extraordinary item....................................... -- -- (.08)
-------- -------- --------
Net income....................................... $ 1.04 $ 1.14 $ .84
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING.................................. 12,271 10,075 8,249
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 42
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED DEFERRED TREASURY
STOCK STOCK CAPITAL EARNINGS COMPENSATION STOCK TOTAL
--------- ------ ---------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1994.................. $ -- $ 78 $ 43,415 $ 6,885 $ (1,790) $(1,239) $ 47,349
Issuance of 507,692 shares of common
stock for pooling-of-interests (Note
2).................................. -- 5 27 2,127 -- -- 2,159
---- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1994 as restated for
effect of pooling-of-interests........ -- 83 43,442 9,012 (1,790) (1,239) 49,508
Issuance of 682,331 shares of common
stock............................... -- 7 8,613 -- (205) -- 8,415
Tax benefit related to the exercise
and vesting of nonqualified stock
options and stock grants............ -- -- 376 -- -- -- 376
Amortization of deferred
compensation........................ -- -- -- -- 449 -- 449
Net income............................ -- -- -- 6,900 -- -- 6,900
---- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1995.................. -- 90 52,431 15,912 (1,546) (1,239) 65,648
Issuance of 657,329 shares of common
stock for pooling-of-interests (Note
2).................................. -- 7 151 2,757 -- -- 2,915
---- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1995 as restated for
effect of pooling-of-interests........ -- 97 52,582 18,669 (1,546) (1,239) 68,563
Issuance of 1,657,512 shares of common
stock net of offering costs of
$2,506.............................. -- 16 38,795 -- (535) -- 38,276
Tax benefit related to the exercise
and vesting of nonqualified stock
options and stock grants............ -- -- 982 -- -- -- 982
Amortization of deferred
compensation........................ -- -- -- -- 633 -- 633
Net income............................ -- -- -- 11,512 -- -- 11,512
---- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1996.................. -- 113 92,359 30,181 (1,448) (1,239) 119,966
Issuance of 361,970 shares of common
stock for pooling-of-interests (Note
2).................................. -- 4 -- (2,567) -- -- (2,563)
---- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1996 as restated for
effect of pooling-of-interests........ -- 117 92,359 27,614 (1,448) (1,239) 117,403
Issuance of 1,315,441 shares of common
stock............................... -- 13 24,129 -- -- -- 24,142
Tax benefit related to the exercise
and vesting of nonqualified stock
options and stock grants............ -- -- 4,867 -- -- -- 4,867
Amortization of deferred
compensation........................ -- -- -- -- 676 -- 676
Net income............................ -- -- -- 12,720 -- -- 12,720
---- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1997.................. $ -- $130 $121,355 $40,334 $ (772) $(1,239) $159,808
==== ==== ======== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 43
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 12,720 $ 11,512 $ 6,900
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Extraordinary item.................................... -- -- 693
Depreciation and amortization......................... 16,796 13,347 8,728
Amortization of deferred compensation................. 676 633 449
Amortization of gain on sale of real estate........... (103) (103) (103)
Provision for doubtful accounts....................... 43,424 31,036 22,263
Changes in assets and liabilities, net of effect of
businesses acquired
Increase in accounts receivable....................... (75,352) (52,474) (31,369)
Increase in inventories............................... (2,651) (1,684) (996)
Increase in prepaid expenses and other................ (1,867) (2,937) (273)
Increase (decrease) in accounts payable............... (1,255) (1,653) 1,946
Increase (decrease) in accrued liabilities............ (4,380) 1,334 (1,586)
Increase in non-refundable subscription income........ 124 788 931
Increase in deferred income taxes..................... 806 1,580 966
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... (11,062) 1,379 8,549
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facility, net............. 86,000 15,100 34,900
Repayment of debt and capital lease obligations.......... (21,328) (20,346) (10,784)
Borrowings of debt....................................... -- 2,016 2,702
Issuance of common stock................................. 10,310 38,048 998
-------- -------- --------
Net cash provided by financing activities........ 74,982 34,818 27,816
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for businesses acquired (Note 2)............... (35,512) (17,164) (32,914)
Capital expenditures..................................... (23,872) (18,237) (11,474)
Increase in other assets................................. (2,526) (308) (926)
-------- -------- --------
Net cash used in investing activities............ (61,910) (35,709) (45,314)
-------- -------- --------
INCREASE (DECREASE) IN CASH................................ 2,010 488 (8,949)
CASH, beginning of year.................................... 1,388 900 9,849
-------- -------- --------
CASH, end of year.......................................... $ 3,398 $ 1,388 $ 900
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 44
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND OPERATIONS
Rural/Metro Corporation, a Delaware corporation, and its subsidiaries
(collectively, the Company) is a diversified emergency services company
providing ambulance transport services, fire protection and training services,
and home health care services and equipment in 21 states, Canada and Latin
America. The Company provides "911" emergency and general transport ambulance
services to patients on both a fee-for-service basis and a non-refundable
subscription fee basis. Fire protection services are provided either under
contracts with municipalities or fire districts, or on a non-refundable
subscription fee basis to individual homeowners or commercial property owners.
The Company depends on certain contracts with municipalities or fire
districts to provide "911" emergency ambulance services and fire protection
services. The five largest contracts accounted for 18%, 22%, and 30% of total
revenue for the fiscal years ended June 30, 1997, 1996 and 1995, respectively,
with the largest of the five contracts accounting for 5%, 7%, and 9%,
respectively, of total revenue for the same periods. These contracts are subject
to requests for proposals, competitive bid processes or renegotiation upon
expiration and may be subject to termination for failure to meet performance
criteria.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Rural/Metro Corporation
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Ambulance service fees are recorded net of Medicare, Medicaid and other
reimbursement limitations and recognized when services are provided. During the
years ended June 30 1997, 1996 and 1995, the Company derived approximately 26%,
27% and 33%, respectively, of its net ambulance fee collections from Medicare
and 10%, 11% and 12%, respectively, from Medicaid. Provision for doubtful
accounts is recorded for the expected difference between net ambulance service
fees and amounts actually collected. The continuing efforts of third party
payors to control expenditures for health care could affect the revenue, cash
flows and profitability of the Company.
During August 1997, President Clinton signed the "Balanced Budget Act of
1997" (the Act). The Act provides for certain changes to the Medicare
reimbursement system. These changes include, among other things, the creation of
a Medicare Payment Advisory Commission to review payment policies and health
care delivery, and make recommendations to Congress concerning such payment
policies.
In addition, the Act provides for the development and implementation of a
prospective fee schedule, by January 2000, for ambulance services. The Act
mandates that this fee schedule be developed through a negotiated rulemaking
process and must consider the following: (i) data from industry and other
organizations involved in the delivery of ambulance services, (ii) mechanisms to
control increases in expenditures for ambulance services, (iii) appropriate
regional and operational differences, (iv) adjustments to payment rates to
account for inflation and other relevant factors, and (v) the phase-in of
payment rates under the fee schedule in an efficient and fair manner. Medicare
reimbursement for ambulance services provided during calendar years 1998 and
1999 will be increased by the Consumer Price Index (CPI) less one percentage
point.
The Act also stipulates that individual states may now elect to no longer
provide payment for Medicare cost-sharing for coinsurance, or copayments, for
Medicaid beneficiaries. The Act also extended Medicare coverage for certain
paramedic services provided in rural areas.
F-7
<PAGE> 45
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to the uncertainty associated with the negotiation and subsequent
outcome of the prospective fee schedule, the Company is unable to predict the
ultimate impact of the Act. However, future impact of the Act, together with the
financial instability of private third-party payors, budget pressures on payor
sources and cost shifting by government, could influence the timing and,
potentially, the ultimate receipt of reimbursements.
Revenue generated under fire protection service contracts is recognized
over the life of the contract. Subscription fees received in advance are
deferred and recognized over the term of the subscription agreement, generally
one year.
Other revenue is comprised primarily of fees associated with alternative
transportation services and home health care services and is recognized when the
services are provided.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income available for common
stock by the weighted average number of shares of common stock and common stock
equivalents assumed outstanding during the period. Primary and fully diluted
earnings per share are considered to be the same in all periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which
supersedes Accounting Principles Board (APB) Opinion No. 15, the existing
authoritative guidance. SFAS No. 128 is effective for financial statements for
both interim and annual periods ending after December 15, 1997 and requires
restatement of all prior period earnings per share (EPS) data presented. The new
statement modifies the calculation of primary and fully diluted EPS and replaces
them with basic and diluted EPS. Pro forma EPS, assuming implementation of SFAS
No. 128 at the beginning of the years ended June 30, 1997, 1996 and 1995, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
Basic:
Income before extraordinary income............... $1.10 $1.20 $ 0.96
Extraordinary item............................... -- -- (0.09)
----- ----- ------
Net income............................... $1.10 $1.20 $ 0.87
===== ===== ======
Diluted:
Income before extraordinary income............... $1.04 $1.14 $ 0.92
Extraordinary item............................... -- -- (0.08)
----- ----- ------
Net income............................... $1.04 $1.14 $ 0.84
===== ===== ======
</TABLE>
INVENTORIES
Inventories, consisting of ambulance, fire and home health care supplies,
are stated at the lower of cost, on a first-in, first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation,
and is depreciated over the estimated useful lives using the straight-line
method. Equipment and vehicles are depreciated over three to ten years and
buildings are depreciated over fifteen to thirty years. Property and equipment
held under capital leases is stated at the present value of minimum lease
payments, net of accumulated amortization. These assets are amortized over the
lesser of the lease term or the estimated useful life of the underlying assets
using the straight-line method. Major additions and improvements are
capitalized; maintenance and repairs which do not improve or significantly
extend the life of assets are expensed as incurred.
F-8
<PAGE> 46
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include costs in excess of the fair value of net assets
of businesses acquired of $159,949,000 and $95,827,000 and covenants not to
compete of $333,000 and $546,000 at June 30, 1997 and 1996, respectively. Costs
in excess of the fair value of net assets acquired are amortized over
twenty-five to thirty-five years using the straight-line method. Covenants not
to compete are amortized using the straight-line method over the term of the
related agreements, generally three to five years. Accumulated amortization of
these intangible assets was $10,318,000 and $6,092,000 at June 30, 1997 and
1996, respectively.
ACCRUED LIABILITIES
Included in accrued liabilities is $7,556,000 and $6,450,000 for salaries,
wages and related payroll expenses and $1,679,000 and $1,618,000 for accrued
insurance premiums at June 30, 1997 and 1996, respectively.
LOSS CONTRACT/RESTRUCTURING CHARGE
During the year ended June 30, 1997 the Company recorded a pre-tax charge
of $6.0 million. Included in this amount was an allowance of $3.2 million
related to an unprofitable ambulance service contract of which $2.0 million of
the allowance remains at June 30, 1997. Also included was a pre-tax
restructuring charge of $2.8 million relating to the integration of ambulance
company acquisitions. The charge consists primarily of severance costs and other
costs related to the elimination of redundant functions. Management expects the
integration to be completed during fiscal 1998. The entire $2.8 million
allowance remains at June 30, 1997. Both allowances are included in accrued
liabilities on the accompanying consolidated balance sheets.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable. The Company places its cash equivalents with
federally-insured institutions and limits the amount of credit exposure to any
one institution. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the
Company's credit base and the geographical dispersion of the customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts that the Company could realize in a current market exchange. The use of
different market assumptions or valuation methodologies could have a material
effect on the estimated fair value assumptions. The carrying values of cash,
accounts receivable, accounts payable, accrued liabilities and other liabilities
approximate fair value due to the short-term maturities of these instruments.
The revolving line of credit approximates fair value as it bears interest at a
rate indexed to LIBOR. The note payable and capital lease obligations
F-9
<PAGE> 47
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximate fair value as rates on these instruments, in the aggregate,
approximate market rates currently available for instruments with similar terms
and remaining maturities.
(2) ACQUISITIONS
The Company acquired the operations of nineteen companies during the year
ended June 30, 1997 and the operations of eighteen companies during the year
ended June 30, 1996. Seventeen of the acquisitions completed during the year
ended June 30, 1997 were accounted for as purchases in accordance with APB
Opinion No. 16 and, accordingly, the purchased assets and assumed liabilities
were recorded at their estimated fair values at each respective acquisition
date. Two acquisitions were accounted for as a poolings-of-interests in
accordance with APB Opinion No. 16. The acquisitions accounted for as
poolings-of-interests were not considered significant; accordingly, prior year
financial statements have not been restated. Fifteen of the acquisitions
completed in the year ended June 30, 1996 were accounted for as purchases in
accordance with APB Opinion No. 16. Three acquisitions were accounted for as
poolings-of-interests and were not considered significant; accordingly, prior
year financial statements have not been restated. Adjustments, if any, to the
purchase price allocations are not expected to have a material impact on the
accompanying consolidated financial statements.
The aggregate purchase price of the operations accounted for as purchases
in each year ended June 30 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash..................................................... $35,512 $17,164
Common stock............................................. 18,699 1,212
Notes payable to sellers................................. 4,477 4,673
Assumption of liabilities................................ 23,915 8,221
------- -------
Total.......................................... $82,603 $31,270
======= =======
</TABLE>
The Company issued 361,970 and 657,329 shares of its common stock in
connection with the pooling-of-interests transactions completed during the years
ended June 30, 1997 and 1996, respectively.
The fair value of the assets purchased has been allocated as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment................................... $ 8,629 $ 3,330
Intangible assets........................................ 67,423 25,752
Other assets............................................. 6,551 2,188
------- -------
Total.......................................... $82,603 $31,270
======= =======
</TABLE>
The following consolidated pro forma financial information was prepared
assuming that each acquisition had occurred as of the beginning of each fiscal
year. This pro forma information does not necessarily reflect
F-10
<PAGE> 48
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the results of operations that would have occurred had the acquisitions taken
place at the beginning of each fiscal year and is not necessarily indicative of
results that may be obtained in the future (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue................................................ $375,511 $348,539
Net income............................................. $ 15,070 $ 16,164
Earnings per share..................................... $ 1.13 $ 1.38
</TABLE>
Subsequent to June 30, 1997 the Company purchased either all the issued and
outstanding stock or certain assets of four ambulance service providers with
operations in Alabama, Georgia, Mississippi, New Jersey, New York and Tennessee.
The combined purchase price of the operations accounted for as purchases was
$6.1 million. The Company paid cash of $3.7 million, issued notes payable to
sellers of $1.2 million and assumed $1.2 million of liabilities. The Company
issued 641,009 shares related to two of the acquisitions which were recorded as
pooling-of-interests transactions.
(3) PROPERTY AND EQUIPMENT
Property and equipment, including equipment held under capital leases,
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment.............................................. $ 37,040 $ 30,455
Vehicles............................................... 57,312 42,596
Land and buildings..................................... 13,736 9,786
Leasehold improvements................................. 5,546 2,612
-------- --------
113,634 85,449
Less: Accumulated depreciation......................... (42,989) (37,048)
-------- --------
$ 70,645 $ 48,401
======== ========
</TABLE>
The Company acquired equipment of $2,698,000 and $3,603,000 under capital
lease and other financing agreements during the years ended June 30, 1996 and
1995, respectively. No equipment was acquired under capital lease or other
financing agreements during the year ended June 30, 1997.
The Company held vehicles and equipment with a net carrying value of
$7,748,000 and $7,528,000 at June 30, 1997 and 1996, respectively, under capital
lease agreements. Accumulated depreciation on these assets totaled 8,367,000 and
6,823,000 at June 30, 1997 and 1996, respectively.
F-11
<PAGE> 49
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) CREDIT AGREEMENTS AND BORROWINGS
Notes payable and capital lease obligations consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility............................... $134,000 $49,500
Unsecured promissory notes payable from acquisitions at
varying rates, from 7.0% to 9.0%, due through 2000.... 6,518 9,821
Capital lease obligations and other notes payable,
collateralized by property and equipment, at varying
rates, from 5.94% to 20.0%, due through 2001.......... 13,939 8,020
-------- --------
154,457 67,341
Less: Current maturities................................ (9,814) (6,610)
-------- --------
$144,643 $60,731
======== ========
</TABLE>
REVOLVING CREDIT FACILITY
During September 1995, the Company funded a fully underwritten credit
agreement for a $125.0 million revolving credit facility. The Company used the
proceeds from the facility to repay the Company's then existing revolving credit
facility and its notes payable. Costs previously deferred related to certain
indebtedness resulted in an extraordinary charge to earnings of $693,000, net of
a $480,000 tax benefit, or $.08 per share in the year ended June 30, 1995. In
May 1997, the credit agreement was increased form $125.0 million to $175.0
million. This six-year revolving credit facility is priced at the prime rate or
a LIBOR-based rate. The LIBOR-based rates range from LIBOR plus 0.75% to LIBOR
plus 1.75% depending upon the Company meeting certain financial covenants.
Beginning September 30, 1999, the amount available under the facility begins to
reduce at three-month intervals until the termination date at September 30,
2001. The facility is collateralized by the Company's accounts and notes
receivable, common stock of its subsidiaries and partnership interests. The
Company is required to meet certain financial covenants as defined in the credit
agreement. At June 30, 1997, the Company had approximately $37.0 million
available under the revolving credit facility.
At June 30, 1997, the revolving credit facility was priced at LIBOR plus
1.125%. The weighted average interest rate on the revolving credit facility was
6.81% and 6.96% at June 30, 1997 and 1996, respectively.
Aggregate debt maturities for each of the years ending June 30 are as
follows:
<TABLE>
<CAPTION>
NOTES PAYABLE CAPITAL LEASES
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
1998.............................................. $ 7,260 $ 3,179
1999.............................................. 4,712 2,366
2000.............................................. 1,062 1,368
2001.............................................. 19,877 220
2002.............................................. 115,006 28
Thereafter........................................ 383 128
-------- -------
$ 148,300 7,289
========
Less: Amounts representing interest............. (1,132)
-------
$ 6,157
=======
</TABLE>
F-12
<PAGE> 50
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company incurred interest expense of $5,739,000, $5,205,000 and
$3,167,000 and paid interest of $6,223,000, $5,324,000 and $2,863,000 in the
years ended June 30, 1997, 1996 and 1995, respectively.
The Company had outstanding letters of credit totaling $3,980,000 and
$3,787,000 at June 30, 1997 and 1996, respectively.
(5) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases various facilities and equipment under non-cancelable
operating lease agreements. Rental expense charged to operations under these
leases was $6,625,000, $5,345,000 and $4,002,000 for the years ended June 30,
1997, 1996 and 1995, respectively.
Minimum rental commitments under non-cancelable operating leases for each
of the years ending June 30 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $ 4,367
1999................................................ 3,797
2000................................................ 3,123
2001................................................ 2,453
2002................................................ 1,589
Thereafter.......................................... 4,585
</TABLE>
OTHER
The Company is a party to various lawsuits arising in the ordinary course
of business. Management believes, based upon discussions with legal counsel,
that losses, if any, will be substantially covered under insurance policies and
will not have a material adverse effect on the consolidated financial
statements.
(6) EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company established the ESOP in 1979 and makes contributions to the
ESOP at the discretion of the Board of Directors. The Board of Directors
approved voluntary contributions of $300,000, $100,000 and $290,000 for the
years ended June 30, 1997, 1996 and 1995, respectively. The ESOP held, for the
benefit of all participants, approximately 8% and 10% as of June 30, 1997 and
1996, respectively, of the outstanding common stock of the Company. The ESOP is
administered by the ESOP's Administrative Committee, consisting of certain
members of the Board of Directors of the Company.
Most full and part-time employees of the Company who have completed 200
work hours per year and have reached age 21 are eligible for admission to the
ESOP. Each participant's account vests 20% after three years of service and an
additional 20% each year thereafter.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (ESPP) through which
eligible employees may purchase shares of the Company's common stock, at
semi-annual intervals, through periodic payroll deductions. The ESPP is a
qualified employee benefit plan under Section 423 of the Internal Revenue Code.
The Company has reserved 150,000 shares of stock for issuance under the ESPP.
The purchase price per share will be the lower of 85% of the closing price of
the stock on the first day or the last day of the offering period or on the
nearest prior day on which trading occurred on the NASDAQ National Market
System. As of June 30, 1997, 84,891 shares of common stock have been issued
under the ESPP.
F-13
<PAGE> 51
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1992 STOCK OPTION PLAN
The Company's 1992 Stock Option Plan was adopted in November 1992 and
provides for the granting of options to acquire common stock of the Company,
direct granting of the common stock of the Company (Stock Awards), the granting
of stock appreciation rights (SARs), or the granting of other cash awards (Cash
Awards) (Stock Awards, SARs and Cash Awards are collectively referred to herein
as Awards). At June 30, 1997, the maximum number of shares of common stock
issuable under the 1992 Plan was 3,390,750. Options may be granted as incentive
stock options or non-qualified stock options.
Options and Awards may be granted only to persons who at the time of grant
are either (i) key personnel (including officers) of the Company or (ii)
consultants and independent contractors who provide valuable services to the
Company. Options that are incentive stock options may be granted only to key
personnel of the Company.
The 1992 Plan, as amended, provides for the automatic grant of options to
acquire the Company's common stock (the Automatic Grant Program), whereby each
non-employee member of the Board of Directors will be granted an option to
acquire 2,500 shares of common stock annually. Each non-employee member of the
Board of Directors also will receive an annual automatic grant of options to
acquire an additional number of shares equal to 1,000 shares for each $0.05
increase in the Company's earnings per share, subject to a maximum of 5,000
additional options. New non-employee members of the Board of Directors will
receive options to acquire 10,000 shares of common stock on the date of their
first appointment or election to the Board of Directors.
The expiration date, maximum number of shares purchasable and the other
provisions of the options will be established at the time of grant. Options may
be granted for terms of up to ten years and become exercisable in whole or in
one or more installments at such time as may be determined by the Plan
Administrator upon grant of the options. Options granted to date vest over
periods not exceeding five years. The exercise price of options will be
determined by the Plan Administrator, but may not be less than 100% (110% if the
option is granted to a stockholder who at the date the option is granted owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its subsidiaries) of the fair market value of the
common stock at the date of the grant.
Awards granted in the form of SARs would entitle the recipient to receive a
payment equal to the appreciation in market value of a stated number of shares
of common stock from the price stated in the award agreement to the market value
of the common stock on the date first exercised or surrendered. The Plan
Administrator may determine such terms, conditions, restrictions and/or
limitations, if any, on any SARs.
The 1992 Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its common stock,
Awards or any other type of award. To the extent permitted by applicable law,
the Company may issue any other options, warrants or awards other than pursuant
to the 1992 Plan without shareholder approval. The 1992 Plan will remain in
force until November 5, 2002.
F-14
<PAGE> 52
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the activity for the stock options:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
------------------------------------------------
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding at beginning of
year.................................... 1,826,375 $ 5.60 - $24.25 $18.37
Granted................................. 944,489 $31.25 - $36.00 $32.27
Canceled................................ (137,875) $ 8.04 - $32.25 $24.48
Exercised............................... (331,592) $ 5.60 - $24.00 $13.97
---------
Options outstanding at end of year........ 2,301,397 $ 5.60 - $36.00 $24.45
=========
Options exercisable at end of year........ 899,572 $ 5.60 - $32.25 $21.42
=========
Options available for grant at end of
year.................................... 767,206
=========
Weighted average fair value per share of
options granted......................... $10.25
===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------------------------
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding at beginning of
year.................................... 1,145,955 $ 5.60 - $19.50 $12.74
Granted................................. 841,750 $22.50 - $24.25 $24.00
Canceled................................ (6,000) $24.00 $24.00
Exercised............................... (155,330) $ 5.60 - $17.25 $11.50
---------
Options outstanding at end of year........ 1,826,375 $ 5.60 - $24.25 $18.37
=========
Options exercisable at end of year........ 495,205 $ 5.60 - $19.50 $12.05
=========
Options available for grant at end of
year.................................... 1,573,820
=========
Weighted average fair value per share of
options granted......................... $9.80
==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
----------------------------------------------
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- --------------- --------------
<S> <C> <C> <C>
Options outstanding at beginning of year..... 842,880 $ 5.60 - $19.50 $10.52
Granted.................................... 425,825 $17.25 - $18.75 $17.45
Canceled................................... (49,750) $ 8.04 - $17.25 $ 8.32
Exercised.................................. (73,000) $ 5.60 - $ 8.04 $ 5.95
---------
Options outstanding at end of year........... 1,145,955 $ 5.60 - $19.50 $12.74
=========
Options exercisable at end of year........... 421,255 $ 5.60 - $19.50 $ 8.97
=========
Options available for grant at end of year... 1,196,050
=========
</TABLE>
F-15
<PAGE> 53
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ------------------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF OPTIONS CONTRACTUAL AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 5.60 -
$ 8.04........ 116,783 5.00 $ 6.77 102,755 $ 6.59
$13.00 -
$18.75........ 564,875 6.72 16.61 271,203 16.42
$24.00 -
$24.50........ 744,625 8.19 23.99 331,875 23.98
$31.25 -
$36.00........ 875,114 9.16 32.27 193,739 31.89
--------- ---- ------ ------- ------
2,301,397 8.04 $24.45 899,572 $21.42
========= ==== ====== ======= ======
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which defines a fair value based method of accounting for an
employee stock option or similar equity instruments and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost related to stock options issued to employees under these plans using the
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share, as if the fair value based method of accounting defined in SFAS No. 123
had been applied.
The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25; therefore, no compensation cost is recognized in the
accompanying financial statements for stock-based employee awards. However, the
Company has computed, for pro forma disclosure purposes, the value of all
options and ESPP shares granted during 1997 and 1996, using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1997 1996
------------------- -------------------
OPTIONS ESPP OPTIONS ESPP
------- ----- ------- -----
<S> <C> <C> <C> <C>
Risk free interest rate............. 6.23% 5.90% 6.14% 5.68%
Expected dividend yield............. 0.00% 0.00% 0.00% 0.00%
Expected lives in years (after
vesting for options).............. 1.59 0.5 1.59 0.5
Expected volatility................. 36.50% 43.60% 33.41% 32.59%
</TABLE>
The total value of options and ESPP shares granted was computed to be the
following approximate amounts, which would be amortized on the straight-line
basis over the vesting period (in thousands):
<TABLE>
<CAPTION>
OPTIONS ESPP
------- ----
<S> <C> <C>
For year ended June 30, 1997............... $16,500 $306
For year ended June 30, 1996............... $ 8,250 $212
</TABLE>
F-16
<PAGE> 54
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had accounted for its stock-based compensation plans using a
fair value based method of accounting, the Company's year end net income and
earnings per common stock and common stock equivalent would have been reported
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net income:
Historical............................................. $12,720 $11,512
Pro forma.............................................. 8,013 8,352
Earnings per common stock and common stock equivalent:
Historical............................................. $ 1.04 $ 1.14
Pro forma.............................................. $ 0.65 $ 0.85
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosures for
1997 and 1996 are not likely to be representative of the effects on reported net
income and earnings per common stock and common stock equivalent for future
years, because options vest over several years and additional awards are made
each year.
401(K) PLAN
The Company has a contributory retirement plan (the 401(k) Plan) covering
eligible employees with at least one month of service. The 401(k) Plan is
designed to provide tax-deferred income to the Company's employees in accordance
with the provisions of Section 401(k) of the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 12% of
their respective salary, not to exceed the statutory limit. The Company may
elect to make a fixed-matching contribution to each participant's account of up
to 2% of total annual cash compensation received by respective participants
and/or a discretionary-matching contribution in an amount equal to a percentage
of the contribution made by participants as determined by the Board of
Directors. Under the terms of the 401(k) Plan, the Company may also make
discretionary profit sharing contributions. Profit sharing contributions are
allocated among participants based on their annual compensation. Each
participant has the right to direct the investment of his or her funds among
certain named plans. The Company made fixed-matching contributions to the 401(k)
Plan aggregating approximately $1,515,000 and $995,000 for the 401(k) Plan years
ended December 31, 1996 and 1995, respectively.
(7) STOCKHOLDERS' EQUITY
PREFERRED STOCK
In August 1995, the Company's Board of Directors adopted a shareholder
rights plan, which authorized the distribution of one right to purchase one
one-thousandth of a share of $0.01 par value Series A Junior Participating
Preferred Stock (a Right) for each share of common stock of the Company. Rights
will become exercisable following the tenth day (or such later date as may be
determined by the Board of Directors) after a person or group (a) acquires
beneficial ownership of 15% or more of the Company's common stock or (b)
announces a tender or exchange offer, the consummation of which would result in
ownership by a person or group of 15% or more of the Company's common stock.
Upon exercise, each Right will entitle the holder (other than the party
seeking to acquire control of the Company) to acquire shares of the common stock
of the Company or, in certain circumstances, such acquiring person at a 50%
discount from market value. The Rights may be terminated by the Board of
Directors at any time prior to the date they become exercisable at a price of
$0.01 per Right; thereafter, they may be redeemed for a specified period of time
at $0.01 per Right.
F-17
<PAGE> 55
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMON STOCK
In April 1996, the Company issued 1,367,500 shares of common stock at
$27.25 per share, generating $34.8 million. The proceeds were used to reduce the
outstanding balance on the Company's revolving credit facility.
(8) RELATED PARTY TRANSACTIONS
The Company incurred legal fees of approximately $139,000, $122,000 and
$158,000 for the years ended June 30, 1997, 1996 and 1995, respectively, with a
law firm in which a member of the Board of Directors is a partner.
The Company incurred rental expense of $600,000, $592,000 and $635,000 in
each of the years ended June 30, 1997, 1996 and 1995, respectively, related to
leases of fire and ambulance facilities with a director of the Company and with
employees that were previously owners of businesses acquired by the Company.
At June 30, 1997 and 1996, the Company had notes payable to employees that
were previously owners of businesses acquired by the Company totaling $1,770,000
and $4,617,000, respectively.
(9) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Deferred income taxes are provided for
differences between results of operations for financial reporting purposes and
income tax purposes.
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal........................................ $2,761 $4,219 $3,188
State.......................................... 618 796 1,115
------ ------ ------
3,379 5,015 4,303
Deferred......................................... 5,985 3,029 985
------ ------ ------
$9,364 $8,044 $5,288
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are recorded based on differences
between the financial statement and tax bases of amounts of assets and
liabilities and the tax rates in effect when those differences are expected to
reverse.
F-18
<PAGE> 56
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net deferred taxes were as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities
Amortization and accelerated depreciation............ $ (9,379) $ (9,340)
Allowance for doubtful accounts...................... (5,663) (2,274)
Cash to accrual adjustment........................... (944) (895)
-------- --------
(15,986) (12,509)
-------- --------
Deferred tax assets
Writedown of investment in real estate............... -- 608
Installment gain from sale of real estate and
property and equipment............................ 158 196
Compensation related deferrals....................... 499 794
Self insurance reserve............................... 471 351
Restructuring charge................................. 1,912 --
-------- --------
3,040 1,949
-------- --------
Net deferred tax liability............................. (12,946) (10,560)
Less current portion................................... 2,174 1,500
-------- --------
Net long-term deferred tax liability................... $(10,772) $ (9,060)
======== ========
</TABLE>
For the years ended June 30, 1997 and 1996 income tax benefits of
$4,867,000 and $982,000, respectively, were allocated to additional paid-in
capital for tax benefits associated with the exercise and vesting of
nonqualified stock options and stock grants.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes. The sources
and tax effects of the differences were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax provision at statutory rate... $7,729 $6,845 $4,508
State taxes, net of federal benefit.............. 967 491 606
Amortization of nondeductible goodwill........... 663 646 331
Utilization of tax credits....................... -- -- (116)
Other, net....................................... 5 62 (41)
------ ------ ------
Provision for income taxes....................... $9,364 $8,044 $5,288
====== ====== ======
</TABLE>
Cash payments for income taxes were approximately $8,197,000, $2,848,000
and $3,381,000 during the years ended June 30, 1997, 1996 and 1995,
respectively.
F-19
<PAGE> 57
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended June 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue............................. $ 73,994 $ 77,530 $ 84,921 $ 83,360
Operating income.................... 6,592 7,474 9,500 4,238
Net income.......................... 3,299 3,771 4,675 975
Earnings per share.................. $ .28 $ .31 $ .38 $ .08
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue............................. $ 55,763 $ 60,893 $ 64,984 $ 68,677
Operating income.................... 4,814 5,339 6,775 7,736
Net income.......................... 2,102 2,396 2,989 4,025
Earnings per share.................. $ .23 $ .25 $ .31 $ .35
</TABLE>
F-20
<PAGE> 58
SCHEDULE II
RURAL/METRO CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance at beginning of period........................... $ 26,571 $ 10,412 $ 3,754
Provision charged to expense............................. 43,424 31,036 22,263
Write-offs............................................... (34,181) (14,877) (15,605)
------- ------- -------
Balance at end of period................................. $ 35,814 $ 26,571 $ 10,412
======= ======= =======
</TABLE>
F-21
<PAGE> 1
Exhibit 10.5(b)
RURAL/METRO CORPORATION
1992 STOCK OPTION PLAN
(AS AMENDED THROUGH SEPTEMBER 1996)
ARTICLE I
GENERAL
1.1 PURPOSE OF PLAN; TERM
(a) BACKGROUND. On November 6, 1992, the predecessor to
Rural/Metro Corporation, a Delaware corporation (the "Company"), adopted the
Rural/Metro Corporation Senior Management Stock Option Plan (the "Original
Plan"). Thereafter, the Original Plan was amended and restated (the "Amended and
Restated Plan") and the stockholders approved the Amended and Restated Plan. The
Amended and Restated Plan was subsequently assumed by the Company upon a merger
with the predecessor. On September 21, 1994, the Company's Board of Directors
(the "Board") adopted an Amended and Restated 1992 Stock Option Plan (as amended
through August 1994) whereby an Automatic Grant Program was added, additional
shares of Stock were authorized to be issued under the Plan, and certain other
technical changes were made. The Amended and Restated 1992 Stock Option Plan (as
amended through August 1994) was approved by the stockholders of the Company on
December 8, 1994 and shall be referred to herein as the "Revised 1994 Plan." On
October 17, 1995, the Board adopted an Amended and Restated 1992 Stock Option
Plan (as amended through October 1995) (referred to herein as the "Revised 1995
Plan") whereby the Automatic Grant Program was amended, additional shares of
stock were authorized to be issued under the Plan, and certain other technical
changes were made. The Revised 1995 Plan was approved by the stockholders of the
Company on December 8, 1995. On September 6, 1996, the Board adopted a newly
Amended and Restated 1992 Stock Option Plan (the "Revised 1996 Plan") whereby
certain technical changes were made. The Revised 1996 Plan must be approved by
the stockholders of the Company within one year of the date of its adoption by
the Board. If not approved by the stockholders, the Revised 1995 Plan shall
continue in effect. If the Revised 1996 Plan is not timely approved by the
stockholders, any Options or Awards issued after the date of the adoption of the
Revised 1995 Plan shall remain valid and unchanged to the extent that such
Options or Awards contain terms such that they could have been issued under the
Revised 1995 Plan. This Amended and Restated Stock Option Plan shall be known as
the Rural/Metro Corporation 1992 Stock Option Plan (the "Plan"). Any Options or
Awards outstanding prior to the adoption by the Board of the Revised 1996 Plan
shall remain valid and unchanged.
(b) DEFINED TERMS. All initially capitalized terms used hereby
shall have the meaning set forth in Article V hereto.
(c) GENERAL PURPOSE. The Plan shall be divided into two
programs: the Discretionary Grant Program and the Automatic Grant Program.
(i) DISCRETIONARY GRANT PROGRAM. The purpose of the
Discretionary Grant Program is to further the interests of the Company and its
stockholders by encouraging key persons associated with the Company (or Parent
or Subsidiary Corporations) to acquire shares of the
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Company's Stock, thereby acquiring a proprietary interest in its business and an
increased personal interest in its continued success and progress. Such purpose
shall be accomplished by providing for the discretionary granting of options to
acquire the Company's Stock ("Discretionary Options"), the direct granting of
the Company's Stock ("Stock Awards"), the granting of stock appreciation rights
("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards,
SARs and Cash Awards shall be collectively referred to herein as "Awards").
(ii) AUTOMATIC GRANT PROGRAM. The purpose of the
Automatic Grant Program is to promote the interests of the Company by providing
non-employee members of the Board the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company and
to thereby have an increased personal interest in its continued success and
progress. Such purpose shall be accomplished by providing for the automatic
grant of options to acquire the Company's Stock ("Automatic Options").
(d) CHARACTER OF OPTIONS. Discretionary Options granted under
this Plan to employees of the Company (or Parent or Subsidiary Corporations)
that are intended to qualify as "incentive stock options" as defined in Code
section 422 ("Incentive Stock Options") will be specified in the applicable
stock option agreement. All other Options granted under this Plan will be
nonqualified options.
(e) RULE 16B-3 PLAN. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended ("1934 Act"), the
Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all
subsequent revisions thereof) promulgated under the 1934 Act. To the extent any
provision of the Plan or action by a Plan Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by such Plan Administrator. In addition, the Board may amend the Plan
from time to time as it deems necessary in order to meet the requirements of any
amendments to Rule 16b-3 without the consent of the stockholders of the Company.
(f) DURATION OF PLAN. The term of the Plan is 10 years
commencing on the date of adoption of the Original Plan by the Board as
specified in Section 1.1(a) hereof. No Option or Award shall be granted under
the Plan unless granted within 10 years of the adoption of the Plan by the
Board, but Options or Awards outstanding on that date shall not be terminated or
otherwise affected by virtue of the Plan's expiration.
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
(a) DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The
stock subject to the provisions of the Plan and issuable upon the grant of Stock
Awards or upon the exercise of SARs or Options granted under the Plan is shares
of the Company's common stock, $.01 par value per share (the "Stock"), which may
be either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in Section 4.1 hereof, the
aggregate number of shares of Stock covered by the Plan and issuable thereunder
shall be 3,390,750 shares of Stock, which includes 65,750 shares of Stock
previously authorized under the Company's 1989 Stock Option Plan. Upon the
adoption of the Revised 1995 Plan by the Company's stockholders, the Company's
1989 Stock Option Plan was terminated such that no more options may be granted
under that plan.
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(b) CALCULATION OF AVAILABLE SHARES. For purposes of
calculating the maximum number of shares of Stock which may be issued under the
Plan: (i) the shares issued (including the shares, if any, withheld for tax
withholding requirements) upon exercise of an Option shall be counted and (ii)
the shares issued (including the shares, if any, withheld for tax withholding
requirements) as a result of a grant of a Stock Award or an exercise of an SAR
shall be counted.
(c) RESTORATION OF UNPURCHASED SHARES. If an Option or SAR
expires or terminates for any reason prior to its exercise in full and before
the term of the Plan expires, the shares of Stock subject to, but not issued
under, such Option or SAR shall, without further action or by or on behalf of
the Company, again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
(a) APPROVAL BY STOCKHOLDERS. The Revised 1996 Plan shall be
submitted to the stockholders of the Company for their approval at a regular or
special meeting to be held within 12 months after the adoption of the Revised
1996 Plan by the Board. Stockholder approval shall be evidenced by the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present in person or by proxy and voting at the meeting. The date
such stockholder approval has been obtained shall be referred to herein as the
"Effective Date."
(b) COMMENCEMENT OF PROGRAMS. The Automatic Grant Program
herein, shall commence immediately. The Discretionary Grant Program, as revised
herein, shall commence immediately subject to the terms set forth in Section
1.1(a).
(c) AMENDMENTS TO PLAN. The Board may, without action on the
part of the Company's stockholders, make such amendments to, changes in and
additions to the Plan as it may, from time to time, deem necessary or
appropriate and in the best interests of the Company; provided, the Board may
not, without the consent of the applicable Optionholder, take any action which
disqualifies any Discretionary Option previously granted under the Plan for
treatment as an Incentive Stock Option or which adversely affects or impairs the
rights of the Optionholder of any Discretionary Option outstanding under the
Plan, and further provided that, except as provided in Article IV hereof, the
Board may not, without the approval of the Company's stockholders, (i) increase
the aggregate number of shares of Stock subject to the Plan, (ii) reduce the
exercise price at which Discretionary Options may be granted or the exercise
price at which any outstanding Discretionary Option may be exercised, (iii)
extend the term of the Plan, (iv) change the class of persons eligible to
receive Discretionary Options or Awards under the Plan, or (v) materially
increase the benefits accruing to participants under the Plan. Notwithstanding
the foregoing, Discretionary Options or Awards may be granted under this Plan to
purchase shares of Stock in excess of the number of shares then available for
issuance under the Plan if (A) an amendment to increase the maximum number of
shares issuable under the Plan is adopted by the Board prior to the initial
grant of any such Option or Award and within one year thereafter such amendment
is approved by the Company's stockholders and (B) each such Discretionary Option
or Award granted is not to become exercisable or vested, in whole or in part, at
any time prior to the obtaining of such stockholder approval.
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ARTICLE II
DISCRETIONARY GRANT PROGRAM
2.1 PARTICIPANTS; ADMINISTRATION.
(a) ELIGIBILITY AND PARTICIPATION. Discretionary Options and
Awards may be granted only to persons ("Eligible Persons") who at the time of
grant are (i) key personnel (including officers and directors) of the Company or
Parent or Subsidiary Corporations, or (ii) consultants or independent
contractors who provide valuable services to the Company or Parent or Subsidiary
Corporations; provided that (1) Incentive Stock Options may only be granted to
key personnel of the Company (and its Parent or Subsidiary Corporations) who are
also employees of the Company (or its Parent or Subsidiary Corporations), and
(2) the maximum number of shares of stock with respect to which Options or SARs
may be granted to any employee during the term of the Plan shall not exceed 25
percent of the shares of stock covered by the Plan. A Plan Administrator shall
have full authority to determine which Eligible Persons in its administered
group are to receive Discretionary Option grants under the Plan, the number of
shares to be covered by each such grant, whether or not the granted
Discretionary Option is to be an Incentive Stock Option, the time or times at
which each such Discretionary Option is to become exercisable, and the maximum
term for which the Discretionary Option is to be outstanding. A Plan
Administrator shall also have full authority to determine which Eligible Persons
in such group are to receive Awards under the Discretionary Grant Program and
the conditions relating to such Award.
(b) GENERAL ADMINISTRATION. The Eligible Persons under the
Discretionary Grant Program shall be divided into two groups and there shall be
a separate administrator for each group. One group will be comprised of Eligible
Persons that are Affiliates. For purposes of this Plan, the term "Affiliates"
shall mean all "officers" (as that term is defined in Rule 16a-1(f) promulgated
under the 1934 Act) and directors of the Company and all persons who own ten
percent or more of the Company's issued and outstanding equity securities.
Initially, the power to administer the Discretionary Grant Program with respect
to Eligible Persons that are Affiliates shall be vested with the Board. At any
time, however, the Board may vest the power to administer the Discretionary
Grant Program with respect to Persons that are Affiliates exclusively with a
committee (the "Senior Committee") comprised of two or more Non-Employee
Directors which are appointed by the Board. The Senior Committee, in its sole
discretion, may require approval of the Board for specific grants of
Discretionary Options or Awards under the Discretionary Grant Program. The
administration of all Eligible Persons that are not Affiliates
("Non-Affiliates") shall be vested exclusively with the Board. The Board,
however, may at any time appoint a committee (the "Employee Committee") of two
or more persons who are members of the Board and delegate to such Employee
Committee the power to administer the Discretionary Grant Program with respect
to the Non-Affiliates. In addition, the Board may establish an additional
committee or committees of persons who are members of the Board and delegate to
such other committee or committees the power to administer all or a portion of
the Discretionary Grant program with respect to all or a portion of the Eligible
Persons. Members of the Senior Committee, Employee Committee or any other
committee allowed hereunder shall serve for such period of time as the Board may
determine and shall be subject to removal by the Board at any time. The Board
may at any time terminate all or a portion of the functions of the Senior
Committee, the Employee Committee, or any other committee allowed hereunder and
reassume all or a portion of powers and authority previously delegated to such
committee. The Board in its discretion may also require the members of the
Senior Committee, the Employee
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Committee or any other committee allowed hereunder to be "outside directors" as
that term is defined in any applicable regulations promulgated under Code
section 162(m).
(c) PLAN ADMINISTRATORS. The Board, the Employee Committee,
Senior Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to its
administered group, to select which Eligible Persons shall participate in the
Discretionary Grant Program, to grant Discretionary Options or Awards under the
Discretionary Grant Program, to establish such rules and regulations as they may
deem appropriate with respect to the proper administration of the Discretionary
Grant Program and to make such determinations under, and issue such
interpretations of, the Discretionary Grant Program and any outstanding
Discretionary Option or Award as they may deem necessary or advisable. Unless
otherwise required by law or specified by the Board with respect to any
committee, decisions among the members of a Plan Administrator shall be by
majority vote. Decisions of a Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Grant Program or any
outstanding Discretionary Option or Award.
(d) GUIDELINES FOR PARTICIPATION. In designating and selecting
Eligible Persons for participation in the Discretionary Grant Program, a Plan
Administrator shall consult with and give consideration to the recommendations
and criticisms submitted by appropriate managerial and executive officers of the
Company. A Plan Administrator also shall take into account the duties and
responsibilities of the Eligible Persons, their past, present and potential
contributions to the success of the Company and such other factors as a Plan
Administrator shall deem relevant in connection with accomplishing the purpose
of the Plan.
2.2 TERMS AND CONDITIONS OF OPTIONS
(a) ALLOTMENT OF SHARES. A Plan Administrator shall determine
the number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of a Discretionary Option to a person shall neither entitle such person to, nor
disqualify such person from, participation in any other grant of Options or
Stock Awards under this Plan or any other stock option plan of the Company.
(b) EXERCISE PRICE. Upon the grant of any Discretionary
Option, a Plan Administrator shall specify the option price per share. If the
Discretionary Option is intended to qualify as an Incentive Stock Option under
the Code, the option price per share may not be less than 100 percent of the
fair market value per share of the stock on the date the Discretionary Option is
granted (110 percent if the Discretionary Option is granted to a stockholder who
at the time the Discretionary Option is granted owns or is deemed to own stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary Corporation). The
determination of the fair market value of the Stock shall be made in accordance
with the valuation provisions of Section 4.5 hereof.
(c) INDIVIDUAL STOCK OPTION AGREEMENTS. Discretionary Options
granted under the Plan shall be evidenced by option agreements in such form and
content as a Plan Administrator from time to time approves, which agreements
shall substantially comply with and be subject to the terms of the Plan,
including the terms and conditions of this Section 2.2. As determined by a Plan
Administrator, each option agreement shall state (i) the total number of shares
to which it pertains,
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(ii) the exercise price for the shares covered by the Option, (iii) the time at
which the Options vest and become exercisable and (iv) the Option's scheduled
expiration date. The option agreements may contain such other provisions or
conditions as a Plan Administrator deems necessary or appropriate to effectuate
the sense and purpose of the Plan, including covenants by the Optionholder not
to compete and remedies for the Company in the event of the breach of any such
covenant.
(d) OPTION PERIOD. No Discretionary Option granted under the
Plan that is intended to be an Incentive Stock Option shall be exercisable for a
period in excess of 10 years from the date of its grant (five years if the
Discretionary Option is granted to a stockholder who at the time the
Discretionary Option is granted owns or is deemed to own stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or of any Parent or Subsidiary Corporation), subject to earlier
termination in the event of termination of employment, retirement or death of
the Optionholder. A Discretionary Option may be exercised in full or in part at
any time or from time to time during the term of the Discretionary Option or
provide for its exercise in stated installments at stated times during the
Option's term.
(e) VESTING; LIMITATIONS. The time at which the Optioned
Shares vest with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator. Notwithstanding the foregoing, to the extent
a Discretionary Option is intended to qualify as an Incentive Stock Option, the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time become exercisable as Incentive Stock
Options during any one calendar year shall not exceed the sum of $100,000
(referred to herein as the "$100,000 Limitation"). To the extent that any person
holds two or more Options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the exercisability as an
Incentive Stock Option shall be applied on the basis of the order in which such
Options are granted.
(f) NO FRACTIONAL SHARES. Options shall be exercisable only
for whole shares; no fractional shares will be issuable upon exercise of any
Discretionary Option granted under the Plan.
(g) METHOD OF EXERCISE. In order to exercise a Discretionary
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Discretionary
Option specifying the number of shares of Stock with respect to which the
Discretionary Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 2.2(h) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Discretionary Option (if other than the
Optionholder) has the right to exercise such Option.
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As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising this Discretionary Option in accordance herewith) a certificate or
certificates representing the Stock for which the Discretionary Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Discretionary Option be exercised for any fractional shares.
(h) PAYMENT OF OPTION PRICE. The aggregate Option Price shall
be payable in one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the
Company's order; or
(ii) Full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) If a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(i) REPURCHASE RIGHT. The Plan Administrator may, in its sole
discretion, set forth other terms and conditions upon which the Company (or its
assigns) shall have the right to repurchase shares of Stock acquired by an
Optionholder pursuant to a Discretionary Option. Any repurchase right of the
Company shall be exercisable by the Company (or its assignees) upon such terms
and conditions as the Plan Administrator may specify in the Stock Repurchase
Agreement evidencing such right. The Plan Administrator may also in its
discretion establish as a term and condition of one or more Discretionary
Options granted under the Plan that the Company shall have a right of first
refusal with respect to any proposed sale or other disposition by the
Optionholder of any shares of Stock issued upon the exercise of such
Discretionary Options. Any such right of first refusal shall be exercisable by
the Company (or its assigns) in accordance with the terms and conditions set
forth in the Stock Repurchase Agreement.
(j) TERMINATION OF INCENTIVE STOCK OPTIONS.
(i) TERMINATION OF SERVICE. If any Optionholder
ceases to be in Service to the Company for a reason other than death, such
Optionholder (or such Optionholder's successors in the case of the
Optionholder's death) may, within three months after the date of termination of
such Service, but in no event after the Incentive Stock Option's stated
expiration date, exercise some or all of the Incentive Stock Options that the
Optionholder was entitled to exercise on the date the Optionholder's Service
terminated; provided, that if Optionholder is discharged for cause, then the
Incentive Stock Option shall thereafter be void for all purposes. "Cause" shall
be limited to a termination of Service based upon a finding by the Plan
Administrator that the Optionholder (a) has been convicted of a felony involving
dishonesty, fraud, theft or embezzlement; (b) has repeatedly
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failed or refused, after written notice from the Company, in a material respect
to follow reasonable policies or directives established by the Company; (c) has
willfully and persistently failed, after written notice from the Company, to
attend to material duties or obligations imposed upon him; (d) has performed an
act or failed to act, which, if he were prosecuted and convicted, would
constitute a felony involving $1,000 or more of money or property of the
Company; or (e) has misrepresented or concealed a material fact for purposes of
securing employment with the Company. Notwithstanding the foregoing, if any
Optionholder ceases to be in Service to the Company by reason of permanent
disability within the meaning of section 22(e)(3) of the Code (as determined by
the applicable Plan Administrator), the Optionholder shall have 12 months after
the date of termination of Service, but in no event after the stated expiration
date of the Optionholder's Incentive Stock Options, to exercise Incentive Stock
Options that the Optionholder was entitled to exercise on the date the
Optionholder's Service terminated as a result of disability.
(ii) DEATH OF OPTIONHOLDER. If an Optionholder dies
while in the Company's Service, the Optionholder's vested Incentive Stock
Options on the date of death shall be exercisable within three months of such
death or until the stated expiration date of the Optionholder's Incentive Stock
Option, whichever occurs first, by the person or persons ("successors") to whom
the Optionholder's rights pass under a will or by the laws of descent and
distribution. As soon as practicable after receipt by the Company of the notice
of exercise and of payment in full of the Option Price as specified in Sections
2.2(g) and (h) hereof, a certificate or certificates representing the Optioned
Shares shall be registered in the name or names specified by the successors in
the written notice of exercise and shall be delivered to the successors.
(k) TERMINATION OF NONQUALIFIED OPTIONS. Any Options which are
not Incentive Stock Options and which are outstanding at the time an
Optionholder dies while in Service to the Company or otherwise ceases to be in
Service to the Company shall remain exercisable for such period of time
thereafter as determined by the Plan Administrator at the time of grant and set
forth in the documents evidencing such Options; provided, that no Option shall
be exercisable after the Option's stated expiration date, and provided further,
that if the Optionholder is discharged for Cause (as defined in Section
2.2(j)(i)), then the Option will thereafter be void for all purposes.
(l) OTHER PLAN PROVISIONS STILL APPLICABLE. If a Discretionary
Option is exercised upon the termination of Service or death of an Optionholder
under this Section 2.2, the other provisions of the Plan shall still be
applicable to such exercise, including the requirement that the Optionholder or
its successor may be required to enter into a Stock Repurchase Agreement.
(m) DEFINITION OF "SERVICE". For purposes of this Plan, unless
it is evidenced otherwise in the option agreement with the Optionholder, the
Optionholder shall be deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or to
any Parent or Subsidiary Corporation) in the capacity of an employee, director,
or an independent consultant or advisor. In the discretion of a Plan
Administrator, an Optionholder shall be considered to be rendering continuous
services to the Company even if the type of services change, e.g., from employee
to independent consultant. The Optionholder shall be considered to be an
employee for so long as such individual remains in the employ of the Company or
one or more of its Parent or Subsidiary Corporations.
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2.3 TERMS AND CONDITIONS OF STOCK AWARDS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive Stock Awards. The Plan Administrator of each administered group shall
determine the number of shares of Stock to be awarded from time to time to any
Eligible Person in such group. The grant of a Stock Award to a person shall
neither entitle such person to, nor disqualify such person from participation
in, any other grant of options or awards by the Company, whether under this Plan
or under any other stock option or award plan of the Company.
(b) AWARD FOR SERVICES RENDERED. Stock Awards shall be granted
in recognition of an Eligible Person's services to the Company. The grantee of
any such Stock Award shall not be required to pay any consideration to the
Company upon receipt of such Stock Award, except as may be required to satisfy
any applicable Delaware corporate law, employment tax, and/or income tax
withholding requirements.
(c) CONDITIONS TO AWARD. All Stock Awards shall be subject to
such terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate.
(d) AWARD AGREEMENTS. A Plan Administrator may require as a
condition to a Stock Award that the recipient of such Stock Award enter into an
award agreement in such form and content as that Plan Administrator from time to
time approves.
2.4 TERMS AND CONDITIONS OF SARS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive SARs. The Plan Administrator of each administered group shall determine
the SARs to be awarded from time to time to any Eligible Person in such group.
The grant of a SAR to a person shall neither entitle such person to, nor
disqualify such person from participation in, any other grant of options or
awards by the Company, whether under this Plan or under any other stock option
or award plan of the Company.
(b) AWARD OF SARS. Concurrently with or subsequent to the
grant of any Discretionary Option to purchase one or more shares of Stock, a
Plan Administrator may award to the Optionholder with respect to each share of
Stock underlying the Option, a related SAR permitting the Optionholder to be
paid the appreciation on the Stock underlying the Discretionary Option in lieu
of exercising the Option. In addition, a Plan Administrator may award to any
Eligible Person an SAR permitting the Eligible Person to be paid the
appreciation on a designated number of shares of the Stock, whether or not such
Shares are actually issued.
(c) CONDITIONS TO SAR. All SARs shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the
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recipient of any applicable employment or withholding taxes. Such Plan
Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.
(d) SAR AGREEMENTS. A Plan Administrator may require as a
condition to the grant of a SAR that the recipient of such SAR enter into a SAR
agreement in such form and content as that Plan Administrator from time to time
approves.
(e) EXERCISE. An Eligible Person who has been granted a SAR
may exercise such SAR subject to the conditions specified by the Plan
Administrator in the SAR agreement.
(f) AMOUNT OF PAYMENT. The amount of payment to which the
grantee of a SAR shall be entitled upon the exercise of each SAR shall be equal
to the amount, if any, by which the fair market value of the specified shares of
Stock on the exercise date exceeds the fair market value of the specified shares
of Stock on the date the Discretionary Option related to the SAR was granted or
became effective, or, if the SAR is not related to any Option, on the date the
SAR was granted or became effective.
(g) FORM OF PAYMENT. The SAR may be paid in either cash or
Stock, as determined in the discretion of the applicable Plan Administrator and
set forth in the SAR agreement. If the payment is in Stock, the number of shares
to be paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 2.4(f) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon as practical after
exercise, the Company shall deliver to the SAR grantee a certificate or
certificates for such shares of Stock.
(h) TERMINATION OF EMPLOYMENT; DEATH. Section 2.2(j),
applicable to Incentive Stock Options, and Section 2.2(k), applicable to
nonqualified options, shall apply equally to the tandem SARs and if not issued
in tandem, Section 2.2(k) shall apply to the SARs.
2.5 OTHER CASH AWARDS
(a) IN GENERAL. The Plan Administrator of each administered
group shall have the discretion to make other awards of cash to Eligible Persons
in such group ("Cash Awards"). Such Cash Awards may relate to existing Options
or to the appreciation in the value of the Stock or other Company securities.
(b) CONDITIONS TO AWARD. All Cash Awards shall be subject to
such terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
ARTICLE III
AUTOMATIC GRANT PROGRAM
3.1 ELIGIBLE PERSONS UNDER THE AUTOMATIC GRANT PROGRAM. The persons
eligible to participate in the Automatic Grant Program shall be limited to Board
members who are not employed by the Company, whether or not such persons qualify
as Non-Employee directors as
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defined herein ("Eligible Directors"). Persons who are eligible under the
Automatic Grant Program may also be eligible to receive Discretionary Options or
Awards under the Discretionary Grant Program or option grants or direct stock
issuances under other plans of the Company.
3.2 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.
(a) AMOUNT AND DATE OF GRANT. During the term of this Plan,
Automatic Grants shall be made to each Eligible Director ("Optionholder") as
follows:
(i) ANNUAL GRANTS. Each year on the Annual Grant Date
an Automatic Option to acquire 2,500 shares of Stock shall be granted to each
Eligible Director (except that an Automatic Option to acquire 5,000 shares of
Stock shall be granted to the Chairman of the Board, assuming the Chairman of
the Board is an Eligible Director) for so long as there are shares of Stock
available under Section 1.2 hereof. The "Annual Grant Date" shall be the date of
the Company's annual stockholders meeting. Notwithstanding the foregoing, (i)
any Eligible Director whose term ended on the Annual Grant Date and who was not
re-elected on that date shall not be eligible to receive any automatic option
grants on that Annual Grant Date, and (ii) any Eligible Director that was
granted an Automatic Option under Section 3.2(a)(ii) hereof within 30 days of an
Annual Grant Date shall be ineligible to receive an Automatic Option grant
pursuant to this Section 3.2(a)(i) on such Annual Grant Date.
(ii) INITIAL NEW DIRECTOR GRANTS. On the Initial
Grant Date, every new member of the Board who is an Eligible Director and has
not previously received an Automatic Option grant under this Section 3.2(a)(ii)
shall be granted an Automatic Option to acquire 10,000 shares of Stock for so
long as there are shares of Stock available under Section 1.2 hereof. The
"Initial Grant Date" shall be the date that an Eligible Director is first
appointed or elected to the Board.
(iii) FORMULA GRANT. Each year on the Formula Grant
Date, an Automatic Option to acquire shares of Stock shall be granted to each
Eligible Director for so long as there are shares of Stock available under
Section 1.2 hereof. Each year, the number of shares of Stock that may be
acquired under the Automatic Option granted pursuant to this Section 3.2(a)(iii)
shall be an amount equal to 1,000 shares of Stock for each $.05 EPS Increase,
subject to a maximum of 5,000 shares of Stock to each Eligible Director. For
purposes of the foregoing, "EPS Increase" means the amount by which the earnings
per share, as reported in the audited financial statements of the Company for
the most recent fiscal year exceeds the earnings per share for the Company, as
calculated under its audited financial statements, for the previous fiscal year.
The "Formula Grant Date" shall be the later of the last day of the second
calendar month occurring after the close of any fiscal year or the seventh day
after the earnings of the Company have been publicly announced for any such
fiscal year. Any Eligible Director that was granted an Automatic Option under
Section 3.2(a)(ii) hereof within 30 days of a Formula Grant Date shall be
ineligible to receive an Automatic Option pursuant to this Section 3.2(a)(iii)
on such Formula Grant Date.
(b) EXERCISE PRICE. The exercise price per share of Stock
subject to each Automatic Option Grant shall be equal to 100 percent of the fair
market value per share of the Stock on the date the Automatic Option was granted
as determined in accordance with the valuation provisions of Section 4.5 hereof
(the "Option Price").
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(c) VESTING. Each Automatic Option Grant (other than the
Formula Grant) shall become exercisable and vest one day before the next
succeeding stockholders' meeting that occurs after the applicable grant date
unless the next succeeding annual meeting occurs less than six months after the
applicable grant date, in which case the Automatic Grant shall become
exercisable and vest on the first anniversary of the applicable grant date. Each
Automatic Option Grant that is a Formula Grant shall become exercisable and vest
on the first anniversary of the applicable grant date. Each Automatic Option
shall only vest and become exercisable if the Optionholder has not ceased
serving as a Board member as of such vesting date.
(d) METHOD OF EXERCISE. In order to exercise an Automatic
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Automatic
Option specifying the number of shares of Stock with respect to which the
Automatic Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 3.2(e) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Automatic Option (if other than the
Optionholder) has the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising the Automatic Option in accordance herewith) a certificate or
certificates representing the Stock for which the Automatic Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Automatic Option be exercised for any fractional shares.
(e) PAYMENT OF OPTION PRICE. The aggregate Option Price shall
be payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Company's order; or
(ii) full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) if a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the
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Company to deliver the certificates for the Optioned Shares to be purchased
directly to such brokerage firm in order to complete the sale transaction.
(f) TERM OF OPTION. Each Automatic Option shall expire on the
tenth anniversary of the date on which an Automatic Option Grant was made
("Expiration Date"). Except as provided in Article IV hereof, should an
Optionholder's service as a Board member cease prior to the Expiration Date for
any reason while an Automatic Option remains outstanding and unexercised, then
the Automatic Option term shall immediately end and the Automatic Option shall
cease to be outstanding in accordance with the following provisions:
(i) The Automatic Option shall immediately terminate
and cease to be outstanding for any Optioned Shares of Stock which were not
vested at the time of Optionholder's cessation of Board service.
(ii) Should an Optionholder cease, for any reason
other than death, to serve as a member of the Board, then the Optionholder shall
have a six month period measured from the date of such cessation of Board
service in which to exercise the Automatic Options which vested prior to the
time of such cessation of Board service. In no event, however, may any Automatic
Option be exercised after the Expiration Date of such Automatic Option.
(iii) Should an Optionholder die while serving as a
Board member or within six months after cessation of Board service, then the
personal representative of the Optionholder's estate (or the person or persons
to whom the Automatic Option is transferred pursuant to the Optionholder's will
or in accordance with the laws of descent and distribution) shall have a one
year period measured from the date of the Optionholder's cessation of Board
service in which to exercise the Automatic Options which vested prior to the
time of such cessation of Board service. In no event, however, may any Automatic
Option be exercised after the Expiration Date of such Automatic Option.
ARTICLE IV
MISCELLANEOUS
4.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock
subject to the Plan, the number of shares covered by outstanding Options and
Awards and the price per share stated in such Options and Awards, and the number
of Automatic Options to be granted pursuant to the Automatic Program, shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Stock of the Company resulting from a subdivision or
consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without the Company's receipt of consideration therefor in money,
services or property.
4.2 MERGERS, ETC. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option or
Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in Section 4.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
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4.3 CORPORATE TRANSACTION. In the event of stockholder approval of a
Corporate Transaction, (a) all unvested Automatic Options shall automatically
accelerate and immediately vest so that each outstanding Automatic Option shall,
one week prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the Optioned Shares and (b) the Plan
Administrator shall have the discretion and authority, exercisable at any time,
to provide for the automatic acceleration of one or more of the outstanding
Discretionary Options or Awards granted by it under the Plan. Upon the
consummation of the Corporate Transaction, all Options shall, to the extent not
previously exercised, terminate and cease to be outstanding.
4.4 CHANGE IN CONTROL.
(a) AUTOMATIC GRANT PROGRAM. In the event of a Change in
Control, all unvested Automatic Options shall automatically accelerate and
immediately vest so that each outstanding Automatic Option shall, immediately
prior to the effective date of such Change in Control, become fully exercisable
for all of the Optioned Shares. Thereafter, each Automatic Option shall remain
exercisable until the Expiration Date of such Automatic Option.
(b) DISCRETIONARY GRANT PROGRAM. In the event of a Change in
Control, a Plan Administrator shall have the discretion and authority,
exercisable at any time, whether before or after the Change in Control, to
provide for the automatic acceleration of one or more outstanding Discretionary
Options or Awards granted by it under the Plan upon the occurrence of such
Change in Control. A Plan Administrator may also impose limitations upon the
automatic acceleration of such Options or Awards to the extent it deems
appropriate. Any Options or Awards accelerated upon a Change in Control will
remain fully exercisable until the expiration or sooner termination of the
Option term.
(c) INCENTIVE STOCK OPTION LIMITS. The exercisability of any
Discretionary Options which are intended to qualify as Incentive Stock Options
and which are accelerated by the Plan Administrator in connection with a pending
Corporation Transaction or Change in Control shall, except as otherwise provided
in the discretion of the Plan Administrator and the Optionholder, remain subject
to the $100,000 Limitation and vest as quickly as possible without violating the
$100,000 Limitation.
4.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market value of
a share of Stock on any relevant date shall be determined in accordance with the
following provisions:
(i) If the Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the over-the-counter
market, the fair market value shall be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its Nasdaq system or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Stock on the
date in question, then the mean between the highest bid price and lowest asked
price (or the closing selling price) on the last preceding date for which such
quotations exist shall be determinative of fair market value.
(ii) If the Stock is at the time listed or admitted
to trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Stock on the date
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in question on the stock exchange determined by the Board to be the primary
market for the Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no reported sale of Stock on such
exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(iii) If the Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value shall be determined by the Board after taking
into account such factors as the Board shall deem appropriate, including one or
more independent professional appraisals.
4.6 USE OF PROCEEDS. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any, shall
be used for general corporate purposes.
4.7 CANCELLATION OF OPTIONS. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Discretionary
Options granted under the Plan by that Plan Administrator and to grant in
substitution therefore new Discretionary Options under the Plan covering the
same or different numbers of shares of Stock as long as such new Discretionary
Options have an exercise price per share of Stock no less than the minimum
exercise price as set forth in Section 2.2(b) hereof on the new grant date.
4.8 REGULATORY APPROVALS. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the Options or Awards granted under it and the Stock issued
pursuant to it.
4.9 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have, the members of a Plan Administrator shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, suit, legal proceeding to which any
member thereof may be a party by reason of any action taken, failure to act
under or in connection with the Plan or any rights granted thereunder and
against all amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment of any such action, suit or proceeding, except a
judgment based upon a finding of bad faith.
4.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without stockholder approval.
4.11 COMPANY RIGHTS. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
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4.12 PRIVILEGE OF STOCK OWNERSHIP. An Optionholder shall not have any
of the rights of a stockholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date of such exercise and full payment for
such Optioned Shares.
4.13 ASSIGNMENT. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. Except as may be
specifically allowed by the Plan Administrator at the time of grant and set
forth in the documents evidencing a Discretionary Option or Award, no Option or
Award granted under the Plan or any of the rights and privileges conferred
thereby shall be assignable or transferable by an Optionholder or grantee other
than by will or the laws of descent and distribution, and such Option or Award
shall be exercisable during the Optionholder's or grantee's lifetime only by the
Optionholder or grantee. The provisions of the Plan shall inure to the benefit
of, and be binding upon, the Company and its successors or assigns, and the
Optionholders, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
4.14 SECURITIES RESTRICTIONS
(a) LEGEND ON CERTIFICATES. All certificates representing
shares of Stock issued upon exercise of Options or Awards granted under the Plan
shall be endorsed with a legend reading as follows:
The shares of Common Stock evidenced by this
certificate have been issued to the registered owner
in reliance upon written representations that these
shares have been purchased solely for investment.
These shares may not be sold, transferred or assigned
unless in the opinion of the Company and its legal
counsel such sale, transfer or assignment will not be
in violation of the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
(b) PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and
Awards are and shall be made available only to a limited number of present and
future key personnel who have knowledge of the Company's financial condition,
management and its affairs. The Plan is not intended to provide additional
capital for the Company, but to encourage ownership of Stock among the Company's
key personnel. By the act of accepting an Option or Award, each grantee agrees
(i) that, any shares of Stock acquired will be solely for investment and not
with any intention to resell or redistribute those shares and (ii) such
intention will be confirmed by an appropriate certificate at the time the Stock
is acquired if requested by the Company. The neglect or failure to execute such
a certificate, however, shall not limit or negate the foregoing agreement.
(c) REGISTRATION STATEMENT. If a Registration Statement
covering the shares of Stock issuable upon exercise of Options granted under the
Plan is filed under the Securities Act of 1933, as amended, and is declared
effective by the Securities Exchange Commission, the provisions of Sections
4.14(a) and (b) shall terminate during the period of time that such Registration
Statement, as periodically amended, remains effective.
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4.15 TAX WITHHOLDING.
(a) GENERAL. The Company's obligation to deliver Stock upon
the exercise of Options under the Plan shall be subject to the satisfaction of
all applicable federal, state and local income tax withholding requirements.
(b) SHARES TO PAY FOR WITHHOLDING. The Board may, in its
discretion and in accordance with the provisions of this Section 4.15(b) and
such supplemental rules as it may from time to time adopt, provide any or all
Optionholders with the right to use shares of Stock in satisfaction of all or
part of the federal, state and local income tax liabilities incurred by such
Optionholders in connection with the exercise of their Options ("Taxes"). Such
right may be provided to any such Optionholder in either or both of the
following formats:
(i) STOCK WITHHOLDING. The Optionholder of an Option
may be provided with the election, which may be subject to approval by the Plan
Administrator, to have the Company withhold, from the Stock otherwise issuable
upon the exercise of such Option, a portion of those shares of Stock with an
aggregate fair market value equal to the percentage (not to exceed 100 percent)
of the applicable Taxes designated by the Optionholder.
(ii) STOCK DELIVERY. The Board may, in its
discretion, provide the Optionholder with the election to deliver to the
Company, at the time the Option is exercised, one or more shares of Stock
previously acquired by such individual (other than pursuant to the transaction
triggering the Taxes) with an aggregate fair market value equal to the
percentage (not to exceed 100 percent) of the taxes incurred in connection with
such Option exercise designated by the Optionholder.
4.16 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Arizona.
ARTICLE V
DEFINITIONS
The following capitalized terms used in this Plan shall have the
meaning described below:
"AFFILIATES" shall mean all "executive officers" (as that term is
defined in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the
Company and all persons who own ten percent or more of the Company's issued and
outstanding Stock.
"ANNUAL GRANT DATE" shall mean the date of the Company's annual
stockholder meeting.
"AUTOMATIC GRANT PROGRAM" shall mean that program set forth in Article
III of this Agreement pursuant to which Eligible Directors, as defined herein,
are automatically granted Options upon certain events.
"AUTOMATIC OPTION GRANT" shall mean those automatic option grants made
on the Annual Grant Date, on the Initial Grant Date, and on the Formula Grant
Date.
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"AUTOMATIC OPTIONS" shall mean those Options granted pursuant to the
Automatic Grant Program.
"AWARD" shall mean a Stock Award, SAR or Cash Award.
"BOARD" shall mean the Board of Directors of the Company.
"CASH AWARD" shall mean an award to be paid in cash and granted under
Section 2.5 hereunder.
"CHANGE IN CONTROL" shall mean and include the following transactions
or situation:
(i) A sale, transfer, or other disposition by the Company
through a single transaction or a series of transactions of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this definition,
the term "Person" shall mean and include any individual, partnership, joint
venture, association, trust corporation, or other entity (including a "group" as
referred to in Section 13(d)(3) of the 1934 Act. For purposes of this
definition, the term "Unrelated Person" shall mean and include any Person other
than the Company, a wholly-owned subsidiary of the Company, or an employee
benefit plan of the Company.
(ii) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(iii) A change in the ownership of the Company through a
single transaction or a series of transactions such that any unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least 30 percent of the combined voting power of the Company's then outstanding
securities. For purposes of this Section, the term "Beneficial Owner" shall have
the same meaning as given to that term in Rule 13d-3 promulgated under the 1934
Act, provided that any pledgee of voting securities shall not be deemed to be
the Beneficial Owner thereof prior to its acquisition of voting rights with
respect to such securities.
(iv) Any consolidation or merger of the Company with or into
an Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50 percent of the combined voting power of the
surviving corporation's then outstanding securities.
(v) During any period of two years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company
cease, for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by the
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
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(vi) A change in control of the Company of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the 1934 Act, or any successor regulation of
similar import, regardless of whether the Company is subject to such reporting
requirement.
Notwithstanding any provision hereof to the contrary, the filing of a
proceeding for the reorganization of the Company under Chapter 11 of the General
Bankruptcy Code or any successor or other statute of similar import shall not be
deemed to be a Change of Control for purposes of this Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean Rural/Metro Corporation, a Delaware corporation.
"CORPORATE TRANSACTION" shall mean (a) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state in which the Company is
incorporated; (b) the sale, transfer of or other disposition of all or
substantially all of the assets of the Company and complete liquidation or
dissolution of the Company, or (c) any reverse merger in which the Company is
the surviving entity but in which the securities possessing more than 50 percent
of the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
"DISCRETIONARY GRANT PROGRAM" shall mean the program described in
Article II of this Plan pursuant to which certain Eligible Directors are granted
Options or Awards in the discretion of the Plan Administrator.
"DISCRETIONARY OPTIONS" shall mean options granted under the
Discretionary Grant Program.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by
the stockholders as required by Section 1.3(a) hereof.
"ELIGIBLE DIRECTOR" shall mean, with respect to the Automatic Grant
Program, those Board members who are not employed by the Company, whether or not
such members are Non-Employee Directors as defined herein.
"ELIGIBLE PERSONS" shall mean (a) with respect to the Discretionary
Grant Program, those persons who, at the time that the Discretionary Option or
Award is granted, are (i) key personnel (including officers and directors) of
the Company or Parent or Subsidiary Corporations, or (ii) consultants or
independent contractors who provide valuable services to the Company or Parent
or Subsidiary Corporations; and (b) with respect to the Automatic Grant Program,
the Eligible Directors.
"EMPLOYEE COMMITTEE" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of two
or more persons who are members of the Board.
"EPS INCREASE" shall have the meaning set forth in Section 3.2(a)(iii)
hereof.
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"EXERCISE DATE" shall be the date on which written notice of the
exercise of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"EXPIRATION DATE" shall be the 10-year anniversary of the date on which
an Automatic Option Grant was made.
"FORMULA GRANT DATE" shall have the meaning as set forth in Section
3.2(a)(iii) hereof.
"INCENTIVE STOCK OPTION" shall mean a Discretionary Option that is
intended to qualify as an "incentive stock option" under Code section 422.
"INITIAL GRANT DATE" shall mean the date that an Eligible Director is
first appointed or elected to the Board.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTORS" shall mean those Directors who satisfy the
definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated
under the 1934 Act.
"$100,000 LIMITATION" shall mean the limitation pursuant to which the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time be exercisable as Incentive Stock Options
during any one calendar year shall not exceed the sum of $100,000.
"OPTIONHOLDER" shall mean an Eligible Person or Eligible Director to
whom Options have been granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from
time to time to any Eligible Director.
"OPTION PRICE" shall mean (i) with respect to Discretionary Options,
the exercise price per share as specified by the Plan Administrator pursuant to
Section 2.2(b) hereof, and (ii) with respect to Automatic Options, the exercise
price per share as specified by Section 3.2(b) hereof.
"OPTIONS" shall mean options to acquire Stock granted under the Plan.
"PARENT CORPORATION" shall mean any corporation in the unbroken chain
of corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"PLAN" shall mean this stock option plan for Rural/Metro Corporation.
"PLAN ADMINISTRATOR" shall mean (a) either the Board, the Senior
Committee, or any other committee, whichever is applicable, with respect to the
administration of the Discretionary Grant Program as it relates to Affiliates
and (b) either the Board, the Employee Committee, or any other
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committee, whichever is applicable, with respect to the administration of the
Discretionary Grant Program as it relates to Non-Affiliates and with respect to
the Automatic Grant Program.
"SAR" shall mean stock appreciation rights granted pursuant to Section
2.4 hereunder.
"SENIOR COMMITTEE" shall mean that committee appointed by the Board to
administer the Discretionary Grant Program with respect to the Affiliates and
comprised of two or more Non- Employee Directors.
"SERVICE" shall have the meaning set forth in Section 2.2(n) hereof.
"STOCK" shall mean shares of the Company's common stock, $.01 par value
per share, which may be unissued or treasury shares, as the Board may from time
to time determine.
"STOCK AWARDS" shall mean Stock directly granted under the
Discretionary Grant Program.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken
chain of corporations starting with the employer corporation, where, at each
link of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation below.
EXECUTED as of the 6th day of September, 1996.
RURAL/METRO CORPORATION
By: /s/ Warren S. Rustand
---------------------------------
Name: Warren S. Rustand
--------------------------------
Its: Chief Executive Officer
---------------------------------
ATTESTED BY:
/s/ Louis G. Jekel
- ------------------------------
Secretary
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Exhibit 10.16(e)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made this 30th day of
June, 1997, by and between ROBERT E. RAMSEY, JR. ("Executive") and
RURAL/METRO CORPORATION, a Delaware corporation ("Rural/Metro"), effective
June 30, 1997 ("Effective Date").
R E C I T A L S
A. Executive desires to be employed by Rural/Metro in the position as a
senior executive.
B. Rural/Metro has decided to offer Executive an employment agreement,
the terms and provisions of which are set forth below.
NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. POSITION AND DUTIES.
Executive will be employed as a senior executive of
Rural/Metro and shall perform the duties of his position, as determined by the
Board of Directors and Chief Executive Officer of Rural/Metro, in accordance
with the policies, practices and bylaws of Rural/Metro. Executive shall report
directly to Robert T. Edwards and Warren S. Rustand, or their successors, and
not to any regional president of Rural/Metro. Executive shall have direct
management authority over all of Rural/Metro's ambulance and fire service
operations in Arizona.
Executive shall serve Rural/Metro faithfully, loyally,
honestly and to the best of his ability. Executive will devote his best efforts
to the performance of his duties for, and in the business and affairs of,
Rural/Metro.
<PAGE> 2
Executive agrees that during the Term (as defined in paragraph
5), Executive shall serve as the President and Chief Executive Officer of SW
General, Inc., Southwest Ambulance of Casa Grande, Inc., Medical Emergency
Devices and Services (MEDS), Inc., and Southwest General Services, Inc., each of
which are Arizona corporations (collectively referred to herein as the
"Southwest Companies") or any successor corporation of such companies and as
Vice-President of Rural/Metro, and Executive agrees to serve as a member of the
Board of Directors of Rural/Metro.
The Board of Directors of Rural/Metro reserves the right, in
its sole discretion, to change or modify Executive's position, title and duties
during the term of this Agreement.
2. SALARY.
During the first year of this Agreement, Executive's
semimonthly salary will be based upon annual compensation of Two Hundred
Thousand and 00/100 Dollars ($200,000.00). Thereafter, the salary will be
reviewed annually in accordance with Rural/Metro's compensation review policies
and practices, all as determined by Rural/Metro, in its sole discretion;
provided that Rural/Metro may not reduce the salary set forth above during the
first three (3) years of the Term.
3. MANAGEMENT INCENTIVE PROGRAM.
Executive shall be eligible to participate in the Rural/Metro
Management Incentive Program ("MIP") (or any other plan that is designated by
the Board as replacing the MIP) and to receive such additional compensation as
may be provided by the MIP from time to time.
4. OTHER AGREEMENTS.
Rural/Metro and Executive may enter into one or more
agreements from time-to-time relating to specific programs (such as a stock
option program). Nothing in this Agreement is intended to alter or modify said
agreements, which are referred to below as "Ancillary Agreements."
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5. TERM AND TERMINATION.
This Agreement will continue in full force and effect until it
is terminated by the parties. This Agreement may be terminated in any of the
following ways: (a) it may be renegotiated and replaced by a written agreement
signed by both parties; (b) Rural/Metro may elect to terminate this Agreement
with or without "Cause", as defined below; (c) Executive may elect to terminate
this Agreement with or without "Good Reason," as defined below; or (d) either
party may serve notice on the other of its desire to terminate this Agreement at
the end of the Term, which notice shall be given to the other party at least
forty-five (45) days before the end of the Term.
The "Term" of this Agreement shall begin on the date hereof
and shall expire by its terms on March 31, 2002, unless sooner terminated in
accordance with the provisions of this Agreement.
6. TERMINATION BY RURAL/METRO.
A. Termination For Cause. Rural/Metro may terminate this
Agreement and Executive's employment for Cause at any time upon written notice.
This means that Rural/Metro has the right to terminate the employment
relationship for Cause at any time should there be Cause to do so.
For purposes of this Agreement, "Cause" shall be limited to
discharge resulting from a determination by Rural/Metro that Executive: (a) has
been convicted of a felony involving dishonesty, fraud, theft or embezzlement;
(b) has repeatedly failed or refused, after written notice from Rural/Metro, in
a material respect to follow reasonable policies or directives established by
Rural/Metro; (c) has willfully and persistently failed, after written notice
from Rural/Metro, to attend to material duties or obligations imposed upon him
under this Agreement; (d) has performed an act
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or failed to act, which, if he were prosecuted and convicted, would constitute a
felony involving $1,000 or more of money or property of Rural/Metro; or (e) has
misrepresented or concealed a material fact for purposes of securing employment
with Rural/Metro or this Employment Agreement.
Because Executive is in a position which involves great
responsibilities, Rural/Metro is not required to utilize its progressive
discipline policy.
If this Agreement and Executive's employment is terminated for
Cause, Executive shall receive no Severance Benefits.
B. Termination Without Cause. Rural/Metro also may terminate
this Agreement and Executive's employment without Cause at any time by giving
thirty (30) days written notice to Executive. In the event this Agreement and
Executive's employment are terminated by Rural/Metro without Cause, Executive
shall be entitled to receive Severance Benefits pursuant to paragraph 9.
7. TERMINATION BY EXECUTIVE.
Executive may terminate this Agreement and his employment with
or without "Good Reason" in accordance with the provisions of this paragraph 7.
A. Termination For Good Reason. Executive may terminate this
Agreement and his employment for "Good Reason" by giving written notice to
Rural/Metro within thirty (30) days, or such longer period as may be agreed to
in writing by Rural/Metro, of Executive's receipt of notice of the occurrence of
any event constituting "Good Reason," as described below.
Executive shall have "Good Reason" to terminate this Agreement
and his employment upon the occurrence of any of the following events: (a)
Executive is demoted to a position of less stature or importance within
Rural/Metro than the position described in paragraph 1, it being agreed
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that "Good Reason" shall not exist hereunder by reason of Executive's failure to
be elected to the Board of Directors of Rural/Metro as a result of the
shareholders of Rural/Metro voting not to elect Executive to the Board of
Directors of Rural/Metro (provided, however, that, unless circumstances
constituting Cause exist, Rural/Metro shall have taken all action within its
power and authority to nominate Executive for election to the Board of
Directors); (b) Executive is required to relocate to an employment location that
is more than fifty (50) miles from his employment location on the date of the
execution of this Agreement; (c) Executive's annualized salary rate is reduced
to a level that is at least twenty percent (20%) less than the salary paid to
Executive during any prior calendar year, unless Executive has agreed to said
reduction; (d) the potential incentive compensation (or bonus) to which
Executive may become entitled under the MIP at any level of performance by the
Executive or Rural/Metro is reduced by seventy-five percent (75%) or more as
compared to the prior year; or (e) a sale by Rural/Metro of more than fifty
percent (50%) of the capital stock of all of the Southwest Companies or their
successors, to an entity not a subsidiary (direct or indirect) or an affiliate
of Rural/Metro (except for a consolidation of some or all of the Southwest
Companies, a change in the ownership of Rural/Metro or a sale of Rural/Metro's
ambulance business in general).
If Executive terminates this Agreement and his employment for
Good Reason, Executive shall be entitled to receive Severance Benefits pursuant
to paragraph 9.
B. Termination Without Good Reason. Executive also may
terminate this Agreement and his employment without Good Reason at any time by
giving thirty (30) days notice to Rural/Metro. If Executive terminates this
Agreement and his employment without Good Reason, Executive shall not be
entitled to receive Severance Benefits pursuant to paragraph 9.
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8. DEATH OR DISABILITY.
This Agreement will terminate automatically on Executive's
death. Any salary or other amounts due to Executive for services rendered prior
to his death shall be paid to Executive's surviving spouse, or if Executive does
not leave a surviving spouse, to Executive's estate. No other benefits shall be
payable to Executive's heirs pursuant to this Agreement, but amounts may be
payable pursuant to any life insurance or other benefit plans maintained by
Rural/Metro.
In the event Executive becomes "Disabled," and as a result is
unable to continue the proper performance of his duties hereunder, Executive's
employment hereunder and Rural/Metro's obligation to pay Executive's salary
shall continue for a period of three (3) months from the date of such
Disability, at which point Executive's employment hereunder shall automatically
cease and terminate. Executive shall be considered "Disabled" or to be suffering
from a "Disability" for purposes of this paragraph 8 if, in the judgment of a
licensed physician selected by the Board of Directors of Rural/Metro, Executive
is unable to perform the essential functions of his position required under this
Agreement, with or without reasonable accommodations, because of a physical or
mental impairment. The determination by said physician shall be binding and
conclusive for all purposes.
9. SEVERANCE BENEFITS.
If this Agreement and Executive's employment are terminated
without Cause by Rural/Metro pursuant to paragraph 6(B) prior to June 30, 2000,
[three years after the date hereof] or if Executive elects to terminate this
Agreement for Good Reason pursuant to paragraph 7(A), Executive shall receive
the "Severance Benefits" as provided by this paragraph. Executive also shall
receive Severance Benefits, subject to this paragraph, if his employment is
terminated due to
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Disability pursuant to paragraph 8. The Severance Benefits shall begin
immediately following termination of employment and will continue to be payable
until June 30, 2000 [three years after the date hereof], unless the termination
of Executive's employment hereunder is terminated for any reason after such
date, in which case Executive shall not be entitled to any Severance Benefits.
The Executive's "Severance Benefits" shall consist of the
continuation of the Executive's salary pursuant to paragraph 2 and the
continuation of any health, life, disability, or other insurance benefits that
Executive was receiving as of his last day of active employment. If a particular
insurance benefit may not be continued for any reason, Rural/Metro shall pay the
cash equivalent to the Executive on a monthly basis or in a single lump sum. The
amount of the cash equivalent of the benefit and whether the cash equivalent
will be paid in monthly installments or in a lump sum will be determined by
Rural/Metro in the exercise of its discretion.
If Executive voluntarily terminates this Agreement and his
employment without Good Reason prior to the end of the Term, or if Rural/Metro
terminates the Agreement and Executive's employment for Cause, no Severance
Benefits shall be paid to Executive. No Severance Benefits are payable in the
event of Executive's death while in the active employ of Rural/Metro.
Severance Benefits shall immediately cease if Executive
commits a material violation of any of the terms of this Agreement relating to
confidentiality and non-disclosure, as set forth in paragraph 11, or the
Covenant-Not-To-Compete, as set forth in paragraph 12. Only material violations
will result in the loss of Severance Benefits. In addition, if a violation, even
if material, is one that may be cured, the violation will not be considered to
be material unless Executive fails to cure said violation within thirty (30)
days after receiving written notice of said violation from Rural/Metro or unless
Executive repeats said violation at any time after receiving said notice.
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10. BENEFITS.
Executive will be entitled to participate in any benefit
plans, including, but not limited to, retirement plans, stock option plans, life
insurance plans and health and dental plans available to other Rural/Metro
employees, subject to any restrictions (including waiting periods) specified in
said plans.
Executive is entitled to four (4) weeks of paid vacation per
calendar year, with such vacation to be scheduled and taken in accordance with
Rural/Metro's standard vacation policies.
11. CONFIDENTIALLY AND NON-DISCLOSURE.
During the course of his employment, Executive will become
exposed to a substantial amount of confidential and proprietary information,
including, but not limited to financial information, annual reports, audited and
unaudited financial reports, strategic plans, business plans, marketing
strategies, new business strategies, personnel and compensation information, and
other such reports, documents or information. In the event his employment is
terminated by either party for any reason, Executive promises that he will not
take with him any copies of such documents, computer print-outs, computer tapes,
floppy disks, CD roms, etc., in any form, format or manner whatsoever, nor will
he disclose the same in whole or in part to any person or entity, in any manner
either directly or indirectly. Excluded from this Agreement is information that
is already disclosed to third parties and is in the public domain or that
Rural/Metro consents to be disclosed, with such consent to be in writing. The
provisions of this paragraph shall survive the termination of this Agreement.
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<PAGE> 9
12. COVENANT-NOT-TO-COMPETE.
A. Interests to be Protected. The parties acknowledge that
during the term of his employment, Executive will perform essential services for
Rural/Metro, its employees and shareholders, and for clients of Rural/Metro.
Therefore, Executive will be given an opportunity to meet, work with and develop
close working relationships with Rural/Metro's clients on a first-hand basis and
will gain valuable insight as to the clients' operations, personnel and need for
services. In addition, Executive will be exposed to, have access to, and be
required to work with, a considerable amount of Rural/Metro's confidential and
proprietary information, including but not limited to: information concerning
Rural/Metro's methods of operation, financial information, strategic planning,
operational budgets and strategies, payroll data, management systems programs,
computer systems, marketing plans and strategies, merger and acquisition
strategies and customer lists.
The parties also expressly recognize and acknowledge that the
personnel of Rural/Metro have been trained by, and are valuable to Rural/Metro,
and that if Rural/Metro must hire new personnel or retrain existing personnel to
fill vacancies it will incur substantial expense in recruiting and training such
personnel. The parties expressly recognize that should Executive compete with
Rural/Metro in any manner whatsoever, it could seriously impair the goodwill and
diminish the value of Rural/Metro's business.
The parties acknowledge that this covenant has an extended
duration; however, they agree that this covenant is reasonable and it is
necessary for the protection of Rural/Metro, its shareholders and employees.
For these and other reasons, and the fact that there are many
other employment opportunities available to Executive if he should terminate,
the parties are in full and complete
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agreement that the following restrictive covenants (which together are referred
to as the "Covenant-Not-To-Compete") are fair and reasonable and are freely,
voluntarily and knowingly entered into. Further, each party has been given the
opportunity to consult with independent legal counsel before entering into this
Agreement. Notwithstanding any provisions set forth below, Rural Metro agrees
that no breach of the Covenant-Not-To-Compete will occur as a result of
Executive's formation of and activities with respect to any 501(c)(3) foundation
and his participation therein (so long as such participation does not interfere
with Executive's duties hereunder), his continued association with the
International Association of Firefighters, his continued ownership and operation
of an ambulance service company in Pima County, Arizona, under the name Kords
Southwest, or his continued service as President of the Arizona Ambulance
Association.
B. Devotion to Employment. Executive shall devote
substantially all his business time and best efforts to the performance of his
duties on behalf of Rural/Metro. During his term of employment, Executive shall
not at any time or place or to any extent whatsoever, either directly or
indirectly, without the express written consent of Rural/Metro, engage in any
outside employment, or in any activity competitive with or adverse to
Rural/Metro's business, practice or affairs, whether alone or as partner,
officer, director, employee, shareholder of any corporation or as a trustee,
fiduciary, consultant or other representative. This is not intended to prohibit
Executive from engaging in nonprofessional activities such as personal
investments or conducting to a reasonable extent private business affairs which
may include other boards of directors' activity, as long as they do not conflict
with Rural/Metro. Participation to a reasonable extent in civic, social or
community activities is encouraged.
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C. Non-Solicitation of Clients. During the term of Executive's
employment with Rural/Metro and for a period of twenty-four (24) months after
the termination of employment with Rural/Metro, regardless of who initiates the
termination, Executive shall not, directly or indirectly, for himself, or on
behalf of, or in conjunction with, any other person(s), company, partnership,
corporation, or governmental entity, in any manner whatsoever, call upon,
contact, encourage, handle or solicit, or cause others to solicit, any person or
other entity that is, or was within the twelve (12) month period immediately
prior to the date of Executive's termination, a client or supplier of
Rural/Metro or any of its subsidiaries or affiliates (including, without
limitation, the Southwest Companies), for the purpose of soliciting, selling or
purchasing from such client or supplier the same, similar, or related services
or products that are provided by, or purchased by, Rural/Metro or any of its
subsidiaries or affiliates (including, without limitation, the Southwest
Companies). Notwithstanding the foregoing, the obligations of Executive under
this paragraph 12(C) shall terminate only if Executive is terminated by
Rural/Metro without Cause. If Executive violates his obligations under this
paragraph 12(C), then the time periods hereunder shall be extended by the period
of time equal to that period beginning when the activities constituting such
violation commenced and ending when the activities constituting such violation
terminated.
D. Non-Solicitation of Employees. During the term of
Executive's employment with Rural/Metro and for a period of twenty-four (24)
months after the termination of employment with Rural/Metro, regardless of who
initiates the termination, Executive shall not, directly or indirectly, for
himself, or on behalf of, or in conjunction with, any other person(s), company,
partnership, corporation, or governmental entity, in any manner whatsoever, seek
to hire, and/or hire any person who, on the date hereof, or on the date of
Executive's termination, is an employee of
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Rural/Metro or any of its subsidiaries or affiliates (including, without
limitation, the Southwest Companies), and that receives annual compensation in
excess of $25,000, for employment as an independent contractor with any person
or entity (other than Rural/Metro or any of its subsidiaries or affiliates),
unless first authorized in writing by Rural/Metro, which authorization may be
withheld in the sole and absolute discretion of Rural/Metro. Notwithstanding the
foregoing, the obligations of Executive under this paragraph 12(D) shall
terminate only if Executive is terminated by Rural/Metro without Cause. If
Executive violates his obligations under this paragraph 12(D), then the time
periods hereunder shall be extended by the period of time equal to that period
beginning when the activities constituting such violation commenced and ending
when the activities constituting such violation terminated.
E. Competing Business. During the term of this Agreement and
for a period of twenty-four (24) months after the termination of employment with
Rural/Metro, regardless of who initiates the termination, Executive shall not,
directly or indirectly, (including, without limitation, as a partner,
shareholder, director, officer or employee of, or lender or consultant to, any
other personal entity), for himself, or on behalf of, or in conjunction with,
any other person(s), company, partnership, corporation, or governmental entity,
in any manner whatsoever, or in any other capacity, within, into or from the
Restricted Territory (as defined below) engage or cause others to engage in the
same or similar business as Rural/Metro and its subsidiaries, or any aspect
thereof, unless first authorized in writing by Rural/Metro, which authorization
may be withheld in the sole and absolute discretion of Rural/Metro. For purposes
of this paragraph 12(E), the term "Restricted Territory" shall mean any
geographical service area where Rural/Metro or any of its subsidiaries and
affiliates, including, without limitation, the Southwest Companies, is engaged
in business, or was considering
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engaging in business at any time prior to the termination or at time of
termination. Notwithstanding the foregoing, the obligations of Executive under
this paragraph 12(E) shall terminate only if Executive is terminated by
Rural/Metro without Cause or if Executive terminates his employment hereunder
for Good Reason. If Executive violates his obligations under this paragraph
12(E), then the time periods hereunder shall be extended by the period of time
equal to that period beginning when the activities constituting such violation
commenced and ending when the activities constituting such violation terminated.
F. Judicial Amendment. If the scope of any provision of this
Agreement is found by the Court to be too broad to permit enforcement to its
full extent, then such provision shall be enforced to the maximum extent
permitted by law. The parties agree that the scope of any provision of this
Agreement may be modified by a judge in any proceeding to enforce this
Agreement, so that such provision can be enforced to the maximum extent
permitted by law. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, it shall not affect the validity of the remaining
provisions of this Agreement.
G. Injunctive Relief, Damages and Forfeiture. Due to the
nature of Executive's position with Rural/Metro, and with full realization that
a violation of this Agreement will cause immediate and irreparable injury and
damage, which is not readily measurable, and to protect Rural/Metro's interests,
Executive understands and agrees that in addition to instituting legal
proceedings to recover damages resulting from a breach of this Agreement,
Rural/Metro may seek to enforce this Agreement with an action for injunctive
relief, to cease or prevent any actual or threatened violation of this Agreement
on the part of Executive.
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H. Survival. The provisions of this paragraph shall survive
the termination of this Agreement.
13. AMENDMENTS.
This Agreement and the Ancillary Agreements constitute the
entire agreement between the parties as to the subject mater hereof.
Accordingly, there are no side agreements or verbal agreements other than those
which are stated in this document or in the Ancillary Agreements. Any amendment,
modification or change in said Agreements must be done so in writing and signed
by both parties.
14. SEVERABILITY.
In the event a court or arbitrator declares that any provision
of this Agreement is invalid or unenforceable, it shall not affect or invalidate
any of the remaining provisions. Further, the court shall have the authority to
re-write that portion of the Agreement it deems unenforceable, to make it
enforceable.
15. GOVERNING LAW.
The law of the State of Arizona shall govern the
interpretation and application of all of the provisions of this Agreement.
16. INDEMNITY.
Executive shall be indemnified in his position to the fullest
extent permitted or required by the laws of the State of Delaware and the State
of Arizona, as applicable.
17. DISPUTE RESOLUTION.
A. Mediation. Any and all disputes arising under, pertaining
to or touching upon this Agreement (excepting the confidentiality and
non-disclosure provisions of paragraph 11 and the
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Covenant-Not-To-Compete provisions of paragraph 12), or the statutory rights or
obligations of either party hereto, shall, if not settled by negotiation, be
subject to non-binding mediation before an independent mediator selected by the
parties pursuant to paragraph 17(D). Any demand for mediation shall be made in
writing and served upon the other party to the dispute, by certified mail,
return receipt requested, at the business address of Rural/Metro, or at the last
known residence address of Executive, respectively. The demand shall set forth
with reasonable specificity the basis of the dispute and the relief sought. The
mediation hearing will occur at a time and place convenient to the parties in
Maricopa County, Arizona, within thirty (30) days of the date of selection or
appointment of the mediator.
B. Arbitration. In the event that the dispute is not settled
through mediation, the parties shall then proceed to binding arbitration before
a single independent arbitrator selected pursuant to paragraph 17(D). The
mediator shall not serve as arbitrator. ALL DISPUTES INVOLVING ALLEGED UNLAWFUL
EMPLOYMENT DISCRIMINATION, TERMINATION BY ALLEGED BREACH OF CONTRACT OR POLICY,
OR ALLEGED EMPLOYMENT TORT COMMITTED BY RURAL/METRO OR A REPRESENTATIVE OF
RURAL/METRO, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION
STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS POLICY AND THERE
SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL. The arbitration
hearing shall occur at a time and place convenient to the parties in Maricopa
County, Arizona, within thirty (30) days of selection or appointment of the
arbitrator. If Rural/Metro has adopted a policy that is applicable to
arbitrations with executives, the arbitration shall be conducted in accordance
with said policy to the extent that
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the policy is consistent with this Agreement and the Federal Arbitration Act, 9
U.S.C. Sections 1-16. If no such policy has been adopted, the arbitration shall
be governed by such procedures as the parties may agree upon. The arbitrator
shall issue written findings of fact and conclusions of law, and an award,
within fifteen (15) days of the date of the hearing unless the parties otherwise
agree.
C. Damages. In cases of breach of contract or policy, damages
shall be limited to contract damages. In cases of intentional discrimination
claims prohibited by statute, the arbitrator may direct payment consistent with
42 U.S.C. Section 1981(a) and the Civil Rights Act of 1991. In cases of
employment tort, the arbitrator may award punitive damages if proved by clear
and convincing evidence. Any award of punitive damages shall not exceed two
times (2x) any compensatory award and, in any event, shall not exceed Two
Hundred Fifty Thousand Dollars ($250,000). The arbitrator may award fees to the
prevailing party and assess costs of the arbitration to the non-prevailing
party. Issues of procedure, arbitrability, or confirmation of award shall be
governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16, except that
Court review of the arbitrator's award shall be that of an appellate court
reviewing a decision of a trial judge sitting without a jury.
D. Selection of Mediators or Arbitrators. The parties shall
select the mediator or arbitrator from a panel list made available by Arizona
Litigation Alternatives ("ALA"). If the parties are unable to agree to a
mediator or arbitrator within ten (10) days of receipt of a demand for mediation
or arbitration, the mediator or arbitrator will be chosen by alternatively
striking from a list of five (5) mediators or arbitrators obtained by
Rural/Metro from ALA. Executive shall have the first strike.
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IN WITNESS WHEREOF, Rural Metro and Executive have executed this
Agreement effective on the date set forth above.
RURAL/METRO CORPORATION
By /s/ William R. Crowell
__________________________
Name: WILLIAM R. CROWELL
_______________________
Its: Vice President
________________________
"EXECUTIVE"
/s/ Robert E. Ramsey, Jr.
____________________________
ROBERT E. RAMSEY, JR.
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Exhibit 10.50
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment") is
made and entered into as of this 29th day of May, 1997 by and among RURAL/METRO
CORPORATION, a corporation organized under the laws of Delaware ("Rural/Metro"
or the "Guarantor"), certain Subsidiaries of Rural/Metro designated on the
signature pages hereto (collectively, the "Borrowers" and, together with
Rural/Metro, the "Credit Parties"), the financial institutions who are or may
become party hereto (collectively, the "Lenders"), and FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a national banking association ("First Union"), as Agent for
the Lenders (the "Agent").
Statement of Purpose
The Lenders have previously agreed to extend certain credit facilities to
the Borrowers pursuant to the Credit Agreement dated as of September 29, 1995,
by and among Rural/Metro, as Guarantor, the Borrowers, the Lenders, and the
Agent as amended by the First Amendment to Credit Agreement dated as of December
20, 1996 and as supplemented by various joinder agreements executed by the
Credit Parties (as so amended and supplemented and as may be further amended,
restated or otherwise modified, the "Credit Agreement").
The parties now desire to amend the Credit Agreement in order to increase
the Aggregate Commitment from $125,000,000 to $175,000,000) and to reflect the
revised Commitments of the Lenders on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Effect of Amendment. Except as expressly amended hereby, the Credit
Agreement and Loan Documents shall be and remain in full force and effect.
2. Capitalized Terms. All capitalized undefined terms used in this Second
Amendment shall have the meanings assigned thereto in the Credit Agreement.
3. Modification of Credit Agreement. The Credit Agreement is hereby
modified as follows:
(a) Section 1.1 is hereby modified as follows:
(i) to delete the definition of Aggregate Commitment therein and to
insert the following in lieu thereof:
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced
<PAGE> 2
at any time or from time to time pursuant to Section 2.5. The Aggregate
Commitment as of May 28, 1997 shall be One Hundred Seventy-Five Million
Dollars ($175,000,000)."
(ii) to add in appropriate alphabetical order the following defined
term:
"'Second Amendment' means the Second Amendment to the Credit Agreement
dated as of May 28, 1997 by and among the Credit Parties, the Lenders and
the Agent."
(iii) to add in appropriate alphabetical order the following defined
term:
"'Latin American Investments' means investments in Persons organized or
operating in any Latin American country; provided, that Latin America for
purposes of this definition shall include Mexico, Central America, South
America and the Caribbean."
(b) Section 10.4(f)(v)(B) and (C) are deleted in their entirety and the
following shall be inserted in lieu thereof:
"(B) for the Fiscal Year ending June 30, 1998, 25% of Consolidated Net
Revenues of Rural/Metro and its Subsidiaries for the previous Fiscal Year
and (C) for each Fiscal Year thereafter, 20% of Consolidated Net Revenues
of Rural/Metro and its Subsidiaries for the previous Fiscal Year."
(c) The chart reflecting mandatory reductions in the Aggregate Commitment
in Section 2.5(b) is deleted in its entirety and the following shall be inserted
in lieu thereof:
"Date Reduction to Aggregate Commitment
----- ---------------------------------
September 30, 1999 $6,250,000
December 31, 1999 $6,250,000
March 31, 2000 $6,250,000
June 30, 2000 $6,250,000
September 30, 2000 $7,812,500
December 31, 2000 $7,812,500
March 31, 2001 $7,812,500
June 30, 2001 $7,812,500"
(d) (i) Section 9.1 is deleted in its entirety and replaced by the
following:
" SECTION 9.1. Total Debt Leverage Ratio. As of the end of any fiscal
quarter, permit the ratio of (a) the Consolidated Debt of Rural/Metro and
its Subsidiaries as of such fiscal quarter end to (b) the product of (i)
2
<PAGE> 3
Consolidated EBITDA for the period of two (2) consecutive fiscal quarters
ending on such fiscal quarter end multiplied by (ii) two (2), to exceed
4.00 to 1.00."
(ii) Section 9.2 is deleted in its entirety and replaced by the
following:
" SECTION 9.2. Senior Debt Leverage Ratio. As of the end of any fiscal
quarter, permit the ratio of (a) the difference between (i) the
Consolidated Debt of Rural/Metro and its Subsidiaries less (ii) the
Consolidated Subordinated Debt of Rural/Metro and its Subsidiaries as of
such fiscal quarter end to (b) the product of (i) Consolidated EBITDA for
the period of two (2) consecutive fiscal quarters ending on such fiscal
quarter end multiplied by (ii) two (2), to exceed 3.25 to 1.00."
(iii) Section 9.3 is deleted in its entirety and replaced by the
following:
" SECTION 9.3 Total Debt to Total Capitalization. As of the end of any
fiscal quarter, permit the ratio of (a) the Consolidated Debt of
Rural/Metro and its Subsidiaries as of such fiscal quarter end to (b) the
sum of (i) Consolidated Net Worth plus (ii) the Consolidated Debt of
Rural/Metro and its Subsidiaries, each as of such fiscal quarter end, to
exceed .60 to 1.00."
(iv) Section 9.4 is deleted in its entirety and replaced by the
following:
" SECTION 9.4 Fixed Charge Coverage Ratio. As of the end of any fiscal
quarter, permit the ratio of (a) the product of (i) Consolidated EBIRTA
for the period of two (2) consecutive fiscal quarters ending on such
fiscal quarter end multiplied by (ii) two (2) to (b) the product of (i)
Consolidated Fixed Charges for such period of two (2) consecutive fiscal
quarters multiplied by (ii) two (2), to be less than (A) 2.00 to 1.00 from
and after the Closing Date through and including June 30, 1999 and (B)
2.50 to 1.00 thereafter."
(v) The first sentence of Section 9.5 is deleted in its entirety and
replaced by the following:
"As of the end of any fiscal quarter, permit the ratio of (a) the product
of (i) Consolidated EBIRTA for the period of two (2) consecutive fiscal
quarters ending on such fiscal quarter end multiplied by (ii) two (2) to
(b) Consolidated Debt Service to be less than (i) 1.50 to 1.00 from and
after the Closing Date through and
3
<PAGE> 4
including June 30, 1999 and (ii) 1.75 to 1.00 thereafter."
(vi) The first sentence of Section 9.7 shall be deleted in its
entirety and the following inserted in lieu thereof:
"Make or incur Capital Expenditures during the following periods in an
aggregate amount in excess of the following amounts: (a) for the Fiscal
Year ending June 30, 1997, $22,000,000; (b) for the Fiscal Year ending
June 30, 1998, $24,000,000; (c) for the Fiscal Year ending June 30, 1999,
$25,000,000; (d) for the Fiscal Year ending June 30, 2000, $30,000,000;
(e) for the Fiscal Year ending June 30, 2001, $35,000,000; and (f)
$40,000,000 thereafter."
(e) Exhibit M shall be deleted in its entirety and Exhibit M attached
hereto shall be inserted in lieu thereof.
(f) Schedule 1 shall be deleted in its entirety and Schedule 1 attached
hereto shall be substituted in lieu thereof.
4. Conditions. The effectiveness of the amendments set forth herein shall
be conditioned upon delivery to the Agent of the following items:
(a) Notes. The Borrowers shall issue and deliver to the Agent, in
exchange for the Notes outstanding, new Notes, payable to each Lender in
the amount of such Lender's respective Commitment.
(b) Officer's Certificate. The Agent shall have received a
certificate from the chief executive officer or chief financial officer of
Rural/Metro, on behalf of the Credit Parties, in form and substance
reasonably satisfactory to the Agent, to the effect that all
representations and warranties of the Credit Parties contained in the
Credit Agreement and the other Loan Documents are true, correct and
complete in all material respects; that the Credit Parties are not in
violation of any of the covenants contained in the Credit Agreement and
the other Loan Documents; that, after giving effect to the transactions
contemplated by this Second Amendment, no Default or Event of Default has
occurred and is continuing; and that the Credit Parties have satisfied
each of the closing conditions to be satisfied thereby.
(c) Closing Certificate of each Credit Party. The Agent shall have
received a certificate of the secretary or assistant secretary of each
Credit Party certifying, as applicable, that (i) (A) the articles of
incorporation and bylaws of such Credit Party (or applicable documentation
in the case of any Credit Party organized as a partnership or a
4
<PAGE> 5
limited liability company) delivered to the Agent on September 29, 1995
(or, with respect to any Credit Party who joined the Credit Agreement
after the Closing Date, the date of the applicable Joinder Agreement
executed by such Credit Party) have not been repealed, revoked, rescinded
or amended in any respect or (B) that, if such documents have not
previously been provided to the Agent, such documents are attached thereto
and have not been repealed, revoked, rescinded or amended in any respect;
(ii) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of such Credit Party or the general
partner or member of such Credit Party, as applicable, authorizing the
transactions contemplated herein, the additional borrowings by the
Borrowers contemplated hereunder and the execution, delivery and
performance of this Second Amendment and the other documents related
thereto (collectively, the "Second Amendment Documents") to which it is a
party; and (iii) as to the incumbency and genuineness of the signature of
each officer of such Credit Party or the general partner or member of such
Credit Party, as applicable executing Loan Documents to which such Credit
Party is a party.
(d) Certificates of Good Standing. The Agent shall have received
short-form certificates as of a recent date of the good standing of each
Credit Party under the laws of their respective jurisdictions of
organization and such other jurisdictions requested by the Agents.
(e) Opinions of Counsel. The Agent shall have received favorable
opinions of counsel to the Credit Parties addressed to the Agent and the
Lenders with respect to such Persons and the Loan Documents, as modified
by this Second Amendment, reasonably satisfactory in form and substance to
the Agent and the Lenders.
(f) Fees. In order to compensate the Agent for its obligations
hereunder, the Borrowers agree to pay (i) to the Agent, for its own
account, the arrangement fee and (ii) to the Agent, for the account of the
Lenders, the amendment fee and the upfront fee, all as set forth in that
certain letter agreement between the Agent and Rural/Metro dated April 30,
1997.
5. Representations and Warranties/No Default. By their execution hereof,
the Credit Parties hereby certify that each of the representations and
warranties set forth in the Credit Agreement and the other Loan Documents is
true and correct as of the date hereof as if fully set forth herein and that, as
of the date hereof, no Default or Event of Default has occurred and is
continuing.
5
<PAGE> 6
6. Expenses. The Credit Parties shall pay all reasonable out-of-pocket
expenses of the Agent in connection with the preparation, execution and delivery
of this Second Amendment and the other Second Amendment Documents, including
without limitation, the reasonable fees and disbursements of counsel for the
Agent.
7. Governing Law. This Second Amendment shall be governed by, construed
and enforced in accordance with the laws of the State of North Carolina without
reference to the conflicts or choice of law principles thereof.
8. Counterparts. This Second Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed as of the date and year first above written.
BORROWERS:
THE AID AMBULANCE COMPANY, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
AID AMBULANCE AT VIGO COUNTY, INC.,
an Indiana corporation
By:________________________________
Name:___________________________
Title:__________________________
THE AID COMPANY, INC., an Indiana
corporation
By:________________________________
Name:___________________________
Title:__________________________
AMERICAN LIMOUSINE SERVICE, INC., an
Ohio corporation
By:________________________________
Name:___________________________
Title:__________________________
BEACON TRANSPORTATION, INC., a New
York corporation
By:________________________________
Name:___________________________
Title:__________________________
CITY WIDE AMBULANCE SERVICE, INC.,
an Ohio corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 8
CORNING AMBULANCE SERVICE INC., a
New York corporation
By:________________________________
Name:___________________________
Title:__________________________
DONLOCK, LTD., a Pennsylvania
corporation
By:________________________________
Name:___________________________
Title:__________________________
E.M.S. VENTURES, INC., a Georgia
corporation
By:________________________________
Name:___________________________
Title:__________________________
EMS VENTURES OF SOUTH CAROLINA,
INC., a South Carolina corporation
By:________________________________
Name:___________________________
Title:__________________________
EASTERN AMBULANCE SERVICE, INC., a
Nebraska corporation
By:________________________________
Name:___________________________
Title:__________________________
EASTERN PARAMEDICS, INC., a Delaware
corporation
By:________________________________
Name:___________________________
Title:__________________________
GOLD CROSS AMBULANCE SERVICES, INC.,
a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 9
GOLD CROSS AMBULANCE SERVICE OF PA.,
INC., an Ohio corporation
By:________________________________
Name:___________________________
Title:__________________________
LASALLE AMBULANCE INC., a New York
corporation
By:________________________________
Name:___________________________
Title:__________________________
MEDICAL TRANSPORTATION SERVICES,
INC., a South Dakota corporation
By:________________________________
Name:___________________________
Title:__________________________
MEDSTAR EMERGENCY MEDICAL SERVICES,
INC., a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
MERCURY AMBULANCE SERVICE, INC., a
Kentucky corporation
By:________________________________
Name:___________________________
Title:__________________________
METRO CARE CORP., an Ohio corporation
By:________________________________
Name:___________________________
Title:__________________________
METROPOLITAN FIRE DEPT., INC., an
Arizona corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 10
MYERS AMBULANCE SERVICE, INC., an
Indiana corporation
By:________________________________
Name:___________________________
Title:__________________________
NATIONAL AMBULANCE & OXYGEN SERVICE,
INC., a New York corporation
By:________________________________
Name:___________________________
Title:__________________________
PHYSICIANS AMBULANCE SERVICE, INC.,
a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
PROFESSIONAL MEDICAL SERVICES, INC.,
an Arkansas corporation
By:________________________________
Name:___________________________
Title:__________________________
REGIONAL ACQUISITION, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RMC CORPORATE CENTER, L.L.C., an
Arizona limited liability company
By: RURAL/METRO CORPORATION,
an Arizona corporation,
Its Member
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 11
RMC INSURANCE, LTD., a Barbados
corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO COMMUNICATIONS SERVICES,
INC., a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO INTERNATIONAL, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
R/M MANAGEMENT CO., INC., an Arizona
corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO TEXAS HOLDINGS, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO CORPORATION, an Arizona
corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO CORPORATION OF FLORIDA,
a Florida corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 12
RURAL/METRO CORPORATION OF
TENNESSEE, a Tennessee corporation
By:________________________________
Name:___________________________
Title:__________________________
R/M OF TENNESSEE G.P., INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
R/M OF TENNESSEE L.P., INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF TENNESSEE L.P., a
Delaware limited partnership
By: R/M OF TENNESSEE G.P., INC.,
a Delaware corporation,
Its General Partner
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO FIRE DEPT., INC., an
Arizona corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF ALABAMA, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 13
RURAL/METRO OF ARKANSAS, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF ARLINGTON, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF ATLANTA, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF CALIFORNIA, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO CANADIAN HOLDINGS, INC.,
a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF CENTRAL ALABAMA,
INC., a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF CENTRAL OHIO, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 14
RURAL/METRO OF GEORGIA, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF INDIANA, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF INDIANA, L.P., a
Delaware limited partnership
By: THE AID AMBULANCE COMPANY, INC.,
a Delaware corporation,
Its General Partner
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF INDIANA II, L.P., a
Delaware limited partnership
By: THE AID AMBULANCE COMPANY, INC.,
a Delaware corporation,
Its General Partner
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF KENTUCKY, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF NEBRASKA, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 15
RURAL/METRO OF NEW YORK, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF NORTH FLORIDA, INC.,
a Florida corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF OHIO, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF OREGON, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF ROCHESTER, INC., a
New York corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF SOUTH CAROLINA, INC.,
a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF SOUTH DAKOTA, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 16
RURAL/METRO OF TEXAS, INC., a
Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF TEXAS, L.P., a
Delaware limited partnership
By: R/M OF TEXAS G.P., INC.,
a Delaware corporation,
Its General Partner
By:________________________________
Name:___________________________
Title:__________________________
R/M OF TEXAS G.P., INC., a Delaware
corporation
By:________________________________
Name:___________________________
Title:__________________________
SIOUX FALLS AMBULANCE, INC., a South
Dakota corporation
By:________________________________
Name:___________________________
Title:__________________________
TOWNS AMBULANCE SERVICE, INC., a New
York corporation
By:________________________________
Name:___________________________
Title:__________________________
VALLEY FIRE SERVICE, INC., a Delaware
corporation
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 17
W & W LEASING COMPANY, INC., an
Arizona corporation
By:________________________________
Name:___________________________
Title:__________________________
THE WESTERN NEW YORK EMERGENCY
MEDICAL SERVICES TRAINING INSTITUTE
INC., a New York corporation
By:________________________________
Name:___________________________
Title:__________________________
GUARANTOR:
RURAL/METRO CORPORATION, a Delaware
corporation
By:________________________________
Name:___________________________
Title:__________________________
AGENT:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as Agent
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE> 18
LENDERS:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Lender
By:________________________________
Name:___________________________
Title:__________________________
FLEET BANK, N.A. (formerly known as
Natwest Bank N.A.)
By:________________________________
Name:___________________________
Title:__________________________
THE FIRST NATIONAL BANK OF CHICAGO
By:________________________________
Name:___________________________
Title:__________________________
ABN AMRO BANK N.V.
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
WELLS FARGO BANK, N.A. (formerly
known as First Interstate Bank of
Arizona, N.A.
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 19
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By:________________________________
Name:___________________________
Title:__________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:________________________________
Name:___________________________
Title:__________________________
BANQUE PARIBAS
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 20
Confirmation of Subsidiary Guaranty
By execution of this Second Amendment, the undersigned hereby expressly
consents to the modifications and amendments set forth herein, and hereby
acknowledges, represents and agrees that its guaranty obligations set forth in
Article XI of the Credit Agreement remain in full force and effect.
RURAL/METRO CORPORATION, A
DELAWARE CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
<S> <C>
Subsidiaries of Rural/Metro Corporation (Delaware):
Aid Ambulance at Vigo County, Inc. Indiana
Ambulance Transport Systems, Inc. New Jersey
City Wide Ambulance Service, Inc. Ohio
Donlock, Ltd. Pennsylvania
Medical Emergency Devices and Services (MEDS), Inc. Arizona
Metro Care Corp. Ohio
Multi-Care Medical Car Service, Inc. New Jersey
Multi-Health Corp. Florida
Myers Ambulance Service, Inc. Indiana
North Miss. Ambulance Service, Inc. Mississippi
Professional Medical Services, Inc. Arkansas
Rural/Metro Communications Services, Inc. Delaware
Rural/Metro Corporation Arizona
Rural/Metro International, Inc. Delaware
Rural/Metro Mid-Atlantic, Inc. Delaware
SW General, Inc. Arizona
South Georgia Emergency Medical Services, Inc. Georgia
Southwest Ambulance of Casa Grande, Inc. Arizona
Southwest General Services, Inc. Arizona
The Aid Company, Inc. Indiana
Subsidiaries of Rural/Metro Corporation (Arizona):
Coronado Health Services, Inc. Arizona
Metropolitan Fire Department, Inc. Arizona
R/M Management Co., Inc. Arizona
R/M Servicios de Salud e Incendios (Bolivia) S.A. (2%) Bolivia
RMC Insurance Ltd. Barbados
Rural/Metro Corporation of Florida Florida
Rural/Metro Corporation of Tennessee Tennessee
Rural/Metro Fire Dept., Inc. Arizona
Rural/Metro Texas Holdings, Inc. Delaware
Rural/Metro of Alabama, Inc. Delaware
Rural/Metro of Arkansas, Inc. Delaware
Rural/Metro of California, Inc. Delaware
Rural/Metro of Georgia, Inc. Delaware
Rural/Metro of Indiana, Inc. Delaware
Rural/Metro of Kentucky, Inc. Delaware
Rural/Metro of Nebraska, Inc. Delaware
Rural/Metro of New York, Inc. Delaware
Rural/Metro of Ohio, Inc. Delaware
Rural/Metro of Oregon, Inc. Delaware
Rural/Metro of South Carolina, Inc. Delaware
Rural/Metro of South Dakota, Inc. Delaware
W & W Leasing Company, Inc. Arizona
Subsidiaries of Rural/Metro Texas Holdings, Inc.:
R/M of Texas G.P., Inc. Delaware
Rural/Metro of Arlington, Inc. Delaware
Rural/Metro of Texas, Inc. Delaware
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
Subsidiaries of Rural/Metro Corporation of Florida:
Rural/Metro of North Florida, Inc. Florida
Subsidiaries of Rural/Metro of New York, Inc.:
Corning Ambulance Service Inc. New York
Eastern Paramedics, Inc. Delaware
LaSalle Ambulance, Inc. New York
Rural/Metro of Rochester, Inc. New York
Towns Ambulance Service, Inc. New York
The Western New York Emergency Medical
Services Training Institute Inc. New York
Subsidiaries of Rural/Metro of Rochester, Inc.:
Beacon Transportation, Inc. New York
National Ambulance & Oxygen Service, Inc. New York
Subsidiaries of Rural/Metro of Nebraska, Inc.:
Eastern Ambulance Service, Inc. Nebraska
Subsidiaries of Eastern Ambulance Service, Inc.:
Eastern Ambulance Service, Inc. - Lincoln (50% owned) Nebraska
Subsidiaries of Rural/Metro of Ohio, Inc.:
Gold Cross Ambulance Services, Inc. Delaware
Physicians Ambulance Service, Inc. Delaware
Rural/Metro of Central Ohio, Inc. Delaware
Subsidiaries of Rural/Metro of Georgia, Inc.:
E.M.S. Ventures, Inc. Georgia
Rural/Metro of Atlanta, Inc. Delaware
Subsidiaries of Rural/Metro of South Carolina, Inc.:
EMS Ventures of South Carolina, Inc. South Carolina
Subsidiaries of Rural/Metro of Central Ohio, Inc.:
American Limousine Service, Inc. Ohio
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Subsidiaries of Gold Cross Ambulance Services, Inc.:
Gold Cross Ambulance Service of Pa., Inc. Ohio
Subsidiaries of Rural/Metro Corporation of Tennessee:
R/M of Tennessee G.P., Inc. Delaware
R/M of Tennessee L.P., Inc. Delaware
Subsidiaries of Rural/Metro of Indiana, Inc.:
The Aid Ambulance Company, Inc. Delaware
Subsidiaries of Rural/Metro of Alabama, Inc.:
Medstar Emergency Medical Services, Inc. Delaware
Rural/Metro of Central Alabama, Inc. Delaware
Subsidiaries of Rural/Metro of South Dakota, Inc.:
Medical Transportation Services, Inc. South Dakota
Subsidiaries of Medical Transportation Services, Inc.:
Sioux Falls Ambulance, Inc. South Dakota
Subsidiaries of Rural/Metro of Oregon, Inc.:
Valley Fire Service, Inc. Delaware
Subsidiaries of Rural/Metro International, Inc.:
R/M Servicios de Salud e Incendios (Bolivia) S.A. (96%) Bolivia
Rural/Metro Canadian Holdings, Inc. Delaware
Subsidiaries of Rural/Metro of Kentucky, Inc.:
Mercury Ambulance Service, Inc. Kentucky
Subsidiaries of Rural/Metro of California, Inc.:
Rural/Metro of San Diego, Inc. California
Subsidiaries of Rural/Metro Canadian Holdings, Inc.:
Rural/Metro of Canada, Inc. Province of Ontario
Subsidiaries of Rural/Metro of Canada, Inc.:
Rural/Metro of Ontario, Inc. Province of Ontario
Subsidiaries of R/M Management Co., Inc.:
R/M Servicios de Salud e Incendios (Bolivia) S.A. (2%) Bolivia
Subsidiaries of Rural/Metro of Ontario, Inc.:
520212 Ontario Limited Province of Ontario
Lakeshore Emergency Service Inc. Province of Ontario
Lindsay and District Ambulance Service Ltd. Province of Ontario
Noel Ambulance Service Limited Province of Ontario
Owen Sound Emergency Services Inc. Province of Ontario
Port Colborne & District Ambulance Service Limited Province of Ontario
</TABLE>
3
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-76526, 33-80454,
33-88302, 333-2818 and 333-07457.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
September 29, 1997.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 3,398
<SECURITIES> 0
<RECEIVABLES> 142,792
<ALLOWANCES> 35,814
<INVENTORY> 8,645
<CURRENT-ASSETS> 126,183
<PP&E> 113,634
<DEPRECIATION> 42,989
<TOTAL-ASSETS> 364,066
<CURRENT-LIABILITIES> 31,417
<BONDS> 154,457
0
0
<COMMON> 130
<OTHER-SE> 159,678
<TOTAL-LIABILITY-AND-EQUITY> 364,066
<SALES> 319,805
<TOTAL-REVENUES> 319,805
<CGS> 0
<TOTAL-COSTS> 248,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 43,424
<INTEREST-EXPENSE> 5,720
<INCOME-PRETAX> 22,084
<INCOME-TAX> 9,364
<INCOME-CONTINUING> 12,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,720
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
