<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-22056
-------
RURAL/METRO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 86-0746929
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8401 EAST INDIAN SCHOOL ROAD
SCOTTSDALE, ARIZONA
85251
(Address of principal executive offices)
(Zip Code)
(602) 994-3886
(Registrant's telephone number, including area code)
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
------- -------
At February 11, 1997 there were 11,861,530 shares of Common Stock outstanding,
exclusive of treasury shares held by the Registrant.
<PAGE> 2
RURAL/METRO CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Statements
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE> 3
RURAL/METRO CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 403 $ 1,388
Accounts receivable, net 83,388 68,642
Inventories 5,983 5,170
Prepaid expenses and other 5,976 5,710
--------- ---------
Total current assets 95,750 80,910
PROPERTY AND EQUIPMENT, net 53,559 48,401
INTANGIBLE ASSETS, net 110,173 96,373
OTHER ASSETS 4,409 4,430
--------- ---------
$ 263,891 $ 230,114
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,268 $ 4,092
Accrued liabilities 13,242 14,806
Current portion of long-term debt 11,643 6,610
--------- ---------
Total current liabilities 28,153 25,508
LONG-TERM DEBT, net of current portion 77,123 60,731
NON-REFUNDABLE SUBSCRIPTION INCOME 12,731 12,582
DEFERRED INCOME TAXES 9,930 9,060
OTHER LIABILITIES 2,220 2,267
--------- ---------
Total liabilities 130,157 110,148
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 117 113
Additional paid-in capital 98,819 92,359
Retained earnings 37,251 30,181
Deferred compensation (1,214) (1,448)
Treasury stock (1,239) (1,239)
--------- ---------
Total stockholders' equity 133,734 119,966
--------- ---------
$ 263,891 $ 230,114
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 4
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
--------------------------------- ------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE
Ambulance services $ 62,465 $ 48,053 $121,493 $ 91,457
Fire protection services 10,349 9,435 20,654 18,690
Other 4,716 3,351 9,377 6,455
-------- -------- -------- --------
Total revenue 77,530 60,839 151,524 116,602
-------- -------- -------- --------
OPERATING EXPENSES
Payroll and employee benefits 41,867 33,140 82,501 63,602
Provision for doubtful accounts 10,404 7,489 20,159 14,307
Depreciation 2,918 2,354 5,651 4,492
Amortization of intangibles 1,110 857 2,200 1,686
Other operating expenses 13,757 11,660 26,947 22,362
-------- -------- -------- --------
Total expenses 70,056 55,500 137,458 106,449
-------- -------- -------- --------
OPERATING INCOME 7,474 5,339 14,066 10,153
INTEREST EXPENSE, net 1,072 1,281 2,082 2,430
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,402 4,058 11,984 7,723
PROVISION FOR INCOME TAXES 2,631 1,662 4,914 3,225
-------- -------- -------- --------
NET INCOME $ 3,771 $ 2,396 $ 7,070 $ 4,498
======== ======== ======== ========
EARNINGS PER COMMON STOCK
AND COMMON STOCK EQUIVALENT $ 0.31 $ 0.25 $ 0.59 $ 0.48
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK AND COMMON
STOCK EQUIVALENTS OUTSTANDING 12,175 9,580 12,082 9,416
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,070 $ 4,498
Adjustments to reconcile net income to cash
used in operations -
Depreciation and amortization 7,851 6,178
Amortization of deferred compensation 327 286
Amortization of gain on sale of real estate (52) (52)
Provision for doubtful accounts 20,159 14,306
Change in assets and liabilities, net of effect
of businesses acquired -
Increase in accounts receivable (34,355) (23,599)
Increase in inventories (746) (158)
Increase in prepaid expenses and other (310) (1,716)
Decrease in accounts payable (838) (1,653)
Increase (decrease) in accrued liabilities and other (3,605) 200
Increase in nonrefundable subscription income 149 52
Increase in deferred income taxes 870 1,036
-------- --------
Net cash used in operating activities (3,480) (622)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities, net 19,600 21,600
Repayment of debt and capital lease obligations (6,488) (13,361)
Borrowings of debt -- 2,016
Issuance of common stock 6,371 1,294
-------- --------
Net cash provided by financing activities 19,483 11,549
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for businesses acquired (9,284) (2,017)
Capital expenditures (7,725) (9,320)
(Increase) decrease in other assets 21 (220)
-------- --------
Net cash used in investing activities (16,988) (11,557)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENT (985) (630)
CASH AND CASH EQUIVALENTS, beginning of period 1,388 900
-------- --------
CASH AND CASH EQUIVALENTS, end of the period $ 403 $ 270
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements.
(1) INTERIM RESULTS
In the opinion of management, the consolidated financial statements for
the six month periods ended December 31, 1996 and 1995 include all
adjustments, consisting only of normal recurring adjustments necessary
for a fair statement of the consolidated financial position and results
of operations for that period.
The results of operations for the six month periods ended December 31,
1996 and 1995 are not necessarily indicative of the results of
operations for a full fiscal year.
(2) ACQUISITIONS
During the six months ended December 31, 1996 the Company purchased the
stock of an ambulance service provider operating in Kentucky and the
assets of ambulance service providers operating in Indiana, Ohio,
Kentucky, South Carolina and Georgia.
The acquisitions were accounted for as purchases in accordance with
Accounting Principles Board Opinion No. 16 (APB 16) and, accordingly,
the purchased assets and assumed liabilities were recorded at their
estimated fair values at each respective acquisition date.
The aggregate purchase price consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Cash $ 9,284
Notes payable to sellers 2,276
Assumption of liabilities 8,412
-------
$19,972
</TABLE>
The unaudited pro forma combined condensed statements of income for the
fiscal year ended June 30, 1996 and the six months ended December 31,
1996 give effect to the acquisitions as if each had been consummated as
of the beginning of each respective period.
The pro forma combined condensed financial statements do not purport to
represent what the Company's actual results of operations or financial
position would have been had such transactions in fact occurred on such
dates. The pro forma combined condensed statements of income also do
not purport to project the results of operations of the Company for the
current year or for any future period.
<PAGE> 7
RURAL/METRO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1996 DECEMBER 31, 1996
----------------------- ----------------------
PROFORMA PROFORMA
HISTORICAL COMBINED HISTORICAL COMBINED
<S> <C> <C> <C> <C>
Revenue $250,263 $294,496 $151,524 $158,936
Net income $ 11,512 $ 14,302 $ 7,070 $ 7,679
Earnings per share $ 1.14 $ 1.36 $ 0.59 $ 0.64
</TABLE>
Pro forma adjustments include adjustments to: (i) reflect amortization of the
cost in excess of the fair value of net assets acquired; (ii) adjust payroll and
related expenses for the effect of certain former owners of the acquired
businesses not being employed by the Company and to reflect the difference
between the actual compensation paid to officers of the businesses acquired and
the lower level of aggregate compensation such individuals would have received
under the terms of employment agreements executed between the Company and such
individuals; (iii) adjust other operating expenses to reflect the reduction of
expenses related to certain real estate and buildings not acquired and sellers'
costs incurred in connection with the sale of their respective businesses; (iv)
adjust interest expense to reflect interest expense related to debt issued in
connection with the acquisitions; and, (v) adjust income taxes to reflect the
tax effect of the adjustments and the tax effect of treating all of the
acquisitions as if they had C corporation status.
Subsequent to December 31, 1996, subsidiaries of the Company merged with and
into an ambulance service provider operating in Pennsylvania and an ambulance
service provider operating in Arkansas. The Company issued an aggregate of
361,970 shares of its common stock in exchange for all of the issued and
outstanding stock of the acquired companies. The transactions were accounted for
as poolings-of-interest in accordance with APB 16.
<PAGE> 8
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
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 non-refundable 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 non-refundable 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 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 is generally one
year.
Other revenue consists primarily of fees associated with alternative
transportation services and is recognized when the services are provided.
Other operating expenses consist primarily of rent and related occupancy
expenses, maintenance and repairs, insurance, fuel and supplies, travel and
professional fees.
<PAGE> 9
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
REVENUE
Total revenue increased $16.7 million, or 27.5%, from $60.8 million for the
three months ended December 31, 1995 to $77.5 million for the three months ended
December 31, 1996. Approximately $9.4 million of this increase resulted from the
acquisition of ambulance service providers during the last two quarters of
fiscal 1996 and the first two quarters of fiscal 1997. Ambulance service revenue
in markets served by the Company in both of the three month periods ended
December 31, 1995 and 1996 increased by 10.4%. Fire protection services revenue
increased $0.9 million, or 9.6%, from $9.4 million for the three months ended
December 31, 1995 to $10.3 million for the three months ended December 31, 1996.
Other revenue increased by $1.4 million, or 41.2%, in the three months ended
December 31, 1996.
Total ambulance transports increased by 44,000, or 25.4%, from 173,000 for the
three months ended December 31, 1995 to 217,000 for the three months ended
December 31, 1996. The acquisition of sixteen ambulance service companies during
the last two quarters of fiscal 1996 and the first two quarters of fiscal 1997
accounted for 29,000 of these additional transports.
Fire protection services revenue increased due to revenue generated from new
fire protection contracts awarded to the Company through competitive bidding and
due to rate increases for fire protection services.
OPERATING EXPENSES
Payroll and employee benefit expenses increased $8.7 million, or 26.3%, from
$33.1 million for the three months ended December 31, 1995 to $41.8 million for
the three months ended December 31, 1996. This increase was primarily due to the
acquisition of sixteen ambulance service providers during the last two quarters
of fiscal 1996 and the first two quarters of fiscal 1997.
Provision for doubtful accounts increased $2.9 million, or 38.7%, from $7.5
million for the three months ended December 31, 1995 to $10.4 million for the
three months ended December 31, 1996. Provision for doubtful accounts increased
from 12.3% of total revenue for the three months ended December 31, 1995 to
13.4% of total revenue for the three months ended December 31, 1996, reflecting
the effect of the acquisition of ambulance service providers during the second
half of fiscal 1996 and the first half of fiscal 1997 operating in markets with
a greater mix of "911" emergency activity.
Depreciation increased $0.5 million, or 20.8%, from $2.4 million for the three
months ended December 31, 1995 to $2.9 million for the three months ended
December 31, 1996, primarily as a result of depreciation expense on property and
equipment obtained through recent ambulance service acquisitions. Depreciation
decreased from 3.9% of total revenue for the three months ended December 31,
1995 to 3.8% of total revenue for the three months ended December 31, 1996.
Amortization of intangibles increased by $0.3 million, or 37.5%, from $0.8
million for the three months ended December 31, 1995 to $1.1 million for the
three months ended December 31, 1996. This increase is primarily a result of
intangible assets recorded in recent acquisitions. Amortization of intangibles
was 1.4% of total revenue for the three month periods ended December 31, 1995
and 1996.
Other operating expenses increased approximately $2.1 million, or 17.9%, from
$11.7 million for the three months ended December 31, 1995 to $13.8 million for
the three months ended December 31, 1996, primarily due to increased expenses
associated with the operation of the sixteen ambulance service providers
acquired during the last two quarters of fiscal 1996 and the first two quarters
of fiscal 1997. Other operating expenses decreased from 19.2% of total revenue
for the three months ended December 31, 1995 to 17.7% of total revenue for the
three months ended December 31, 1996 as a result of operational efficiencies
realized through the integration of these acquired companies.
<PAGE> 10
Interest expense decreased by $0.2 million from $1.3 million for the three
months ended December 31, 1995 to $1.1 million for the three months ended
December 31, 1996. This decrease was attributable to lower interest rates on the
Company's $125 million revolving credit facility and lower balances outstanding
during the quarter as a result of the Company's April 1996 stock offering.
The Company's effective tax rate increased from 41.0% for the three months ended
December 31, 1995 to 41.1% for the three months ended December 31, 1996,
primarily the result of increased balances of non-deductible goodwill, partially
offset by the results of tax planning strategies implemented by the Company
during fiscal 1996.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
REVENUE
Total revenue increased $34.9 million, or 29.9%, from $116.6 million for the six
months ended December 31, 1995 to $151.5 million for the six months ended
December 31, 1996. Approximately $20.7 million of this increase resulted from
the acquisition of ambulance service providers during the last two quarters of
fiscal 1996 and the first two quarters of fiscal 1997. Ambulance service revenue
in markets served by the Company in both of the six month periods ended December
31, 1995 and 1996 increased by 10.2%. Fire protection services revenue increased
by $2.0 million, or 10.7%, from $18.7 million for the six months ended December
31, 1995 to $20.7 million for the six months ended December 31, 1996. Other
revenue increased by $2.9 million, or 44.6%, in the six months ended December
31, 1996.
Total ambulance transports increased by 87,000, or 25.8%, from 337,000 for the
six months ended December 31, 1995 to 424,000 for the six months ended December
31, 1996. The acquisition of sixteen ambulance service companies during the last
two quarters of fiscal 1996 and the first two quarters of fiscal 1997 accounted
for 65,000 of these additional transports.
Fire protection services revenue increased due to revenue generated from new
fire protection contracts awarded to the Company through competitive bidding and
due to rate increases for fire protection services.
OPERATING EXPENSES
Payroll and employee benefit expenses increased $18.9 million, or 29.7%, from
$63.6 million for the six months ended December 31, 1995 to $82.5 million for
the six months ended December 31, 1996. This increase was primarily due to the
acquisition of sixteen ambulance service providers during the last two quarters
of fiscal 1996 and the first two quarters of fiscal 1997.
Provision for doubtful accounts increased $5.9 million, or 41.3%, from $14.3
million for the six months ended December 31, 1995 to $20.2 million for the six
months ended December 31, 1996. Provision for doubtful accounts increased from
12.3% of total revenue for the six months ended December 31, 1995 to 13.3% of
total revenue for the six months ended December 31, 1996, reflecting the effect
of the acquisition of ambulance service providers during the second half of
fiscal 1996 and the first half of fiscal 1997 operating in markets with a
greater mix of "911" emergency activity.
Depreciation increased $1.2 million, or 26.7%, from $4.5 million for the six
months ended December 31, 1995 to $5.7 million for the six months ended December
31, 1996, primarily as a result of depreciation expense on property and
equipment obtained through recent ambulance service acquisitions. Depreciation
decreased from 3.9% of total revenue for the six months ended December 31, 1995
to 3.7% of total revenue for the six months ended December 31, 1996.
Amortization of intangibles increased by $0.5 million, or 29.4%, from $1.7
million for the six months ended December 31, 1995 to $2.2 million for the six
months ended December 31, 1996.
<PAGE> 11
This increase is primarily a result of intangible assets recorded in recent
acquisitions. Amortization of intangibles was 1.5% of total revenue for the six
months ended December 31, 1995 and 1996.
Other operating expenses increased approximately $4.5 million, or 20.1%, from
$22.4 million for the six months ended December 31, 1995 to $26.9 million for
the six months ended December 31, 1996, primarily due to increased expenses
associated with the operation of the sixteen ambulance service providers
acquired during the last two quarters of fiscal 1996 and the first two quarters
of fiscal 1997. Other operating expenses decreased from 19.2% of total revenue
for the six months ended December 31, 1995 to 17.8% of total revenue for the six
months ended December 31, 1996 as a result of operational efficiencies realized
through the integration of these acquired companies.
Interest expense decreased by $0.3 million from $2.4 million for the six months
ended December 31, 1995 to $2.1 million for the six months ended December 31,
1996. This decrease was attributable to lower interest rates on the Company's
$125 million revolving credit facility and lower balances outstanding during
the quarter as a result of the Company's April 1996 Stock Offering.
The Company's effective tax rate decreased from 41.8% for the six months ended
December 31, 1995 to 41.0% for the six months ended December 31, 1996, primarily
the result of tax planning strategies implemented by the Company during fiscal
1996.
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, the sale of stock through an initial public offering
in July 1993, subsequent public stock offerings in May 1994 and April 1996, and
the on-going exercise of stock options.
During the six months ended December 31, 1996 the Company used cash flow from
operations of $3.5 million. This compares to cash flow used in operations of
$0.6 million for the six months ended December 31, 1995. This change resulted
primarily from increases in accounts receivable and inventories and a decrease
in accrued liabilities.
Approximately $69.6 million was outstanding on the Company's revolving credit
facility at December 31, 1996. Availability on the facility was $55.4 million at
December 31, 1996.
During the six months ended December 31, 1996 the Company purchased the stock of
an ambulance service provider operating in Kentucky and the assets of ambulance
service providers operating in Indiana, Ohio, Kentucky, South Carolina and
Georgia. The acquisitions were accounted for as purchases in accordance with
Accounting Principles Board Opinion No. 16 (APB 16). The aggregate purchase
price was $20.0 million, consisting of cash of $9.3 million, notes payable to
sellers of $2.3 million and liabilities assumed of $8.4 million. The Company
funded the cash portion of the acquisitions through operating cash flow and from
the Company's revolving credit facility.
Subsequent to December 31, 1996, subsidiaries of the Company merged with and
into an ambulance service provider operating in Pennsylvania and an ambulance
service provider operating in Arkansas. The Company issued an aggregate of
361,970 shares of its common stock in exchange for all of the issued and
outstanding stock of the acquired companies. The transactions were accounted for
as poolings-of-interest in accordance with APB 16.
Subsequent to December 31, 1996, the Company made an investment of $2.5 million
in National Health Enhancement Systems (NHES), a provider of medical
information, technology and software products to managed care providers. The
Company purchased 370,370 shares of NHES' common stock, representing
approximately 7.4% of its aggregate outstanding common stock.
The Company has registered 3.2 million shares of common stock for issuance in
connection with acquisitions. At February 12, 1997, 1.8 million of the shares
have been issued.
<PAGE> 12
The Company expects that cash flow from operations and additional borrowing
capacity will be sufficient to meet its operating and capital needs for existing
operations as well as to fund certain service area expansion and acquisitions
for the twelve months subsequent to December 31, 1996. 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
financing. The availability of these capital sources will depend upon prevailing
market conditions, interest rates and the financial condition of the Company.
<PAGE> 13
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.36 Employee Stock Purchase Plan, as amended
through September 6, 1996
10.45(b) First Amendment to Credit Agreement by and
among Registrant as guarantor, certain of
its subsidiaries as borrowers, First Union
Bank of North Carolina, as agent, and
various lenders, dated as of December 20,
1996
(b) Reports on Form 8-K - none
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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
Date: February 13, 1997 By /s/ W. R. Crowell
-------------------------------------
W. R. Crowell, Vice President
and Principal Accounting Officer
<PAGE> 1
Exhibit 10.36
RURAL/METRO CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED THROUGH SEPTEMBER 6, 1996
ARTICLE I
PURPOSE
1.1 NAME. This Stock Purchase Plan shall be known as the
Rural/Metro Employee Stock Purchase Plan (the "Plan").
1.2 PURPOSE. The Plan is intended to provide a method whereby
employees of Rural/Metro Corporation, a Delaware corporation (the "Company"),
and one or more of its Subsidiary Corporations will have an opportunity to
acquire a proprietary interest in the Company through the purchase of shares of
the Common Stock of the Company.
1.3 QUALIFICATION. It is the intention of the Company to have
the Plan qualify as an "employee stock purchase plan" under section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
ARTICLE II
DEFINITIONS
2.1 BASE PAY. "Base Pay" shall mean the estimated annual
compensation of an Employee and (a) with respect to a salaried Employee, shall
be based on such Employee's current annual salary and (b) with respect to a
hourly Employee, shall be based on such Employee's RHE times such Employee's
regular straight-time hourly rate. Shift premium, bonuses, "skill-based" pay,
and other special payments, commissions (unless such commissions represent the
primary source of compensation, as determined by the Committee) and other
marketing incentive payments shall not be included in Base Pay. For purpose of
the foregoing, "RHE" for a full time Employee shall mean the sum of (i) 2080 and
(ii) 1.5 times the estimated number of overtime hours to be worked annually and
"RHE" for a part-time Employee shall mean 1040. If any Offering is a six month
Offering, the Base Pay shall be divided by one-half.
2.2 COMMITTEE. "Committee" shall mean the individuals
described in Article XI.
2.3 EMPLOYEE. "Employee" shall mean any person who is
customarily employed on a full-time or part-time basis by the Company and is
regularly scheduled to work more than 20 hours per week.
2.4 PARTICIPATING COMPANY. "Participating Company" shall mean
the Company, all Subsidiary Corporations listed on Exhibit A attached hereto,
and such other Subsidiary Corporations as may be designated from time to time by
the Board of Directors of the Company upon its decision to extend the benefits
of the Plan to the eligible Employees of such Subsidiary Corporation.
1
<PAGE> 2
2.5 STOCK. "Stock" shall mean the Common Stock of the Company,
par value one cent ($.01).
2.6 SUBSIDIARY CORPORATION. "Subsidiary Corporation" shall
mean any present or future corporation which would be a "subsidiary corporation"
of the Company, as that term is defined in Code section 424.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 INITIAL ELIGIBILITY. Any Employee who shall have completed
30 days of continuous employment with a Participating Company and is employed by
a Participating Company on the date such Employee's participation in the Plan is
to become effective shall be eligible to participate in Offerings under the Plan
which commence on or after such 30 day employment period has concluded. Any
Corporation which becomes a Subsidiary Corporation after the initial Offering
Commencement Date shall become a Participating Company only upon the decision of
the Board of Directors of the Company to designate such Subsidiary Corporation
as a Participating Company and to extend the benefits of the Plan to its
eligible Employees. For any Subsidiary Corporation which becomes a Participating
Company in the Plan after July 1, 1994, a subsequent effective date shall be
designated with respect to its participation by the eligible Employees of such
Participating Company.
3.2 LEAVE OF ABSENCE. For purposes of participation in the
Plan, a person on leave of absence shall be deemed to be an Employee for the
first 90 days of such leave of absence and such Employee's employment shall be
deemed to have terminated at the close of business on the 90th day of such leave
of absence unless such Employee shall have returned to regular full-time or
part-time employment (as the case may be) prior to the close of business on such
90th day. Termination by a Participating Company of any Employee's leave of
absence, other than termination of such leave of absence on return to full time
or part time employment, shall terminate an Employee's employment for all
purposes of the Plan and shall terminate such Employee's participation in the
Plan and right to exercise any option.
3.3 RESTRICTIONS ON PARTICIPATION. Notwithstanding any
provisions of the Plan to the contrary, no Employee shall be granted an option
to participate in the Plan:
(a) if, immediately after the grant, such Employee
would own stock, and/or hold outstanding options to purchase stock, possessing
five percent or more of the total combined voting power or value of all classes
of stock of the Company (for purposes of this paragraph, the rules of section
424(d) of the Code shall apply in determining stock ownership of any Employee);
or
(b) which permits such Employee's rights to purchase
stock under all Employee stock purchase plans of the Company and all
Participating Companies to accrue at a rate which exceeds $25,000 in fair market
value of the stock (determined at the time such option is granted) for each
calendar year in which such option is outstanding.
3.4 COMMENCEMENT OF PARTICIPATION. An eligible Employee may
become a participant by completing the enrollment forms prescribed by the
Committee (including a purchase agreement and a payroll deduction authorization)
and filing such forms with the designated office of the Company prior to the
Offering Commencement Date for the next scheduled Offering (as such terms are
2
<PAGE> 3
defined below). Payroll deductions for a participant shall commence on the next
scheduled Offering Commencement Date when such Employee's authorization for a
payroll deduction becomes effective and shall continue in effect for the term of
this Plan, except to the extent such payroll deduction is changed in accordance
with this Section 3.4 or terminated in accordance with Article VIII. The
participant may, at any time, increase or decrease the rate of the participant's
payroll deduction by filing the appropriate form with the designated office of
the Company. The new rate shall become effective as of the next applicable
Offering Commencement Date.
ARTICLE IV
OFFERINGS
4.1 ANNUAL OFFERINGS. The Plan will be implemented by up to 10
annual offerings of the Company's Common Stock (the "Offerings") beginning on
the 1st day of July in each of the years 1994 through 2003, with each Offering
terminating on June 15 of the following year, provided, however, that each
annual Offering may, in the discretion of the Committee exercised prior to the
commencement thereof, be divided into two six-month Offerings commencing
respectively, on July 1 and January 1 and terminating six months thereafter. The
total number of shares issuable under the Plan shall be 150,000. As used in the
Plan, "Offering Commencement Date" means the January 1 or July 1, as the case
may be, on which the particular Offering begins and "Offering Termination Date"
means the June 15 or December 31 as the case may be, on which the particular
Offering terminates. Any decision of the Committee to adjust the number of
shares in an Offering must be made prior to the Offering Commencement Date of
that Offering.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 PERCENTAGE OF PARTICIPATION. At the time an Employee files
authorization for payroll deduction and becomes a participant in the Plan, the
Employee shall elect to have deductions made from the Employee's pay on each
payday during the time the Employee is a participant in an Offering. Such
deductions shall be an amount equal to the Employee's Participation Amount
divided by the number of payroll periods occurring during the Offering. An
Employee's "Participation Amount" shall equal the rate of 1, 2, 3, 4, 5, 6, 7,
8, 9 or 10 percent (as elected by the Employee) times such Employee's Base Pay
in effect at the Offering Commencement Date of such Offering; provided, however,
that prior to any Offering Commencement Date, the Committee shall have the
discretion to limit deductions to less than 10 percent (but no less than 5
percent) for any Offering.
5.2 CALCULATION OF BASE PAY. An Employee's Base Pay of the
date of an Offering and whether an Employee is "part-time" shall be determined
in the discretion of the Company based on the provisions of this Plan. In
calculating an Employee's normal weekly rate of pay under this Section 6.1,
retroactive adjustments occurring during an Offering which are retroactive to
the last day prior to the Commencement Date of that particular Offering shall be
taken into account. In addition, if a participant's Base Pay includes
commissions, then the Committee may set such Employee's Base Pay based upon
averages and standards as determined in the discretion of the Committee.
5.3 PARTICIPANT'S ACCOUNT. All payroll deductions made for a
participant shall be credited to such Employee's account under the Plan. A
participant may not make any separate cash payment into such account except when
on leave of absence and then only as provided in Section 5.5.
3
<PAGE> 4
5.4 CHANGES IN PAYROLL DEDUCTIONS. A participant may
discontinue participation in the Plan as provided in Article VIII, but no other
change can be made during an Offering and, specifically, a participant may not
alter the amount of such participant's payroll deductions for that Offering.
5.5 LEAVE OF ABSENCE. If a participant goes on a leave of
absence, such participant shall have the right to elect: (a) to withdraw the
balance in such participant's account pursuant to Section 8.1 hereof, or (b) to
discontinue contributions to the Plan but remain a participant in the Plan, or
remain a participant in the Plan during such leave of absence, authorizing
deductions to be made from payments by the Company to the participant during
such leave of absence and undertaking to make cash payments to the Plan at the
end of each payroll period to the extent that amounts payable by the
Participating Company to such participant are insufficient to meet such
participant's authorized Plan deductions.
ARTICLE VI
GRANTING OF OPTION
6.1 NUMBER OF OPTION SHARES. On each Offering Commencement
Date, a participating Employee shall be deemed to have been granted an option to
purchase a maximum number of shares of the Stock of the Company equal to the
Participation Amount (as defined in Section 5.1 hereof) divided by the Option
Price of the stock of the Company on the applicable Offering Commencement Date,
determined as provided in Section 6.2 hereof.
6.2 OPTION PRICE. The Option Price of Stock purchased with
payroll deductions made during each annual Offering for a participant therein
shall be 85 percent of the closing price of the Stock on the Offering
Commencement Date or the nearest prior business day on which trading occurred on
The Nasdaq National Market.
ARTICLE VII
EXERCISE OF OPTION
7.1 AUTOMATIC EXERCISE. Unless a participant gives written
notice to the Company as hereinafter provided, such participant's option for the
purchase of stock granted under Section 6.1 hereof will be deemed to have been
exercised automatically on the Offering Termination Date applicable to such
Offering for the purchase of the number of full shares of Stock which the
accumulated payroll deductions in such Employee's account at that time will
purchase at the applicable Option Price (but not in excess of the number of
shares for which options have been granted to the Employee pursuant to Section
6.1 hereof), and any excess in such Employee's account at that time will be
returned to the participant.
7.2 FRACTIONAL SHARES. Fractional shares will not be issued
under the Plan and any accumulated payroll deductions which would have been used
to purchase fractional shares will be returned to any Employee promptly
following the termination of an Offering, without interest.
7.3 TRANSFERABILITY OF OPTION. During a participant's
lifetime, options held by such participant shall be exercisable only by that
participant.
7.4 DELIVERY OF STOCK. As promptly as practicable after the
Offering Termination Date of each Offering, the Company will deliver to each
participant, as appropriate, the Stock purchased
4
<PAGE> 5
upon exercise of such Employee's option. All Stock delivered to each participant
will contain a restriction stating that such Stock is restricted from being
transferred for a period of one year from the date of issuance unless the
Committee otherwise consents. It is not the intention of the Committee to
consent to transfers except in extraordinary situations such as upon the death
of a participant. The Committee may withhold its consent to any such transfer in
its absolute and sole arbitrary discretion. Any transfer in violation of the
legend placed on each such stock certificate shall be void ab initio. In no
event, however, shall stock be forfeited for violation of the transfer
restriction.
ARTICLE VIII
WITHDRAWAL
8.1 IN GENERAL. At any time prior to the last five days of an
Offering period, a participant may withdraw payroll deductions credited to such
participant's account under the Plan by giving written notice to the designated
office of the Company, which withdrawal notice shall be in form and substance as
decided by the Committee. All of the participant's payroll deductions credited
to the participant's account will be paid to the participant promptly after
receipt of such participant's notice of withdrawal, and no further payroll
deductions will be made from the participant's pay during such Offering or
during any subsequent Offering unless an Employee re-enrolls as provided in
Section 8.2 hereof. The Company may, at its option, treat any attempt by a
participant to borrow on the security of such participant's accumulated payroll
deductions as an election to withdraw such deductions.
8.2 EFFECT ON SUBSEQUENT PARTICIPATION. A participant's
withdrawal from any Offering will not have any effect upon such Employee's
eligibility to participate in any succeeding Offering or in any similar plan
which may hereafter be adopted by the Company. In order to be eligible for a
subsequent Offering, however, a participant who has withdrawn from an Offering
must satisfy the requirements of Section 3.4 hereof prior to the Offering
Commencement Date of the next succeeding Offering.
8.3 TERMINATION OF EMPLOYMENT. Upon termination of the
participant's employment for any reason, including retirement (but excluding
death or permanent disablement while in the employ of the Company or
continuation of a leave of absence for a period beyond 90 days), the payroll
deductions credited to such Employee's account will be returned to the Employee,
or, in the case of the Employee's death subsequent to the termination of such
Employee's employment, to the person or persons entitled thereto under Section
12.1 hereof.
8.4 TERMINATION OF EMPLOYMENT DUE TO DEATH. Upon termination
of the participant's employment because of death or permanent disablement, the
participant or participant's beneficiary (as defined in Section 12.1 hereof)
shall have the right to elect, by written notice given to the designated office
of the Company prior to the earlier of the Offering Termination Date or the
expiration of a period of 60 days commencing with the termination of the
participant's employment, either:
(a) to withdraw all of the payroll deductions
credited to the participant's account under the Plan, or
(b) to exercise the participant's option on the next
Offering Termination Date and purchase the number of full shares of stock which
the accumulated payroll deductions in the participant's account at the date of
the participant's cessation of employment will purchase at the
5
<PAGE> 6
applicable option price, and any excess in such account will be returned to said
beneficiary, without interest.
In the event that no such written notice of election shall be duly received by
the designated office of the Company, the beneficiary shall automatically be
deemed to have elected, pursuant to paragraph (b), to exercise the participant's
option.
8.5 LEAVE OF ABSENCE. A participant on leave of absence shall,
subject to the election made by such participant pursuant to Section 5.5 hereof,
continue to be a participant in the Plan so long as such participant is on
continuous leave of absence. A participant who has been on leave of absence for
more than 90 days and who therefore is not an Employee for the purpose of the
Plan shall not be entitled to participate in any Offering commencing after the
90th day of such leave of absence. Notwithstanding any other provisions of the
Plan, unless a participant on leave of absence returns to regular full time or
part time employment with the Company at the earlier of: (a) the termination of
such leave of absence or (b) three months from the 90th day of such leave of
absence, such participant's participation in the Plan shall terminate on
whichever of such dates first occurs.
ARTICLE IX
INTEREST
9.1 PAYMENT OF INTEREST. No interest will be paid or allowed
on any money paid into the Plan or credited to the account of any participant
Employee including any interest paid on any and all money which is distributed
to an Employee or such Employee's beneficiary pursuant to the provisions of
Sections 8.1, 8.3, 8.4 and 10.1 hereof.
ARTICLE X
STOCK
10.1 MAXIMUM SHARES. The maximum number of shares which shall
be issued under the Plan, subject to adjustment upon changes in capitalization
of the Company as provided in Section 12.4 hereof, shall be 150,000 shares. If
the total number of shares for which options are exercised on any Offering
Termination Date in accordance with Article VI exceeds the maximum number of
shares for the applicable Offering, the Company shall make a pro rata allocation
of the shares available for delivery and distribution in as nearly a uniform
manner as shall be practicable and as the Committee shall determine to be
equitable, and the balance of payroll deductions credited to the account of each
participant under the Plan shall be returned to such participant as promptly as
possible.
10.2 PARTICIPANT'S INTEREST IN OPTION STOCK. The participant
will have no interest in stock covered by such Employee's option until such
option has been exercised.
10.3 REGISTRATION OF STOCK. Stock to be delivered to a
participant under the Plan will be registered in the name of the participant,
or, if the participant so directs by written notice to the designated office of
the Company prior to the Offering Termination Date applicable thereto, in the
names of the participant and one such other person as may be designated by the
participant, in the form and manner permitted by applicable law.
10.4 RESTRICTIONS ON EXERCISE. The Board of Directors may, in
its discretion, require as conditions to the exercise of any option that the
shares of Common Stock reserved for issuance upon
6
<PAGE> 7
the exercise of the option shall have been duly listed, upon official notice of
issuance, upon a stock exchange or the Nasdaq National Market, and that either:
(a) a Registration Statement under the Securities Act
of 1933, as amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the
time of purchase, in form and substance satisfactory to the Company, that it is
such Employee's intention to purchase the shares for investment and not for
resale or distribution.
ARTICLE XI
ADMINISTRATION
11.1 APPOINTMENT OF COMMITTEE. The Board of Directors shall
appoint a committee (the "Committee") to administer the Plan, which shall
consist of no fewer than two (2) members of the Board of Directors. Members of
the Committee who are Employees shall be eligible to purchase stock under the
Plan.
11.2 AUTHORITY OF COMMITTEE. Subject to the express provisions
of the Plan, the Committee shall have plenary authority in its discretion to
interpret and construe any and all provisions of the Plan, to adopt rules and
regulations for administering the Plan, and to make all other determinations
deemed necessary or advisable for administering the Plan. The Committee's
determination on the foregoing matters shall be conclusive. The Committee may
delegate its authority as it deems necessary.
11.3 RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE. The
Board of Directors may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of its
members as its Chairman and shall hold its meetings at such times and places as
it shall deem advisable and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. The Committee may correct any defect or
omission or reconcile any inconsistency in the Plan, in the manner and to the
extent it shall deem desirable. Any decision or determination reduced to writing
and signed by a majority of the members of the Committee shall be as fully
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
ARTICLE XII
MISCELLANEOUS
12.1 DESIGNATION OF BENEFICIARY. A participant may file a
written designation of a beneficiary who is to receive any Stock and/or cash.
Such designation of beneficiary may be changed by the participant at any time by
written notice to the designated office of the Company. Upon the death of a
participant and upon receipt by the Company of proof of identity and existence
at the participant's death of a beneficiary validly designated by the
participant under the Plan, the Company shall deliver such Stock and/or cash to
such beneficiary. In the event of the death of a participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such participant's death, the Company shall deliver such Stock and/or cash to
the executor or administrator of the estate of the
7
<PAGE> 8
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
Stock and/or cash to the spouse or to any one or more dependents of the
participant as the Company may designate. No beneficiary shall, prior to the
death of the participant by whom he has been designated, acquire any interest in
the Stock or cash credited to the participant under the Plan.
12.2 TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive Stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with Article VIII.
12.3 USE OF FUNDS. All payroll deductions received or held by
the Company under this Plan may be used by the Company for any corporate purpose
and the Company shall not be obligated to segregate such payroll deductions.
12.4 ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any options are outstanding, the
outstanding shares of Common Stock of the Company have increased, decreased,
changed into, or been exchanged for a different number or kind of shares or
securities of the Company through reorganization, merger, recapitalization,
reclassification, stock split (whether or not effected in the form of a stock
dividend), reverse stock split or similar transaction, appropriate and
proportionate adjustments may be made by the Committee in the number and/or kind
of shares which are subject to purchase under outstanding options and on the
option exercise price or prices applicable to such outstanding options. In
addition, in any such event, the number and/or kind of shares which may be
offered in the Offerings described in Article IV hereof shall also be
proportionately adjusted.
(b) Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation of the Company with
one or more corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or stock of the
Company to another corporation, the holder of each option then outstanding under
the Plan will thereafter be entitled to receive at the next Offering Termination
Date upon the exercise of such option for each share as to which such option
shall be exercised, as nearly as reasonably may be determined, the cash,
securities and/or property which a holder of one share of the Company's Common
Stock was entitled to receive upon and at the time of such transaction. The
Board of Directors shall take such steps in connection with such transactions as
the Board shall deem necessary to assure that the provisions of this Section
12.4 shall thereafter be applicable, as nearly as reasonably may be determined,
in relation to the said cash, securities and/or property as to which such holder
of such option might thereafter be entitled to receive.
12.5 AMENDMENT AND TERMINATION. The Board of Directors shall
have complete power and authority to terminate or amend the Plan; provided,
however, that the Board of Directors shall not, without the approval of the
stockholders of the Corporation (i) increase the maximum number of shares which
may be issued under any Offering (except pursuant to Section 12.4 hereof); or
(ii) amend the requirements as to the class of Employees eligible to purchase
stock under the Plan. No termination,
8
<PAGE> 9
modification, or amendment of the Plan may, without the consent of an Employee
then having an option under the Plan to purchase stock, adversely affect the
rights of such Employee under such option.
12.6 EFFECTIVE DATE. The original Plan was effective as of
July 1, 1994 and was thereafter approved by the holders of the majority of the
Common Stock present and represented at the annual meeting of the shareholders
held on December 8, 1994.
12.7 NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create any right for the benefit of any Employee or class of
Employees to purchase any shares under the Plan, or create in any Employee or
class of Employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an Employee's employment at any time.
12.8 EFFECT OF PLAN. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitation, such Employee's estate and the executors, administrators or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy or
representative of creditors of such Employee.
12.9 GOVERNING LAW. The law of the State of Arizona will
govern all matters relating to this Plan except to the extent it is superseded
by the laws of the United States.
RURAL/METRO CORPORATION, a
Delaware corporation
By: /s/Warren S. Rustand
--------------------------------
Its: Chief Executive Officer
--------------------------------
Attest:
/s/Louis G. Jekel
- --------------------------------------
Secretary
9
<PAGE> 10
RURAL/METRO CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
EXHIBIT A
LIST OF PARTICIPATING COMPANIES
Effective Date as of September 6, 1996
<PAGE> 1
EXHIBIT 10.45(b)
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is
made and entered into as of this 20th day of December, 1996 by and among
RURAL/METRO CORPORATION, a corporation organized under the laws of Delaware
("Rural/Metro"), as Guarantor, the Subsidiaries of Rural/Metro listed on the
signature pages hereto (the "Borrowers"), the Lenders party to the Credit
Agreement referenced below (the "Lenders"), and FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, a national banking association, as Agent for the Lenders (the
"Agent").
Statement of Purpose
The Lenders 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,
amended and restated, modified or otherwise supplemented from time to time, the
"Credit Agreement").
The parties now desire to amend the Credit Agreement in certain
respects pursuant to 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. The
amendments and waivers granted in this First Amendment are specific and limited
and shall not constitute a modification, acceptance or waiver of any other
provision of the Credit Agreement, or any other document or instrument entered
into in connection therewith, or a future modification, acceptance or waiver of
the provisions set forth therein.
2. Capitalized Terms. All capitalized undefined terms used in this
First Amendment shall have the meanings assigned thereto in the Credit
Agreement.
3. Modification of Credit Agreement. The Credit Agreement shall be
hereby modified as follows:
(a) Section 1.1 shall hereby be modified be deleting the defined term
"Net Income" in its entirety and inserting the following defined terms in the
correct alphabetical order:
<PAGE> 2
"'First Amendment' means the First Amendment to Credit
Agreement dated as of December 20, 1996 by and among the Credit
Parties, the Lenders and the Agent.
'Net Income' means, with respect to Rural/Metro and its Subsidiaries
for any period, the Consolidated net income (or loss) of Rural/Metro
and its Subsidiaries for such period determined in accordance with
GAAP; provided, that there shall be excluded from Consolidated net
income (or loss): (a) the income (or loss) of any Person in which any
Credit Party made an investment pursuant to Section 10.4(j) (other than
RMC Insurance, Ltd.), (b) other than Persons referred to in clause (a),
the income (or loss) of any Person (other than a Subsidiary of any
Credit Party) in which a Credit Party has an ownership interest unless
received by such Credit Party in a cash distribution, (c) the income
(or loss) of any Person accrued prior to the date it became a
Subsidiary of any Credit Party or is merged into or consolidated with
any Credit Party, and (d) to the extent not included in clauses (b) and
(c) above, any after-tax extraordinary gains and non-cash losses."
(b) Section 4.1 (c) shall hereby be modified to delete the chart set
forth therein in its entirety and to substitute the following chart in lieu
thereof:
<TABLE>
<CAPTION>
"Senior Debt Applicable Margin Per Annum
Leverage Ratio Base Rate + LIBOR Rate +
-------------- ----------- ------------
<S> <C> <C>
Less than 0.75 to 1.00 0.00% 0.625%
Greater than or equal to
0.75 to 1.00
and less than 1.75 to 1.00 0.00% 0.875%
Greater than or equal to
1.75 to 1.00
and less than 2.25 to 1.00 0.00% 1.125%
Greater than or equal to
2.25 to 1.00
and less than 2.75 to 1.00 0.00% 1.375%
Greater than or equal to
2.75 to 1.00 0.125% 1.625%"
</TABLE>
(c) Section 4.3(b) shall hereby be deleted in its entirety and the
following Section 4.3(b) shall be substituted in lieu thereof:
"(b) Commitment Fee. The Borrowers shall pay to the Agent, for
the account of the Lenders, a non-refundable
2
<PAGE> 3
commitment fee on the average daily unused portion of the Aggregate
Commitment at a rate per annum equal to 0.25%. The commitment fee shall
be payable in arrears on the last Business Day of each calendar quarter
commencing December 31, 1996, and on the Termination Date. Such
commitment fee shall be distributed by the Agent to the Lenders pro
rata in accordance with the Lenders' respective Commitment
Percentages."
(d) Section 7.1(c) shall hereby be deleted in its entirety and the
following Section 7.1(c) shall be substituted in lieu thereof:
"(c) Annual Financial Projections. As soon as practicable and
in any event within ninety (90) days after the beginning of each Fiscal
Year, a business plan of Rural/Metro and its Subsidiaries for the
ensuing Fiscal Year, such plan to include, the following: a quarterly
operating and capital budget, a projected quarterly income statement,
statement of cash flows and balance sheet and a report containing
management's discussion and analysis of such projections, accompanied
by a certificate from the chief executive officer or chief financial
officer of Rural/Metro on behalf of the Credit Parties to the effect
that such projections are based on reasonable estimates and
assumptions, all of which are reasonable in light of current
conditions, have been prepared on the basis of the assumptions stated
therein, and reflect, as of the time so furnished, the reasonable
estimate of Rural/Metro and its Subsidiaries of the projected results
of operations and other information projected therein."
(e) Section 7.2 shall hereby be amended by deleting clauses (c) and (d)
therefrom in their entirety and substituting the following in lieu thereof:
"(c) setting forth as at the end of such fiscal quarter the
calculations required to establish (i) whether or not Rural/Metro and
its Subsidiaries were in compliance with the financial covenants set
forth in Article IX hereof (ii) whether or not Rural/Metro and its
Subsidiaries were in compliance with the investment and acquisition
covenant set forth in Section 10.4 hereof (calculated pursuant to the
calculation worksheet attached as Schedule 1 to Exhibit D) and (iii)
the calculation of the Applicable Margin pursuant to Section 4.1(c) as
at the end of such period; and
(d) attaching a Consolidated aging of the accounts receivable
of Rural/Metro and its Subsidiaries as of the end of such fiscal
quarter, including a detailed report by payor for Medicare, private pay
and Medicaid (for system integrated accounts receivable only; provided,
that payor detail shall
3
<PAGE> 4
cover not less than 70% of total accounts receivable) and a written
discussion of any increase in Average Accounts Receivable Days since
the report delivered as of the end of the prior fiscal quarter, all
certified by the chief financial officer of Rural/Metro on behalf of
the Credit Parties in the form of Exhibit D hereto."
(f) Section 8.11 shall hereby be deleted in its entirety and the
following Section 8.11 shall be substituted in lieu thereof:
"SECTION 8.11. Additional Borrowers. Upon the creation of any
Subsidiary permitted by this Agreement (other than a Subsidiary
permitted pursuant to Section 10.4(j); provided, that RMC Insurance,
Ltd. shall not be excluded from the requirements of this Section 8.11),
cause to be executed and delivered to the Agent within ten (10)
Business Days after the creation of such Subsidiary, (a) the joinder
agreement attached as Exhibit K hereto executed by such new Subsidiary,
(b) the supplement substantially in the form attached as Annex II to
the Security Agreement executed by such new Subsidiary, (c) the
supplement substantially in the form attached as Exhibit A to the
Pledge Agreement executed by the applicable Credit Party, (d) the
closing documents and certificates required of each of the Credit
Parties pursuant to Section 5.2(b) and (c) hereof with respect to such
new Subsidiary; provided, that upon the written request of the
Borrowers, the Majority Lenders, in their sole discretion, may waive
the requirement that an opinion of counsel be delivered with respect to
such new Subsidiary and (e) such other documents reasonably requested
by the Agent in order that such Subsidiary shall become bound by all of
the terms, covenants and agreements contained in the Loan Documents and
the capital stock and applicable assets of such Subsidiary shall become
Collateral for the Obligations. Upon satisfaction of the conditions set
forth in this Section 8.11, each Subsidiary shall become a Borrower
hereunder and the other Loan Documents, as of such date, as if an
original signatory hereto and to the other Loan Documents."
(g) Section 9.7 shall hereby be deleted in its entirety and the
following Section 9.7 shall be substituted in lieu thereof:
"SECTION 9.7. Limitation on Capital Expenditures. 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 any fiscal quarter ending
after June 30, 1997 and on or prior to June 30, 1998 (the "Applicable
Quarter"), an amount equal to 1.50% of the Consolidated Net Revenues of
Rural/Metro and its Subsidiaries for the period of four (4) consecutive
fiscal quarters ending with the preceding fiscal quarter; provided,
4
<PAGE> 5
that in the event that the Total Debt Leverage Ratio calculated
pursuant to Section 9.1 shall have been less than 2.25 to 1.00 at the
end of the preceding fiscal quarter, Capital Expenditures for the
Applicable Quarter shall not exceed an amount equal to 2.25% of the
Consolidated Net Revenues of Rural/Metro and its Subsidiaries for the
period of four (4) consecutive fiscal quarters ending with the
preceding fiscal quarter and (c) for any fiscal quarter thereafter, an
amount equal to 1.00% of the Consolidated Net Revenues of Rural/Metro
and its Subsidiaries for the period of four (4) consecutive fiscal
quarters ending with the preceding fiscal quarter. Notwithstanding and
in addition to the foregoing, after the date of the First Amendment,
Rural/Metro and its Subsidiaries shall be permitted to incur Capital
Expenditures in connection with upgrading the building located at 4141
North Granite Reef, Scottsdale, Arizona in an aggregate amount not to
exceed $5,000,000."
(h) Section 9.8 shall hereby be deleted in its entirety and the
following Section 9.8 shall be substituted in lieu thereof:
"SECTION 9.8. Limitation on Operating Leases. Incur Net
Rental and Operating Lease Expense for any period of four (4)
consecutive fiscal quarters in an amount greater than 3.00% of
Consolidated Net Revenues for such four (4) fiscal quarter
period."
(i) Sections 10.1(e) and 10.1(i) shall hereby be deleted in their
entirety and the following Sections 10.1(e) and 10.1(i) shall be substituted in
lieu thereof:
"(e) Parent Seller Financing, Subordinated Seller Financing and
Earn-Out Obligations in an aggregate principal amount at any time
outstanding not to exceed $20,000,000 (less any and all current
outstanding principal amounts of all items identified on Schedule 10.1
as "seller financing");"
"(i) Capital Leases and purchase money Debt described in
Section 10.3(c) and Debt (with terms and conditions reasonably
satisfactory to the Majority Lenders) of any Person assumed by a Credit
Party in connection with a Permitted Acquisition, in an aggregate
principal amount at any time outstanding not to exceed $15,000,000
(less any and all current outstanding principal amounts of all items
identified on Schedule 10.1 as Capital Leases and purchase money Debt);
and"
(j) Section 10.3 shall be modified by deleting the word "and" after
clause (j) thereof; deleting the period at the end of clause (k) thereof; and
adding the following at the end thereof:
5
<PAGE> 6
"; and (l) Liens in favor of Governmental Authorities in the
form of contingent lease agreements executed or assumed by a Credit
Party after the date of the First Amendment (the "Contingent Liens"),
in form and substance satisfactory to the Agent in its reasonable
discretion, which agreements permit such Governmental Authorities to
lease or purchase existing inventory and equipment used in connection
with emergency service contracts between Credit Parties and such
Governmental Authorities upon the early termination of such contracts
for a period not to exceed twelve (12) months after such termination;
provided, that the aggregate fair saleable value of all assets subject
to such Contingent Liens created by agreements executed or assumed by a
Credit Party after the date of the First Amendment shall not exceed
$4,000,000 at any time."
(k) Section 10.4 shall be modified by deleting clauses (f) and (g)
therefrom in their entirety and substituting the following clauses (f) and (g)
in lieu thereof:
"(f) investments by any Credit Party in the form of
acquisitions of all or substantially all of the business or a line of
business (whether by the acquisition of capital stock, assets, any
combination thereof or any "pooling of interests") of any other Person
if each such acquisition meets all of the following requirements: (i)
the Person to be acquired shall engage in an ambulance service business
(which business may include a fire protection component), (ii) a Credit
Party shall be the surviving Person and no Default or Event of Default
shall have occurred and be continuing both before and after giving
effect to the acquisition, (iii) the Credit Parties shall have
certified to the Agent that they are in pro forma compliance with each
covenant contained in Article IX and Article X hereof prior to
consummating the acquisition and, if any Lender requests in its sole
discretion, the Credit Parties shall have provided evidence to the
Agent of such pro forma compliance, (iv) the Fair Market Value of all
Consideration (as defined below) paid in connection with such
acquisition (or series of related acquisitions in the same Fiscal Year)
shall not exceed $10,000,000; provided, that in the event that the
Total Debt Leverage Ratio as of the most recent fiscal quarter end
prior to the acquisition date, calculated on a pro forma basis to
include any and all Debt incurred by the Credit Parties in connection
with such acquisition and any and all Debt of such acquired Person
assumed by the Credit Parties, shall be less than 2.25 to 1.00, the
Fair Market Value of all Consideration paid in connection with such
acquisition (or series of related acquisitions in the same Fiscal Year)
shall not exceed $12,500,000, and (v) the Fair Market Value of all
Consideration paid in connection with all such acquisitions
6
<PAGE> 7
shall not exceed in the aggregate (A) for the Fiscal Year ending June
30, 1997, $50,000,000 (excluding the Fair Market Value of all
Consideration paid in connection with the acquisition of Commonwealth
Ambulance Service, Inc. and its subsidiaries), (B) for the Fiscal Year
ending June 30, 1998, 17.5% of Consolidated Net Revenues of Rural/Metro
and its Subsidiaries for the previous Fiscal Year and (C) thereafter,
$15,000,000 per annum;
(g) acquisitions otherwise approved in writing by the Majority
Lenders;"
(l) Section 10.4 shall be modified by deleting the word "and" after
clause (h) thereof; deleting the period at the end of clause (i) thereof; and
adding the following at the end thereof:
and; (j) investments (including working capital investments)
by any Credit Party in Persons organized or operating outside of the
United States and in Persons that are not Wholly-Owned Subsidiaries of
such Credit Party if each such investment meets all of the following
requirements: (i) no Default or Event of Default shall have occurred
and be continuing both before and after giving effect to such
investment, (ii) the Fair Market Value of all Consideration paid in
connection with such investments shall not exceed the amounts set forth
on Exhibit M attached hereto and (iii) such Credit Party shall execute
such documents necessary to pledge 100% of its ownership interest in
such Person within ten (10) Business Days after such investment is
made. Notwithstanding anything contained herein to the contrary, it is
understood by the parties hereto that this clause (j), together with
clauses (a) and (i) above, are the only clauses which permit
investments by any Credit Party in Persons organized or operating
outside of the United States and in Persons that are not Wholly-Owned
Subsidiaries of such Credit Party; provided, that Rural/Metro or one of
its Subsidiaries shall be permitted to form RMC Insurance, Ltd., a
corporation formed under the laws of Barbados, which will be
capitalized with a letter of credit with a face amount of $125,000,
cash in the amount of $25,000 and the building located at 4141 North
Granite Reef, Scottsdale, Arizona.
For the purposes of calculating compliance with clauses (f)
and (j) of this Section 10.4, the "Fair Market Value of all
Consideration" paid in connection with any acquisition or investment
shall include (1) any cash consideration paid in connection with such
acquisition or investment, (2) the face amount of any Seller Financing
issued in connection with such acquisition or investment (excluding
Earn-Out Obligations on terms and conditions satisfactory to the Agent
to be paid to a seller in connection with additional business or
contracts
7
<PAGE> 8
not in existence at the time of such acquisition or investment), (3)
the face amount of any Debt assumed in connection with such acquisition
or investment, (4) the amount of any commissions paid in connection
with such acquisition or investment, (5) 100% of the fair market value
(calculated in the same manner as in the applicable acquisition or
investment contract, such calculation to be reasonably satisfactory to
the Agent) of any unrestricted stock issued or transferred in a pooling
of interest or otherwise and (6) 65% of the fair market value
(calculated in the same manner as in the applicable acquisition or
investment contract, such calculation to be reasonably satisfactory to
the Agent) of any restricted stock (stock which cannot by agreement be
sold or transferred for a period of at least 2 years or is otherwise
deemed to be restricted by the Agent, in its reasonable discretion)
issued or transferred in a pooling of interest or otherwise and minus
(7) any cash balances assumed in such acquisition or investment.
(m) Section 10.6 shall be modified by deleting the word "and" after
clause (e) thereof; deleting the period at the end of clause (f) thereof; and
adding the following at the end thereof:
";(g) any conveyance, sale, lease, assignment, transfer or
other disposition of assets to Governmental Authorities in connection
with contingent lease agreements executed or assumed by a Credit Party
after the date of the First Amendment, in form and substance
satisfactory to the Agent in its reasonable discretion, which
agreements permit such Governmental Authorities to lease or purchase
existing inventory and equipment used in connection with emergency
service contracts between Credit Parties and such Governmental
Authorities upon the early termination of such contracts for a period
not to exceed twelve (12) months after such termination; provided, that
the aggregate fair saleable value of all assets so conveyed, sold,
leased, assigned or transferred by a Credit Party after the date of the
First Amendment shall not exceed $4,000,000; and
(h) Capital Leases and operating leases for fair market value
to any Person in which a Credit Party made an investment pursuant to
Section 10.4(j) above; provided, that the aggregate fair saleable value
of all assets so leased shall not exceed $3,000,000.
(n) Section 10.7 shall hereby be deleted in its entirety and the
following Section 10.7 shall be substituted in lieu thereof:
"SECTION 10.7. Limitations on Dividends and Distributions.
Declare or pay any dividends upon any of its capital stock or purchase,
redeem, retire or otherwise
8
<PAGE> 9
acquire, directly or indirectly, any shares of its capital stock, or
make any distribution of cash, property or assets among the holders of
shares of its capital stock; provided that (a) any Credit Party may pay
dividends solely in shares of its own capital stock, (b) any Subsidiary
may pay cash dividends to a Credit Party, (c) Rural/Metro may make a
dividend distribution to its shareholders of "Rights" to purchase
"Series A Junior Participating Preferred Stock" of Rural/Metro,
pursuant to the terms and conditions of a Rights Agreement dated as of
August 23, 1995 between Rural/Metro and American Securities Transfer,
Inc., as Rights Agent, (d) Rural/Metro may pay cash dividends in any
fiscal quarter in an aggregate amount not to exceed 25% of Net Income
for the most recently ended fiscal quarter, (e) Rural/Metro may redeem
shares of its capital stock; provided, that (i) the fair market value
of any such shares of capital stock redeemed in any fiscal quarter,
together with any and all cash dividends made pursuant to clause (d)
above, shall not exceed 25% of Net Income for the most recently ended
fiscal quarter and (ii) the fair market value of all such shares of
capital stock redeemed shall not exceed $5,000,000 in the aggregate and
(f) Rural/Metro may make contributions of (i) any amount of capital
stock and (ii) cash in an aggregate amount not to exceed $1,000,000, in
any of the Fiscal Years ending on June 30, 1996, June 30, 1997 and June
30, 1998 to its Employee Stock Ownership Plan; provided that, in
connection with any distribution or payment pursuant to clauses (d) and
(e) above, no Default or Event of Default shall have occurred before
and after giving effect to any such dividend or payment."
(o) Section 10.11 shall hereby be deleted in its entirety and the
following Section 10.11 shall be substituted in lieu thereof
"SECTION 10.11. Restrictive Agreements. Enter into any
agreement after the Closing Date which restricts, limits or otherwise
encumbers its ability to incur Liens on or with respect to any of its
assets or properties; provided, that any contingent lease agreement
permitted pursuant to Sections 10.3(l) and 10.6(g) may restrict or
limit the ability of the Credit Party party to such contingent lease
agreement to incur Liens on or otherwise encumber the assets subject to
such contingent lease agreement."
(p) Exhibit D to the Credit Agreement shall be deleted in its entirety
and the Exhibit D attached hereto shall be substituted in lieu thereof.
(q) Exhibit M attached hereto shall be added as Exhibit M to the Credit
Agreement.
9
<PAGE> 10
4. Waivers of the Credit Agreement and Loan Documents. The Lenders
hereby waive any Default or Event of Default which may have occurred as a result
of the Borrower's failure to comply with the maximum Capital Expenditures
limitations set forth in Section 9.7 for the fiscal quarter ending September 30,
1996; provided, that nothing contained herein shall be construed to be a waiver
of the Capital Expenditures limitations set forth in Section 9.7 (as amended
herein) for the Fiscal Year ending June 30, 1997 (which shall include any and
all Capital Expenditures incurred during the fiscal quarter ending September 30,
1996).
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.
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 First Amendment, including without limitation, the reasonable fees and
disbursements of counsel for the Agent.
7. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
8. Counterparts. This First 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.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the date and year first above written.
BORROWERS:
THE AID AMBULANCE COMPANY, INC.
By:________________________________
Name:___________________________
Title:__________________________
AID AMBULANCE AT VIGO COUNTY, INC.
By:________________________________
Name:___________________________
Title:__________________________
THE AID COMPANY, INC.
By:________________________________
Name:___________________________
Title:__________________________
AMERICAN LIMOUSINE SERVICE, INC.
By:________________________________
Name:___________________________
Title:__________________________
BEACON TRANSPORTATION, INC.
By:________________________________
Name:___________________________
Title:__________________________
CITY WIDE AMBULANCE SERVICE, INC.
By:________________________________
Name:___________________________
Title:__________________________
11
<PAGE> 12
CORNING AMBULANCE SERVICE INC.
By:________________________________
Name:___________________________
Title:__________________________
E.M.S. VENTURES, INC.
By:________________________________
Name:___________________________
Title:__________________________
EMS VENTURES OF SOUTH CAROLINA, INC.
By:________________________________
Name:___________________________
Title:__________________________
EASTERN AMBULANCE SERVICE, INC.
By:________________________________
Name:___________________________
Title:__________________________
EASTERN PARAMEDICS, INC.
By:________________________________
Name:___________________________
Title:__________________________
THE GEORGE HEISEL CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
12
<PAGE> 13
GOLD CROSS AMBULANCE SERVICES, INC.
By:________________________________
Name:___________________________
Title:__________________________
GOLD CROSS AMBULANCE SERVICE OF PA.,
INC.
By:________________________________
Name:___________________________
Title:__________________________
LASALLE AMBULANCE INC.
By:________________________________
Name:___________________________
Title:__________________________
MEDICAL TRANSPORTATION SERVICES, INC.
By:________________________________
Name:___________________________
Title:__________________________
MEDSTAR EMERGENCY MEDICAL SERVICES,
INC.
By:________________________________
Name:___________________________
Title:__________________________
METRO CARE CORP.
By:________________________________
Name:___________________________
Title:__________________________
METROPOLITAN FIRE DEPT., INC.
By:________________________________
Name:___________________________
Title:__________________________
13
<PAGE> 14
MYERS AMBULANCE SERVICE, INC.
By:________________________________
Name:___________________________
Title:__________________________
NATIONAL AMBULANCE & OXYGEN SERVICE,
INC.
By:________________________________
Name:___________________________
Title:__________________________
PHYSICIANS AMBULANCE SERVICE, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO INTERNATIONAL, INC.
By:________________________________
Name:___________________________
Title:__________________________
R/M MANAGEMENT CO., INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO TEXAS HOLDINGS, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO CORPORATION, AN ARIZONA
CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
14
<PAGE> 15
RURAL/METRO CORPORATION OF FLORIDA
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO CORPORATION OF TENNESSEE
By:________________________________
Name:___________________________
Title:__________________________
R/M OF TENNESSEE G.P., INC.
By:________________________________
Name:___________________________
Title:__________________________
R/M OF TENNESSEE L.P., INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF TENNESSEE L.P.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO FIRE DEPT., INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF ALABAMA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF ARDMORE, INC.
By:________________________________
Name:___________________________
15
<PAGE> 16
Title:__________________________
RURAL/METRO OF ARLINGTON, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF ATLANTA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF CANADA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF CENTRAL ALABAMA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF CENTRAL OHIO, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF GEORGIA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF INDIANA, INC.
By:________________________________
Name:___________________________
Title:__________________________
16
<PAGE> 17
RURAL/METRO OF INDIANA, L.P.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF INDIANA II, L.P.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF NEBRASKA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF NEW YORK, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF NORTH FLORIDA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF OHIO, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF OREGON, INC.
By:________________________________
Name:___________________________
Title:__________________________
17
<PAGE> 18
RURAL/METRO OF SOUTH CAROLINA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF SOUTH DAKOTA, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF TEXAS, INC.
By:________________________________
Name:___________________________
Title:__________________________
RURAL/METRO OF TEXAS, L.P.
By:________________________________
Name:___________________________
Title:__________________________
R/M OF TEXAS, G.P., INC.
By:________________________________
Name:___________________________
Title:__________________________
SIOUX FALLS AMBULANCE, INC.
By:________________________________
Name:___________________________
Title:__________________________
TOWNS AMBULANCE SERVICE, INC.
By:________________________________
Name:___________________________
Title:__________________________
18
<PAGE> 19
VALLEY FIRE SERVICE, INC.
By:________________________________
Name:___________________________
Title:__________________________
W & W LEASING COMPANY, INC.
By:________________________________
Name:___________________________
Title:__________________________
THE WESTERN NEW YORK EMERGENCY
MEDICAL SERVICES TRAINING
INSTITUTE INC.
By:________________________________
Name:___________________________
Title:__________________________
GUARANTOR:
RURAL/METRO CORPORATION, A DELAWARE
CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
19
<PAGE> 20
AGENT:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Agent
By:________________________________
Name:___________________________
Title:__________________________
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:__________________________
NBD BANK
By:________________________________
Name:___________________________
Title:__________________________
ABN AMRO BANK N.V.
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
FIRST INTERSTATE BANK OF ARIZONA,
N.A.
By:________________________________
20
<PAGE> 21
Name:___________________________
Title:__________________________
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By:________________________________
Name:___________________________
Title:__________________________
BANK OF AMERICA ARIZONA
By:________________________________
Name:___________________________
Title:__________________________
BANQUE PARIBAS
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
21
<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> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 403
<SECURITIES> 0
<RECEIVABLES> 105,666
<ALLOWANCES> 22,278
<INVENTORY> 5,983
<CURRENT-ASSETS> 95,570
<PP&E> 91,875
<DEPRECIATION> 38,316
<TOTAL-ASSETS> 263,891
<CURRENT-LIABILITIES> 28,153
<BONDS> 88,766
0
0
<COMMON> 117
<OTHER-SE> 133,617
<TOTAL-LIABILITY-AND-EQUITY> 263,891
<SALES> 151,524
<TOTAL-REVENUES> 151,524
<CGS> 0
<TOTAL-COSTS> 117,299
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20,159
<INTEREST-EXPENSE> 2,082
<INCOME-PRETAX> 11,894
<INCOME-TAX> 4,914
<INCOME-CONTINUING> 7,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,070
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
